EXHIBIT 20(b)
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ADDENDUM DATED MARCH 6, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
DATED NOVEMBER 28, 1997
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The Tirex Corporation
(the "Company")
85 Units
PLACEMENT AGENT
X.X. XXXXXX & CO., INC.
0000 Xx. Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
(000) 000-0000
March 6, 1998
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ADDITIONAL FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
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In addition to the filings of the Company with the Securities and Exchange
Commission (the "Commission"), attached to the Confidential Private Offering
Memorandum, dated November 5, 1997, of the Tirex Corporation (the "Company"), as
Exhibits, the following Commission filings are available upon request without
charge. Requests should be directed to Xxxx Xxxxxxxx, Secretary, The Tirex
Corporation, 000 Xx. Xxxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxx X0X 0X0. Telephone:
(000) 000-0000; Facsimile: (000) 000-0000.
Quarterly Report on Form 10-QSB for the fiscal quarter ended December 31, 1997.
Current Report on Form 8-K of Registrant, dated February 3, 1998.
2
ADDENDUM, DATED MARCH 6, 1998
TO
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
of November 28, 1997
Name of Offeree________________________ Copy No. _____
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85 Units
$25,000 per Unit
THE TIREX CORPORATION
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THE FOLLOWING IS AN ADDENDUM TO THE CONFIDENTIAL PRIVATE PLACEMENT OFFERING
MEMORANDUM, DATED NOVEMBER 28, 1997, OF RPM INCORPORATED AND THE TIREX
CORPORATION (THE "OFFERING MEMORANDUM") EXCEPT WHERE THIS ADDENDUM MODIFIES THE
OFFERING MEMORANDUM, IT IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
DESCRIPTIONS OF THE COMPANY AND ITS BUSINESS APPEARING IN THE OFFERING
MEMORANDUM AND THE EXHIBITS THERETO, FOR A COPY OF WHICH HAS BEEN PROVIDED TO
YOU.
1. Completion of Merger of RPM Incorporated into Tirex Acquisition Corp.
Continuation of Offering by the Tirex Corporation
On January 20, 1998, RPM Incorporated ("RPM") was merged with and into
Tirex Acquisition Corp. ("TAC"), a wholly-owned subsidiary of the Tirex
Corporation ("Tirex"). The merger was effected after an initial closing of a
private placement of the securities of RPM (the "Private Placement") made
pursuant to the Offering Memorandum which this Addendum modifies and to which
this Addendum is attached. The said merger (the "RPM Merger") was effected upon
completion of sales of 30.5 Units yielding gross proceeds in the amount of
$314,150. In effectuation of the RPM Merger: (i) Tirex exchanged one share of
its common stock for every issued and outstanding share of RPM common stock and
assumed RPM's liabilities and obligations under its 10% subordinated,
convertible debentures in the aggregate principal amount of $305,000; (ii) All
of the proceeds from the Private Placement remained in RPM when it was merged
into TAC, which was the surviving entity. Since the RPM Merger, Tirex has
continued to offer and sell, directly, the balance of the securities which had
originally been offered by RPM in the Private Placement, with the exchange of
RPM common stock for Tirex common stock and Tirex's assumption of the RPM
debentures being deemed to have occurred concurrently with the RPM Merger. All
of the Units sold in the Private Placement, as continued by Tirex subsequent to
the merger, consist of 10,000 shares of Tirex's common stock and one Tirex 10%
convertible debenture in the principal amount of $10,000. On January 23, 1998
Tirex closed on sales of an additional 8.5 Units, which yielded net proceeds of
$78,795, and on February 17, 1998, a third closing on sales of an additional 5.5
Units, yielding net proceeds of $50,985, was held. Completion of the Private
Placement, if it occurs, would yield additional gross proceeds in the amount of
$417,150.
The remainder of 40.5 Units will continue to be offered by Tirex until
March 31, 1998, unless Tirex and the Placement Agent agree to extend the
offering period.
3
2. Other Material Changes
On January 28, 1998 Tirex authorized the issuance of 600,000 shares of
Common Stock to Xxxxx X. Xxxxxxx pursuant to the terms of his consulting
agreement (the "X. Xxxxxxx Consulting Agreement"), executed at such date and
deemed by the parties to be effective as of January 1, 1997. Total compensation
under the X. Xxxxxxx Consulting Agreement consists of the said 1,000,000 shares
of Common Stock, 600,000 of which have been issued, as described above, and the
balance of 400,000 of which will be issued at such time as the parties agree.
On January 28, 1998, Tirex authorized the issuance of an aggregate of
4,000,000 shares to two of its executive officers and to its corporate attorney,
at a price of $.001 per share, as follows: Xxxxxxx X. Xxxxx - 2,000,000, Xxxxx
X. Xxxx - 1,000,000, and Xxxxxxx Xxxx Xxxxxx - 1,000,000. Such sales were made
pursuant to the exercise of options granted to such persons and subsequently
amended, as follows: On September 3, 1997, Registrant granted to the foregoing
individuals options to purchase the respective number of shares set forth above
at an exercise price equal to the full market price of the Common Stock at such
date, as follows: Xxxxxxx X. Xxxxx - 2,000,000, Xxxxx X. Xxxx - 1,000,000, and
Xxxxxxx Xxxx Xxxxxx - 1,000,000 (the "1997 Options"). Such bonuses were granted
for the fiscal year ended June 30, 1997 pursuant to the terms of their
respective employment agreements with Registrant. On January 13, 1998,
Registrant granted to each of these persons a bonus (the "1998 Bonus"), under
the terms of their respective employment agreements, for the fiscal year which
will end on June 30, 1998 (the "1998 Bonuses"). The 1998 Bonuses consisted of
amendments to the terms of the 1997 Options, reducing the option exercise price
$.001 per share.
Effective February 3, 1998, the certificate of incorporation of Tirex was
amended so as to change the amount of capital stock, which Tirex is authorized
to issue, from 70,000,000 shares of Common Stock, par value $.001 per share to
69,900,000 shares of Common Stock, par value $.001 per share and 100,000 shares
of Open Stock, par value $.001 per share, and to invest in the Board of
Directors the power to designate the Open Stock in one or more classes and/or
series, with such rights and preferences as the Board of Directors shall
determine.
Management has agreed with the Placement Agent to obtain the Agreement of
all Officers, Directors, and 5% or more shareholders of Tirex to refrain from
selling any of the shares of Common Stock held by them during the period which
shall commence as at the Closing of this Offering and which shall end 60 days
after the effective date of a Registration Statement which includes the shares
of Common Stock issuable upon exercise of the Warrants and conversion of the
Debentures, which are included in the Units.
I have read this Addendum in conjunction with the Offering Memorandum, a
copy of which was furnished to me together with this Addendum.
Dated: ____________________ __________________________
Signature of Investor
4
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CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
--------------------------------------------------------------------------------
RPM INCORPORATED
("RPM")
To Be Merged With and Into A Subsidiary of
THE TIREX CORPORATION
(The "Company")
85 Units
PLACEMENT AGENT
X.X. XXXXXX & CO., INC.
0000 Xx. Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
(000) 000-0000
November 28, 1997
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TABLE OF CONTENTS
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Page
----
Exhibits .................................................................. 4
List of Filings with the Securities and Exchange Commission ............... 5
Cover Page ................................................................ 6
Investor Notices .......................................................... 7
Jurisdictional Notices and Representations ................................ 11
Available Information ..................................................... 12
Concurrent Offering and Proposed Merger ................................... 13
Confidentiality ........................................................... 14
Independent Evaluation .................................................... 14
Use of Proceeds ........................................................... 15
Terms of the Offering ..................................................... 18
General .......................................................... 18
Restrictions on Transferability .................................. 18
Investor Suitability Standards ................................... 18
Plan of Distribution ............................................. 19
Further Information .............................................. 19
Subscription Payments ............................................ 19
The Offering .............................................................. 20
Securities Offered ............................................... 20
The Merger ....................................................... 21
Minimum Purchase ................................................. 22
Capital Stock Outstanding
Prior to Offering ....................................................... 22
Risk Factors .............................................................. 22
Use of Proceeds ........................................................... 22
Risk Factors .............................................................. 22
Development Stage Company
No Assurance as to Future Profitable Operations ................ 23
No Guarantee of Product Acceptance in Market ..................... 23
Need for Substantial Additional Capital .......................... 23
Possibility of Material Changes in Offering
Terms; NASD Review ............................................. 24
Risk of Company's Inability to
Repay Debentures ............................................... 24
No Collateral Security ........................................... 24
Restricted Securities ............................................ 24
Proposed Public Offering; Reverse Split .......................... 25
Arbitrary Offering Price ......................................... 25
Broad Discretion in
Use of Proceeds ................................................ 25
Additional Interest Income
Original Issue Discount ........................................ 25
Dependance on Key Personnel ...................................... 26
2
Dependance on Major Customer .................................... 26
Control by Present Officers ..................................... 26
Experience of Management ........................................ 26
Uncertainty of Product and
Technology Development: Technological Factors ................ 27
Protection of Tirex Proprietary Technology
and Potential Infringement ................................... 27
Limited Public Market ........................................... 27
Applicability of "Xxxxx Stock Rules to
Broker-Dealer Sales of Company Common Stock ................... 28
Regulatory and Environmental Considerations ..................... 29
Production and Supply ........................................... 29
Technological Changes ........................................... 30
Competition ..................................................... 30
No Dividends and None Anticipated ............................... 31
Shares Available for Resale ..................................... 31
Authorization of Preferred Stock ................................ 31
Affiliated Persons to be
Paid Out of Proceeds ...................................................... 31
Price Range of Securities
of The Tirex Corporation ................................................ 32
Shareholders .............................................................. 33
Dividends ................................................................. 33
Business of RPM ........................................................... 33
Business of The Tirex Corporation ......................................... 34
History ................................................................... 34
The Scrap Tire Disposal Business ................................. 35
Products and Services ............................................ 36
Proposed Product - The TCS-1 System ............................ 36
Proposed Services
TCS-1 System Service and Support ............................. 47
Proposed Tire Shredding Operations ............................... 49
Sales and Marketing .............................................. 50
Sales .......................................................... 50
Backlog ........................................................ 53
Dependence on Major Customer ................................... 54
Marketing and Distribution ..................................... 54
Canadian Operations .............................................. 58
Tirex Canada ................................................... 58
The Tirex Canada License ....................................... 58
Canadian Financial Assistance
Grants and Commitments ....................................... 58
Research and Development ......................................... 60
Employees ........................................................ 60
Patent Protection ................................................ 60
Competition ...................................................... 61
Government Regulation ............................................ 62
Properties ....................................................... 63
Legal Proceedings ......................................................... 63
RPM Incorporated ................................................. 63
The Tirex Corporation ............................................ 63
3
Description of Securities.................................................. 64
Management of RPM.......................................................... 66
Principal Shareholders of RPM.............................................. 68
Management of The Tirex Corporation........................................ 69
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EXHIBITS
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Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
September 30, 1997...........................................................A
Annual Report of the Company on Form 10-KSB for the fiscal year ended
June 30, 1997................................................................B
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
March 31, 1997...............................................................C
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
December 31, 1996............................................................D
Quarterly Report of the Company on Form 10-QSB for the fiscal quarter ended
September 30, 1996...........................................................E
Current Report of the Company on Form 8-K, dated July 11, 1997.................F
Current Report of the Company on Form 8-K, dated June 24, 1997.................G
Current Report of the Company on Form 8-K, dated March 7, 1997.................H
Current Report of the Company on Form 8-K, dated February 5, 1997..............I
Current Report of the Company on Form 8-K, dated January 10, 1997..............J
Current Report of the Company on Form 8-K, dated December 22, 1996.............K
Merger Agreement...............................................................L
Form of 10% Convertible Subordinated Debenture.................................M
Form of Securities Purchase Agreement..........................................N
Form of Lock-Up Agreement......................................................O
Escrow Agreement...............................................................P
Consulting Agreement, Dated June 9, 1997,
Among, RPM, Tirex, et al....................................................Q
4
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LIST OF FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
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RPM has never filed a Registration Statement or any Reports with the
Securities and Exchange Commission (the "Commission"). In addition to the
filings made by Tirex with the Commission and attached to this Offering
Memorandum as Exhibits, the following Commission filings are available upon
request without charge. Requests should be directed to Xxxx Xxxxxxxx, Secretary,
The Tirex Corporation, 000 Xx. Xxxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxx X0X 0X0.
Telephone: (000) 000-0000; Facsimile: (000) 000-0000.
Annual Reports on Forms 10-KSB for the fiscal years ended June 30, 1995 and
1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1995,
December 31, 1995, and March 31, 1996.
Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 1994,
December 31, 1994, and March 31, 1995.
Registration Statement on Form S-8, as amended, filed with the Commission on
August 27, 1997, Registration No. 333 - 34369.
Registration Statement on Form S-8, filed with the Commission on March 31, 1997,
Registration No. 333 - 23759.
Registration Statement on Form S-8, filed with the Commission on July 22, 1996,
Registration No. 333 - 5310.
Registration Statement on Form S-8, filed with the Commission on June 20, 1996,
Registration No. 333 - 5090.
Current Report on Form 8-K of Registrant, dated December 31, 1995.
Annual Reports on Forms 10-K of Registrant for the years ended June 30, 1989,
1990, 1991, 1992, 1993, and 1994.
Transition Report on Form 10-K of Registrant for the transition period January
1, 1989 through June 30, 1989.
Annual Report on Form 10-K of Registrant for the year ended December 31, 1988.
Registration Statement on Form S-18, as amended, File No. 33-17598-NY.
5
CONFIDENTIAL PRIVATE OFFERING MEMORANDUM
November 28, 1997
Name of Offeree________________________ Copy No. _____
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85 Units
$10,300 per Unit
RPM INCORPORATED
A Privately Held Corporation Which, Upon Completion of this Offering,
Will Merge With and Into a Newly Formed Subsidiary of
THE TIREX CORPORATION
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RPM Incorporated, a Delaware corporation ("RPM"), is offering to sell through
X.X. Xxxxxx & Co., Inc., as placement agent (the "Placement Agent"), up to 85
units (the "Units") of its securities (the "Offering" or the "Private
Placement") ) at a price of $10,300 per Unit. The Units are being offered only
to "accredited investors", as that term is defined in Rule 501(a) of the
Securities Act of 1933, as amended (the "Securities Act"), with the requisite
investment sophistication and ability to bear the economic risk of an investment
in the Units, including the possibility of the loss of the entire investment.
Each Unit consists of one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 (the "Debenture") and 10,000 shares (the "RPM
Shares") of the common stock of RPM, $.0001 par value ("RPM Common Stock"). RPM
has entered into an Agreement and Plan of Merger (the "Merger Agreement") with
The Tirex Corporation ("Tirex" or the "Company") and a newly formed subsidiary
of Tirex that provides, subject to certain legal conditions, that upon an
initial closing of this Offering (the "Initial Closing") to take place after the
sale of not less than 30 Units: (i) RPM will merge with and into the Tirex
subsidiary; (ii) each of the Debentures sold by RPM prior thereto will be
assumed by Tirex and become convertible into shares of Tirex common stock; and
(iii) all of the RPM Shares sold by RPM prior thereto will be exchanged for the
same number of shares of the common stock of Tirex ("Tirex Common Stock"). The
consummation of the transactions contemplated by the Merger Agreement are a
condition to the Initial Closing of this Offering. Accordingly, an investment in
the Units offered hereby will necessarily be an investment in Tirex and not in
RPM. All sales of the Units offered hereby, made after the Initial Closing and
the Merger, will be made directly by Tirex and Tirex's assumption of the
Debentures and the exchange of RPM Shares for shares of Tirex Common Stock will
be deemed to have occurred concurrently with the Merger. For further information
concerning the securities being offered hereunder, see page 20, "The Offering".
The Units will be offered and sold on behalf of RPM by the Placement Agent, a
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"). The Placement Agent may also utilize the services of other
broker-dealers ("Selected Dealers") who are members of the NASD in connection
with the offer and sale of the Units. The first 30 Units will be offered and
sold on a "best efforts, all-or-none" basis. The remaining 55 Units will be
offered and sold on a "best efforts" basis.
================================================================================
Proceeds to
Price to Placement Agent RPM or
Investors Commissions(1) Tirex(2)
--------- -------------- --------
Per Unit (Investors) ............. $ 10,300 $ 1,030 $ 9,270
Minimum .......................... 309,000 30,900 278,100
Maximum .......................... 875,500 87,550 787,950
================================================================================
(1) Before deduction of expenses of the offering payable by RPM or Tirex, as the
case may be,, estimated to be approximately $266,000 (for the Minimum) and
$761,000 (for the Maximum). See "PLAN OF DISTRIBUTION."
(2) The Offering is for the sale of a minimum of 30 Units (the "Minimum") and a
maximum of 85 Units (the "Maximum"). Prior to the sale of the Minimum, all
proceeds from the sale of the Units being offered hereby will, upon payment by
the subscribers thereof, be placed in an escrow account (the "Escrow Account")
with Xxxxxx, Xxxxxxx & Xxxxx, 000 Xxxxxxx Xxxxx, Xxxxxxxxx, XX 00000, as escrow
agent (the "Escrow Agent"). All proceeds will be promptly refunded in full,
without interest or deduction, unless at least 30 Units have been sold on or
before December 31, 1997 (the "Offering Period"); provided however, that RPM or
Tirex, as the case
6
may be, and the Placement Agent, in their sole discretion, may agree to extend
such Offering Period for one or more 30-day periods. If at least the Minimum of
30 Units have been subscribed for on or before the termination of the Offering
Period, the proceeds being held in the Escrow Account will be released to Tirex,
and proceeds of subscribers for additional Units received following receipt of
the Minimum, but prior to the expiration of the Offering Period, will be paid
from the Escrow Account to Tirex in one or more subsequent closings.
The Offering of the Units is being made in reliance upon the availability
of an exemption from the registration provisions of the Securities Act by virtue
of the intended compliance of RPM or Tirex, as the case may be, with the
provisions of ss. 4(2) and Rule 506 of Regulation D thereof. Accordingly,
solicitation of offers or sales shall not be made to any person unless RPM or
Tirex, as the case may be, has reasonable grounds to believe and does believe,
immediately prior to making such sale, that such person, either alone or
together with one or more of his purchaser representatives (if any), has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of an investment in the Units described in this
Memorandum. See "Terms of the Offering." There are restrictions on the transfer
of Units.
PLACEMENT AGENT:
X.X. Xxxxxx & Co., Inc.
0000 Xx. Xxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
(000) 000-0000
The Units are offered hereby on a "best efforts, minimum-maximum basis."
RPM expects to hold the Initial Closing of this Offering at any time after the
30 Unit Minimum has been subscribed for. Subsequently, Tirex may hold one or
more additional closings, at any time, from time to time, on or prior to
December 31, 1997 (unless extended by mutual agreement of RPM or Tirex, as the
case may be, and the Placement Agent for one or more additional 30-day periods)
or such earlier date as the 85 Unit Maximum has been subscribed for. The
Placement Agent has agreed only to use its "best efforts" and has not committed
to sell, or buy for its own account, any of the Units offered hereby.
This Memorandum does not contain all of the information that would normally
appear in a prospectus for an offering registered under the Securities Act or
that may be necessary to make an informed investment decision regarding an
investment in the Units. The RPM and Tirex will furnish additional information
to interested offerees upon request. Purchasers of the Units will be required to
acknowledge at the time of purchase that they have requested and received all
information necessary to make an informed decision to purchase the Units.
SEE "INVESTOR NOTICES" AND "JURISDICTIONAL NOTICES AND REPRESENTATIONS."
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INVESTOR NOTICES
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THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR WITH ANY STATE OR REGULATORY AGENCY UNDER ANY SECURITIES
LAWS OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION PROVIDED IN SUCH
LAWS AND THE RULES AND REGULATIONS THEREUNDER, AND MAY NOT BE RESOLD OR
TRANSFERRED IN THE ABSENCE OF THE SATISFACTION OF CERTAIN CONDITIONS, INCLUDING
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO RPM OR TIREX, AS THE CASE MAY BE, THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM CONSTITUTES AN OFFER ONLY TO
THE PERSON OR ENTITY WHOSE NAME APPEARS ON THE COVER PAGE (THE "OFFEREE"). THE
UNITS ARE BEING OFFERED ONLY TO INVESTORS WHO QUALIFY AS "ACCREDITED INVESTORS",
AS SUCH TERM IS DEFINED IN RULE 501 OF REGULATION D, AS PROMULGATED UNDER THE
SECURITIES ACT. ALL INVESTORS MUST MEET CERTAIN SUITABILITY STANDARDS
7
ESTABLISHED BY RPM OR TIREX, AS THE CASE MAY BE, SUBJECT TO THE RIGHT OF RPM AND
TIREX TO REJECT SUBSCRIPTIONS, IN WHOLE OR IN PART. THE MINIMUM SUBSCRIPTION
WILL BE $10,300, UNLESS OTHERWISE APPROVED BY RPM AND/OR TIREX IN THEIR SOLE
DISCRETION. AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. THESE SECURITIES ARE HIGHLY SPECULATIVE AND SHOULD ONLY BE
PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE
PURCHASERS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" BEFORE PURCHASING SUCH SECURITIES.
THE UNITS OFFERED HEREBY WILL BE SOLD SUBJECT TO THE PROVISIONS OF A
SECURITIES PURCHASE AGREEMENT (THE "SECURITIES PURCHASE AGREEMENT") CONTAINING
CERTAIN REPRESENTATIONS, WARRANTIES, TERMS AND CONDITIONS. ANY INVESTMENT IN THE
UNITS OFFERED HEREBY SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW OF
THE PROVISIONS OF THE SECURITIES PURCHASE AGREEMENT. RPM AND TIREX RESERVED THE
RIGHT IN ITS DISCRETION TO ACCEPT OR REJECT, IN WHOLE OR PART, ANY PROPOSED
INVESTMENT IN THE UNITS.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE MERITS OF, OR GIVEN APPROVAL TO, ANY
SECURITIES OFFERED HEREBY, OR UPON THE TERMS OF THE OFFERING, NOR HAVE THEY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM OR ANY OTHER SELLING
LITERATURE. THE SECURITIES ARE OFFERED BY RPM (PRIOR TO THE ABOVE DESCRIBED
MERGER) AND BY TIREX (AFTER THE ABOVE DESCRIBED MERGER) PURSUANT TO EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES
OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES DESCRIBED HEREIN ARE BEING OFFERED PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND APPLICABLE STATE
SECURITIES LAWS RELATING TO TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING OR
SOLICITATION. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHOM
THE OFFERING IS MADE AND RESTRICT SUBSEQUENT TRANSFER OF THE SECURITIES
DESCRIBED HEREIN.
INVESTMENT IN THE SECURITIES DESCRIBED HEREIN SHOULD BE CONSIDERED ONLY BY
A PERSON WHO OR ENTITY THAT CAN AFFORD TO SUSTAIN THE LOSS OF HIS, HER OR ITS
ENTIRE INVESTMENT. POTENTIAL INVESTORS ARE HEREBY CAUTIONED THAT SUCH INVESTORS,
SHOULD THEY INVEST IN THE SECURITIES DESCRIBED HEREIN, COULD BE REQUIRED TO BEAR
THE FINANCIAL RISKS OF SUCH AN INVESTMENT FOR A SUBSTANTIAL AND/OR INDEFINITE
PERIOD OF TIME. AN INVESTOR WHO PURCHASES THE SECURITIES DESCRIBED HEREIN SHALL
BE REQUIRED TO REPRESENT THAT HE, SHE OR IT IS ABLE TO SUSTAIN SUCH A LOSS, IS
FAMILIAR WITH AND UNDERSTANDS THE TERMS OF THE OFFERING OF SUCH SECURITIES AND
THAT HE, SHE OR IT MEETS CERTAIN SUITABILITY STANDARDS.
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OF
SECURITIES DESCRIBED HEREIN OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE). IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT
8
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RPM OR TIREX OR ANY OTHER PERSON. NO
PERSON OR ENTITY SHOULD CONSIDER INVESTING IN THE SECURITIES DESCRIBED HEREIN
UNTIL SUCH PERSON HAS FULLY READ AND UNDERSTOOD THE CONTENTS OF THIS MEMORANDUM
(INCLUDING THE EXHIBITS HERETO AND ALL DOCUMENTS INCORPORATED HEREIN BY
REFERENCE).
THE SECURITIES DESCRIBED HEREIN ARE RESTRICTED WITH RESPECT TO
TRANSFERABILITY AND RESALE. SUCH SECURITIES MAY NOT BE RESOLD OR OTHERWISE
DISPOSED OF BY AN INVESTOR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO
TIREX, REGISTRATION UNDER THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION REQUIREMENTS.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES DESCRIBED HEREIN IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. EXCEPT AS OTHERWISE INDICATED HEREIN, THIS MEMORANDUM SPEAKS AS OF
THE DATE HEREOF. NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF RPM OR TIREX AFTER THE DATE HEREOF.
THE SALE OF THE SECURITIES DESCRIBED HEREIN IS SUBJECT TO THE PROVISIONS
OF, AND EACH OF THE INVESTORS PURCHASING SECURITIES WILL BE REQUIRED TO EXECUTE,
A SECURITIES PURCHASE AGREEMENT. ANY PURCHASE OF THE SECURITIES DESCRIBED HEREIN
BY AN INVESTOR SHOULD BE MADE ONLY AFTER A COMPLETE AND THOROUGH REVIEW HEREOF
AND OF THE PROVISIONS OF SUCH SECURITIES PURCHASE AGREEMENT, IN THE FORM
ATTACHED HERETO AS EXHIBIT N. IN THE EVENT THAT ANY OF THE TERMS, CONDITIONS OR
OTHER PROVISIONS OF SUCH AGREEMENT ARE INCONSISTENT WITH OR CONTRARY TO A
DESCRIPTION OR THE TERMS SET FORTH IN THIS MEMORANDUM, SUCH AGREEMENT SHALL
CONTROL. IN PARTICULAR, AND WITHOUT LIMITING THE FOREGOING, THE REPRESENTATIONS
AND WARRANTIES CONTAINED IN SUCH AGREEMENT SHALL BE DEEMED TO SUPPLEMENT AND
REPLACE WHERE INCONSISTENT ANY INFORMATION CONTAINED HEREIN.
NO OFFERING LITERATURE OR ADVERTISING SHALL BE EMPLOYED IN THE OFFERING OF
THE SECURITIES DESCRIBED HEREIN, EXCEPT THE INFORMATION CONTAINED HEREIN
(INCLUDING THAT WHICH HAS BEEN INCORPORATED BY REFERENCE). THE DELIVERY OF THIS
MEMORANDUM DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THIS MEMORANDUM IS SUBMITTED IN CONNECTION WITH THE OFFERING OF THE
SECURITIES DESCRIBED HEREIN AND MAY NOT BE REPRODUCED OR USED FOR ANY OTHER
PURPOSE. BY ACCEPTING DELIVERY OF THIS MEMORANDUM, EACH POTENTIAL INVESTOR
AGREES THAT HE, SHE OR IT WILL NOT DIVULGE THE CONTENTS HEREOF TO ANY PERSON OR
ENTITY AND WILL RETURN IT (WITH ALL RELATED DOCUMENTS OR MATERIALS) TO RPM OR
TIREX, AS THE CASE MAY BE, UPON REQUEST IF SUCH INVESTOR DOES NOT AGREE TO
PURCHASE ANY OF THE SECURITIES. ANY REPRODUCTION OR DISTRIBUTION OF THIS
DOCUMENT WITHOUT THE PRIOR WRITTEN CONSENT OF RPM OR TIREX, AS THE CASE MAY BE,
IS PROHIBITED.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM
AS LEGAL, TAX OR ACCOUNTING ADVICE, BUT SHOULD CONSULT THEIR LEGAL
9
COUNSEL, ACCOUNTANTS AND BUSINESS ADVISORS ABOUT LEGAL, TAX AND ACCOUNTING
MATTERS CONCERNING AN INVESTMENT IN THE SECURITIES DESCRIBED HEREIN.
PROSPECTIVE INVESTORS ARE URGED TO READ THIS MEMORANDUM CAREFULLY. ALL
PROSPECTIVE INVESTORS WILL HAVE AN OPPORTUNITY TO TALK WITH REPRESENTATIVES OF
RPM AND TIREX TO VERIFY ANY OF THE INFORMATION INCLUDED HEREIN AND TO OBTAIN
ADDITIONAL INFORMATION REGARDING RPM AND TIREX. CERTAIN PROVISIONS OF VARIOUS
DOCUMENTS AND RECORDS ARE BRIEFLY SUMMARIZED IN THIS MEMORANDUM. SUCH SUMMARIES
ARE NOT AND DO NOT PURPORT TO BE COMPLETE AND REFERENCE MUST BE MADE DIRECTLY TO
SUCH DOCUMENTS AND RECORDS FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND
OBLIGATIONS OF THE PARTIES. COPIES OF SUCH DOCUMENTS, IF NOT INCLUDED HEREWITH,
ARE AVAILABLE, UPON REQUEST, FROM RPM AND TIREX, RESPECTIVELY, WITHOUT CHARGE
AND WILL BE MADE AVAILABLE TO PROSPECTIVE INVESTORS FOR INSPECTION DURING NORMAL
BUSINESS HOURS, UPON REQUEST TO RPM OR TIREX, AS THE CASE MAY BE.
EXCEPT AS HEREIN DISCUSSED, NO PERSON HAS BEEN AUTHORIZED BY RPM OR TIREX
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION CONCERNING EITHER RPM OR
TIREX OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM IN CONNECTION WITH THE
OFFERING DESCRIBED HEREIN AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RPM OR
TIREX. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF RPM AND TIREX AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED.
ANY ESTIMATES OR FORECASTS AS TO EVENTS THAT OCCUR IN THE FUTURE ARE BASED
UPON THE BEST JUDGMENT OF THE RESPECTIVE MANAGEMENTS OF RPM AND TIREX AS OF THE
DATE OF THIS MEMORANDUM. WHETHER SUCH ESTIMATES OR FORECASTS MAY BE ACHIEVED
WILL DEPEND UPON TIREX ACHIEVING ITS OVERALL BUSINESS OBJECTIVES AND THE
AVAILABILITY OF FUNDS, INCLUDING FUNDS FROM THE SALE OF THE SECURITIES OFFERED
HEREBY. THERE IS NO GUARANTEE THAT ANY OF THESE FORECASTS WILL BE ATTAINED.
ACTUAL RESULTS WILL VARY FROM THE FORECASTS AND SUCH VARIATIONS MAY BE MATERIAL.
NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF RPM OR TIREX SINCE THE DATE HEREOF, OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
MEMORANDUM.
RPM OR TIREX, AS THE CASE MAY BE, MAY ACCEPT OR REJECT ANY OFFER TO
PURCHASE THE SECURITIES DESCRIBED HEREIN, IN WHOLE OR IN PART, FOR ANY REASON,
AND EITHER RPM OR TIREX, AS THE CASE MAY BE, MAY WITHDRAW OR CANCEL THE OFFERING
WITHOUT NOTICE. AFFILIATES OF RPM AND TIREX MAY ACQUIRE SECURITIES IN THIS
OFFERING.
RPM, TIREX, AND X.X. XXXXXX & CO., INC. (THE "PLACEMENT AGENT"), RESERVE THE
RIGHT TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE AMOUNT OF SECURITIES
SUCH INVESTOR DESIRES TO PURCHASE.
10
THE COMPLETION OF EACH PURCHASE AND SALE OF THE WILL BE AT A PLACE AND TIME
SPECIFIED BY RPM OR TIREX, AS THE CASE MAY BE, AND THE PLACEMENT AGREEMENT AND
IN ACCORDANCE WITH THE PROVISIONS IN THE FORM OF SECURITIES PURCHASE AGREEMENT.
--------------------------------------------------------------------------------
JURISDICTIONAL NOTICES AND REPRESENTATIONS
--------------------------------------------------------------------------------
The following information is specifically directed to residents in each of
the states noted below. Each prospective investor is urged to review all of the
following information with specific focus on the particular information provided
for the state in which such investor resides:
FOR CALIFORNIA RESIDENTS
THE SALE OF SECURITIES WHICH ARE THE SUBJECT OF THIS MEMORANDUM HAS NOT
BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE
CONSIDERATION THEREFORE PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105
OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
FOR CONNECTICUT RESIDENTS
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECTION 36b-16 OF THE
CONNECTICUT UNIFORM SECURITIES ACT BUT WILL BE SOLD IN RELIANCE ON AN EXEMPTION
FROM SUCH REGISTRATION SET FORTH IN SECTION 36b-21(9)(A) OF SAID ACT AND
REGULATIONS PROMULGATED THEREUNDER. THE SECURITIES CANNOT BE RESOLD WITHOUT
REGISTRATION UNDER SECTION 36b-16 OF SAID ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE PURSUANT TO SECTION 36b-21 OF SAID ACT.
FOR FLORIDA RESIDENTS
EACH PURCHASER HEREUNDER HAS THE RIGHT TO RESCIND HIS PURCHASE PURSUANT TO
CHAPTER 517, FLORIDA STATUTES, FOR A PERIOD OF THREE DAYS FOLLOWING THE LAST TO
OCCUR OF HIS RECEIPT OF NOTIFICATION OF THIS RIGHT OF RECISION OR HIS PAYMENT OF
THE PURCHASE PRICE FOR THE SHARES.
FOR ILLINOIS RESIDENTS
THE OFFERING AND SALE OF THE SECURITIES OFFERED HEREBY HAS NOT BEEN
REGISTERED UNDER SECTION 5 OF THE ILLINOIS SECURITIES LAW, AND SUCH SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT UNDER SAID LAW OR IN A TRANSACTION WHICH IS
OTHERWISE IN COMPLIANCE WITH SAID LAW.
11
FOR NEW JERSEY RESIDENTS
THE SECURITIES REFERRED TO IN THIS MEMORANDUM WILL BE SOLD TO AND ACQUIRED
BY THE HOLDERS IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE NEW JERSEY
STATE UNIFORM SECURITIES LAW, SECTION 49-3-50(b)(12). THEREFORE, THE DEPARTMENT
OF LAW AND PUBLIC SAFETY, DIVISION OF LAW, BUREAU OF SECURITIES HAS NOT PASSED
ON THE ADEQUACY OF THE DISCLOSURE IN THE OFFERING LITERATURE OR ON THE MERITS OF
THIS OFFERING.
FOR NEW YORK RESIDENTS
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE ATTORNEY GENERAL OF NEW YORK OR
ANY OFFICIAL OF SIMILAR CAPACITY OF ANY STATE PASSED UPON THE ACCURACY,
ADEQUACY, OR COMPLETENESS OF THE MEMORANDUM OR THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FOR GEORGIA RESIDENTS
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF
CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD
OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
--------------------------------------------------------------------------------
AVAILABLE INFORMATION
--------------------------------------------------------------------------------
RPM has never filed a Registration Statement or any Reports with the
Commission. Tirex is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is required to file reports, and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, and other information
may be inspected and copied at the Commission's public reference room located in
Room 1024 at 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, and at the
Commission's Regional Offices located at Citicorp Center, 000 Xxxx Xxxxxxx
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000, and at 0 Xxxxx Xxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, Xxx Xxxx 00000. The Commission also maintains a web site at
"http:\\xxx.xxx.xxx" where such material filed electronically can be examined.
Copies of such materials may also be obtained at prescribed rates from the
Public Reference Section of the Commission located in Room 1024 at 000 Xxxxx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000 or, upon request, from Tirex at no charge.
All documents filed by Tirex pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Memorandum and prior to completion or
termination of the Offering shall be deemed to be incorporated by reference in
their entirety herein and to be a part hereof from the date of filing of such
documents.
12
The information set forth herein should be read together with, and is
qualified in its entirety by reference to the information contained in, the
exhibits hereto and any documents deemed incorporated herein by reference.
Prospective investors should read the exhibits hereto, including financial
statements, in their entirety. To the extent that such information is not
consistent with the information set forth herein, the information herein will be
deemed superseded by the information contained in such exhibits or incorporated
herein by reference.
--------------------------------------------------------------------------------
CONCURRENT OFFERING AND PROPOSED MERGER
--------------------------------------------------------------------------------
Concurrent Offering
Concurrently herewith, The Tirex Corporation ("Tirex") is offering to sell,
through the Placement Agent (the "Tirex Offering"), Debentures (the "Tirex
Debentures") and Warrants to purchase shares of the Common Stock of Tirex (the
"Tirex Warrants") on terms which differ materially from the terms pursuant to
which the Units are being offered in this Private Placement. A Confidential
Private Placement Memorandum, dated November 5, 1997, respecting the Tirex
Offering is available upon request from the Placement Agent.
Proposed Merger
RPM has entered into an agreement (the "Merger Agreement") with Tirex and a
newly formed subsidiary of Tirex (the "Tirex Subsidiary") that provides, subject
to certain conditions, that upon an initial closing of this Offering (the
"Initial Closing") to take place after the sale of not less than 30 Units: (i)
RPM will merge with and into the Tirex Subsidiary (the "Merger"); (ii) each of
the Debentures sold by RPM prior to the Initial Closing will be assumed by Tirex
and become convertible into shares of Tirex Common Stock at the conversion ratio
of one share for every $0.20 of the principal amount of the Debenture plus all
accrued, but unpaid, interest thereon; (iii) all of the RPM Shares sold by RPM
prior to the Initial Closing will be exchanged for shares of Tirex Common Stock
on a share-for-share basis; and (iv) 3,000,000 shares, constituting all of the
shares of RPM Common Stock issued and outstanding prior to this Private
Placement, will be exchanged, on a share-for-share basis, in consideration of
RPM's waiver of consulting fees in the amount of $4,000 per month, heretofore
and hereinafter accrued by it pursuant to the terms of a certain five-year
consulting agreement, dated June 9, 1997, among RPM, Xx. Xxxxxx Xxxxxxxx, Xx.
Xxxx Xxxxxxxxx, and Tirex. The consummation of the transactions contemplated by
the Merger Agreement are a condition to the Initial Closing of this Offering.
All sales of the Units offered hereby, made after the Initial Closing and the
effectuation of the Merger, which will take place contemporaneously therewith,
will be made directly by Tirex and Tirex's assumption of the Debentures and the
exchange of RPM Shares for shares of Tirex Common Stock will be deemed to have
occurred concurrently with the Merger. Upon the consummation of the Merger, the
net proceeds, after deduction of commissions and offering expenses, from this
Offering, ranging from an estimated minimum of $266,000 to an estimated maximum
of $761,000, will remain in RPM, and Tirex, will have acquired all of the issued
and outstanding common stock of RPM for the following consideration: (i) one
share of Tirex Common Stock for every issued and outstanding share of RPM Common
Stock, and (ii) Tirex's assumption of all of RPM's obligations and liabilities
under the RPM Debentures. Prior to the commencement of this Offering, there were
a total of 3,000,000 shares of RPM Common Stock issued and outstanding. As noted
above, the holders of these shares, as well as
13
the purchasers of the Units offered hereby, will receive one share of Tirex
Common Stock for every share of RPM Common Stock held by them.
Accordingly, if, during the Offering Period, a minimum of 30 Units are
sold, the above described Merger will be effected and the net proceeds from this
offering will thereby inure to the benefit of Tirex. Alternatively, if RPM fails
to sell a minimum of 30 Units during the Offering Period, all funds will be
returned to the subscribers and this Offering will terminate without any Units
having been sold. As a result, any investment in the Units offered hereby will
necessarily constitute an investment in Tirex and not in RPM.
--------------------------------------------------------------------------------
CONFIDENTIALITY
--------------------------------------------------------------------------------
The information contained in this Memorandum is confidential and
proprietary to RPM and Tirex, respectively, and is being submitted to
prospective investors solely for such investors' confidential use with the
express understanding that, without the prior written permission of RPM and
Tirex, such prospective investors will not release this Memorandum or discuss
the information contained herein or make reproductions of or otherwise use this
Memorandum for any purpose other than evaluating a potential investment in the
securities described herein. This Memorandum may contain certain financial and
other information (incorporated by reference or otherwise) concerning Tirex
which is material non-public information and should be treated as confidential.
Receipt and acceptance of this Memorandum constitutes the recipient's
acknowledgement that the information contained herein will be maintained in
strict confidence by the recipient and will not be disclosed to any third
parties.
A prospective investor, by accepting delivery of this Memorandum, further
agrees to promptly return to RPM or Tirex, as the case may be, this Memorandum
and any other documents or information furnished if the prospective investor
elects not to purchase any of the securities described herein or upon request of
RPM or the Company, as the case may be.
--------------------------------------------------------------------------------
INDEPENDENT EVALUATION
--------------------------------------------------------------------------------
This Memorandum does not purport to be all-inclusive or to contain all of
the information that a prospective investor may desire in evaluating an
investment in the securities of Tirex. Prior to the consummation of the offer
and sale of any of the securities described herein, RPM and Tirex will afford
prospective investors an opportunity to ask questions of and receive answers
from RPM and Tirex, respectively, concerning the terms and conditions of the
securities described herein, RPM, Tirex, or other relevant matters and to obtain
additional information to the extent RPM or Tirex possesses such information or
can acquire it without reasonable effort or expense. Any such questions should
be directed to Xxxx X. Xxxxxxxx at The Tirex Corporation, 000 Xx. Xxxxxxx, Xxxxx
000 Xxxxxxxx, Xxxxxx #0X 0X0. Telephone: (000) 000-0000; Facsimile: (514)
878-9847.
No person or entity has been authorized to give any information or to make
representations about RPM or Tirex or the Offering and, if given or made, any
such information or representation by any other
14
person or entity must not be relied upon as having been authorized by RPM or
Tirex. Each prospective investor must conduct and rely on his own evaluation of
RPM and Tirex and the terms of the Offering (including the merits and risks
involved) in making an investment decision with respect to the securities
described herein. Investment in the Units involves a high degree of risk and is
suitable only for investors capable of sustaining a loss of their entire
investment. See "Risk Factors."
--------------------------------------------------------------------------------
USE OF PROCEEDS
--------------------------------------------------------------------------------
Upon completion of the sale of not less than 30 of the Units offered
hereby, RPM will be merged with and into a wholly-owned subsidiary of The Tirex
Corporation ("Tirex" or the "Company"). At the time of the Merger, RPM will have
cash assets, representing the net proceeds from the sale of the Units offered
hereby, all of which will inure to the benefit of Tirex. It is estimated that,
after deducting estimated offering expenses and commissions, such net proceeds
will be approximately $266,000 (the "Minimum") assuming the minimum of 30 Units
are sold and $761,000 (the "Maximum") assuming the maximum of 85 Units are sold.
Tirex intends to utilize all of the net proceeds from the Minimum to pay the
costs of completing the first production model of the TCS-1 System. Unless
circumstances require otherwise, to the extent Tirex raises more than the
Minimum, the proceeds will be expended in the order of priority set forth in the
table, below. A discussion of the use of the combined proceeds from this
Offering and from the Tirex Offering which is being made concurrently herewith
(the "Combined Proceeds"), is included below (see "CONCURRENT OFFERING AND
PROPOSED MERGER", above). If both this Offering and the Tirex Offering are fully
subscribed, Tirex expects to use all of the proceeds within six months from the
final closings of both offerings. Tirex will have to seek other financing, for
all items not payable out of the proceeds. Possible alternative financing
sources may include, but not be limited to: (i) Canadian government grants,
loans, and/or refundable tax credits and (ii) debt financing from banks or other
lending institutions. Even if this Offering is completed and closed, there can
be no assurance that the concurrent Tirex Offering will be completed. Nor can
there be any assurance that Tirex will be able to obtain alternative sources of
financing on beneficial terms, if at all. The failure to accomplish either of
the foregoing would have a material adverse effect upon Tirex's ability to
commence business operations on a timely basis, if at all.
Approximate
Application Dollar Amount
--------------- -----------------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
-------------------------
Cryogenic - Freezing
Section $266,000 $273,500
Disintegration System -0- 175,000
Comprehensive Engineering
and Design -0- 175,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) 77,500
-------- --------
Total $266,000 $761,000
Notes to this table follow the "USE OF COMBINED PROCEEDS" table, below.
15
USE OF COMBINED PROCEEDS
Upon the sale of the minimum of 30 Units offered hereby, RPM will be merged
with and into a wholly-owned subsidiary of Tirex. RPM estimates that at the time
of the Merger, it will have cash assets, representing the proceeds of this
Offering, ranging from a minimum of $266,000 (the "Minimum") to a maximum of
$761,000 (the "Maximum"). For purposes of this discussion, the net proceeds from
this Offering, which Tirex will acquire when it acquires RPM through the Merger,
together with the net proceeds from the Tirex Offering will be referred to as
the "Combined Proceeds". Based upon the foregoing assumptions, Tirex estimates
that the net Combined Proceeds from this Offering and from the Tirex Offering
will range from approximately $479,500 (the "Combined Minimum") to $1,363,000
(the "Combined Maximum"). Unless circumstances require otherwise, to the extent
Tirex obtains more than the Combined Minimum, the proceeds will be expended in
the order of priority set forth in the table, below. If both this Private
Placement and the Tirex Offering are fully subscribed, Tirex expects to use all
of the proceeds within six months from the final closings of both such
Offerings. Tirex will have to seek other financing for all items not payable out
of the Combined Proceeds. Possible alternative financing sources may include,
but not be limited to: (i) Canadian government grants, loans, and/or refundable
tax credits and (ii) debt financing from banks or other lending institutions.
There can be no assurance that, even if this Private Placement is completed and
closed, the Tirex Offering will be completed. Nor can there be any assurance
that Tirex will be able to obtain alternative sources of financing on beneficial
terms, if at all. The failure to accomplish either of the foregoing would have a
material adverse effect upon Tirex's ability to commence business operations on
a timely basis, if at all. Approximate Application Dollar Amount
Approximate
Application Dollar Amount
--------------- -----------------------
Minimum Maximum
------- -------
Capital Expenditures
Completion of First Production
Model of TCS-1 System (1)
------------------------------
Front End of TCS-1 System $ -0- $110,000
Cryogenic - Freezing
Section 213,500 213,500
Disintegration System 125,000 125,000
Comprehensive Engineering
and Design 141,000 243,800
Other Capital Investments
Tire Shredding
Equipment Leases (2)(9) -0- 75,000
Tire Dumps (3)(9) -0- 250,000
Working Capital
Corporate Headquarters (4)(9) -0- 10,000
Manufacturing Facility (5)(9) -0- 50,000
Employee Salaries (6)(9) -0- 55,700
Salaries to Affiliates (7)(9) -0- 134,000
Consultant Fees (8)(9) -0- 96,000
-------- ---------
Total $479,500 1,363,500
16
Notes:
(1) Tirex has advised RPM that it expects to use the proceeds from this
Private Placement and/or the Tirex Offering to cover the costs of completing the
design engineering and construction of only the first production model TCS-1
System. Tirex has further advised RPM that it believes it will be able to obtain
conventional construction debt financing from banks or other lending
institutions and/or "precommencement" lease financing to cover construction
costs of subsequent systems. There can, however, be no assurance that Tirex will
be able to obtain such financing on commercially reasonable terms, if at all.
(2) Includes total lease payment costs for three tire shredders for a
six-month period. Tire shredders will be required in the event that Tirex
successfully concludes its current negotiations respecting its proposed entry
into the on-site tire shredding business (see the discussion under "BUSINESS:
Proposed Tire Shredding Operations", below). As at the date hereof, there can be
no assurance that such negotiations will be successful, that Tirex will commence
any tire shredding operations, or that if it does, such operations will be
profitable.
(3) $250,000 have been allocated out of the Maximum to cover the costs of
acquiring 25,000,000 scrap tires which Tirex will require in order to meet its
obligations under a proposed contract, which Tirex is currently negotiating with
CG TIRE, Inc., in connection with Tirex's proposed tire shredding operations
(see the discussion under "BUSINESS: Proposed Tire Shredding Operations",
below). As at the date hereof, there can be no assurance that such negotiations
will be successful, that Tirex will commence any tire shredding operations, or
that if it does, such operations will be profitable.
(4) Includes monthly rental payments of approximately $2,000 for six
months. See the discussion under "BUSINESS: Properties".
(5) Includes estimated costs, for a six-month period, of leasing a
manufacturing facility of not less than 100,000 square feet. Such facility will
be used to assemble and operate the first production model TCS-1 System during a
six-month test phase and to assemble and test subsequent TCS-1 Systems.
(6) Includes salaries for a six-month period for one secretarial, two
engineering, and one in-house corporate counsel.
(7) See, "RISK FACTORS: Affiliated Persons To Be Paid Out Of Offering
Proceeds"
(8) Includes fees payable for a six-month period for to one government
liaison consultant, one business and professional organization liaison
consultant, and one consultant who provides advice and guidance respecting
engineering, product development, and tire shredding program management.
(9) Pending the expenditure of the proceeds of this offering, as set forth
above, Tirex may make temporary investments in short-term United States
government obligations or other high-quality short-term interest bearing
securities.
17
--------------------------------------------------------------------------------
TERMS OF THE OFFERING
--------------------------------------------------------------------------------
General
The Offering made hereby consists of up to 85 Units which are being offered
by the Placement Agent on behalf of RPM to certain "accredited investors" as
that term is defined in Section 501(a) of Regulation D of the Securities Act
("Accredited Investors"). The Units are being offered at a price of $10,300 per
Unit. Each Unit consists of one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 and 10,000 shares of the Common Stock of RPM, $.001
par value, per share (the "RPM Shares"). For a detailed description of the
securities comprising the Units, see "The Offering". None of the Units will be
sold unless a minimum of 30 Units offered are purchased and paid for in
accordance with the terms of the Offering. This Offering will remain open until
December 31, 1997, unless extended for one or more additional 30-day periods by
mutual agreement of RPM and/or Tirex and the Placement Agent. Investors will not
have recision rights if the Offering Period is extended prior to the receipt of
subscriptions for the 30 Unit minimum. The number of Units being offered hereby
may be increased upon agreement among RPM, Tirex, and the Placement Agent. RPM
and Tirex each reserve the right to reject any subscription, to accept one
subscription over another, and to allocate available Units among subscribers as
it deems appropriate. In the event that the Minimum of 30 of the Units offered
hereby are sold, RPM will hold an initial closing (the "Initial Closing");
Contemporaneously therewith, RPM will be merged with and into a wholly owned
subsidiary of Tirex and the net proceeds of this offering will thereby inure to
the benefit of Tirex. If RPM fails to sell a Minimum of 30 Units during the
Offering Period, all funds will be returned to the subscribers. Accordingly, any
investment in the Units offered hereby will necessarily constitute an investment
in Tirex and not in RPM.
Restrictions on Transferability
The securities described herein are: (i) not registered under the
Securities Act or the securities laws of any state; and (ii) are being offered
and sold in reliance upon exemptions from the registration provisions of federal
and state securities laws. The RPM Shares and the shares of Tirex Common Stock
for which the RPM Shares will be exchanged upon effectuation of the Merger will
be subject to lock-up Agreements restricting their sale or transfer for a period
ending on the earlier of: (i) one year from the effective date of the Proposed
Public Offering of the common stock of Tirex; or (ii) such longer period as may
be required by any regulatory agency in connection with the proposed public
offering. Investors purchasing such securities will, therefore, not be able to
resell or otherwise transfer such securities in the absence of registration
under the Securities Act or unless an exemption from the registration
requirements thereof is made available. Additionally, all applicable state laws
requiring registration or qualification must also be satisfied before any resale
or transfer of the securities is permitted.
Investor Suitability Standards
An investment in the Units is suitable only for sophisticated investors who
understand and are economically capable of accepting the risks associated with a
speculative investment, including the complete loss of such investment. Units
will only be sold to "Accredited Investors" within the meaning prescribed by
Regulation D and Rule 501 of the Securities Act. Each investor will be required
to represent that: (i) he is an Accredited Investor; (ii) the investment is
suitable for him; (iii) he is purchasing the Units
18
for investment and not with a view to a distribution or resale, and (iv) he is
purchasing the Units for his own account and not for the account of others. RPM
or Tirex may require additional information with respect to any subscriber.
Subscription information will be used by RPM and/or Tirex to determine whether
or not to accept subscriptions and will be kept confidential and not disclosed
except to counsel, the Placement Agent and, if required, to governmental and
regulatory authorities. RPM and Tirex each reserve the right, in its sole
discretion, to reject any subscription or to accept one subscription over
another.
Plan of Distribution
The Placement Agent is offering the securities described herein on a "best
efforts" basis. None of the Units will be sold unless a minimum of 30 Units are
subscribed and paid for in accordance with the terms of the Offering during an
offering period which expires on December 31, 1997, unless extended for one or
more 30-day periods by mutual agreement of RPM or Tirex, as the case may be, and
the Placement Agent. All proceeds will be deposited in an escrow account with
Xxxxxx, Xxxxxxx & Xxxxx (by noon of the day following the broker's receipt
thereof), and promptly returned to the subscribers, in full, without interest,
if RPM is not successful in obtaining subscriptions for at least 30 of the
Units. Subscribers will have no right to the return of their funds during the
term of the escrow. Tirex will pay all expenses of this Offering, including
legal and accounting fees and expenses.
Further Information
Upon request, prospective investors will have the opportunity to meet with
and ask questions of the Officers and Directors of Tirex concerning Tirex, its
operations and prospects and the terms and conditions of the Offering. Tirex
will provide prospective investors with such further information as they may
reasonably request to supplement the information contained in this Memorandum.
Prospective investors are urged to avail themselves of this opportunity. All
such additional information is considered confidential and proprietary
information of Tirex and is subject to the confidentiality restrictions
applicable to the Memorandum. See "Independent Evaluation."
Subscription Payments
The purchase price of Units subscribed for must be paid by check or wire
transfer. The minimum investment for each investor is one Unit, although RPM or
Tirex, as the case may be, may, in its discretion, accept subscriptions for
lesser amounts and fractional Units.
19
--------------------------------------------------------------------------------
THE OFFERING
--------------------------------------------------------------------------------
Securities Offered:
The Units RPM is offering 85 Units, each unit consisting of
one 10% Convertible Subordinated Debenture in the
principal amount of $10,000 (the "Debentures") and
10,000 shares of RPM Common Stock the ("RPM
Shares") on a best efforts, 30 Units or none,
basis to Accredited Investors pursuant to this
Confidential Private Offering Memorandum (the
"Memorandum").
Effects of Possible
Reverse Split Tirex intends to make a public offering of its
Common Stock prior to March 31, 1998 (the
"Proposed Public Offering"). The terms which have
been proposed for such offering will require that
not more than ten million shares of Tirex Common
Stock be issued and outstanding prior to the
commencement of the public offering. There are
presently 38,774,625 shares of Tirex Common Stock
issued and outstanding. The effectuation of such
proposed Public Offering will, therefore, require
a reverse split of the Tirex Common Stock. Such
action will affect the number of shares of the
Common Stock of Tirex held by, or issuable to, the
purchasers of the Units offered hereby, including
the RPM Shares which will be exchanged in the
Merger for shares of Tirex Common Stock. In
addition, the number of shares of Tirex Common
Stock issuable upon conversion of the Debentures
(the "Conversion Shares") will be reduced and the
conversion ratio at which the Debenture will be
convertible will be increased so as to require a
greater amount of the face value of the Debenture
to be converted for each Conversion Share. See
RISK FACTORS: "Proposed Public Offering: Reverse
Split."
Absence of
Registration
Rights The securities comprising the Units, including the
shares of Common Stock issuable upon the
conversion of the Debentures, do not have any
rights to registration under the Securities Act of
1933, as amended.
The Debentures
Interest The Debentures shall bear interest at an annual
rate of 10%, from the date of their issue, payable
semi-annually commencing six months from the issue
date.
Maturity The Debentures shall be due and payable on the
first to occur of: (i) two years from the issue
date or (ii) the completion and closing of a
public offering of its securities by the Maker.
(RPM prior to the Merger or Tirex after the
Merger.)
20
Conversion
Rights The Debentures shall be convertible, in whole or
in part, at any time prior to maturity, at a
conversion rate of $.20 per share, into the Common
Stock of RPM (prior to the Merger) or the Common
Stock of Tirex (after the Merger) subject to
adjustment after the proposed reverse stock split.
Voting Rights: The Debentures have no voting rights. Each
of the RPM Shares (and each share of Tirex Common
Stock for which the RPM Shares will be exchanged
in the Merger) included in the Units and issuable
upon conversion of the Debentures will have one
vote.
Restrictions
on Transfer The Debentures are not transferable under any
condition prior to March 31, 1998 (see also,
"TERMS OF THE OFFERING: Restrictions on
Transferability").
The Common Stock
Conversion on
Consummation
of Merger Each Unit includes 10,000 shares of RPM Common
Stock. Upon consummation of the Merger, each share
of RPM Common Stock shall automatically be
converted into one share of Tirex Common Stock.
The Merger: RPM has entered into an agreement (the "Merger
Agreement") with Tirex and a newly formed
subsidiary of the Tirex that provides, subject to
certain conditions, that upon an initial closing
of this Offering (the "Initial Closing") to take
place after the sale of not less than 30 Units:
(i) RPM will merge with and into the Tirex
Subsidiary; (ii) each of the Debentures sold by
RPM prior to the Initial Closing will be assumed
by Tirex and become convertible into shares of
Tirex Common Stock at the conversion ratio of one
share for every $0.20 of the principal amount of
the Debenture plus all accrued, but unpaid,
interest thereon; (iii) all of the RPM Shares sold
by RPM prior to the Initial Closing will be
exchanged for shares of Tirex Common Stock on a
share-for-share basis; and (iv) 3,000,000 shares,
constituting all of the shares of RPM Common Stock
issued and outstanding prior to this Private
Placement, will be exchanged, on a share-for-share
basis, in consideration of RPM's waiver of
consulting fees in the amount of $4,000 per month,
heretofore and hereinafter accrued by it pursuant
to the terms of a certain five-year consulting
agreement, dated June 9, 1997, between RPM and
Tirex. The consummation of the transactions
contemplated by the Merger Agreement are a
condition to the Initial Closing of this Offering.
All sales of the Units offered hereby, made after
the Initial Closing and the effectuation of the
Merger, which will occur contemporaneously with
the Initial Closing, will be made directly by
Tirex and Tirex's assumption of the Debentures and
the exchange of RPM Shares for shares of Tirex
Common Stock will be
21
deemed to have occurred concurrently with the
Merger (see "CONCURRENT OFFERING AND PROPOSED
MERGER", above).
Minimum Purchase: Unless otherwise agreed to by RPM (prior to the
Merger) or by Tirex (after the Merger), the
minimum purchase by each prospective investor is
one Unit (or $10,300).
Capital Stock
Outstanding Prior to
the Offering: 3,000,000 shares of the Common Stock of RPM and
38,774,625 shares of the Common Stock of Tirex
were issued and outstanding prior to the Offering
being made hereunder.
Risk Factors: An investment in the Units involves a high degree
of risk and should only be undertaken by investors
able to lose their entire investment. Prospective
investors should review carefully and consider the
factors described under "Risk Factors."
Use of Proceeds: Tirex plans to use the net proceeds of this
Offering for the completion of the first
production model of the TCS-1 System, general
corporate purposes and for working capital. (See
"Use of Proceeds.")
--------------------------------------------------------------------------------
RISK FACTORS
--------------------------------------------------------------------------------
Purchase of the securities offered hereby involves a high degree of
risk and must be considered a speculative investment. An investment in the
securities is suitable only for persons of adequate means, who have no need for
liquidity in their investment, who can afford the loss of their entire
investment and who meet the "Accredited Investor" requirements of Rule 501(a) of
Regulation D, as promulgated under the Securities Act. Prospective investors
should, prior to any purchase of Units, carefully consider the following risk
factors, as well as the other information contained in this Memorandum, attached
hereto as Exhibits and incorporated by reference herein.
Upon completion of the sale of the minimum of 30 of the Units offered
hereby, RPM will be merged with and into a wholly-owned subsidiary of The Tirex
Corporation. Alternatively, if RPM fails to sell the minimum of 30 Units during
the Offering Period, all funds will be returned to the subscribers and the
Offering will terminate without any Units having been sold. As a result, any
investment in the Units offered hereby will necessarily constitute an investment
in Tirex and not in RPM. All of the following Risk Factors pertain to the
business, financial condition, and prospects of Tirex and all references to the
"Company" are to Tirex and not to RPM.
22
Development Stage Company; No Assurance as to Future Profitable Operations
There is no assurance that the Company will generate net income or
successfully expand its operations in the future. Because it is in the
development stage and has had no significant operations to date, the Company
cannot predict with any certainty the future success or failure of its
operations. Its proposed operations are subject to all of the risks inherent in
the establishment of a new business enterprise, including the absence of any
significant operating history. The likelihood of the success of the Company must
be considered in light of the problems, expenses, difficulties, complications
and delays frequently encountered in connection with the formation of a new
business and the competitive environment in which the Company will operate. the
Company has had no significant operating revenues to date and there can be no
assurance of future revenues. There is limited evidence at this time upon which
to base an assumption that the Company's proposed business will prove successful
or that its proposed TCS-1 System will be successfully developed, manufactured,
and marketed. As a consequence, there is no assurance that the Company will be
able to operate profitably in the future. Additionally, the Company has a very
limited business history which investors can analyze to aid them in making an
informed judgment as to the merits of an investment in the Company. Any
investment in the Company should therefore be considered a high risk investment
because investors will be placing their funds at risk in an unseasoned start-up
company.
No Guarantee of Product Acceptance in Market
The first production model of the TCS-1 System has not yet been completed
and there is no history of commercial operations of the TCS-1 System. There can
be no assurance that the TCS-1 System will be accepted in the market for tire
disintegration equipment. Moreover, the Company has not conducted market
research that focuses on the potential demand for the TCS-1 System to the
exclusion of other types of tire disintegration equipment. Therefore, the
Company is not able to estimate with any assurance the potential demand for the
TCS-1 System, if any. There can be no assurance that sufficient market
penetration can be achieved so that projected production levels of the TCS-1
System will be absorbed by the market (see "Business-Sales and Marketing").
Need for Substantial Additional Capital
The Company presently requires funding to complete the development of the
TCS-1 System and to commence manufacturing and marketing operations. The
proceeds from this Offering are expected to permit the Company to operate only
through the end of 1997. The Company anticipates that only limited revenues will
be available to fund its operations without substantial additional capital.
Further, although the Company has signed a Letter of Intent with the Placement
Agent for the Proposed Public Offering of its Common Stock in an amount of not
less than $8,000,000, there can be no assurance that such public offering will
be successfully completed or, even if it is completed, that the Company will
receive adequate financing from the Proposed Public Offering. See "PROPOSED
OFFERING; REVERSE STOCK SPLIT." The Company does not currently have in place,
other current options to fund its continued existence in the event the Proposed
Public Offering does not occur or does not occur within a reasonable time
following this Private Placement. The result of the Company's inability to raise
sufficient funding to accomplish its present goals would have a material adverse
effect upon its business, prospects, operating results, and financial condition.
Moreover, if the Proposed Public Offering does not occur on a timely basis, the
Company may be unable to fund its business plan and may be forced to cease to
operate. In such event, investors will lose their entire investment.
23
Possibility of Material Changes in Offering Terms; NASD Review
Following the closing of this Private Placement, the Company intends to
effect a public offering of its Common Stock in an amount of not less then
$8,000,000. Should such public offering take place, the Company intends to apply
for inclusion of its Common Stock on the National Association of Securities
Dealers ("NASD") Automated Quotation Small Cap Market ("NASDAQ"). In connection
with such application, the NASD may require that the terms of this Private
Placement be materially modified. Such potential modifications may include, but
may not be limited to, an increase in the time such investors must refrain from
selling the Common Stock acquired in this Private Placement beyond the "lock-up"
dates specified in the Lock-Up Agreement attached hereto and described herein.
See "DESCRIPTION OF THE SECURITIES." By executing the Securities Purchase
Agreement, each investor will acknowledge and agree that such modifications may
occur.
Risk of Company's Inability to Repay Debentures
There is no assurance that the Company will be able to repay the Debentures
which are being offered hereby. Repayment of the Debentures depends in part upon
the completion of the Company's Proposed Public Offering and no assurance can be
given that such offering will be completed. See the Risk Factor, below,
"Proposed Offering; Reverse Split" below. If such public offering is not
completed, the Company will need to generate cash flow from its operations or
find other sources of financing. There are no other financing sources currently
available to the Company and no assurance can be given that additional financing
will be available when needed. It is unlikely that the Company's business will
be able to generate sufficient cash flow to repay the Debentures when they
become due if the Proposed Public Offering is not completed. In such event, the
Company will be unable to repay the Debentures and the investors may be required
to wait a substantial period of time for repayment or may lose their entire
investment.
No Collateral Security
Repayment of the Debentures is not secured by any collateral. The assets
and net worth of the Company are insufficient to collateralize the principal of,
or interest on, the Debentures. If the Company does not complete the Proposed
Public Offering, the Company will be unable to pay the principal or interest on
the Debentures and it will have insufficient cash, assets, or net worth to
satisfy the amount due on the debt. In such event, the principal and interest
may be uncollectible and investors may lose their entire investment in the
Company. See "Need for Substantial Additional Capital."
Restricted Securities
The resale or transfer of the Securities, which comprise the Units being
offered hereby, are specifically restricted and all certificates representing
such securities will bear restrictive legends, as described in "DESCRIPTION OF
SECURITIES." In no event will the securities comprising the Units be
transferable prior to March 31, 1998. The RPM Shares will be "locked up" until
the earlier of: (i) the effective date of the Proposed Public Offering or (ii)
May 31, 1998. If the Proposed Public Offering should occur, the RPM Shares will
be subject to a further "lock-up" restricting their sale or transfer for a
period of one year from the effective date of the Proposed Public Offering or
such greater period as may be required by any regulatory agency.
24
Proposed Public Offering: Reverse Split
The proposed terms for the Proposed Public Offering require that not more
than 10,000,000 shares of Tirex Common Stock be issued and outstanding prior to
the commencement of the public offering. There are presently 38,774,625 shares
of Tirex Common Stock issued and outstanding. While the number of shares
outstanding prior to the Proposed Public Offering may be adjusted to reflect a
change in the development and consequent valuation of the Company, investors in
this Private Placement should note that such requirement will necessitate a
reverse split of all of the Company's issued and outstanding securities. This
will necessarily affect the number of shares of Tirex Common Stock for which the
RPM Shares will be exchanged upon effectuation of the Merger and the number of
shares of Tirex Common Stock issuable (after the Merger) upon conversion of the
Debentures. While the exact ratio of the projected reverse split cannot be
determined prior to the finalization of the terms thereof, a 1-for-4 reverse
split would affect an investor in this Private Placement, as follows: (i) the
number of RPM Shares included in each Unit or the number of shares of Tirex
Common Stock for which the RPM Shares will be exchanged upon effectuation of the
Merger would be reduced from 10,000 to 2,500 and (ii) the number of shares of
Common Stock issuable upon conversion of each $10,000 face amount Debenture
would be reduced from 10,000 to 12,500 and the conversion ratio would be
increased from one share for every $.20, to one share for every $.80, of the
principal amount of the Debenture.
Arbitrary Offering Price
The price at which the Units are being offered hereby was arbitrarily
determined by the Company and the Placement Agent based on consideration of a
number of factors. The offering price bears no relationship to any objective
criteria of value and should not be regarded as an indication of future market
price of the Company's securities.
Broad Discretion in Use of Proceeds
The net proceeds from this Private Placement have been generally allocated
by management of the Company for the various uses specified under "USE OF
PROCEEDS." As a result, purchasers of Units in this Offering will be entrusting
their funds to management, who will have broad discretion in determining
specific expenditures of the funds. Accordingly, this uncertainty increases the
risk of an investment in the Company since investors will not have an
opportunity to review and evaluate the specific expenditures which may be made
by the Company. See "USE OF PROCEEDS."
Additional Interest Income -- Original Issue Discount
For federal income tax purposes, the issue price of a Unit (in general, the
price paid therefor) must be allocated among the Debenture and the RPM Shares in
proportion to their respective fair market values. The portion allocated to the
Debenture and RPM Shares will become the respective tax basis for each class of
asset. Any excess in the face amount of the Debenture over the basis assigned
thereto will constitute original issue discount. The amount of that original
issue discount will be amortized over the life of the Debenture, and will
constitute additional interest income to the investor. Consequently, the
investor will be required to report additional interest income during the period
he holds the Debenture which will be greater that the 10% interest rate payable
on the Debenture. The Company and RPM have not at this time determined what the
fair market value of the shares of Tirex Common Stock, for which the RPM Shares
will be exchanged in the Merger, is likely to be, or, as a result, how much
original issue discount will be attributed to the Debentures, although it will
make such determination in connection with
25
its annual information reporting obligations to the Internal Revenue Service.
Each investor is urged to consult his own tax advisor with respect to the
foregoing matters.
Dependence on Key Personnel
The Company believes that its success depends to a significant extent on
the efforts and abilities of certain of its senior management, in particular
those of Xxxxxxx X. Xxxxx, President and Chief Executive Officer; and Xxxxx X.
Xxxx, Vice President in charge of Engineering. The loss of Xx. Xxxxx, or Xx.
Xxxx could have a material adverse affect on the Company's business, prospects,
operating results, and financial condition. The Company does not presently have
key man life insurance policies, but intends to try to obtain such coverage in
the amount of $1,000,000 for Xx. Xxxxx and $500,000 for Xx. Xxxx. There can be
no assurance that such policies will be available to the Company on commercially
reasonably terms, if at all. Additional, the ability of the Company to realize
its business plan could be jeopardized if any of its senior management becomes
incapable of fulfilling his obligations to the Company and a capable successor
is not found on a timely basis. There can however be no assurance that, in such
event, the Company will be able to locate and retain a capable successor to any
member of its senior management.
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). O/V III and OTRP are New Jersey corporations
affiliated with each other through common control. The loss of either or both of
these two customers would have an adverse effect on the Company. See BUSINESS:
"Dependence on Major Customer".
Control by Present Officers
Control of Tirex. Xxxxxxx X. Xxxxx, Tirex's President and Chief Executive
Officer, owns of record and controls beneficially by way of irrevocable voting
proxies 11,619,430 shares of Tirex Common Stock. Xxxxx X. Xxxx owns of record
4,681,191 shares of Tirex Common Stock. Accordingly, Messrs. Xxxxx and Xxxx
collectively control an aggregate of 16,300,621, or 42%, of the currently issued
and outstanding Common Stock of Tirex. They are therefore in a position to
substantially influence the election of a majority of Tirex's directors and
otherwise control Tirex. Tirex is not aware of any other written or oral voting
agreements respecting Tirex's Common Stock.
Control of RPM. Xx. Xxxxxx Xxxxxxxx, RPM's President, and Xx. Xxxx
Xxxxxxxxx, RPM's Secretary and Treasurer, each own 1,130,000 shares of RPM
Common Stock, and Xx. Xx Xxxxxxxxxxx, RPM's Assistant Secretary and Assistant
Treasurer, owns 400,000 shares of RPM Common Stock, constituting in the
aggregate 88.7% of the issued and outstanding stock of RPM. Accordingly, these
persons are in a position to substantially influence the election of a majority
of RPM's directors and otherwise control RPM. RPM is not aware of any other
written or oral voting agreements respecting RPM's Common Stock.
Experience of Management
Although Management has general business and engineering experience,
potential investors should be aware that no member of management has been
directly involved in administering a tire disintegration, recycling, or tire
disintegration equipment manufacturing, business.
26
Uncertainty of Product and Technology Development: Technological Factors
The Company has not completed development and testing of the TCS-1 System.
The Company's success will depend upon the TCS-1 System's meeting targeted
performance and cost objectives and its timely introduction into the
marketplace. The Company continues to be required to commit the bulk of its
time, effort, and resources to finalizing the development of the TCS-1 System.
Although the Company anticipates that the development of the TCS-1 System will
be successfully concluded prior to the end of 1997, such an outcome will be
subject to all of the risks inherent in the development of a new product and
technology (including unanticipated delays, expenses, and difficulties, as well
as the possible insufficiency of funding to complete development). There can be
no assurance as to when, or whether, the Company's efforts to complete the
development of the TCS-1 System will be successful. In addition, there can be no
assurance that the TCS-1 System will satisfactorily perform the functions for
which it is designed, that it will meet applicable price or performance
objectives, or that unanticipated technical or other problems will not occur
which would result in increased costs or material delays in development. There
can be no assurance that, despite testing by the Company, problems will not be
encountered in the TCS-1 System after the commencement of commercial manufacture
and sales, resulting in loss or delay in market acceptance.
Protection of Tirex Proprietary Technology and Potential Infringement
The success of the Company's proposed business depends in part upon its
ability to protect its proprietary technology and the proposed TCS-1 System
which will utilize such technology. On December 18, 1996, the Company filed
patent applications in the United States and Canada based on provisional
priority under preliminary patent applications filed on December 19, 1995. On
October 23, 1997, the Company's application was allowed and pursuant thereto a
United States Patent on the Company's cryogenic tire disintegration process and
apparata will be issued with priority as of December 19, 1995. Upon issuance of
the said United States patent, the Company will submit the patent examination
papers to the Canadian authorities. The Canadian patent, when issued, will also
have a priority date of December 19, 1995. Prior to filing for patent
protection, the Company relied on trade secrets, proprietary know-how and
technological innovation to develop its technology and the designs and
specifications for the TCS-1 System. Except where the terms of their employment
agreements would make it redundant or, in the sole discretion of management, it
is determined that because of the non-technical nature of their duties, such
agreements are not necessary or appropriate, the Company has, and will continue
to, enter into confidentiality and invention assignment agreements with all
employees and consultants which limit access to, and disclosure or use of, the
Company's proprietary technology. There can be no assurance, however, that the
steps taken by the Company to deter misappropriation or third party development
of its technology and/or processes will be adequate, that others will not
independently develop similar technology and/or processes or that secrecy will
not be breached. In addition, although the Company believes that its technology
has been independently developed and does not infringe on the proprietary rights
of others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. Moreover, there can be no assurance that the
Company will have the resources to defend its patent by bringing patent
infringement or other proprietary rights actions.
Limited Public Market
To date there has been only a limited and sporadic public market for the
Company's Common Stock. There can be no assurance that an active and reliable
public market will develop or, if developed, that such market will be sustained.
Purchasers of the securities offered hereby may, therefore, have
27
difficulty in selling the shares of Tirex Common Stock for which the RPM Shares
will be exchanged in the Merger or which will be issuable upon the conversion of
the Debentures. As a result, investors may find it impossible to liquidate their
investment in the Company should they desire to do so. The Company's Common
stock is currently traded in the over-the-counter market and quoted on the NASD
Over-theCounter Electronic Bulletin Board. The Company expects to apply for
inclusion in NASDAQ. As at the date hereof, however, the Company is not eligible
for inclusion in NASDAQ or for listing on any national stock exchange. All
companies applying and authorized for listing with NASDAQ are required to have
not less than $4,000,000 in total assets and $2,000,000 in capital and surplus.
Unless the Company is able to increase its net worth substantially, either
through the accumulation of surplus out of earned income or successful capital
raising financing activities, it will never be able to meet the eligibility
requirements of NASDAQ. In order to qualify for listing on a national stock
exchange similar minimum criteria respecting, among other things, the Company's
net worth and/or income from operation must be met. Accordingly, market
transactions in the Company's common stock are subject to the "Xxxxx Stock
Rules" of the Securities and Exchange Act of 1934, which are discussed in more
detail, below, under "Applicability of Xxxxx Stock Rules to Broker-Dealer Sales
of Company Common Stock". These rules could make it difficult to trade the
Common Stock of the Company because compliance with them can delay and/or
preclude certain trading transactions. This could have an adverse effect on the
ability of an investor to sell any shares of Tirex Common Stock, as well as on
the price obtainable for such shares of Common Stock.
Applicability of "Xxxxx Stock Rules" to Broker-Dealer Sales of
Company Common Stock
The Securities and Exchange Commission has adopted special regulations
(referred to herein as the "Xxxxx Stock Rules") which define a security that has
a market price of less than $5 and is not listed on a national stock exchange or
quoted on NASDAQ as a "Xxxxx Stock". These regulations subject all broker-dealer
transactions involving such securities to the special Xxxxx Stock Rules set
forth in Rule 15g- 9 of the Securities Exchange Act of 1934 (the "34 Act"). It
may be necessary for the Selling Shareholders to utilize the services of
broker-dealers who are members of the NASD. The current market price of the
Company's Common Stock is substantially less than $5 per share and such stock
can, for at least for the foreseeable future, be expected to continue to trade
in the over-the-counter market at a per share market price of less than $5 (see
"Price Range of Securities"). Accordingly, any broker-dealer sales of the shares
being offered hereunder, as well as any subsequent market transactions in the
Company's Common Stock, will be subject to the Xxxxx Stock Rules. These Rules
affect the ability of broker-dealers to sell the Company's securities and also
may affect the ability of purchasers in this offering to sell their shares in
the secondary market, if such a market should ever develop.
The Xxxxx 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 Xxxxx 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 Xxxxx 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 xxxxx
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 xxxxx stocks disclosing recent price information for the xxxxx stock held
in the account and information on the limited market in xxxxx stocks.
Accordingly, for so long as the Xxxxx Stock Rules are applicable to the
Company's Common Stock, it will be difficult to trade such stock because
compliance with such Rules can delay and/or preclude certain trading
transactions. This could have an adverse effect on the liquidity and/or price of
the Company's Common Stock.
28
Regulatory and Environmental Considerations
The Company does not expect that its equipment manufacturing operations
will be subject to any unusual or burdensome governmental regulations. However,
the Company is currently making preparations to enter into a five-year tire
shredding project in Quebec (see "Proposed Tire Shredding Operations"). These
operations and the businesses of the Company's customers may involve, to varying
degrees and for varying periods of time, the storage or "stockpiling" of scrap
tires which, with their size, volume and composition, can pose a particularly
serious environmental problem. Among the numerous problems relating to
stockpiling scrap tires, is the fact that when stockpiled above ground, tires
create serious fire, public health, and environmental hazards ranging from
fires, which generate large and dense clouds of black smoke and are extremely
difficult to extinguish, to the creation of vast breeding grounds for mosquitoes
and vermin. As a result, many states have either passed or have pending
legislation regarding discarded tires including legislation limiting the storage
of used tires to specifically designated areas. For reasons including, but not
limited to the problems described above, the Company and the purchasers of its
TCS-1 Systems will be subject to various local, state, and federal laws and
regulations including, without limitation, regulations promulgated by federal
and state environmental, health, and labor agencies. Compliance with applicable
environmental and other laws and regulations governing the business of the
Company may impose a financial burden upon the Company that could adversely
affect its business, financial condition, prospects, and results of operations.
Likewise, the burden of compliance with laws and regulations governing the
installation and/or operation of TCS-1 Systems could discourage potential
customers from purchasing a TCS-1 System which would adversely affect the
Company's business, prospects, results, and financial condition. Actions by
federal, state, and local governments concerning environmental or other matters
could result in regulations that could increase the cost of producing the
recyclable rubber, steel, and fiber which are the by-products from the operation
of the TCS-1 System and make such by-products less profitable or even impossible
to sell at an economically feasible price level.
The Company believes that it will be able to operate in compliance with
such regulations. In this regard, it has retained environmental attorneys in
Montreal to advise it with respect to compliance with local environmental
regulations applicable to its proposed tire shredding operations. It has also
engaged a consultant to advise purchasers of its TCS-1 Systems with respect to
compliance with local environmental regulations applicable to the installation
and operation of the TCS-1 System. To date, the Company has not had to make
significant capital expenditures relating to environmental compliance because it
has not yet commenced operations. However, the inception of equipment
manufacturing and, possibly, tire shredding operations together with continually
changing compliance standards and technology, may affect the Company's future
capital expenditure requirements relating to environmental compliance. See
BUSINESS.
Production and Supply
The Company intends to begin manufacturing the TCS-1 System on a commercial
basis within the current fiscal year. The Company will be dependent on
arrangements with its subcontractors for the manufacture and assembly of the
principal components incorporated into the TCS-1 System (see BUSINESS
"Agreements With Subcontractors", below). It will therefore be substantially
dependent on the ability of such subcontractors to satisfy performance and
quality specifications and to dedicate sufficient production capacity for all
TCS-1 System scheduled delivery dates. The Company believes that all of its
subcontractors have the requisite manufacturing capabilities and the willingness
to dedicate sufficient amounts of their manufacturing capacity to allow the
Company to meet all TCS-1 System delivery dates, currently scheduled or expected
to be scheduled within the next two years. However, no assurance can be given
that this will in fact be the case and failure on the part of the Company's
subcontractors in these
29
regards would adversely affect the Company's ability to manufacture and deliver
TCS-1 Systems on a timely and competitive basis. In such event the Company would
have to replace or supplement its present subcontractors. There can be no
assurance that should it be necessary to do so, the Company would be able to
find capable replacements for its subcontractors on a timely basis and on terms
beneficial to the Company, if at all; The Company's inability to do so would
have a material adverse effect on its business (see BUSINESS: "Production and
Supply").
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
Technological Changes
To date, the market for tire disintegration equipment has not, to the best
of management's knowledge, been characterized by rapid changes in technology.
However, there can be no assurance that new products or technologies, presently
unknown to the Company, will not, at any time in the future and without warning,
render the Company's tire disintegration technology less competitive or even
obsolete. Moreover, the technology upon which the Company's tire disintegration
system is based, could be susceptible to being analyzed and reconstructed by an
existing or potential competitor. Although the Company has filed a patent
application respecting its proprietary disintegration system, there cannot, at
this time be any guarantee that a patent will, in fact, be granted pursuant to
such application. Moreover, even in the event that the Company is granted a
patent, the Company may not have the financial resources to successfully defend
such patent by bringing patent infringement suits against parties that have
substantially greater resources than are available to the Company. The Company
must continue to create innovative new products reflecting technological changes
in design, engineering, and development, not only of new tire disintegration
machinery, but of products, and machinery capable of producing products, which
incorporate and recycle the rubber, steel, and/or fiber by-products which will
be produced by the operation of the TCS-1 System. Failure to do so, could
prevent to Company from gaining and maintaining a significant market for its
products. This may require a continuing high level of product development,
innovation, and expenditures. To the extent that the Company does not respond
adequately to such technological advances, its products may become obsolete and
its growth and profitability may be adversely affected.
Competition
Although management believes that the Tirex Technology has distinct
advantages over other existing tire disintegration methods, the Company will
face competition from other equipment manufacturers, virtually all of whom will
be larger than the Company, and will have substantially more assets and
resources than the Company has. Management intends to meet such competition by
developing technological innovations which will make the TCS-1 System more
economical and efficient than other tire disintegration methods. To do so, the
Company will have to raise sufficient funding to complete and continue its
development program and to employ highly qualified personnel. There cannot
however be any assurance that the Company will be able to raise the capital
necessary to enable it to do so or that it will be able to locate or retain such
personnel.
30
No Dividends and None Anticipated
The Company has not paid any cash dividends, nor does it contemplate or
anticipate paying any dividends upon its Common Stock in the foreseeable future.
Shares Available for Resale
Excluding any options that could be exercised, there were 38,774,625 shares
of Tirex Common Stock issued and outstanding as of the date of this Memorandum.
15,948,127 shares of such shares are "restricted securities" within the meaning
of Rule 144 of the Securities Act ("Rule 144") and thus may be sold only in
compliance with an exemption from registration under the Securities Act or
pursuant to a registration statement under the Securities Act. All of such
shares will become eligible for resale under Rule 144 between the date hereof
and July 18, 1998. A sale of shares by shareholders, whether pursuant to Rule
144 or otherwise, may have a depressing effect upon the market price of the
Common Stock.
Authorization of Preferred Stock
The Company's Amended Certificate of Incorporation authorizes the issuance
of "open" stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to designate and issue
the "open" stock as preferred stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of the Company's Convertible Debentures, and Common Stock.
Also, the voting power and percentage of stock ownership of the shareholders of
the Company's outstanding capital stock can be substantially diluted by such
preferred stock issuance. In addition, the issuance of such preferred stock may
have the effect of rendering more difficult or discouraging an acquisition of
the Company or changes in control of the Company. The Company does not have any
provisions in its Certificate of Incorporation which would have an anti-takeover
effect. However, certain provisions in the employment agreements of certain of
the Company's officers could have such effect. Moreover, the Company may adopt
anti-takeover measures in the future. Such measures could include, but may not
necessarily be limited to, the issuance of preferred stock with anti-takeover
provisions to discourage bidders from making offers at a premium to the market
price. In addition, the mere existence of an anti-takeover device could have a
depressive effect on the market price of the Company's Common Stock.
Affiliated Persons To Be Paid Out Of Offering Proceeds
The Company does not intend to spend any of the proceeds from this offering
or from the RPM Offering on payments to affiliates unless the maximum proceeds
from both offerings are received (see "USE OF PROCEEDS", above). In such event,
the Company has budgeted $134,000 from the Maximum Combined Proceeds for
salaries to Affiliates. However, the following should be noted: The Company
intends to expend all of the proceeds from this Private Placement and from the
RPM Offering during the six months following the closing thereof. Because of its
limited financial resources, the Company has met, and during the period
preceding the Proposed Public Offering the Company may continue to meet, a
substantial portion of its salary obligations to its executive officers and its
in-house corporate counsel by issuing to them unregistered shares of its Common
Stock at a 50% discount from the average market price of the stock during the
period when such unpaid salaries were earned. The Company has entered into
employment agreements with its four executive officers which call for annual
salaries in the approximate aggregate amount of $515,000. If all of the
following factors occur: (i) the Company spends all of the
31
proceeds from this Private Placement within six months; (ii) during such
six-month period, the Company receives no cash resources other than the proceeds
from this Private Placement; and (iii) the Company discontinues its established
practice of paying part of its executives' salaries in stock instead of cash and
pays 100% of its salary obligations in cash, then the Company could expend up to
$257,500 on salaries to affiliates. If this entire amount was taken from the
Combined Maximum Proceeds, it would constitute approximately 192% thereof. As
noted above, if the Maximum Combined Proceeds are raised, Tirex's present budget
allocates a total of $134,000 to salaries to affiliates. Such amount would
constitute less than 10% of the Maximum Combined Proceeds. For further details
respecting Tirex's compensation of its executive officers, reference is made to
ITEM 10. "EXECUTIVE COMPENSATION" of Tirex's annual report on Form 10-K for the
fiscal year ended June 30, 1997, enclosed as an exhibit hereto.
--------------------------------------------------------------------------------
PRICE RANGE OF SECURITIES
OF
THE TIREX CORPORATION
--------------------------------------------------------------------------------
The Common Stock of Tirex is traded on a limited basis in the
over-the-counter market and quoted on the NASD's OTC Electronic Bulletin Board
(the "OTC Bulletin Board"). The following table sets forth representative high
and low bid prices by calendar quarters as reported by the NASD's OTC Electronic
Bulletin Board System (the "OTC Bulletin Board") during the last two fiscal
years and the subsequent interim period through November 19, 1997. The level of
trading in the Common Stock of Tirex has been limited and the bid prices
reported may not be indicative of the value of the Common Stock or the existence
of an active market. The OTC market quotations reflect inter-dealer prices
without retail markup, xxxx-down, or other fees or commissions, and may not
necessarily represent actual transactions.
Bid Prices
Period Common Stock
------ ------------
Low High
--- ----
Fiscal Year Ended June 30, 1996
September 30, 1995 0.125 0.75
December 31, 1995 0.125 0.375
March 31, 1996 0.125 0.28
June 30, 1996 0.10 0.56
Fiscal Year Ended June 30, 1997
September 30, 1996 0.19 0.45
December 31, 1996 0.13 0.44
March 31, 1997 0.23 0.58
June 30, 1997 0.18 0.44
Fiscal Year Ending June 30, 1998
November 19, 1997 0.13 0.46
32
--------------------------------------------------------------------------------
SHAREHOLDERS AND DIVIDENDS
--------------------------------------------------------------------------------
Shareholders
As of September 25, 1997, the number of holders of record of the Common
Stock, $.001 par value, of RPM was 21 and the number of holders of record of the
Common Stock, $.001 par value, of Tirex was 311.
Dividends
Neither Tirex nor RPM has paid any cash dividends, nor does either of such
companies have any present plan to pay cash dividends in the foreseeable future.
Tirex intends to reinvest its earnings, if any. Payment of future cash dividends
will be determined from time to time by the Board of Directors, of Tirex based
upon its future earnings, if any, financial condition, capital requirements and
other factors. Neither Tirex nor RPM is presently subject to any contractual or
similar restriction on its present or future ability to pay such dividends.
--------------------------------------------------------------------------------
BUSINESS OF RPM
--------------------------------------------------------------------------------
RPM Incorporated ("RPM") was incorporated in Delaware on August 27, 1996
for the purpose of engaging in the business of providing management and business
consulting services. RPM's principal business activities, throughout its
existence, have been limited to providing management and business consulting
services to Tirex pursuant to a consulting agreement dated June 9, 1997, among
RPM, its principal shareholders, Xx. Xxxxxx Xxxxxxxx and Xx. Xxxx Xxxxxxxxx, and
Tirex (the "Consulting Agreement"). The Consulting Agreement is for a five-year
term and provides for monthly payments in the amount of $4,000 to be paid to RPM
in exchange for consulting services to be rendered by Xx. Xxxxxxxx and Xx.
Xxxxxxxxx. The parties have agreed that the Consulting Agreement will survive
the Merger and the consequent absorption of RPM by the Tirex Subsidiary. The
Merger Agreement provides that all 3,000,000 shares of RPM Common Stock, issued
and outstanding prior to this Private Placement, will be exchanged for a like
number of shares of Tirex Common Stock in consideration of the waiver by RPM,
Xx. Xxxxxxxx, and Xx. Xxxxxxxxx of all consulting fees theretofore and
thereinafter accrued during the entire five-year term of the Consulting
Agreement (see "CONCURRENT OFFERING AND PROPOSED MERGER", above).
33
--------------------------------------------------------------------------------
BUSINESS OF THE TIREX CORPORATION
--------------------------------------------------------------------------------
NOTE: As described above, an investment in the Units offered hereby will
necesarily be an investment in Tirex and not in RPM. All references to the
"Company", which appear in this Section, are to Tirex and not to RPM.
History
The Tirex Corporation (hereinafter, the "Company" or "Tirex") was
incorporated in Delaware on August 19, 1987 under the name "Concord Enterprises,
Inc." Its name was changed to "Stopwatch Inc." on June 20, 1989(1) and to the
"Tirex America Inc." on March 10, 1993. On July 11, 1997, in order to encompass
the current and projected international scope of its operations, the Company's
name was changed to "The Tirex Corporation". The Company, directly and through
its subsidiary "Tirex Canada Inc.",(2) is presently engaged in the business of
developing, manufacturing, selling, and leasing a cryogenic tire disintegration
system (the "TCS-1 System") which integrates proprietary disintegration
technology with established conventional mechanical and technologies. It is also
currently conducting negotiations with C.G. Tire, Inc., a wholly-owned
subsidiary of Continental General Tire Inc., respecting a five-year tire
shredding project for the province of Quebec. In addition, the Company is
exploring, with the Montreal operation of Solutia Inc. (a successor to part of
the business of Monsanto Canada Inc.), the feasibility of expanding the
Company's operations to include thermoplastic/rubber compounding operations at
the former Monsanto Montreal facility.
The Company acquired its proprietary tire disintegration technology (the
"Tirex Technology") in the fall of 1992(3). Since the beginning of 1993, it has
devoted the bulk of its efforts to completing the design and development, and
commencing the manufacture, of the TCS-1 System and raising the financing
required for such project. In August of 1995, the Company moved its corporate
headquarters to Quebec and formed its subsidiary, 3143619 Canada Inc. (known and
doing business, and hereinafter referred to, as "Tirex Canada Inc.").
Construction of the first full scale prototype of the TCS-1 began in February of
1997 and is expected to be completed by the end of November 1997. The Company
began taking orders on the TCS-1 System in October of 1995 and, to date, has
received deposits of $25,000 each on five Systems. The Company has located and
entered into written and oral agreements with various
----------------------
(1) For a discussion of the merger with Stopwatch, the healthcare business
which was intended, but was never commenced, by Stopwatch, and the reasons for
the termination of the Stopwatch business plan, reference is made to Item 1 of
Registrant's annual report on Form 10-K for the fiscal year ended December 31,
1988, its transition report on Form 10-K for the transition period ended June
30, 1989, and its annual report on Form 10-KSB for the fiscal year ended June
30, 1995.
(2) Unless context necessarily requires otherwise, references hereinafter
to the "Company" refer to The Tirex Corporation and its subsidiary, Canadian
Corporation 3143619 (known and doing business as "Tirex Canada Inc."),
collectively.
(3) For discussions in detail of the Company's acquisition of the Tirex
Technology and the associated corporate and management changes which took place
between the autumn of 1992 and January of 1995, reference is made to the
discussions thereof included in Item I of the Company's annual reports of Forms
10-KSB for the fiscal years ended June 30, 1995 and June 30, 1996.
34
engineering and manufacturing subcontractors and component suppliers, which
Management believes will supply it with sufficient production capacity to meet
all current and projected orders, on a timely basis, commencing upon
satisfactory completion of testing operations of the initial TCS-1 System (see
"Products and Services" below).
The Scrap Tire Disposal Business
Overview
If both this Private Placement and the RPM Offering are successfully
completed, the Company expects to complete the construction, and initiate
testing, the first production model of its proprietary cryogenic scrap tire
disintegration system (the "TCS-1 System") before the end of 1997. It intends
immediately thereafter to initiate full scale marketing and manufacturing
operations. The TCS-1 System comprises a complete, turn-key, environmentally
safe, cryogenic tire disintegration system designed to: (i) disintegrate scrap
tires, using substantially less energy than is required by existing ambient
methods (which shred and/or chop tires at "ambient" or normal room temperatures)
or other currently available cryogenic methods (which reduce the temperature of
the materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
Scrap Tire Disposal Problems and Development of New Uses for Scrap Tires
The Company's management believes that there is a need to find alternatives
to conventional methods for disposing of the vast amounts of solid waste which
are continually being dumped into fast disappearing land-fill space or burnt in
incinerators. Even though scrap tires represent only about 1.2% of the total
tonnage of solid waste annually produced in North America, the disposal of scrap
tire can pose serious environmental problem. Among the numerous problems
relating to landfilling or stockpiling scrap tires, is the fact that whole tires
cannot be successfully buried in landfills because the combination of their
size, configuration, and weight causes buried tires eventually to work their way
up to the surface. Moreover, when stockpiled above ground, tires can create
serious fire, public health, and environmental hazards ranging from dump fires
which generate large and dense clouds of black smoke and are very difficult to
extinguish, to the creation of vast breeding grounds for mosquitoes and vermin.
According to the Scrap Tire Management Council ("STMC") "Scrap Tire Use/Disposal
Study - 1996 Update", current estimates for scrap tire stockpiles run from
approximately 700 million to 800 million, which would correspond to a tire-to
person ratio in the United States of America between 2.5 and 3.0.
As a result, many states have either passed or have pending legislation
regarding discarded tires, including legislation limiting the dumping of used
tires to specifically designated areas. Also in recognition of the serious
environmental problems created by discarded tires, there has been a shift from
the dumping or landfilling of waste tires to development of various market
applications. According to the STMC, there are currently three major markets for
scrap tires:
(a) using scrap tires as "tire derived fuel" or "TDF" which comprises
burning the tires, either whole or after reduction to approximately
two inch chips;
(b) exporting scrap tires for refitting and re-use as tires; and
(c) disintegrating scrap tires into their components (rubber, steel wire,
and fiber) and recycling the salvageable steel and rubber into new
products;
35
The STMC 1996 update report indicated that the largest use presently being
made of scrap tires is burning them as tire derived fuel. From 1994 to 1996,
this usage grew 50% to 152 million tires burned in 1996. The second largest use
of scrap tires was exporting them (15 million in 1996). But, while ground rubber
represented only the third largest use of scrap tires, the STMC study indicated
that this area enjoyed "the biggest surge" with an increase of "177% over 1994".
As a result, approximately 190 pounds of crumb rubber were produced in 1996 (vs.
69 million pounds in 1994) In addition, 210 million pounds of tire buffings (a
by-product from the retreading industry were also processed for an overall
market demand for size reduced rubber (crumb rubber and buffings) of around 400
million pounds at the end of 1996. A more detailed discussion is included.
The Company believes that modern waste disposal problems combined with the
considerable depletion of natural, non-renewable resources, such as raw material
used for tire manufacture, the decreasing availability of many cultivated raw
materials, and the resulting increases in the costs thereof, will make the
recycling of waste products such as used tires into reusable raw materials a
critical imperative for society and for the economy. The Company also believes,
however, that because present market conditions demonstrate that the capital and
operating costs of currently available tire recycling systems are high, and,
because of the inefficiency of the technologies being used, the by-products
therefrom, expensive to produce, that tire recycling will not be an economically
viable industry until such problems are addressed. The Company believes that the
TCS-1 System will successfully address these problems. The TCS-1 System has been
designed not only to cost less in terms of initial capital outlay required, but
to cut maintenance, operating, and energy costs drastically and to significantly
increase the quantity and quality of the by-products yielded by the recycling
process.
The Company believes that the advent of a greater and more dependable
supply of high quality rubber crumb could contribute to and encourage the
continuance of the kind of huge growth in the market for rubber crumb which is
currently occurring. Should the TCS-1 System be developed by the Company, the
Company hopes to participate in such market. (See "Potential Markets" below).
Products and Services
Proposed Product
The TCS-1 System
The TCS-1 System comprises a complete, turn-key, environmentally safe,
cryogenic tire disintegration system which incorporates proprietary
disintegration and cryogenic technology with established conventional mechanical
and technological techniques. While the TCS-1 System is still in the research
and development stage, substantial progress has been made during and since the
end of the fiscal year ended June 30, 1997 with initial engineering design and
development nearing completion. Construction of the first full scale production
model began in February of 1997 and is expected to be completed by the end of
1997. A three to six month test phase is scheduled to begin immediately upon
completion of such production model for the purpose of optimizing the
performance of the System and eliminating any problems which may arise under
operating conditions. This will also allow the Company to definitively test the
limits of the System's production capabilities.
The TCS-1 System is designed to: (i) disintegrate scrap tires, using
substantially less energy than is required by existing ambient methods (which
shred and/or chop tires at "ambient" or normal room temperatures) or other
currently available cryogenic methods (which reduce the temperature of the
36
materials for at least a portion of the process, but which still rely on
chopping and/or shredding the tire), and (ii) produce commercially exploitable,
high quality, clean rubber crumb and unshredded steel and fiber.
The principle features of the TCS-1 System which management believes make
it superior to other existing tire recycling systems on the market today
include:
* A cooling process which management believes will substantially reduce
the cost of refrigerants.
* A multiple stage tire disintegration unit which: (i) will not subject
the tire to shredding or hammer-milling operations; (ii) will be
environmentally safe; and (iii) is capable of yielding rubber powder
in a wide range of particle size, a capability which Management
believes will enable it to meet a variety of market demands.
* The ability to produce steel, fiber cord, and rubber powder with only
insignificant intermingling.
* Highly efficient utilization of energy resulting in low energy
requirements and usage (more than 90% of the cold air generated will
be used to cool the tires).
* Low capital cost.
* Low maintenance requirements.
Construction and Design of the TCS-1 System
The functions and mechanisms of the proposed TCS-1 System have been
designed for the exclusive purpose of disintegrating automobile and truck tires,
which basically consist of the following elements:
* Two types of rubber. The sidewalls of tires are constructed of
material containing a higher percentage of natural, as opposed to
synthetic, rubber which is used in the treads. Management believes
that natural rubber, which is more flexible than synthetic rubber, is
capable of being reused in a significantly wider range of products
than is synthetic rubber. The TCS-1 System has been designed to take
advantage of these differences to produce a separate rubber powder
reclaimed exclusively from the sidewalls. Management believes that
such "sidewall" rubber powder will have a higher market value than
rubber produced today from a mixture of tread and sidewall rubber.
* Steel beads, which consist of steel wires tightly wound together to a
diameter of approximately 3/8 of an inch. These beads are imbedded
around the rims of the tire treads;
* Steel belting, which incorporates a thin layer of steel wires laid out
in a "xxxxxxx bone" pattern and which underlies the entire surface of
the tread area, and
37
* Fiber threads which are incorporated into the rubber used throughout
the tire.
The TCS-1 System will comprise four main sections consisting of separation,
cryogenic, disintegration, and product handling systems. An internal computer
will monitor all essential wear points as well as certain other aspects of the
System.
The principal feature of the TCS-1 System will be the Company's
proprietary, non-shredding disintegration mechanism which will, under cryogenic
conditions, disintegrate used tires into: (i) two types of rubber powder (rubber
from the sidewalls of the tire will be processed separately from the tread
rubber); (ii) steel wire sections; and (iii) fiber cord sections. The steel and
fiber yielded by the System will normally contain insignificant amounts of
rubber.
The basic components of the TCS-1 System will include:
(a) a tire preparation assembly which will remove the steel beads, clean
the tires, separate sidewalls from the tread, and cut both treads and
sidewalls;
(b) a refrigeration unit, approximately eight feet wide, sixteen feet
high, and 40 feet long;
(c) a completely enclosed cryogenic tire disintegration unit approximately
20 feet wide, 16 feet high and 40 feet long;
(d) two freezing xxxxxxxx, each ten feet wide, twenty feet high, and
twelve feet long;
(e) a fiber baler used to bundle fibers into xxxxx with steel bonds; and
(f) miscellaneous conveyors and fiber separation equipment
In April of 1997, the Company replaced its original, one-quarter scale
model with a new, larger sized (1/2 scale) working prototype of the TCS-1
System's proprietary disintegration unit. This scale model disintegration
mechanism will be used to run test operations to discover, identify, and cure
any problems which may arise, as well as to test the limits of the System's
productive capacity, under operating conditions. This will enable the Company's
engineering team to design and develop, under operating conditions, the
components of the disintegration mechanism for the full-scale production model
of the TCS- 1 System, which is presently under construction. The scale model
disintegration mechanism is also being used to produce rubber crumb for the
purpose of testing the nature, quality, and potential marketability thereof.
The foregoing production schedule may not be met unless the Company
completes and closes a Private Placement of its securities in an amount of not
less than $700,000. Any failure or delay in the Company's ability to obtain such
financing will be directly reflected in a commensurate delay or failure in the
completion of the construction, and the commencement of the testing, of the
production model.
Economy of Operation
The TCS-1 System has been designed to substantially reduce the amount of
energy and equipment maintenance required to disintegrate tires, to increase the
ease and efficiency of separating the steel, rubber, and fiber components of
tires, and to produce what Management believes will be more
38
saleable and more highly valued by-products than are produced by other systems
currently available. Test operations indicate that the cost of disintegrating a
tire using the TCS-1 System will be about $.50 as compared with current tire
disintegration costs, using other technologies, of up to $2.00 per tire.
Additionally all of the end products which the TCS-1 System is designed to yield
are expected to be saleable
The TCS-1 System has been designed to operate continuously (with minimum
amounts of downtime for maintenance), and to consume approximately 650
horsepower operating at 460 volts, and is designed to require substantially less
energy than is used by presently existing equipment. TCS-1 System will be able
to process both automobile and truck tires in quantities equivalent to 180
automobile tires per hour, or 1,000,000 automobile tires per year.
Projected Functions, Operations, and Capabilities
The following discussion of the functions, operations, and capabilities of
the TCS-1 System are based upon engineering design plans and specifications and
test operations of: (i) the 1/2 scale prototype disintegration mechanism; (ii)
the automated front-end system; and (iii) various other components of the System
which have already been completed and tested separately. This discussion also
assumes that the System, when complete and fully integrated, will function as
planned, of which there can be no assurance. However, because the TCS-1 System
is still in the development stage, the Company cannot, as at the date hereof,
guaranty how long after the completion of the first full-scale production model,
if ever, the System will perform fully in accordance with Management's
expectations.
Step-by-Step Operations
The projected step-by step operations of the TCS-1 System will encompass
the following:
(a) The two sidewalls will be cut off and the tread will be cut into
lengths of about one foot. (The sidewalls will be kept separate from
the tread sections throughout the process).
(b) The two steel beads which are contained within each tire will be
pulled out;
(c) Sidewall and tread sections will automatically be placed onto separate
conveying systems which will then feed them into the TCS-1 System's
freezing xxxxxxxx through separate air locks. The temperature of the
air within the freezing xxxxxxxx will be kept at approximately 170
degrees below zero by constant recirculation through a refrigeration
unit. The sidewall and tread sections will remain within the freezing
xxxxxxxx until they are cooled to a point between 90 and 100 degrees
below zero (fahrenheit).
(d) The frozen sections will then pass through proprietary disintegrators
where the sidewall and tread rubber will be reduced to two separate
coarse powders. This operation will not involve any chopping,
shredding, or hammer-milling. Therefore, the steel wires will not be
cut or broken. Furthermore, although the fiber threads may be broken
into shorter lengths, they will still retain their basic shapes and
characteristics. No steel powder or fiber fluff will be produced.
(e) The steel wires will be magnetically removed from the rubber powders.
39
(f) The fiber and rubber powder will be passed through screens to separate
the powder from the fiber threads. The fiber threads will then be
conveyed out of the machine to a fiber baler.
(g) The rubber powders will then be conveyed out of the TCS-1 System.
(h) 100% of the rubber powders yielded by the TCS-1 System will pass
through a ten mesh screen. Supplementary grinders will be supplied for
customers desiring finer powders which can pass through 40 mesh or 80
mesh screens.
Comparison of the Projected TCS-1 System
With Other, Existing Tire Recycling Equipment
There are two types of tire disintegration processes in use today which
produce rubber powder, normally referred to as "crumb": (i) cryogenic systems
and (ii) "ambient" systems. Management believes that the TCS-1 System will have
the distinct advantages over existing systems, as set forth in the comparisons
below. All references to "existing conventional cryogenic and ambient systems"
are to technologies which are widely available and known throughout the
industry. Such technologies include all mechanical, commercially feasible tire
disintegration systems of which the Company has knowledge. There can be no
assurance however that one or more new technologies, or improvements to existing
technologies, presently unknown to management, has not, or in the near future,
will not, become available. While it is conceivable that new technological
breakthroughs could provide benefits and advantages equal to or exceeding those
of the projected TCS-1 System, at this time, the Company is not aware of any
such tire disintegration system or technology.
Existing Conventional
Cryogenic and Ambient
Systems
Methods
Except for a small number of recyclers who remove the steel beads first, most
conventional cryogenic and ambient systems used today to produce rubber crumb,
feed whole tires into chopping, shredding, grinding, or pulverizing mechanisms,
or a combination of any two or more of such mechanisms. Because the entire tire
is subject to these operations, the steel which makes up the beads as well as
the steel wires embedded in the belting and the fiber components of the tire are
also chopped, shredded, and ground. In both conventional cryogenic and ambient
systems, this initial chopping and shredding is effected at ambient temperatures
(normal climatic conditions). Tires, however, are designed to be tough and
durable at these temperatures. The difficulty in chopping or shredding the tires
at these
Projected
TCS-1
System
Methods
The projected TCS-1 System will be designed to remove and salvage the steel
beads of the tire before any other operation is commenced. Disintegration of the
tire will be accomplished solely by the exertion of pressure, in a proprietary
manner, on frozen rubber. This disintegration process will take place only after
the tire sections have been cooled to a temperature between 90 and 100 degrees
below zero, fahrenheit, at which point the material will take on a glass-like
brittleness. At no point in the process will the steel or fiber components be
subjected to any chopping, shredding, grinding, or pulverizing procedures which
would destroy the basic integrity of their respective wire-like and cord-like
configurations.
40
temperatures is compounded by the fact that all of the steel in the tire is also
being chopped and shredded.
Equipment, Energy and
Maintenance Requirements
Because of the toughness of rubber at ambient temperatures and the fact that
steel, as well as the rubber and fiber, are being chopped or shredded, very
large and powerful equipment and the application of substantial amounts of
energy are required to tear tires apart using conventional cryogenic or ambient
systems. Moreover, since tires are so tough and durable, they have to be
shredded in stages. The stages typically include: (i) initial shredding to
reduce the tire to strips of about 2 x 6 inches; (ii) a second shredding to
reduce such strips to pieces approximately 1 x 2 inches in size; (iii) a third
stage which further reduces the material to pieces of approximately 1/8 to 1/2
inches in size; and a fourth shredding operation which yields a coarse powder.
The foregoing shredding operations will consume a total of approximately one
thousand horsepower or more. Because of the foregoing requirements, the
machinery which is used to construct conventional cryogenic or ambient systems
has more bulk than the TCS-1 System. Moreover, there is great wear and tear on
the cutting edges of the chopping and shredding mechanisms which causes the
cutting edge to require constant maintenance, repair, and blade replacement.
Cooling Techniques
As discussed below, conventional cryogenic systems use liquid nitrogen to cool
the rubber before subjecting it to knife or hammer-mill operations. Liquid
nitrogen is an expensive coolant and none of the systems with which Management
is acquainted make any attempt to recycle any of the cold energy generated
thereby.
Equipment, Energy and
Maintenance Requirements
The projected TCS-1 System is designed to remove the steel beads from the tires
before any disintegration process commences. Additionally, the rubber will be in
an extremely brittle and easy to break condition during the disintegration
process. Therefore, the equipment required to break down the tires will be
considerably smaller and lighter, and the energy requirements will be
drastically lower than those required by conventional cryogenic or ambient
systems in use today. The TCS-1 System will be comparatively light in terms of
bulk and weight. Moreover, the TCS-1 System will have no shredding or chopping
surfaces that would require continuous sharpening and repairing. This will
result in an additional significant reduction in maintenance expenses.
Cooling Techniques
The TCS-1 System will be designed to use mechanical refrigeration to cool the
tires to the required temperatures. Mechanical refrigeration is normally less
expensive to use than liquid nitrogen and the Company expects this to further
reduce operating costs. Moreover, unlike conventional cryogenic systems which do
not attempt to recover the cold energy from the rubber powder, the TCS-1 System
has been designed to use 90% of the available cold energy to reduce the
temperature of tires entering the system. A specialized cooling chamber makes
this possible.
41
Costs and Expenses
As a result of the foregoing, initial capital outlays for the equipment and
continuing energy and maintenance costs are high.
Problems Associated With Tire Disintegration
Methods In Current Use.
The initial operations described above will chop or shred a complete tire until
it is reduced to chips ranging in size from about 2 x 2 inches to 2 x 6 inches.
These chips can be used as "TDF" (tire derived fuel") and possibly as fill to
assist drainage. Unless destined for these limited uses, the chips are normally
then fed into a second shredder which reduces them to 1 x 1 inch or 1 x 2 inch
pieces. They are then fed into a knife or hammer-mill where they are reduced to
rubber "crumb" consisting of particles of rubber, approximately 1/8 to 1/2 inch
in size. At this point, some of the steel will have been broken into small
pieces of wire, free of rubber, but much of the steel will remain embedded in
the rubber pieces. In addition, since the fiber will have been subject to the
chopping, shredding, and/or pulverizing operations, much of it will have been
broken, and its thread or cord-like configuration destroyed. The broken,
pulverized fibers will have formed a "fluff" which entraps and holds both rubber
and steel particles.
In order for this crumb to be useable, the steel will have to be separated and
removed. The use of strong magnets removes the free steel pieces, but such
magnets also remove all of the rubber particles in which the rest of the steel
is embedded, resulting in a loss of up to 15% of the rubber.
To avoid losing the substantial amounts of steelbearing rubber which were
magnetically removed, and to obtain a finer crumb (the coarse crumb has very few
uses), the crumb must be subjected to a second re-grinding, which may or may not
be cryogenic. This is normally done in a knife mill capable of disintegrating
the crumb into smaller particles or in a hammer-mill.
Costs and Expenses
The foregoing is expected to result in significantly smaller initial capital
requirements and drastically lower continuing energy and maintenance costs.
Avoidance of Problems Associated With Tire
Disintegration Methods in Current Use.
The proposed TCS-1 System has been designed to avoid the problems described
opposite which arise out of current tire disintegration methods by insuring that
the steel and fiber components of the tire are not subjected, at any time, to
chopping, shredding, or hammer or knife-milling operations which destroy the
integrity of the wire or cord-like configurations of the steel and fiber. This
is expected to prevent the creation of steel powder and fiber fluff.
Disintegration will be accomplished solely through the exertion of pressure. The
TCS-1 System disintegration process is not expected to break the steel wires or
to affect their integrity in any way. Based upon performance tests of the TCS-1
System's proprietary disintegration mechanism, the Company expects that the
TCS-1 System's ability to prevent the creation of steel powder will result in
easy and efficient separation and removal of the steel by magnetic means,
without the substantial loss of rubber powder which occurs with the methods
described opposite.
The fiber, which will not lose its thread or cordlike configuration, will be
broken in the disintegration process into lengths of from 1/2 to 4 inches.
Rubber that is attached to the fiber creates a saleable product with unique
properties. Furthermore, tests indicate that, in this form, the fiber can be
easily separated from the rubber crumb by passing it through wire mesh screens.
The salvaged steel wire pieces and fiber threads will be useable and saleable.
Based on the foregoing and on test results, Management believes that: (i) the
rubber powder yielded by the TCS-1 System will contain only an insignificant
amount of fiber and steel; (ii) wastage of salvageable rubber powder will be
reduced from the approximately 30% associated
42
In using a hammer or knife-mill for this operation, however, the following
problems arise: (i) running at an efficient speed, the fiber fluff (which is
contained in the rubber crumb) may clog the mechanism; and (ii) the action of
the hammer or knife-mill will heat the rubber to the point where it will become
so soft that instead of being pulverized into a powder, it will simply be
softened and mashed and thereby will further clog the mechanism.
To avoid these problems, the hammer or knifemilling operations can be conducted
at low feed rates, which will reduce the foregoing problems, but which may not
be economically feasible. Conventional cryogenic systems deal with this problem
by using liquid nitrogen to cool the previously chopped and shredded material
before feeding it into the hammer or knife-mill. Some ambient systems do not
freeze the rubber, but instead inject liquid nitrogen directly into the mill to
keep the rubber from softening.
Knife-milling or hammer-milling operations will create further problems because
all of the fiber and steel, which is mixed in with the rubber crumb, will have
been ground up and pulverized along with the rubber, with the following results:
(i) the steel components of the tires will have been ground or pulverized into a
fine powder, which cannot be allowed to remain as a contaminant in the rubber
powder if the rubber is to have any economic value. The steel must therefore be
removed magnetically. However, the fine steel powder will be thoroughly mixed in
with the rubber powder, the magnetic action which is meant to pull out the
minute particles of steel, will necessarily also draw out substantial amounts of
the surrounding rubber particles. Losses of rubber powder resulting from the
magnetic removal of the steel powder are estimated to amount to approximately
15% of the total rubber powder produced. Such wastage adds substantially to the
cost of useable product yielded by these systems. The steel powder is not
useable for any purpose and has no economic value. It must be transported and
deposited in landfills which again adds to the cost of any useable product
produced. (ii) The thread or cord-like configuration of the fiber will have been
disintegrated into the cotton-like "fluff"
with the use of conventional cryogenic or ambient systems to an estimated 3%.
(iii) instead of unusable steel powder and fiber fluff, which recyclers must pay
to have hauled away and deposited in landfills, the TCS-1 System will yield
clean useable, and saleable reclaimed steel and fiber as well as two types of
rubber powder containing only insignificant amounts of fiber and steel.
43
described above. This fluff will attract and hold significant amounts of the
powdered rubber and steel. Separation of the steel and rubber particles from the
fiber fluff is nearly impossible because the fine particles are trapped in the
entangling strands and adhere to them. It is estimated that up to 15% of the
rubber powder will be trapped in the fiber fluff and drawn out with it. The
fluff has no current economic value and actually constitutes a liability because
it must be transported and disposed of, usually as landfill.
The wastage of up to 15% of the rubber powder, which results from losing the
rubber which is trapped in the fiber fluff, together with the additional 15% of
the rubber powder which clings to the pulverized steel particles when they are
removed magnetically, brings total losses of rubber powder to approximately 30%,
which is reflected in a concomitant increase in the cost of the product
produced.
Recovery Ratio
Current shredding operations recover on average twelve pounds, representing 75%,
of the rubber contained in every twenty pound tire. All of the fiber and steel,
and the balance of the rubber components of each tire are, in most cases, not
reclaimed, for the reasons described above. The result is a loss of
approximately eight pounds of unrecovered, unrecycled rubber, steel, and fiber,
representing 40% of the constituent materials of the tire, which must be
transported and disposed of in landfills or other solid waste disposal
facilities.
Recovery Ratio
For the reasons described above, and based on performance tests of the scale
model prototype of the TCS-1 System's proprietary disintegration mechanism,
Management expects that almost all of the rubber, steel, and fiber components of
the tire will be recovered in useable and saleable condition.
Production and Supply
The Company has been engaged in designing and developing, and intends
within the current fiscal year to begin manufacturing, on a commercial basis,
its proprietary cryogenic tire disintegration system, referred to herein as the
"TCS-1 System". The Company's activities to date have focused on the design and
creation of the TCS-1 System. In connection with these activities, the Company
has been dependent on arrangements with its subcontractors for the manufacture
and assembly of the principal components incorporated into the TCS-1 System (see
"Agreements With Subcontractors", below).
44
If the Company is able to raise sufficient funding and if no presently
unforeseen problems with the technology develop, the Company expects to commence
manufacturing the TCS-1 System on a commercial basis prior to the end of 1997.
The Company intends to continue to effect all TCS-1 System manufacturing
operations through its subcontractors. It will therefore be substantially
dependent on the ability of such subcontractors to satisfy performance and
quality specifications and to dedicate sufficient production capacity for all
TCS-1 System scheduled delivery dates. The Company believes that all of its
subcontractors have the requisite manufacturing capabilities and the willingness
to dedicate sufficient amounts of their manufacturing capacity to allow the
Company to meet all TCS-1 System delivery dates, currently scheduled or expected
to be scheduled for not less than the next two years. However, no assurance can
be given that this will in fact be the case and failure on the part of the
Company's subcontractors in these regards would adversely affect the Company's
ability to manufacture and deliver TCS-1 Systems on a timely and competitive
basis. In such event the Company would have to replace or supplement its present
subcontractors. There can be no assurance that should it be necessary to do so,
the Company would be able to find capable replacements for its subcontractors on
a timely basis and on terms beneficial to the Company, if at all; The Company's
inability to do so would have a material adverse effect on its business.
Components of the TCS-1 Systems, which are not manufactured by the
Company's subcontractors specifically for the TCS-1 System, will be purchased,
either directly by the Company or indirectly through its subcontractors from
third-party manufacturers. The Company believes that numerous alternative
sources of supply for all such components are readily available.
Agreements With Subcontractors
The Company has entered into agreements with three machinery
manufacturing, engineering and designing firms located in Quebec. Two of such
firms have accepted unregistered and restricted shares of Company's Common Stock
in payment of part of their fees. The following is a discussion of the principal
terms of the subcontractor agreements:
Agreement with Fedico, Inc.
In January of 1997, the Company entered into an agreement (the "Fedico
Agreement") with Fedico, Inc. of St-Xxxxxx, Quebec ("Fedico"), a machinery
design firm located in Quebec. Prior thereto, Fedico had provided consulting and
other design engineering services to the Company since the spring of 1996.
Pursuant to the terms of the Fedico Agreement, Fedico will act as the project
leader, guiding the over-all design and engineering of the TCS-1 System. In
addition to supervising the over-all assembly and start-up procedures of the
first full-scale production model of the TCS-1 System, Fedico will design,
engineer, and fabricate certain peripheral equipment. The term of the Fedico
Agreement is for seven years, retroactively effective as of September, 1996.
The Agreement provides further that Fedico will:
(a) collaborate with the Company on development of initial specification
requirements, by way of: (i) researching and evaluating the
available applicable technologies; (ii) conceptualizing designs
concepts; (iii) preparing preliminary layout drawings of each
component and of the integration thereof into the TCS-1 System;
(b) prepare detailed preliminary layout designs of each element of the
TCS-1 System;
45
(c) prepare detailed drawings of each element of the TCS-1 System and
prepare the "xxxx of materials" which is a complete list of all
components of the System;
(d) be present or available, during the assembly of the TCS-1 System to
correct any problems that may arise;
(e) be present or available during start-up procedures upon completion
of the assembly of the TCS-1 System and correct any problems that
arise during the course of such procedures;
(f) upon commencement of satisfactory operation of the TCS-1 System,
revise all drawings to produce complete, final, "as-built" designs
and prepare a documentation package for the facilitation of the
operation and maintenance of the System.
The Fedico Agreement also provides for the retention of Fedico for a
minimum of five hundred hours per year during the course of such agreement at
reasonable, competitive hourly rates for technicians, draftsmen, and
intermediate engineers, with overtime, on-site services, and travel expenses at
prevailing market rates. The terms of the Fedico Agreement are substantially as
set forth in detail in the Company's annual report on Form 10-KSB for the year
ended June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product Proposed Agreement
with Fedico, Inc.".
Agreement with Xxxxxxxx Freres Limitee
In January of 1997, the Company entered into an agreement (the "Xxxxxxxx
Agreement") with Xxxxxxxx Freres Limitee ("Xxxxxxxx"), a subsidiary of Xxxxxxxx
Inc., of Montreal, Quebec. Xxxxxxxx, specializes in custom design and
fabrication of industrial machinery. With its sister companies, Foresteel
(specializing in pressure vessels and welding) and Atelier D'Usinage Xxxxxx
(specializing in high precision machining), Xxxxxxxx is widely recognized for
its extensive experience and expertise in designing and constructing equipment
used in the pulp and paper, metallurgy, fiber, power generation, and many other
industries. Xxxxxxxx had been providing the Company with design consulting and
other valuable design engineering services to the Company since the spring of
1996. In recognition of services rendered by Xxxxxxxx prior to the finalization
of the Xxxxxxxx Agreement, it was made retroactively effective as of July 23,
1996. Services provided by Xxxxxxxx prior to January 1997 included the
completion of the initial design specifications for the TCS-1 System's
Disintegration Unit Assembly.
Under the terms of the Xxxxxxxx Agreement, Xxxxxxxx was retained to design
and construct a prototype disintegration unit for the TCS-1 System at
competitive rates. Xxxxxxxx agreed to accept payment of approximately one-third
of its price for the foregoing in 340,160 unregistered shares of the common
stock of the Company. The stock portion of such price was issued to Xxxxxxxx on
January 17, 1997. Prior to such date, that part of the design work on the
disintegration system, which was allocated to the stock portion of the purchase
price, had been completed.
The terms of the Xxxxxxxx Agreement are substantially as set forth in
detail in the Company's annual report on Form 10-KSB for the year ended June 30,
1996. For further details, reference is made to the discussion contained in Item
I of the 1996 10-K under "Proposed Product - Proposed Agreement with Xxxxxxxx
Freres Limitee".
46
Agreement with Plasti-Systemes, Inc.
In January of 1997, the Company entered into an agreement (the
"Plasti-Systemes Agreement") with Plasti-Systemes, Inc. ("Plasti-Systemes") of
Ville D'Anjou Quebec. Prior to that date, Plasti-Systemes had been providing
consulting services respecting the design, construction, and installation of the
"front-end" of the TCS-1 System under agreed upon terms, but without a written
agreement. The PlastiSystemes Agreement provides for Plasti-Systemes to design
(including rendering of all necessary engineering drawings), construct, and
install the "front-end" of the TCS-1 System. The Front End System will consist
of a series of mechanisms which will automatically, at the rate of three tires
per minute: (i) clean and debead the tires; (ii) separate the sidewalls from the
treads; (iii) cut both sidewalls and treads into sections ready for processing;
and (iv) transport the beads and tire sections into separate areas for disposal
or processing.
The Plasti-Systemes Agreement, which was made retroactively effective as
of October 16, 1996, covers mechanical work and equipment. Plasti-Systemes
agreed to accept payment of 26% of its total price for the foregoing 255,010
unregistered shares of the common stock of the Company. The stock portion of
such price was issued to Plasti-Systemes on January 17, 1997. Prior to such
date, that part of the design and engineering work on the front-end system,
which was allocated to the stock portion of the purchase price, had been
completed. The terms of the Plasti-Systemes Agreement are substantially as set
forth in detail in the Company's annual report on Form 10-KSB for the year ended
June 30, 1996. For further details, reference is made to the discussion
contained in Item I of the 1996 10-K under "Proposed Product - Proposed
Agreement with Plasti-Systemes, Inc.".
Proposed Services
TCS-1 System Maintenance:
Technical and Market Support
The Company requires all of its TCS-1 System purchasers to agree to enter
into a Maintenance and Technical and Market Support Agreement (the "Proposed
Maintenance Agreements"). In connection therewith the Company intends to provide
timely, high quality technical support to insure that the TCS-1 System will
perform in conformance with its specifications. Until the test phase of the
first production sized model of the TCS-1 System is completed, the Company will
be unable to finalize the definitive parameters of the services which it intends
to offer under the Proposed Maintenance Agreements. Currently proposed plans
call for the Company, or the Company's designated service provider, to provide,
or be responsible for, all technical and other labor necessary for the
maintenance of the TCS-1 System at a performance level capable of disintegrating
the equivalent of one million automobile tires per year on a twenty-four hour
per day, three hundred sixty-five day per year basis, in accordance with an
operations and performance specifications manual to be furnished to the
customer.
The Proposed Maintenance Agreements are expected to require the Company to
provide (i) regularly scheduled on-site preventive maintenance including but not
be limited to inspection and assessment of wear factors affecting all
constituent components of the System and determination and effectuation of
replacement and/or recalibration requirements and (ii) unscheduled remedial
maintenance, on an as needed basis. Other responsibilities which the Company, or
its authorized service provider, are intended to assume under the Proposed
Maintenance Agreements will include: (i) providing and maintaining computerized
equipment to monitor and document the performance by the operator of the TCS-1
System of all routine maintenance procedures; (ii) reviewing the data retrieved
thereby on a monthly, or more frequent, basis; (iii) immediately advising the
operator of any improper performance of
47
any of such Procedures; (iv) providing remedial instructions to the Operator's
personnel with respect to the proper performance of certain routine maintenance
procedures to be performed by the TCS-1 System Operator, and; (v) upon request
of the Operator, re-training its personnel. The Proposed Maintenance Agreements
are intended also to provide that the Company, or its authorized service
provider, will provide an initial training period for the operator's personnel
as well as continuing training, seminars and updates, on an as needed basis.
The Proposed Maintenance Agreements are also intended to provide for
additional technical and market support including Pre-Operational Support by way
of, among other things: (i) assistance to the Operator with respect to
procedures and requirements related to obtaining all licenses, permits, and
other requirements for the establishment and operation of a TCS-1 System Plant,
including the development, documentation, and furnishing of all required
technical, environmental, operational, and other information and data; (ii)
instructions and assistance with respect to all applicable federal, state, and
local regulations and requirements respecting the preparation of the site and
the installation and operation of a TCS-1 System at the site.
In addition, the Proposed Maintenance Agreements will require that the
Company, or its authorized service provider establish and maintain laboratory
facilities at which they shall:
(a) test and monitor the quality and properties of the rubber crumb
produced by the TCS-1 System, including but not limited to: (i)
total production rates (ii) the comparative percentages of various
crumb rubber mesh sizes produced, and (iii) wear factors existing or
developing in the disintegration mechanisms, so as to generate a
continual data base for the anticipation and determination of the
maintenance, remediation, and recalibration requirements of the
disintegration mechanisms and all other constituent components of
the System under actual operating conditions;
(b) test and monitor, on a continuing basis, oil samples from the TCS-1
System so as to ascertain and monitor the wear factors on the
bearings and on other components of the System;
(c) record and maintain all test data and records for the TCS-1 System
in a monthly log to be furnished to the operator at regular
intervals on a monthly basis, or on request by the operator, and be
available to the Operator at all times to discuss the meaning and
significance of all test results and any remedial or other actions
which such data indicate is necessary or advisable;
(d) creating and developing new products and uses for rubber crumb
produced by the TCS-1 System.
It is intended that the Company, or its authorized service provider will
also be responsible for certain accounting and record keeping services,
including providing accounting software to monitor the operations and output of
the TCS-1 System. It is intended that the Proposed Maintenance Agreements will
also impose obligations upon the Company, or its authorized service providers to
stock replacement parts for the TCS-1 System in order to minimize any
interruptions in the continual operation of the System.
The monthly maintenance fee for all services to be provided by the
Company, or its authorized service provider under the Proposed Maintenance
Agreements is presently expected to be $9,500 per month.
48
Negotiations With Proposed Service Provider
The Company is presently negotiating with Xxxxx Xxxxxxx ("Xxxxxxx"), a
director of the Company and the controlling person of the two entities
(Ocean/Ventures III, Inc. and Oceans Tire Recycling & Processing Co., Inc.)
which have ordered nine of the ten TCS-1 Systems presently on order, to organize
and operate a maintenance company capable of serving as the Company's authorized
service provider and meeting all of the above described responsibilities. Xx.
Xxxxxxx has worked closely with the Company on the development of the TCS-1
System and the proposed maintenance and technical support program. Xx. Xxxxxxx
is a highly respected, knowledgeable, and experienced operator of recycling
organizations in New Jersey and the Company believes that he is eminently
qualified to organize and head its maintenance and technical support effort.
While the parties have not yet entered into an agreement respecting the terms
under which Xx. Xxxxxxx or an organization under his control will direct the
Company's maintenance services, they are currently in negotiations respecting
such arrangements. Currently, however, the Company expects that the service
provider to be organized and operated by Xx. Xxxxxxx will be paid a flat fee of
$4,000 per month to cover all of the services described above. The service
provider is also expected to furnish, at no additional cost, all equipment
necessary to effect the provision of such services.
Proposed Tire Shredding Operations
The Company has taken preliminary steps to enter a new related business
segment. Plans for these proposed operations include on-site scrap tire
shredding operations in Quebec under a five-year, government sponsored stockpile
abatement program (the "Quebec Program") which will fund the clean-up of scrap
tire stockpiles at the rate of Cdn $1.00 (approximately $0.72 U.S., at current
exchange rates) for every tire recycled and removed. In connection therewith,
the Company is presently engaged in negotiations with CG TIRE, Inc. ("CGT"), a
wholly owned subsidiary of Continental General Tire Inc. ("General Tire")(4) and
Recyc-Quebec, the Canadian government agency involved in designing and managing
the Quebec Used Tire Program. According to Recyc-Quebec, there could be more
than 30 millions tires accumulated in about 40 stockpiles in the province of
Quebec. As it is always the case for stockpile estimates in North America
however, these numbers are only approximate.
In order to qualify to participate in the Quebec Program and receive the
Cdn $1.00 per tire payment, recycling operations must take place in Quebec and
must be effected by a recycling company located in Quebec. The Company is
located in Quebec and it has been advised by Recyc-Quebec that the on-site
shredding operations which the Company proposes to conduct will qualify as a
"recycling activity" for purposes of the Quebec Program. The Company is seeking
a long-term commitment from the Quebec government for a total of Cdn $20,000,000
(approximately $14,400,000 U.S., at current exchange rates) to be allocated to
tipping fees of Cdn $1.00 per tire for the Company. In connection therewith,
meetings have been held and discussions have occurred by and among the Company,
CGT, Mr. Xxxxxxx Xxxxxx (the Vice-Premier of Quebec), and Xx. Xxxxxx Xxxxxxx
(the President of Recyc-Quebec). While the Company is reasonably optimistic
about the outcome of such meetings and discussions, it is unable to give any
assurance that it will in fact be successful in obtaining the firm commitment
from the government which it will require in order to commence operations in
this area. Moreover, even if the Company is able to move forward with this
project, there can be no assurance at this time that it will be profitable.
--------
(4) General Tire is the fourth largest tire manufacturer in the world. It has
denominated CG TIRE, Inc. as "The Continental General Tire Recycling Effort"
49
The Company is currently negotiating the terms of an agreement with CGT
which, while not finalized, presently contemplates that: (i) CGT would be
obligated to accept, for a tipping fee of Cdn $0.25 (approximately $0.18 U.S.)
per tire to be paid to CGT, up to 4 million tires per year in 2 inch chips; (ii)
The Company would be responsible for delivery of the tires to CGT in North
Carolina, in accordance with an agreed upon schedule and other terms. Current
plans contemplate that the Company would be responsible for acquiring the tires
from various Quebec stockpile owners, reducing the whole tires into 2" X 2"
chips with mobile shredders, and removing the tire chips from the sites by means
of truck transportation to a train off-loading facility in Quebec for transport
by train to CGT's facility near Charlotte, North Carolina.
On August 12, 1997, the Company entered into an agreement with Xx. Xxxxxxx
Xxxxxxx (the "Xxxxxxx Agreement") for the purchase of approximately 4.5 million
scrap tires presently owned by Xx. Xxxxxxx and stockpiled on his property in
St-Xxxx-Chrystostome, Quebec, for an aggregate purchase price of Cdn $175,000
(approximately $126,000 U.S., or $0.028 per tire, at current exchange rates).
Payment terms required a nonrefundable downpayment of Cdn $15,000 (approximately
$10,800 U.S. at current exchange rates) upon execution, with the balance payable
at the closing of the Xxxxxxx Agreement, which must take place on or before
October 31, 1997. The Xxxxxxx Agreement also provides that the Company will have
access to the property on which the tires are stockpiled and will be permitted
to conduct the shredding of the tires thereat. The Company will acquire only the
tire inventory and not the land on which it is stored nor any piece of equipment
situated thereon. The Company is currently in negotiations, and has received a
letter of intent from, the owner of another Quebec stockpile (the "Ganby
Stockpile") of approximately 500,000 tires, to acquire such tires free of
charge. In addition the Company is engaged in negotiations with the owner of the
largest scrap tire stockpile in Quebec (the "Franklin Stockpile"), located in
Franklin, just a few miles north of the NY State border, to secure supply for up
to 25 million additional tires. The Company is unable to state at this time
whether it will be able to close on the Xxxxxxx Agreement within the required
time period or what the eventual outcome of its negotiations respecting the
Ganby and Franklin Stockpiles will be.
The Company has retained Xxxxx de Xxxxx, a Montreal law firm specializing
in environmental law, to advise it with respect to any environmental liabilities
which the Company may incur in connection with these proposed operations and to
assist the Company with meeting all regulatory requirements and standards and
obtaining all permits and legal certificates required in connection therewith.
Sales and Marketing
Sales
The O/V III Agreements
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "O/V III L&P Agreement") with Ocean/Ventures III, Inc.("O/V III")
of Toms River, New Jersey ("O/V III"). This agreement modified the terms of, and
replaced, a prior agreement between the parties dated June 6, 1995 (the "Prior
O/V III Agreement").(5) O/V III is under common ownership and control with the
solid
--------
(5) Reference is made to the detailed discussion of the terms of the Prior O/V
III Agreement included in the subtopic "Sales and Marketing" under the caption,
"The O/V III Agreements" in Item I of the Company's annual report of Form 10-KSB
for the fiscal year ended June 30, 1996, attached as an Exhibit hereto.
50
waste recycling firm, Ocean County Recycling Center, Inc. Under the terms of the
L&P Xxxxxxxxx, X/X XXX Xxxxxxxxx, X/X III will purchase and lease the various
components which comprise the constituent parts of the TCS-1 System. The
Agreement provides for lease and purchase arrangements for eight Systems at an
aggregate lease and purchase price of three million dollars ($3,000,000) each.
Pursuant to the terms of the O/V III Agreement, certain non-proprietary
equipment (the "NonProprietary Equipment") will be purchased by O/V III for a
total purchase price of $2,250,000. Such equipment includes, but may not be
limited to: (i) all bailing systems contained in the TCS-1 System, including all
associated ancillary equipment and conveyance and exit belts, chutes and/or
other components combined or integrated therewith, and (ii) freezing xxxxxxxx
and cryogenic systems.
The other constituent components of the TCS-1 System comprise equipment
which is proprietary to the Company (the "Proprietary Equipment"). Such
Proprietary Equipment is, under the terms of the O/V III L&P Agreement, subject
to a five year operating lease, with monthly lease payments of $12,500 each. The
Proprietary Equipment consists of (i) the disintegration system including but
not limited to all grinders contained therein, and (ii) the separation systems,
including but not limited to: (a) a magnetic separator; (b) a fiber/crumb
separator; (c) fiber collector; (d) crumb rubber sizing system; and (e) all
integrated conveyance and exit belts, chutes, and other components.
The O/V III L&P Agreement calls for the delivery of the first System by
October 1998, with seven additional Systems scheduled for delivery every three
months thereafter, through July 2000. The Agreement requires a downpayment of
$25,000 for each System to be paid not less than fourteen months prior to the
anticipated delivery date. In an effort to assist the Company at this early
stage of its development, to date, O/V III has prepaid $25,000 down payments on
five Systems. Other payment terms for each of the eight systems subject to the
O/V III L&P Agreement, call for a $50,000 payment six months prior to the
anticipated delivery, an additional $100,000 to be paid three months prior to
the anticipated delivery date, and $1,825,000 on O/V III's acceptance of the
System.
Pursuant to the terms of the L&P Agreement, O/V III also entered into
certain ancillary agreements with the Company, consisting of the following:
(a) a royalty agreement (the "Royalty Agreement") pursuant to which O/V
III will pay the Company a royalty of three percent (3%) of the
gross proceeds from all sales of rubber crumb fiber and steel from
scrap tires disintegrated through the utilization of the TCS-1
System;
(b) a rubber crumb purchase option agreement (the "Rubber Crumb
Agreement") pursuant to which O/V III has granted to the Company and
option to purchase up to 40% of the rubber crumb, yielded by the
disintegration of scrap tires in the TCS-1 System, at negotiated
prices. The Company is currently exploring the feasibility of
vertically integrating its operations so as to include the rubber
crumb brokerage business and/or the value-added rubber crumb product
development business. It obtained the rubber crumb purchase option
in connection with the foregoing.
The parties also agreed that they would enter into a maintenance and
technical support agreement (the "Maintenance and Technical Support Agreement")
pursuant to which the Company or its designated service provider ("Service
Provider") will provide or be responsible for all technical and other labor
necessary for the maintenance of the TCS-1 System at a performance level capable
of disintegrating the equivalent of one million automobile tires per year on a
twenty-four hour per day, three hundred sixty-five day per year basis. Services
to be provided shall include but not be limited to the following: (i) regularly
scheduled on-site preventive maintenance, which shall include but not be limited
to inspection and
51
assessment of wear factors affecting all constituent components of the System
and determination and effectuation of replacement and/or recalibration
requirements, and (ii) unscheduled remedial maintenance, on an as needed basis.
Both scheduled and unscheduled service maintenance will include adjustments and
replacement of parts, as deemed necessary by the Service Provider. The Company
is presently in negotiations with Xxxxx Xxxxxxx, a principal of O/V III, with
respect to the possibility of Xx. Xxxxxxx'x establishing an equipment
maintenance company to serve as the Company's Service Provider for all Systems
sold by the Company, including but not limiting to the eight Systems to be
purchased by O/V III;
Agreements with Oceans Tire Recycling & Processing Co., Inc.
On May 29, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "OTRP L&P Agreement") with Oceans Tire Recycling & Processing
Co., Inc. ("OTRP"), a New Jersey corporation under common control with O/V III.
Pursuant to the OTRP L&P Agreement, OTRP will purchase the first production
model TCS-1 System. Under the terms of the Agreement, the anticipated delivery
date for this System was September 15, 1997. The parties have agreed however to
waive delivery at such date and to reschedule a new delivery date. OTRP will
accept delivery at the Company's facility in Montreal to allow initial test
phase operations to be conducted under supervision of both the Company and OTRP.
This will also create an opportunity for OTRP's personnel to be trained by the
Company's technical staff in the operation of the TCS-1 System.
The terms of the OTRP L&P Agreement, pursuant to which the constituent
components of the TCS-1 System will be leased and or purchased, are
substantially identical to those of the O/V III L&P Agreement, as described
above. The only significant differences are in the purchase price and payment
terms. The purchase price for the Non-Proprietary Equipment is $1,225,000 and
the terms of the 60- month operating lease call for monthly lease payments of
$8,770 each. Accordingly, the aggregate lease/purchase price under the OTRP L&P
Agreement is $1,751,200. OTRP has obtained "precommencement" sale and lease-back
financing from an outside source for the Non-Proprietary Equipment being
purchased under the Agreement. Pursuant thereto, OTRP has been making lease
payments since April of 1997. The terms of OTRP's lease financing arrangements
provide for the lessor to deliver the purchase price payments directly to the
Company, to be used to fund the construction of the first TCS-1 production
model. To date, approximately $605,000 of such financing has been paid to the
Company and used for such purpose.
Pursuant to the terms of the OTRP L&P Agreement, upon execution thereof,
the parties also entered, or agreed to enter, into the same types of ancillary
agreements as are described above with respect to the O/V III L&P Agreement,
i.e., a maintenance and technical support agreement, a royalty agreement, and a
rubber crumb purchase option agreement. The terms of all of such ancillary
agreements are identical to those described above in connection with the O/V III
Agreements.
The Recycletron Inc. Agreements
On July 8, 1997, the Company entered into an Equipment Lease and Purchase
Agreement (the "Recycletron L&P Agreement") with Recycletron Inc.
("Recycletron") of Montreal, Quebec. Pursuant to the Recycletron L&P Agreement,
Recycletron will purchase one TCS-1 System, with delivery scheduled for the end
of the second quarter of 1998. The terms of the Recycletron L&P Agreement,
pursuant to which the constituent components of the TCS-1 System will be leased
and or purchased, are substantially identical to those of the O/V III L&P
Agreement, as described above. The only significant differences are in the
purchase price and payment terms. The purchase price for the Non-Proprietary
Equipment is $2,000,000 and the terms of the 60-month operating lease call for
monthly lease payments of $12,500
52
each. Accordingly, the aggregate lease/purchase price under the Recycletron L&P
Agreement is $2,750,000. Upon execution of the Agreement, Recycletron paid a
$25,000 down payment. Other payment terms require additional payments of
$100,000 six months prior to the anticipated delivery date, $125,000 prior to
the anticipated delivery date, and $1,750,000 upon Recycletron's acceptance of
the System.
Pursuant to the terms of the Recycletron L&P Agreement, upon execution
thereof, the parties also entered, or agreed to enter, into the same types of
ancillary agreements as are described above with respect to the O/V III L&P
Agreement, i.e., a maintenance and technical support agreement, a royalty
agreement, and a rubber crumb purchase option agreement. The terms of all of
such ancillary agreements are identical to those described above in connection
with the O/V III Agreements.
Backlog
As of September 18, 1997, the Company's backlog amounted to $28,501,200.
Backlog includes firm orders under executed Equipment Lease and Purchase
Agreements. The amount shown includes the aggregate of: (i) the full purchase
price for those parts of the TCS-1 System which will be sold by the Company, and
(ii) total lease payments under the five-year operating lease which forms part
of every Equipment Lease and Purchase Agreement. The $28,501,200 backlog
presently booked includes: (i) one TCS-1 System ordered by OTRP for an aggregate
lease/purchase price of $1,751,200, for which the Company has already received
prepayment of $605,000 toward the purchase price; (ii) eight systems ordered by
O/V III for an aggregate lease/purchase price of $3,000,000 each, for which the
Company has already received over $130,000 by way of prepayments of the $25,000
downpayments (due for each system fourteen months before the scheduled delivery
date of such System) on five of the eight Systems ordered by O/V III; and (iii)
one TCS-1 System ordered by Recycletron for an aggregate lease/purchase price of
$2,750,000, for which the Company has received a $25,000 down payment. The
foregoing ten TCS-1 Systems are scheduled for delivery between November 1997 and
July 2000, with two of such Systems (the OTRP and Recycletron Systems) scheduled
for delivery during the current fiscal year. The balance of the ten Systems
currently on order are scheduled for delivery between November 1998 and July
2000.
The Company has not included in its backlog any revenues which may result
from the Royalty Agreements which all TCS-1 System purchasers must enter into
with the Company. These Royalty Agreements entitle the Company to receive a
royalty in the amount of 3% of the gross revenues from sales of rubber crumb
produced by the TCS-1 System. The Company has also not included an additional
$5.7 million dollars in revenues which it expects to receive under the Proposed
Maintenance Agreements to be signed in connection with the ten Systems already
on order (see "Proposed Services", above).
Although the stated backlog may be used as a guideline in determining the
value of orders which are presently scheduled for delivery during the period
indicated, it is subject to change by reason of several factors including
possible cancellation of orders, change in the terms of the contracts, and other
factors beyond the Company's control and should not be relied upon as being
necessarily indicative of the Company's revenues or of the profits which the
Company might realize when the results of such contracts are reported.
53
Dependence on Major Customer
To date the Company has received orders for ten TCS-1 Systems, eight of
which were ordered by Ocean/Ventures III, Inc.("O/V III") of Toms River, New
Jersey ("O/V III") and one of which was ordered by Oceans Tire Recycling &
Processing Co., Inc. ("OTRP"). Both O/V III and OTRP are under the control of
Xxxxx Xxxxxxx. The loss of either of these two customers would have a major
adverse effect on the Company. However, the Company also believes that while Xx.
Xxxxxxx'x companies comprise the initial TCS-1 System purchasers, future sales
efforts will be widespread and, as the Company matures and its business
develops, it will not be dependent upon the business of one or more major
customers.
Marketing and Distribution
Potential Markets
The Company believes that the potential market for its TCS-1 System can be
expected to directly reflect the level of demand for economical, high quality
rubber crumb derived from the recycling of scrap tires.
The following discussion of the potential markets for rubber crumb assumes
that the TCS-1 System will be capable of economically producing high quality
recycled rubber crumb, in a variety of sizes, capable of being used in a wide
range of products. While this accurately reflects management's present
expectations, it should be noted that the TCS-1 System is still in the research
and development stage. Further, because development of the TCS-1 System is at an
early stage, the Company cannot give any assurance with respect to if, or when,
it will in fact be able to complete the design and construction of the TCS-1
System in accordance with its plans and specifications or that, if completed,
the TCS-1 System will perform as expected. Therefore, even if the demand for
rubber crumb should increase in accordance with the Company's expectations,
there can be no assurance that a concomitant development of demand for the TCS-1
System will develop.
Effect of Environmental Concerns
on Development of New Markets for Scrap Tires
Until approximately 1990, low tipping fees made landfills the most popular
option for the disposal of scrap tires. In fact, according to the Scrap Tire
Management Council (the "STMC"), until that time, management and market
development efforts for scrap tires were non-existent or minimal. This was
reflected in the fact that in 1990, only 25 million (approximately 11%) of the
scrap tires generated annually in the United States were marketed for any
purpose whatsoever. The remaining 89% were dumped or stockpiled. However, within
the past few years, changes in the market for scrap tires has been swift and
dynamic, resulting in significant market application alternatives to the
landfilling and stockpiling of scrap tires.
The STMC reported in its "Scrap Tire Use Disposal Study - 1996 Update"
(which was published in April of 1997 and is referred to herein as the "STMC
Study"), that significant progress has been achieved with respect to development
of scrap tire management alternatives to landfilling and stockpiling. In 1996,
market applications were found for 76% of all scrap tires (or 202 million
tires). This means, however, that even as of 1996, 64 million additional tires
(or 24% of the annually generated scrap tires that year) were still being
landfilled or stockpiled in the United States alone.
Notwithstanding the foregoing progress, in most developed countries, the
traditional dumping of tires in landfills has been completely banned or the
number of tires legally permitted to be dumped has
54
been substantially reduced. Unfortunately, such measures often have the effect
of simply exacerbating the problem of illegal tire dumping and above ground
stockpiling. Increasingly in the United States, individual states sponsor scrap
tire management programs. By 1994, 48 states had legislated laws governing and
regulating proper handling, recovery, reuse, and disposal of discarded scrap
tires. To date, over 34 of such states have provided at least some of the
funding needed to build and support the tire recycling infrastructure which is
or will be required to assure that the state's annual generation of scrap tires,
as well as its already stockpiled tires, will be recovered, reused, and
recycled. In Canada, most provinces have similar regulations. As a result of
this proliferation of state regulations and the influence of the environmental
movement, national attention has increasingly focused on the need to develop
alternative methods of scrap tire disposal.
Market for Rubber Crumb
Rubber is a valuable raw material and the Company believes that recycling
this valuable resource from scrap tires is an ideal way to recover that value.
Recycled scrap tire rubber is already used in a great variety of products,
promoting longevity by adding it to asphalt pavement, adding bulk and providing
drainage as a soil additive, providing durability as a carpet underpadding,
increasing resiliency in running track surfaces and gymnasium floors, and
absorbing shock and lessening the potential for injuries as a ground cover for
playgrounds and other recreational areas.
Recycling tires into reusable rubber crumb (or "ground rubber") was, as of
1996, the third largest use of scrap tires. "Rubber Crumb" is the end product of
the tire disintegration processes discussed in, "Products and Services" below.
The ideal rubber crumb is a powder, which can be produced in various particulate
sizes, ranging from relatively coarse to very fine, and which is not
significantly contaminated by fiber and metal particles. As noted above, the
STMC Study reported that the largest use presently being made of scrap tires is
burning them as tire derived fuel, with export (for refitting and reuse as
tires) taking second place. However, as noted above, the use of scrap tires for
ground rubber experienced an enormous surge during the last two years,
increasing two hundred and seventy-seven percent (277%) from 4,500,000 tires in
1994 to 12,500,000 tires in 1996. Historically, most rubber crumb available and
sold in the market was derived not from recycled scrap tires, but from tire
"buffings". This situation has recently improved significantly, however, with
tire buffings now representing 52% and scrap tires representing 48% of source
material for rubber crumb. According to the STMC, the demand for rubber crumb
for various uses could experience further substantial increases over the next
two to five years, with expected overall growth in sales of rubber crumb from
25% to 33%. The Company believes that because the supply of buffings is limited,
the main source of an increased supply of rubber crumb must come from scrap
tires.
At present, there are at least seven general categories of markets for
rubber crumb of various sizes and grades. These consist of the following:
* Rubber Modified Asphalt ("RMA", 168 million pounds in 1996): Rubber
crumb can be blended with asphalt to modify the properties of
asphalt used in highway construction. Rubber crumb can be used
either as part of the asphalt rubber binder, seal coat, cape seal
spray, or joint and crack sealant (generally referred to as
"asphalt-rubber") or as an aggregate substitution (rubber modified
asphalt concrete or "RUMAC"). At present, the cost of using
asphalt-rubber and RUMAC is somewhat higher than conventional
materials. However, the service life of such products has proved in
some cases to be two to three times that of conventional asphalt
pavements. While the use of ground rubber in asphalt pavement has a
large potential market, certain technical issues must be addressed
before the potential can be reached. The ability to recycle asphalt
pavement containing ground rubber and the development of standards,
particularly for materials testing and the
55
environment are the key issues to be addressed. In general,
asphalt-rubber, or the "wet process", has proven to be the most
successful product, representing approximately 95% of the RMA market
in 1996, according to the STMC. States using RMA to a significant
degree include Arizona, California and Florida, with lesser activity
in Kansas and Texas.
* Bound Rubber Products (134 million pounds in 1996): Ground or
powdered scrap tire rubber is formed into a set shape, usually held
together by an adhesive material such as urethane or epoxy. Examples
of such applications are injection molded products and extruded
goods such as railroad crossing pads; dock bumpers, patio floor
blocks, flooring material, roof walkway pads, and carpet underlay.
* New Tire Manufacturing (48 million pounds in 1996): Fine rubber
crumb or powder reclaimed from scrap tires can be used as a low
volume filler material in both the tread and the sidewalls of new
tires. The percentage of recycled rubber that can be used in new
tires is somewhat in excess of 1.5%.
* Athletic and Recreational Applications (24 million pounds in 1996):
Coarse rubber crumb can be used in several applications, such as in
running track material, grass surfaced playing areas, or as a
substitute for playground surfaces. The use of rubber crumb for
these purposes will generally make playing surfaces and running
tracks more resilient and less rigid, but capable of maintaining
traction and shape.
* Molded and Extruded Plastics and Rubber (18 million pounds in 1996):
Finely ground scrap tire rubber can be placed into production molds
to form products for the automotive industry, such as sound
insulation, step pads, truck and trailer liners, matting and drip
irrigation pipes. Management believes that there are significant
potential markets for these applications which may result from
continuing research and development of products using a surface
modified rubber. There has also been increasing interest on the part
of automotive manufacturers in the purchase of products which
contain recycled rubber.
* Friction Material (8 million pounds in 1996): Coarse rubber crumb is
used in friction brake materials for brake pads and brake shoes.
Possibilities for Market Expansion and Added Value
Through Availability of More, and Higher Quality, Product
Notwithstanding the recent growth in the use of scrap tires for ground
rubber, this application represented only 6% of the market for scrap tires in
1996. The Company attributes this limited market penetration principally to the
lack of available high quality product. The TCS-1 System, however, has been
specifically designed to address this problem through the economical production
of high quality crumb rubber than is, to the best of management's knowledge,
currently being produced from scrap tires. The Company believes that increases
in the amount and quality of available crumb, at economically reasonable prices,
creatively marketed, will inspire new uses for rubber crumb and expand the range
and variety of products composed, in whole or in part, of such product.
Moreover, the Company believes that as the demand for rubber crumb recycled from
scrap tires increases, this market value will increase in proportion to the
quantity of product sold and will that the product will be come inherently more
valuable.
The Company believes that growth in the market for rubber crumb will
directly reflect a number of factors, including but not limited to: (i) the
amount of rubber crumb available; (ii) the cost of available
56
rubber crumb; (iii) the quality and characteristics of available crumb; and (iv)
the availability of suitable substitutes for rubber crumb.
There can be no assurance at this time, however, that the availability of
rubber crumb quality which the Company expects that the TCS-1 will be able to
produce, will necessarily lead to a significant expansion of the market for such
product, or if it does, that the Company will necessarily benefit from such
expansion.
Distribution
The Company's objective is to market and distribute its products
worldwide, through national and international distributors and sales
representatives. However, to a large extent the Company has to date
concentrated, and is continuing to concentrate, its efforts on completing the
design, development, and construction of the first production model of the TCS-1
System and raising adequate financing to support such efforts. It has,
therefore, not yet commenced a full scale marketing campaign and does not intend
to do so until the production model is complete and adequate funding is
available to cover the costs thereof. During the last two fiscal years and the
subsequent period, the Company has however taken initial steps to prepare a
foundation for a world-wide marketing program. In connection therewith, the
Company has taken the following steps during the last fiscal year:
(a) Appointed Xxxxx Xxxxxx as Vice President of Market Development to
oversee market and product development activities;
(b) Entered into negotiations with Xxxx Xxxxxxxx, a director of the
Company, with respect to his serving as Sales and Marketing director
for Europe;
(c) Obtained the agreement of Xxxxx Xxxxxxx, a director of the Company
and the principal of Ocean Ventures III, Inc. and Oceans Tire
Recycling & Processing Co., Inc. to accept appointment as the
Company's exclusive sales distributor in the United States and
Puerto Rico (see the discussions under the caption, "Sales"; see
also Item 12. "Certain Relationships and Related Transactions" in
the Company's annual report on Form 10-KSB for the fiscal year ended
June 30, 1997, enclosed as an exhibit hereto).
The Company can make no assurances with respect to the success of its
distribution strategy. Furthermore, the Company has limited resources to achieve
the distribution of its products and no assurances can be given that the Company
will not require additional financing, which may not be available, to achieve
such objective.
Market Research and Development Studies
In January of 1997, the Company retained Gapco Inc., a market research
firm located in Madrid, Spain, headed by Xxxx Xxxxxxxx(6). The study indicated
that the tire recycling Industry in Spain is in its infancy but is under
pressure to desist from the current practice of landfilling with unshredded
tires, and concludes that there is therefore a possible opportunity at this time
for the introduction of alternative scrap tire disposal methods.
--------
(6) Xx. Xxxxxxxx, a director of the Company, was appointed as Sales and
Marketing Director for Europe in July of 1997 after the completion of such
study.
57
Similar studies are being conducted in the rest of Europe, India and
Pakistan. The company believes that both India and Pakistan are potential
importers of ground rubber, or rubber crumb. This is based on the fact that
these countries are expanding their tire and auto manufacturing capacities and
are already experiencing supply shortages in rubber and carbon black. Based on
the initial research, the Company believes that the recycling of tires would
eventually gravitate toward production of products that can be assimilated in
industries which manufacture any products which use rubber and plastic in their
manufacture.
Canadian Operations
Tirex Canada
The governments of Canada and, in particular, the province of Quebec, have
officially acknowledged the pivotal role played by business investment in
research and development in ensuring sustained economic growth and long-term
prosperity. In order to encourage such activities, these governments support
research and development programs by granting individuals and businesses tax
incentives that encourage technological development in Quebec. As a result,
Quebec offers the most generous tax incentives for research and development
programs of which the Company is aware. In May of 1995, in an effort to take
advantage of such financial incentives, the Company formed a Canadian
corporation, 3143619 Canada Inc. (referred to herein as "Tirex Canada") in the
Province of Quebec, Canada, for the purpose of completing all research and
development work on the first production model of the TCS-1 System and,
thereafter, to serve as the Company's manufacturing arm. For a discussion of the
initial capitalization of Tirex Canada, the distribution of its shares among the
Company and officers and directors of the Company who are Canadian residents,
the terms of the shareholders agreement pursuant to which such shares are held,
including but not limited to the rights of the Company to regain 100% record
ownership of Tirex Canada, reference is made to the discussion under the caption
"Existing and Proposed Canadian Financing, Manufacturing, and Research and
Development Operations" in Item 1 of the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1996, enclosed as an exhibit hereto.
The Tirex Canada License
Tirex Canada holds an exclusive, ten year license to design, develop, and
manufacture the TCS-1 System in North America. The terms of the said license
require that Tirex Canada may manufacture TCS- 1 Systems only upon and pursuant
to specific purchase orders and requires that Tirex Canada sell all TCS-1
Systems which it manufactures exclusively to the Company.
Canadian Financial Assistance - Grants and Commitments
Transfer of the Company's research and development, and its proposed
manufacturing, activities to Tirex Canada has made the Company eligible for
various Canadian and Quebec government programs which provide grants and tax
incentives for eligible investment, research and development, and
employeetraining activities. Canadian and Quebec tax incentives take the form of
deductions and tax credits with respect to eligible research and development
expenditures. Certain tax credits are refundable when they exceed the tax
payable. Thus such credits function effectively as monetary grants. To qualify
for such tax credits, research and development activities must comprise
investigation or systematic technological or scientific research conducted
through pure or applied research, undertaken to advance science and
58
develop new processes, materials, products or devices or to enhance even
slightly existing processes, materials products or devices.
Refundable tax credits are calculated as a percentage of eligible research
and development expenses. They are called "refundable" because to the extent
that the amount of the tax credit exceeds the taxes payable, they are paid over
or "refunded" to the taxpayer. During the last fiscal year, virtually all of the
activities connected with the development and construction of the first
production model of the TCS-1 System qualified as eligible expenses. Moreover,
some approved, anticipated tax credits for contemplated research and development
expenditures can serve as "receivables" for the collateralization of debt. In
this regard, the Company received the following grants and commitments since
moving its operations to Quebec in the summer of 1995:
(a) On March 22nd, 1996, the Ministry of Industry, Trade, and Commerce
of Quebec (the "Quebec MITC") accepted a feasibility study,
conducted by Techtran: Technology Transfer Institute, a
technology-based consulting and project financing organization
specializing in the development, financing, and project
implementation of new technologies. To qualify for financial aid
under this program, studies must be carried out by independent
Quebec consulting firms, be related to eligible projects to be
established in Quebec, and be done in respect of admissible
projects. To be deemed "admissible", projects must address one of
the industrial sectors under the responsibility of the Quebec
Ministry of Industry, Commerce, Science and Technology (the "Quebec
MICST") while being consistent with the government industrial
development policy. The development of the TCS-1 System was
confirmed as an "admissible project" in this regard when the
Techtran Feasibility Study was accepted by the Quebec MITC. In
connection therewith, the Company received a total of $36,800
Canadian dollars, from the Quebec MITC in refundable tax credits,
representing reimbursement of 40% of Company's costs for the said
study.
(b) On May 6, 1996, the Company received a commitment for a contribution
of up to $500,000 Canadian dollars (approximately $360,000 United
States dollars at current exchange rates) under the Industrial
Recovery Program for Southwest Montreal for the development of the
TCS-1 System. Such commitment comprises repayable loans in an
aggregate amount not to exceed the greater of (i) approximately US
$370,370 or (ii) twenty percent of the total costs actually paid by
the Company in connection with the development of the TCS-1 System.
To date, the Company has received a total of $450,000 Canadian
dollars (approximately $326,000 United States dollars at current
exchange rates) under such loan commitment. The balance will be
available to the Company upon completion of the project.
(c) On October 16, 1996, the Company obtained an "Agreement for
Financial Assistance For Technology Development" (the "Recyc-Quebec
Agreement") from La Societe Quebecoise de Recuperation et de
Recyclagez ("Recyc-Quebec"). Pursuant thereto, Recyc-Quebec, a
provincial government organization, has agreed to provide the
Company with financial assistance consisting of the grant of an
amount equal to fifty percent of the total eligible expenses of the
development of the first full scale, production model of the TCS-1
System (the "Project"), up to an amount of seventy five thousand
Canadian dollars (Cdn $75,000) (approximately fifty-four thousand
United States dollars [US $54,000] at current exchange rates). To
date the Company has received 50,000 Canadian dollars (approximately
thirty-eight thousand, four hundred United States dollars [US
$38,400] at current exchange rates) under this agreement. Such
payment was based upon Recyc-Quebec's receipt and acceptance of the
Company's proofs of payment of eligible expenses in the approximate
amount of Cdn $ 76,800 (approximately US $56,064). The Company will
be
59
able to obtain the balance of 25,000 Canadian dollars (approximately
nineteen thousand, two hundred United States dollars [$19,200] at
current exchange rates) after it has paid 100% of all eligible
expenses related to the Project and a final report respecting the
achievements of the Project has been delivered to and accepted by
Recyc-Quebec.
Research and Development
The Company's technical expertise has been an important factor in its
development and is expected to serve as a basis for future growth. Since its
inception, the Company has devoted substantial resources to the design and
development of the TCS-1 System as well as to raising the financing necessary
for such activities. The Company expended approximately $600,000 on research and
development activities during the fiscal year ended July 1997, (virtually ) all
of which funds were applied to the design, development, and construction of the
first TCS-1 production model.
Research and Development activities during the fiscal year ended June 30,
1997, focused on completion of the engineering design of the TCS-1 System and
redesign of the front end system to increase automation and optimize
performance.
All of such activities were carried out by the Company's engineering and
technical staff, consisting of Xxxxx X. Xxxx, Vice President in Charge of
Engineering, and Xxxx Xxxx, Program Director, who devoted 100% of their time to
such projects. Such activities were conducted in conjunction with the Company's
outside Consultant, Bentley Environmental Engineering Inc., and the Company's
outside subcontractors, Plasti-Systemes, Fedico, Inc., and Xxxxxxxx Freres,
Limitee.
Although the basic design and development of the TCS-1 is expected to be
brought to completion by the end of 1997, the Company intends to continue to
seek to refine and enhance its tire disintegration technology and to enhance it
to comply with emerging regulatory or industry standards or the requirements of
a particular customer. The Company also intends to endeavor to develop new
products and uses for the rubber crumb produced by the operation of the TCS-1
System.
Employees
During the fiscal year ended June 30, 1997, the Company had seven
employees including its officers: Xxxxxxx X. Xxxxx, Xxxxx X. Xxxx, Xxxx
Xxxxxxxx, and Xxxxx Xxxxxx, its in-house Corporate and Securities Counsel, its
Technical Program Director, and one secretary-receptionist. All of the foregoing
persons devote their full time to the business and affairs of the Company. The
Company also utilizes the services of several part-time consultants to assist
them with market research and development and other matters. The Company intends
to hire additional personnel, as needed.
Patent Protection
On December 18, 1996, the Company filed patent applications in the United
States and Canada based on provisional priority under preliminary patent
applications filed on December 19, 1995. On October 23, 1997, the Company's
application was allowed and pursuant thereto a United States Patent on the
Company's cryogenic tire disintegration process and apparata will be issued with
priority as of
60
December 19, 1995. Upon issuance of the said United States patent, the Company
will submit the patent examination papers to the Canadian authorities. The
Canadian patent, when issued, will also have a priority date of December 19,
1995. Prior to its having filed for patent protection, the Company relied on
trade secrets, proprietary know-how and technological innovation to develop its
technology and the designs and specifications for the TCS-1 System. The Company
has entered into confidentiality and invention assignment agreements with
certain employees and consultants which limit access to, and disclosure or use
of, the Tirex technology. There can be no assurance, however, that the steps
taken by the Company to deter misappropriation or third party development of its
technology and/or processes will be adequate, that others will not independently
develop similar technology and/or processes or that secrecy will not be
breached. In addition, although the Company believes that its technology has
been independently developed and does not infringe on the proprietary rights of
others, there can be no assurance that the Company's technology does not and
will not so infringe or that third parties will not assert infringement claims
against the Company in the future. The Company believes that the steps it has
taken to date will provide some degree of protection and that the issuance of a
patent pursuant to its application will materially improve this protection.
However, no assurance can be given that this will be the case or that the
Company will in fact be granted a patent. No assurance can be given, in the
absence of a final court determination, that any particular patent is valid and
enforceable or that any patent may not be the subject of patent infringement
claims. The Company has no present knowledge of any information which would
adversely affect the issuance of a patent pursuant to its current application
or, should a patent be granted, the validity thereof.
On or about September 13, 1996, the Company received a letter from
attorneys for a New York based recycling company respecting its filing for
worldwide patent protection for a tire recycling process utilizing a natural air
freezing system and claiming that, upon issuance of its Canadian patent, the
Company's recycling process would be the subject of a patent infringement claim.
The Company responded to such letter on September 20, 1996 stating its position
that any such claim would be completely without merit. The Company has received
no further communications respecting this matter. Since that time, a member of
the Company's engineering staff and the Company's patent agent have examined the
patent which was involved in this matter and have concluded that the
specifications thereof are different from those of the patent for which the
Company has applied and that no meritorious patent infringement claim could
arise in connection therewith.
Competition
The Company knows of no devices, apparatus or equipment, utilizing
technology which is identical or comparable to the TCS-1 System, which are
presently being sold or used anywhere in the world, nor is it aware of any
patents relating to the Technology. However, the Technology and the TCS-1
System, if and when developed, may reasonably be expected to compete with
related or similar processes, machines, apparata or devices for tire
disintegration, cryogenic or otherwise. Moreover prospective competitors which
may enter the field may be considerably larger than the Company in total assets
and resources. This could enable them to bring their own technologies to more
advanced stages of development with more speed and efficiency than Company will
be able to apply to the TCS-1 System. Additionally, manufacturers of presently
available equipment may be in a position to operate research and development
departments dedicated continually to improving conventional systems and to
developing new and improved systems. There can be no assurance that the
Company's Technology or the TCS-1 System, if developed, can successfully compete
with existing systems or with any improved or new systems which may be developed
in the future.
61
Government Regulation
While the Company's equipment manufacturing operations may not be directly
subject to extraordinary government regulations, the operations of the
purchasers and operators of such equipment may be subject to extensive and
rigorous government regulation designed to protect the environment. The
Company's proposed rubber crumb re-grinding, and on-site tire shredding,
operations will, however be directly subject to these types of government
regulation. As a result, the business of the Company will be directly or
indirectly subject to, and may be affected by, government regulations.
Management does not expect that the operation of the TCS-1 Systems, the
re-grinding operations, or the on-site tire shredding will result in the
emission of air pollutants, the disposal of combustion residues, or the storage
of hazardous substances (as is the case with other tire recycling processes such
as pyrolysis). However, establishing and operation any of the foregoing types of
plants for tire recycling will require numerous permits and compliance with
environmental and other government regulations, both in the United States and
Canada and in most other foreign countries. Moreover, the Company is currently
making preparations to enter into a five-year tire shredding project in Quebec
(see "Proposed Tire Shredding Operations"). These operations, as well as the
businesses of TCS-1 System operators, may involve, to varying degrees and for
varying periods of time, the storage or "stockpiling" of scrap tires which, with
their size, volume and composition, can pose a particularly serious
environmental problem. Among the numerous problems relating to stockpiling scrap
tires, is the fact that when stockpiled above ground, tires create serious fire,
public health, and environmental hazards ranging from fires, which generate
large and dense clouds of black smoke and are extremely difficult to extinguish,
to the creation of vast breeding grounds for mosquitoes and vermin. As a result,
many states have either passed or have pending legislation regarding discarded
tires including legislation limiting the storage of used tires to specifically
designated areas. For reasons including, but not limited to the problems
described above, the Company and the purchasers of its TCS-1 Systems will be
subject to various local, state, and federal laws and regulations including,
without limitation, regulations promulgated by federal and state environmental,
health, and labor agencies.
Compliance with applicable environmental and other laws and regulations
governing the business of the Company may impose a financial burden upon the
Company that could adversely affect its business, financial condition,
prospects, and results of operations. Likewise, the burden of compliance with
laws and regulations governing the installation and/or operation of TCS-1
Systems could discourage potential customers from purchasing a TCS-1 System
which would adversely affect the Company's business, prospects, results, and
financial condition. Actions by federal, state, and local governments concerning
environmental or other matters could result in regulations that could increase
the cost of producing the recyclable rubber, steel, and fiber which are the
by-products from the operation of the TCS-1 System and make such by-products
less profitable or even impossible to sell at an economically feasible price
level.
The process of obtaining required regulatory approvals may be lengthy and
expensive for both the Company and for its TCS-1 System customers. Moreover,
regulatory approvals, if granted, may include significant limitations on either
the Company's or its customer's operations. The EPA and comparable state and
local regulatory agencies actively enforce environmental regulations and conduct
periodic inspections to determine compliance with government regulations.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent the Company or its TCS-1 customers from
obtaining, or affect the timing of, regulatory approvals.
The Company believes that existing government regulations, while
extensive, will not result in the disability of either the Company or its TCS-1
System customers to operate profitably and in compliance with such regulations.
In this regard, it has retained environmental attorneys in Montreal to advise it
with respect to compliance with local environmental regulations applicable to
its proposed tire shredding operations. It has also engaged a consultant to
advise purchasers of its TCS-1 Systems with respect to compliance with local
environmental regulations applicable to the installation and operation of the
TCS-1
62
System. To date, the Company has not had to make significant capital
expenditures relating to environmental compliance because it has not yet
commenced operations. However, the inception of equipment manufacturing and,
possibly, tire shredding operations together with continually changing
compliance standards and technology, may affect the Company's future capital
expenditure requirements relating to environmental compliance. Moreover, since
all government regulations are subject to change and to interpretation by local
administrations, the effect of government regulation could conceivably prevent,
or delay for a considerable period of time, the development of the Company's
business as planned and/or impose costly requirements on the Company or on its
TCS-1 System customers, which could cause or result in competitive advantages to
the Company's competitors or make the Company's or its TCS-1 customers'
businesses less profitable, or unprofitable, to operate.
Properties
The Company's corporate headquarters are located at 000 Xx. Xxxxxxx, Xxxxx
000, Xxxxxxxx, Xxxxxx, X0X 0X0. 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-Xxxxxxx Inc. The lease provides
for monthly rental payments of 2,825 Canadian Dollars (approximately 2,034
United States Dollars at current exchange rates). Rental payments are inclusive
of all taxes, utilities, and any other applicable fees or charges. The lease is
renewable for an additional three years at market rates then prevailing.
The Company intends during the present fiscal year to rent or purchase a
manufacturing and storage facility of approximately 100,000 square feet to be
used for assembling and warehousing the TCS- 1 Systems, as they are manufactured
by the Company.
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LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
RPM Incorporated
There are no pending or threatened legal proceedings against RPM or to
which RPM is a party or of which any of its assets is the subject. No director,
officer, or affiliate of RPM, or any associate of any of them, is a party to or
has a material interest in any proceeding adverse to RPM or Tirex.
The Tirex Corporation
Tirex is the defendant in an action, commenced on June 18, 1997, in the
United States District Court for the District of New Jersey, entitled Great
American Commercial Funding Corp. vs. Tirex America Inc. The action arises out
of a certain "placement fee agreement", executed by Tirex in February of 1996,
under which Tirex, among other things, undertook to pay the plaintiff a
"placement fee" in the amount of $250,000 and to grant to the plaintiff an
option to acquire 400,000 shares of the company's common stock, at a price of
$0.01 per share, in the event, and only in the event, that plaintiff succeeded
in obtaining financing acceptable to Tirex. Although the amount and terms of the
"financing" were not mentioned in the documents, it was clearly understood by
the parties that Tirex was then seeking to obtain, and that
63
the agreement contemplated, financing in an amount (assumed necessarily to be in
the multi-million dollar range), adequate to fund the design and development of
the TCS-1 System and to enable Tirex to initiate manufacturing such Systems on a
commercial basis. Under the Agreement: (i) the plaintiff did not undertake to do
anything other than "attempt" to secure financing acceptable to Tirex and (ii)
Tirex had absolute discretion whether or not to accept any and all "financing"
proposals.
Several months elapsed after Tirex signed the Agreement without plaintiff
ever introducing Tirex to any third party which was ready, willing, and able to
produce the kind and type of financing which the plaintiff knew the defendant
was seeking and needed. However, plaintiff did recommend a firm in Long Island
which was engaged in the business of equipment lease financing. Tirex then
introduced one of its customers to the such lease financing firm. The customer
ultimately entered into a lease financing arrangement with such firm, pursuant
to which Tirex was able to obtain some limited amounts of predelivery funds, but
only because the customer agreed to do so, and the customer's principals fully
collateralized any and all advance payments/loans made by or through the lease
financing firm. Because the advances made to Tirex pursuant to that
lease-financing arrangement clearly did not in any way constitute the type of
financing contemplated by the parties or the Agreement, Tirex believes it has no
financial obligation to the plaintiff pursuant to said "placement fee
agreement".
Tirex has filed an Answer denying any liability to the plaintiff in light,
among other things, of the foregoing facts, and asserting, among other things,
that: (i) the agreement was induced by plaintiff's material misrepresentations;
(ii) enforcement thereof would be clearly unconscionable in the circumstances;
(iii) plaintiff never introduced Tirex to any third party which was ready,
willing, and able to produce the type of financing which the plaintiff knew
Tirex was seeking and needed; and (iv) the so-called "placement fee agreement"
was merely an offer for a unilateral contract which was terminated or revoked,
and notice of such revocation was timely communicated to plaintiff before it
rendered any substantial performance in reliance upon the offer. Tirex and its
litigation counsel, Xxxxxxx X. Xxxxx, believe that the plaintiffs complaint is
without merit and that Tirex ultimately will prevail in this litigation.
Tirex is unaware of any other pending or threatened legal proceedings to
which it is a party or of which any of its assets is the subject. No director,
officer, or affiliate of Tirex, or any associate of any of them, is a party to
or has a material interest in any proceeding adverse to Tirex.
--------------------------------------------------------------------------------
DESCRIPTION OF SECURITIES
--------------------------------------------------------------------------------
Description of Securities Being Offered Hereby
Common Stock of RPM
The authorized capital stock of RPM consists of twenty-one million shares
(21,000,000) shares, par value $.001 per share, of which twenty million
(20,000,000) shares are designated Common Stock, par value $.001 per share, and
one million (1,000,000) shares are designated Preferred Stock, par value $.001
per share. There are presently three million (3,000,000) shares of RPM Common
Stock and no shares of Preferred Stock issued and outstanding.
64
RPM's Board of Directors may determine the times when, the terms under
which, and the consideration for which, RPM shall issue, dispose of or receive
subscriptions for its shares, including treasury shares, or acquire its own
shares. The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value per share. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
nonassessable by RPM.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote of each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of RPM.
RPM Debentures
The Debentures bear interest at an annual rate of 10% from the date of
their issue: payable semi-annually commencing six months from the issue date.
They are due and payable on the first to occur of: (i) two years from the issue
date or (ii) the completion and closing of a public offering of its securities
by the Maker (RPM prior to the Merger discussed above or Tirex after the
Merger). The Debentures are subject to anti-dilution provisions which may be
activated under certain conditions, including but not limited to a reverse split
of the issued and outstanding securities of Tirex. The Debentures shall be
convertible, in whole or in part, at any time prior to maturity, at a conversion
rate of $.20 per share, into the Common Stock of RPM (prior to the Merger) or
the Common Stock of Tirex (after the Merger). If a Debenture is not converted,
it may be redeemed by the holder any time after Maturity at 100% of the
principal amount of the Debenture plus all interest accrued thereon. The
Debentures have no voting rights. Each of the shares of Common Stock included in
the Units and issuable upon conversion of the Debentures (the "Conversion
Shares") will be Common Stock and will have one vote. The Debentures and the RPM
Shares comprising the Units are not separable or transferable under any
conditions prior to March 31, 1998.
Common Stock of Tirex
The authorized capital stock of Tirex consists of fifty million shares
(50,000,000) shares, par value $.001 per share, of which thirty-five million
(35,000,000) shares are designated Common Stock par value $.001 per share, and
fifteen million (15,000,000) shares are designated Open Stock, par value $.001
per share. There are presently thirty-eight million, seven hundred seventy-four
thousand, six hundred twenty-five (38,774,625) shares of Common Stock issued and
outstanding. The Open Stock may be issued from time to time, in one or more
classes, or one or more series within any class thereof, in any manner permitted
by law, as determined from time to time by Tirex's Board of Directors, and
stated in the resolution or resolutions providing for the issuance of such
shares adopted by Tirex's Board of Directors, each class or series to be
appropriately designated, prior to the issuance of any shares thereof, by some
distinguishing letter, number designation or title. All shares of stock in such
classes or series may be issued for such consideration and have such voting
powers, full or limited, or no voting powers, and shall
65
have such designations, preferences and relative, participating, optional, or
other special rights, and qualifications, limitations or restrictions thereof,
permitted by law, as shall be stated and expressed in the resolution or
resolutions, providing for the issuance of such shares adopted by Tirex's Board
of Directors pursuant to authority vested in Tirex's Certificate of
Incorporation. The number of shares of stock of any class or series within any
class, so set forth in such resolution or resolutions may be increased (but not
above the total number of authorized shares) or decreased (but not below the
number of shares thereof then outstanding) by further resolution or resolutions
adopted by Tirex's board of directors pursuant to authority vested in it in
Tirex's Certificate of Incorporation.
Tirex's Board of Directors may determine the times when, the terms under
which, and the consideration for which, Tirex shall issue, dispose of or receive
subscriptions for its shares, including treasury shares, or acquire its own
shares. The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value per share. Upon
payment of such consideration, such shares shall be deemed to be fully paid and
nonassessable by Tirex.
The holders of shares of Common Stock are entitled to dividends when and
as declared by the Board of Directors from funds legally available therefore
and, upon liquidation, are entitled to share pro rata in any distribution to
shareholders. Holders of the Common Stock have one non-cumulative vote for each
share held. There are no pre-emptive, conversion or redemption privileges, nor
sinking fund provisions, with respect to the Common Stock.
Stockholders are entitled to one vote of each share of Common Stock held
of record on matters submitted to a vote of stockholders. The Common Stock does
not have cumulative voting rights. As a result, the holders of more than 50% of
the shares of Common Stock voting for the election of directors can elect all of
the directors if they choose to do so, and, in such event, the holders of the
remaining shares of Common Stock will not be able to elect any person or persons
to the board of directors of Tirex.
--------------------------------------------------------------------------------
MANAGEMENT OF RPM
--------------------------------------------------------------------------------
Name Age Office Held Date Appointed
---- --- ----------- --------------
Xx. Xxxxxx Xxxxxxxx 60 President and a Director August, 1996
Xxxx Xxxxxxxxx 76 Secretary, Treasurer and September, 1996
a Director
Xx Xxxxxxxxxxx 39 Assistant Secretary, Assistant March, 1997
Treasurer and a Director
Family Relationships
No family relationship has ever existed between any director, executive
officer of RPM or any person contemplated to become such.
66
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer, and significant employee
of Company:
XX. XXXXXX XXXXXXXX was elected a Director upon the organization of RPM
and has served the Company as President and Director since inception. He has
been a partner with Xx. Xxxxxxxxx in Madison Venture Capital II, Inc. a venture
capital firm, for more than the past five years. From 1968 until 1991, he held
various administrative positions within the New York State Department of Health,
including serving as special assistant to the Commissioner. Xx. Xxxxxxxx is a
graduate of the University of Maryland, received his Doctor of Dentistry from
Xxxxxx University, Washington, D.C., and received a Masters in Public Health
from the University of Michigan at Xxx Arbor. He was a Director of Servtex
International, Inc. from September 1991 until its merger with Hymedix, Inc. in
February 1994. In December 1991 he became a Director of Natural Child Care, Inc.
and, when it merged into Winners All International, Inc. in September 1992 he
became Secretary on a part time basis and served in that capacity until November
1994. In July 1993, he became a Director of Light Savers USA, Inc. and served
until February 1995 when that company was merged into Hospitality World Wide,
Inc. (HWS:AMEX). Xx. Xxxxxxxx was a Director and Secretary of Kushi
Macrobiotics, Inc. from May 1994 to October 1996 when it merged with American
Phoenix, Inc.
XXXX XXXXXXXXX was elected a Director, Secretary and Treasurer of RPM
shortly after the organization of the Company in August 1996. He has been a
partner with Xx. Xxxxxxxx in Madison Venture Capital II, Inc. a venture capital
firm, for more than the past five years. He was the owner, until 1984, of his
own business engaged in electronic distribution. Xx. Xxxxxxxxx was a founder of
Astrex, Inc. and its Chairman from September 1960 to August 1984. While he
remains a Director and Vice President of that entity, he devotes no time to it
other than attending Board Meetings. He was a Director of Servtex International,
Inc. from September 1991 until its merger with Hymedix, Inc. in February 1994.
In December 1991 he became a Director of Natural Child Care, Inc. and, when it
merged into Winners All International, Inc. in September 1992 he became
Treasurer on a part time basis and served in that capacity until November 1994.
In July 1993, he became a Director of Light Savers USA, Inc. and served until
February 1995 when that company merged into Hospitality World Wide (HWS:AMEX).
Xx. Xxxxxxxxx was a Director and Treasurer of Kushi Macrobiotics, Inc. from May
1994 to October 1996 when it merged with American Phoenix, Inc.
XX XXXXXXXXXXX was elected an officer and Director of RPM in March 1997.
From 1984 to February 1997, he held various positions in the securities
industry. In March 1997, Xx. Xxxxxxxxxxx became associated with Madison Venture
Capital II, Inc. Xx. Xxxxxxxxxxx also serves as President and CEO of Four Star
Capital Management, Inc. and as President and a Director of Four Star Capital
Markets, Inc. both companies being engaged in business consulting.
67
PRINCIPAL SHAREHOLDERS OF RPM
The following table sets forth as of the date of this Memorandum the names
of those persons holding more than 5% of the issued and outstanding shares of
RPM common stock and the percentages held by such persons as adjusted for the
maximum and minimum offering:
Number of % Before % After % After
Name Shares Held Offering Minimum Offering Maximum Offering
---- ----------- -------- ---------------- ----------------
Xx. X. Xxxxxxxx 1,130,000 37.67% 34.24% 29.35%
Xxxx Xxxxxxxxx 1,130,000 37.67% 29.35% 29.35%
Al. Xxxxxxxxxxx 400,000 13.33% 12.12% 10.39%
The remaining 340,000 shares of RPM Common Stock presently issued and
outstanding were issued to Xx. Xxxxxxxx and Xxxx Xxxxxxxxx in September, 1996
and were subsequently transferred by them to 18 persons. All such transfers were
completed by Xx. Xxxxxxxx and Xx. Xxxxxxxxx prior to March 31, 1997.
68
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MANAGEMENT OF THE TIREX CORPORATION
--------------------------------------------------------------------------------
Directors and Executive Officers of the Company
The following sets forth the names and ages of all directors and executive
officers of Company and the date when each director was appointed, and all
positions and offices in Company held by each such person. Each director will
hold office until the next annual meeting of shareholders and until his or her
successor has been elected and qualified:
Date
Offices Appointed
Name Age Held Director
---- --- ---- --------
Xxxxxxx X. Xxxxx 39 President, January. 18, 1995
Treasurer & Director
Xxxxx X. Xxxx 63 Vice President January 1, 1996
of Engineering &
Director
Xxxx X. Xxxxxxx 50 Director February 21, 0000
Xxxx X. Xxxxxxxx, Xx. 00 Xxxxxxxxx,
Xxxx President June 1, 1996
of Operations &
Director
Xxxxx Xxxxxxx 47 Director January 17, 1997
Xxxx Xxxxxxxx 49 Director January 17, 1997
Xxxxx Xxxxxx 46 Vice President of September 1, 1996
Market Development
Family Relationships
No family relationship has ever existed between any director, executive
officer of Company or any person contemplated to become such.
Business Experience
The following summarizes the occupation and business experience during the
past five years for each director, executive officer, and significant employee
of Company:
XXXXXXX X. XXXXX. Xx. Xxxxx has served as President, Treasurer, and a
Director of Company since January 18, 1995. He holds a Bachelor's degree in
Economics from Villanova University in Philadelphia. Xx. Xxxxx has been the
controlling shareholder and an officer and director of Bartholemew
69
& Xxxxx, Inc., a consulting firm specializing in corporate finance and general
business consulting, since its founding in January 1993. From September 1992
through August 1993, he directed European marketing and business development for
Pacer Systems Corporation, a public company engaged in the business of systems
engineering for high tech industries. From July 1989 to August 1992, Xx. Xxxxx
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, Xx. Xxxxx also
served as president and a director of Xxxxx 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.
XXXXX X. XXXX. Xx. Xxxx 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. Xx. Xxxx served as a Director of
Company from December 29, 1992 until January 18, 1995. He also served as
Company's Secretary from December 29, 1992 until March 1994 when he was
appointed President of Company, a position he held until January 18, 1995. Xx.
Xxxx 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 Xx. Xxxx as been the sole shareholder of
Ace Refiners Corp. of New Jersey, a precious metals refinery. From 1971 to 1974,
he worked as an independent consultant and from 1964 until 1971, he was director
of research and development for Vulcan Materials Corporation in Pittsburgh,
Pennsylvania, a public company engaged in the business of recovering useable tin
and clean steel from scrap tin plate. From 1960 to 1964, Xx. Xxxx was the sole
proprietor of Space Metals Refining Co. in Woodbridge, New Jersey, a company
involved in the purification of scrap germanium to transistor grade metal. From
1959 to 1960 he was employed by Chemical Construction Co., of New Brunswick, New
Jersey, where he developed a process for the wastefree production of urea from
ammonia, carbon dioxide and water. From 1954 to 1959, Xx. Xxxx worked in the
research and development department at U.S. Metals Refining Co. in Carteret, New
Jersey where he was involved with the refinement of precious metals.
XXXX X. XXXXXXX. Xx. Xxxxxxx holds a Bachelor of Science Degree in
Economics from Manchester University in England. He has acted as a director of
Pacer Systems Inc. since 1985. Pacer Systems is a publicly held company with
offices in Boston, Massachusetts and is engaged in the business of Systems
Engineering for high tech industries. Since 1993, Xx. Xxxxxxx has also served as
a consultant to Xxxxx Xxxxxxx International, an investment banking firm
headquartered in Monaco.
XXXX X. XXXXXXXX, XX. Xx. Xxxxxxxx holds a Bachelor of Arts Degree from
the University of North Carolina at Chapel Hill. He was an independent
representative for Primerica Financial Services from 1991 through 1994. From
1988 to 1990, Xx. Xxxxxxxx was an advertising account supervisor for Xxxxxxxx &
Puris Inc., an advertising firm in New York, assigned to the BMW of North
America account. From 1982 to 1988, Xx. Xxxxxxxx was a senior account executive
at Saatchi & Saatchie, Inc. in New York, assigned to the Toyota Account.
XXXXX XXXXXXX. Xx. Xxxxxxx holds a degree in marketing from Marquette
University. He is the President and a member of the Board of Directors of the
nation-wide, Construction Material Recycling Association. Since 1986, he has
served as President and CEO of Ocean County Recycling Center, Inc. ("Ocean
County Recycling"), in Tom's River, New Jersey. Ocean County Recycling is in the
business of remanufacturing construction and demolition debris for reuse as a
substitute for virgin materials in the construction and road building
industries. In addition, since 1989, Xx. Xxxxxxx has served as Vice President
and Chief Operating Officer of Ocean Utility Contracting Co., Inc., a New Jersey
Company engaged in the installation of sewer and water main pipelines and the
construction of new roadway
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infrastructure. From 1973 until 1990, Xx. Xxxxxxx was the President and Chief
Executive Officer of J and L Excavating and Contracting Co., Inc., a company
engaged in the construction of residential, commercial, industrial, and
government building. Xx. Xxxxxxx was a member of the Board of Directors of the
New Jersey state-wide Utility Transportation
XXXX XXXXXXXX. Xx. Xxxxxxxx holds a degree in Economics from Cambridge
University in England and an MBA degree from INSEAD in France. In addition to
serving as a Director of the Company, Xx. Xxxxxxxx will participate in
developing and will have charge of implementing the Company's projected
marketing operations in Europe and Asia. Since 1986, Xx. Xxxxxxxx has served as
president of FAISLESA, Arganda del Rey in Madrid, Spain. FAISLESA, a company
which Xx. Xxxxxxxx established in 1986 as a venture capital project, is a
manufacturer and applicator of thermal insulants and waterproofing products for
the construction industry. FAISLESA runs a network of regional distributors
throughout Spain and has its own application crews in the Madrid area. Xx.
Xxxxxxxx has full executive responsibility in all areas of manufacturing,
marketing, research, and administration of FAISLESA. Xx. Xxxxxxxx'x previous
business experience includes his work as a Eurocurrency trader in the
International Division of X.X. Xxxxxxx and Co. Ltd., Merchant Bankers in London
from 1968 to 1970, a management consultant for McKinsey and Company, Inc. in
Brazil, France, Germany, Holland, Italy, Spain, Switzerland, the UK and the
United States from 1971 to 1977, Managing Director of Satlan, S.A., a Madrid
firm involved in International trading of petroleum products and various
commodities from 1977 to 1980 and, President of Gapco, S.A., a Madrid commercial
and financial consulting firm (1980-1994).
XXXXX XXXXXX. Xx. Xxxxxx holds a Bachelor's degree in English Literature
and has attended business management, marketing, and behavioral sciences courses
at XxXxxx University in Montreal. She was appointed Vice President In Charge of
Market Development for the Company on September 1, 1996. From 1992 until she
joined the Company, Xx. Xxxxxx worked as an independent consultant in the area
of market research and market development. Pfizer Canada, CP Rail marketing
division and Techtran Technology Transfer Company were among her clients during
this period. From 1989 until 1992, Xx. Xxxxxx was a training specialist for CP
Rail System where she designed and implemented a drug and alcohol abuse control
program throughout North America. From 1981 to 1989, Xx. Xxxxxx worked as a
consultant with, among others, Proudfoot Consulting Firm on projects with Xxxx
Canada, Alberta Great Telephone, Firestone Bridgestone, East Midland Electric
Board in England, Columbus McKennin, and International Paper.
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