<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION NO. 333-16571
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSERVER CORPORATION OF AMERICA
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 0723 65-0675901
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2655 LEJEUNE ROAD, SUITE 535
CORAL GABLES, FLORIDA 33134
(305) 444-3888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHARLES H. STEIN, PRESIDENT
2655 LEJEUNE ROAD, SUITE 535
CORAL GABLES, FLORIDA 33134
(305) 444-3888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
IRA ROXLAND, ESQ. LAWRENCE B. FISHER, ESQ.
PARKER DURYEE ROSOFF & HAFT ORRICK, HERRINGTON & SUTCLIFFE LLP
529 FIFTH AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10103
(212) 599-0500 (212) 506-5000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED MARCH 11, 1997
PROSPECTUS
<TABLE>
<S> <C>
LOGO CONSERVER CORPORATION OF AMERICA
3,000,000 SHARES OF COMMON STOCK AND
3,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
</TABLE>
------------------------
This Prospectus relates to the offering (the "Offering") of 3,000,000
shares (the "Shares") of common stock, $0.001 par value per share (the "Common
Stock"), and 3,000,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") of Conserver Corporation of America, a Delaware corporation (the
"Company"). The Shares and Warrants are sometimes hereinafter collectively
referred to as the "Securities." Until the completion of this Offering, the
Shares and Warrants may only be purchased together on the basis of one Share and
one Warrant. Each Warrant entitles the registered holder thereof to purchase one
share of Common Stock at an initial exercise price of $8.40 per share at any
time during the period commencing six (6) months from the date of this
Prospectus and terminating five (5) years from the date of this Prospectus. The
Warrant exercise price is subject to adjustment under certain circumstances.
Commencing eighteen (18) months after the date of this Prospectus, the Company
may redeem all, but not less than all, of the Warrants at $0.10 per Warrant on
thirty (30) days' prior written notice to the warrantholders if the average
closing sale price of the Common Stock as reported on the Nasdaq SmallCap Market
("Nasdaq") equals or exceeds $15.00 for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that such a market will
develop after the completion of this Offering or, if developed, that it will be
sustained. For information regarding the factors considered in determining the
initial public offering prices of the Shares and Warrants and the terms of the
Warrants, see "Risk Factors" and "Underwriting." The Shares and Warrants will be
included for quotation on Nasdaq and will trade separately immediately after the
Offering under the symbols "RIPE" and "RIPEW", respectively.
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 7 AND
"DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=========================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Per Share....................... $6.00 $ $
- ---------------------------------------------------------------------------------------------------------
Per Warrant..................... $0.10 $ $
- ---------------------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
=========================================================================================================
</TABLE>
(1) Does not include additional compensation payable to National Securities
Corporation, the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance. In
addition, see "Underwriting" for information concerning indemnification and
contribution arrangements with the Underwriters and other compensation
payable to the Representative.
(2) Before deducting estimated expenses of $495,500 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters an option exercisable within 45
days after the date of this Prospectus to purchase up to an aggregate of
450,000 additional shares of Common Stock and/or 450,000 additional Warrants
upon the same terms and conditions as set forth above, solely to cover
over-allotments, if any (the "Over-allotment Option"). If the Over-allotment
Option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The Securities are being offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and subject
to approval of certain legal matters by their counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify this Offering and to reject any order in whole or in part. It is expected
that delivery of the Securities offered hereby will be made against payment in
New York, New York on or about , 1997.
NATIONAL SECURITIES CORPORATION
The date of this Prospectus is , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
<PAGE> 3
[CURRENTLY PREPARING ARTWORK FOR INSIDE FRONT COVER]
<TABLE>
<S> <C>
Pictured above are cherries & flowers Pictured above are cherries & flowers
after 10 days of storage without Conserver 21TM after 10 days of storage with Conserver 21TM
</TABLE>
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." Unless
otherwise indicated, all information in this Prospectus (i) assumes the
Over-allotment Option is not exercised, (ii) reflects the 2.128874-for-one stock
split and the 1.066194-for-one stock split effected by the Company in November
1996 and December 1996, respectively, and (iii) assumes the Warrants and the
Representative's Warrants to purchase 300,000 shares of Common Stock and/or
300,000 Warrants issued to the Representative in connection with this Offering
(the "Representative's Warrants") are not exercised. Such information also
assumes (i) that $750,000 in principal amount of outstanding indebtedness of the
Company which, by its terms, can be converted into 340,469 shares of Common
Stock, is not converted, (ii) outstanding options to acquire 941,965 shares of
Common Stock, as well as up to 600,000 shares of Common Stock issuable upon
exercise of future stock option grants under the Company's 1996 Stock Option
Plan, are not exercised, (iii) outstanding warrants to purchase 737,683 shares
of Common Stock are not exercised, and (iv) warrants to be issued to a holder of
convertible debt and its affiliate, upon the consummation of the Offering, to
purchase 1,248,386 shares of Common Stock are not exercised.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company has not engaged in any revenue producing activities
to date and anticipates commencing commercial operations no later than two
months following consummation of this Offering. As a result, the Company's
actual performance may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Conserver Corporation of America (the "Company") has licensed the exclusive
right to distribute, market, sell and otherwise commercially exploit Conserver
21(TM), a product composed of a non-toxic mixture of sepiolite and mineral
salts, to commercial users in the United States and Canada through May 2005,
subject to extension. Tests performed over the past 30 months by the Company,
the manufacturer and the distributor of Conserver 21(TM), respectively, as well
as by non-affiliated laboratories at the request of the manufacturer and
distributor in various parts of the world utilizing independently derived
protocols, have shown that the use of Conserver 21(TM) can extend the
post-harvest life of fruits, vegetables and flowers.
Conserver 21(TM) works like a sponge by cleansing from the atmosphere of a
storage or transport container ethylene and other gases emitted by fruits,
vegetables and flowers, thereby retarding their spoilage, lengthening their
post-harvest life and minimizing their shrinkage during ripening. These gases,
if allowed to remain in the atmosphere of the container, would be reabsorbed by
the perishable cargo during its maturation process, resulting in its accelerated
decay. Conserver 21(TM) also releases carbon dioxide and water vapor, thereby
assisting fruits, vegetables and flowers to maintain their freshness. Conserver
21(TM), a non-invasive product, is manufactured in the form of cylindrical
granules and placed in sealed filters or packets which are then positioned
within a storage or transport space.
The Company believes that Conserver 21(TM) can be used in conjunction with
a comprehensive quality assurance maintenance program to provide more
commercially saleable fruits, vegetables and flowers more reliably and cost
effectively than is achieved by current industry practices. It is currently
common for some growers of fresh fruits and vegetables to pick and ship their
products prior to their being fully ripened in an effort to reduce spoilage and
to minimize the extent of the natural decay that occurs in the transportation of
perishables. This often results in delivery of fruits and vegetables that are
unevenly ripened, have less mass and a compromised taste. Growers and
distributors have resorted to using expensive storage and transportation methods
in an effort to reduce the incidence of such commercially unsatisfactory
products. The Company believes that Conserver 21(TM) which, for illustrative
purposes, has the capacity, as demonstrated by independent testing, to extend
the post-harvest life of certain varieties of tomatoes, strawberries, sweet
peppers and lilies by as much as 7, 10, 9 and 5 days, respectively, offers an
improved alternative to such methods. The Company intends to develop a quality
assurance maintenance program utilizing Conserver 21(TM) that will provide
fruit, vegetable and/or flower inspection and supervision services from point of
harvesting or packing
3
<PAGE> 5
to point of retail sale (the "Conserver 21(TM) Program"). The Company intends to
market the Conserver 21(TM) Program to growers, distributors, supermarket chains
and other retailers who can benefit from the availability of more saleable
perishables.
The Company believes that the Conserver 21(TM) Program can offer the
following benefits:
- Increase in shelf-life of fruits, vegetables and flowers.
- Fruits and vegetables will be able to be harvested nearer their height of
ripeness, which would enable them to have higher sugar content, richer
color, greater weight and better taste.
- Shrinkage and spoilage of fruits and vegetables during storage will be
reduced, thus resulting in a greater product yield available for sale by
supermarkets and other retailers.
- The time and expense involved in handling and sorting of produce in
storage and transport will be reduced.
- The selling season for many fruits and vegetables will be extended.
- Reduction of the costs of transport of highly perishable fruits,
vegetables and flowers as slower and less expensive means can be utilized
due to the longer post-harvest life of the perishables.
The Company also intends to purchase seasonal fruits and vegetables, store
them utilizing its Conserver 21(TM) Program and then resell them "out of
season."
The Company's distribution and marketing rights are derived from a
Distribution Agreement with Conserver International B.V. ("BV") which, together
with its affiliates Conserver Engineering Ltd. ("Engineering") and Conserver
North America, Inc. ("Nord"), are based in Brussels and Paris and are
hereinafter referred to as "Groupe Conserver." Groupe Conserver's marketing and
distribution rights with respect to Conserver 21(TM) are derived from its
contractual arrangements with Conserver XXI, S.A. ("Conserver XXI"), a Spanish
company that manufactures and packages Conserver 21(TM) in Madrid and whose
principal stockholder is Alfonso de Sande Moreno, the developer of Conserver
21(TM).
The Company is aware of a dispute between Groupe Conserver and Conserver
XXI which could limit the Company's ability to obtain Conserver 21(TM) from
Groupe Conserver, the Company's current supplier, and result in the possible
impairment of the Company's marketing and distribution rights licensed to it by
Groupe Conserver. The Company has entered into an agreement by which it may
acquire substantially identical marketing and distribution rights over a longer
term directly from Conserver XXI, with improved pricing for Conserver 21(TM)
purchases, if required.
The Company was incorporated in the State of Delaware in March 1996. The
principal executive offices of the Company are located at 2655 LeJeune Road,
Suite 535, Coral Gables, Florida 33134, and its telephone number is (305)
444-3888.
4
<PAGE> 6
THE OFFERING
Securities Offered by the
Company....................... 3,000,000 Shares and 3,000,000 Warrants. The
Shares and the Warrants will be separately
transferable immediately following the
completion of this Offering.
Exercise Price of Warrants.... Each Warrant entitles the registered holder
thereof to purchase, at any time over a
fifty-four (54) month period commencing six (6)
months after the date of this Prospectus, one
share of Common Stock at a price of $8.40 per
share. The Warrant exercise price is subject to
adjustment under certain circumstances. See
"Description of Securities."
Redemption of Warrants........ Commencing eighteen (18) months after the date
of this Prospectus, the Company may redeem all,
but not less than all, of the Warrants at $0.10
per Warrant on thirty (30) days' prior written
notice to the warrantholders if the average
closing sale price of the Common Stock equals
or exceeds $15.00 for any twenty (20) trading
days within a period of thirty (30) consecutive
trading days ending on the fifth trading day
prior to the date of the notice of redemption.
See "Description of Securities."
Common Stock Outstanding
Before the Offering........... 9,556,745 shares
Common Stock to be Outstanding
After the Offering.......... 12,500,000 shares(1)
Use of Proceeds............... The net proceeds of this Offering will be used
for direct and collaborative marketing and
distribution, Conserver 21(TM) inventory
purchases, end-of-season fruit purchases,
storage and sales, research and development,
possible investment in either United States or
non-United States manufacturing facilities,
repayment of indebtedness and working capital
and general corporate purposes. See "Use of
Proceeds."
Risk Factors and Dilution..... An investment in the Securities offered hereby
involves a high degree of risk and immediate
and substantial dilution. Prospective investors
should consider carefully the factors set forth
under "Risk Factors" and "Dilution."
Proposed Symbols for Nasdaq(2)
Common Stock................ "RIPE"
Warrants.................... "RIPEW"
- ---------------
(1) Assumes the Company's re-acquisition of an aggregate of 56,745 shares upon
the consummation of this Offering from an affiliate of a holder of a
convertible debenture issued by the Company (the "SES Reacquisition"). See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation."
(2) The Nasdaq quotation does not imply that a liquid and active market will
develop, or be sustained, for the Securities upon completion of the
Offering. There can be no assurance that the Securities will continue to
meet the maintenance criteria for quotation on Nasdaq.
The Company has been granted exclusive rights to use the Conserver 21(TM)
licensed trademark in the United States and Canada solely in connection with the
marketing of Conserver 21(TM) products.
5
<PAGE> 7
SUMMARY FINANCIAL INFORMATION
The following summary financial data have been derived from the financial
statements of the Company. The statement of operations data set forth below with
respect to the period from March 6, 1996 (date of incorporation) to August 31,
1996, for the three months ended November 30, 1996 and the period from March 6,
1996 (date of incorporation) to November 30, 1996 and the balance sheet at
August 31, 1996 and November 30, 1996 are derived from, and are qualified by
reference to, the Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with those financial statements and notes thereto.
STATEMENT OF OPERATIONS DATA(1):
<TABLE>
<CAPTION>
MARCH 6, 1996 MARCH 6, 1996
(DATE OF THREE MONTHS (DATE OF
INCORPORATION) TO ENDED INCORPORATION) TO
AUGUST 31, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues............................... $ -- $ -- $ --
Compensation charges in connection with
issuance of options and
warrants(2).......................... 907,201 -- 907,201
General and administrative expenses.... 458,611 402,952 861,563
----------- ----------- -----------
Operating (loss)....................... (1,365,812) (402,952) (1,768,764)
Interest expense, net of interest
income............................... 21,259 73,993 95,252
----------- ----------- -----------
Net (loss)............................. $(1,387,071) $ (476,945) $(1,864,016)
=========== =========== ===========
Net (loss) per share of Common Stock... $ (.12) $ (.04) $ (.16)
=========== =========== ===========
Weighted average number of shares of
Common Stock outstanding............. 11,284,287 11,284,287 11,284,287
=========== =========== ===========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
---------------------------
AUGUST 31, AS
1996 ACTUAL ADJUSTED(3)
----------- ----------- -----------
<S> <C> <C> <C>
Working capital........................... $ 2,239,902 $ 1,674,777 $16,274,777
Total assets.............................. 2,443,436 2,499,620 17,099,620
Total current liabilities................. 199,156 686,269 586,269
Deficit accumulated during development
stage................................... (1,387,071) (1,864,016) (5,582,016)(4)
Stockholders' equity...................... 1,244,280 813,351 16,513,351
</TABLE>
- ---------------
(1) The Company is in the development stage, and has had no commercial
operations to date. See Note A of Notes to Financial Statements.
(2) Relates to non-cash charges recorded by the Company in connection with the
value attributed to options and warrants issued by the Company in March and
August 1996. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operation" and Note E of Notes to Financial
Statements.
(3) Gives effect to the sale by the Company of the Securities offered hereby at
an assumed initial public offering price of $6.00 per Share and $.10 per
Warrant and the initial application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(4) Includes non-cash compensation charges of approximately (i) $228,000 related
to the cancellation and reissuance of 56,745 options by the Company in
January 1997 at an exercise price of $.2202844 per share; (ii) $1,150,000
in connection with the issuance of options by the Company in January 1997
at an exercise price of $2.202844 per share; and (iii) $2,300,000 expected
to be recorded by the Company in connection with the value attributed to
warrants, issuable upon the consummation of this Offering to a holder of
convertible debentures and an affiliate thereof, exercisable for 1,248,386
shares of Common Stock at an exercise price of $.88 per share. See Note D
of Notes to Financial Statements.
6
<PAGE> 8
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company and
its business before purchasing the Securities offered hereby. Prospective
investors should be in a position to risk the loss of their entire investment.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth below and elsewhere in this Prospectus.
DEVELOPMENT STAGE COMPANY; NO OPERATING REVENUES; ACCUMULATED DEFICIT. The
Company is in the development stage and its operations are subject to all of the
risks inherent in the establishment of a new business enterprise, including the
need to obtain financing, lack of revenues, untested sources of supply and the
uncertainty of market acceptance of its business. Its activities since inception
have been primarily limited to negotiating the distribution agreement with the
several affiliated companies that collectively comprise Groupe Conserver (the
"Groupe Conserver Distribution Agreement") and privately raising approximately
$4,925,514 in both debt and equity funding to defray its organizational expenses
and the development of its initial business plan. The Company has not as yet
derived any revenues from operations and has incurred losses since inception.
Its accumulated deficit at November 30, 1996 was $1,864,016 which includes
non-cash compensation charges of $907,201 recorded in connection with the value
attributed to options and warrants issued by the Company in March 1996 and
August 1996 and $100,000 of non-cash compensation charges for services to the
Company by Charles H. Stein, its President and Chief Executive Officer. In
addition, the Company expects to record non-cash compensation charges of
approximately $1,378,000 related to options issued in January 1997 and
$2,300,000 upon the consummation of this Offering as a consequence of the
contemporaneous issuance of warrants upon the consummation of this Offering, to
a holder of convertible debentures and an affiliate thereof, to purchase
1,248,386 shares of common stock of the Company at an exercise price of $.88 per
share. No operating revenues are anticipated until such time, if ever, as the
Company can demonstrate the commercial viability of its Conserver 21(TM)
Program. There can be no assurance regarding whether or when the Company will
successfully implement its business plan or operate profitably. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation" and "Business" and Notes D and J of Notes to Financial Statements.
SOLE SOURCE OF SUPPLY; DISPUTE BETWEEN GROUPE CONSERVER AND CONSERVER XXI;
POSSIBLE IMPAIRMENT OF DISTRIBUTION RIGHTS. The Company will initially be
dependent upon Groupe Conserver for its supply of Conserver 21(TM) as the Groupe
Conserver Distribution Agreement requires the Company to purchase all of its
Conserver 21(TM) requirements from Groupe Conserver. Under certain circumstances
of non-supply, however, the Company may in the alternative either establish its
own domestic manufacturing facilities to produce Conserver 21(TM) or source
Conserver 21(TM) from others. The Company has encountered continuing delays in
obtaining Conserver 21(TM) from Groupe Conserver and believes that these delays
may be attributable to a dispute between Groupe Conserver and Conserver XXI. If
such dispute is not resolved, there is a possibility that Groupe Conserver,
which currently has no manufacturing facilities of its own and acquires
Conserver 21(TM) solely from Conserver XXI, may be unable to supply Conserver
21(TM) to the Company. Furthermore, as the Company's United States and Canadian
Conserver 21(TM) distribution and marketing rights are licensed from Groupe
Conserver which had itself licensed such rights from Conserver XXI, any
assertion by Conserver XXI that Groupe Conserver has breached its contractual
relationships with Conserver XXI would raise substantial uncertainties as to the
continuity of the Company's own distribution and marketing rights. Any sustained
impairment of the Company's ability to acquire Conserver 21(TM) may
significantly delay the Company's ability to commercialize its Conserver 21(TM)
Program. The Company, through a non-affiliated intermediary, has acquired an
option to acquire substantially similar rights for a longer term with improved
pricing for Conserver 21(TM) directly from Conserver XXI, which it would propose
to exercise only if Conserver XXI declares Groupe Conserver to be in default in
its obligations to Conserver XXI. The exercise of such option, however, may be
challenged by Groupe Conserver through the institution of legal proceedings. See
"-- No Current Manufacturing Capabilities; Delays Inherent in Establishment;
Completely Dependent on Outside Manufacturer" and "Business -- Groupe
Conserver --
7
<PAGE> 9
Distribution Agreement" and "-- Dispute between Groupe Conserver and Conserver
XXI; Company Option to Acquire Distribution Rights Directly from Conserver XXI."
REGULATORY REQUIREMENTS. The Company's intended utilization of Conserver
21(TM) to adsorb gases in storage or transport containers filled with fruits,
vegetables and flowers will result in the natural production of carbon dioxide,
which will have the effect of retarding the growth of microorganisms and fungi
also present in such containers. Such retardation effect, however, may result in
the technical classification of Conserver 21(TM) as a "pesticide" under the
rules and regulations of the United States Environmental Protection Agency
("EPA") and thus subject Conserver 21(TM) to the provisions of the Federal
Insecticide Fungicide and Rodenticide Act ("FIFRA"). The Company and its special
counsel, based on a review of the relevant statutes and regulations, have taken
the position that Conserver 21(TM) is not a pesticide. The Company has requested
a confirmation from the EPA that Conserver 21(TM) is not a pesticide, which
request has not as yet been acted upon. There can be no assurance that the EPA
will not determine Conserver 21(TM) to be a pesticide. Pesticides are required
to be registered with the EPA and their use is subject to compliance with EPA
labeling and packaging requirements. If the EPA determines that Conserver 21(TM)
is a pesticide, the Company will promptly proceed with EPA registration as both
FIFRA and applicable customs regulations prohibit the importation of
unregistered pesticides under penalty of possible civil and criminal sanctions.
FIFRA registration may require the performance of formal tolerance studies of
Conserver 21(TM)'s interaction with fruits and vegetables, which the Company
estimates may cost it between $75,000 to $150,000, and would take at least six
months to complete, thereby extensively delaying the Company's planned
commercialization of the Conserver 21(TM) Program. There can be no assurance
that the registration procedure will not entail longer delays and greater costs
and expenses. If FIFRA registration is not required, the Company's use of
Conserver 21(TM) may require it to comply with the federal Toxic Substance and
Control Act which could subject it to other reporting and registration
obligations. Based on its review of applicable regulations, the Company believes
that Conserver 21(TM) is not subject to United States Department of
Transportation hazardous materials requirements which regulate the transport of
certain hazardous substances. The Company's proposed use of Conserver 21(TM)
does not currently subject it to any other material federal, state or local
regulatory approvals. There can be no assurance, however, that future regulatory
approvals will not be required, leading to unanticipated expenses and delays
inherent to the regulatory process. See "Business -- Regulatory Requirements."
UNCERTAIN IMPLEMENTATION OF MARKETING STRATEGY. The Company will initially
market its Conserver 21(TM) Program to selected supermarkets and other retailers
and, if successful in securing a contract for the provision of such services,
seek additional customers by asserting that such contractual arrangements had
successfully demonstrated the commercial viability of the Conserver 21(TM)
Program. Accordingly, there can be no certainty that the Company's marketing
strategy can be successfully implemented. See "Business."
NO PRODUCT MARKET; LACK OF ORDERS AND/OR COMMITMENTS. The Company
currently has no orders and there can be no assurance that potential customers
will be willing to incur the costs of the Conserver 21(TM) Program, that the
Conserver 21(TM) Program will be contracted for by any supermarkets or other
retailers or, even if accepted by any such entities, that it will prove
profitable or attractive to potential customers. In addition, there can be no
assurance that other competing services will not be more economical or
attractive to the Company's potential customers. See "Business."
RESTRICTED SCOPE OF BUSINESS. The proposed Conserver 21(TM) Program
currently is the Company's sole line of business and will account for
substantially all of the Company's revenues, if any, for the foreseeable future.
The use of Conserver 21(TM) to extend post-harvest life and facilitate the
transport of fruits, vegetables and other foodstuffs, as well as flowers, has
not as yet been demonstrated on a commercial basis. There can be no assurance
that, when utilized on a large-scale basis, Conserver 21(TM) will be effective
or that it will be more effective than competing products or technologies, or
capable of being manufactured in commercial quantities at acceptable costs, or
successfully marketed. If the Company's Conserver 21(TM) Program cannot be
successfully commercialized or if Conserver 21(TM) cannot be marketed on a
stand-alone basis, it is likely there would be a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Conserver 21(TM)."
8
<PAGE> 10
GROUPE CONSERVER DISTRIBUTION AGREEMENT. The Groupe Conserver Distribution
Agreement provides the Company with exclusive rights in both the United States
and Canada to distribute, market, sell and otherwise commercially exploit
Conserver 21(TM) to commercial users, excluding domestic consumers, until May
2005, subject to extension. Pursuant to the Groupe Conserver Distribution
Agreement, the Company must purchase Conserver 21(TM) from Groupe Conserver and
pay it royalties of 6% of the first $100,000,000 of net revenues derived by the
Company from its commercial exploitation of Conserver 21(TM) increasing to 7%
upon net revenues in excess of $100,000,000 thereafter. Both the Company and
Groupe Conserver may unilaterally terminate such agreement prior to its
scheduled expiration date upon the occurrence of specified events. Groupe
Conserver may terminate the Distribution Agreement, if, among other things, the
Company fails to meet 75% of minimum sales levels (to be mutually agreed upon by
the parties) for a period of two consecutive years subsequent to January 1,
1998. There can be no assurance that such events will not occur or that Groupe
Conserver will not default on or otherwise be unable to fulfill its obligations
as a consequence of its dispute with Conserver XXI or otherwise. See "-- Sole
Source of Supply; Dispute between Groupe Conserver and Conserver XXI; Possible
Impairment of Distribution Rights." Under the terms of the Groupe Conserver
Distribution Agreement, Groupe Conserver is entitled to replace Conserver 21(TM)
with a new product, or to modify the specifications, manufacture or design of
Conserver 21(TM), so long as any such new product or modifications, as
applicable, does not result in a diminution of current Conserver 21(TM)
standards. There can be no assurance that Groupe Conserver will not elect either
of the foregoing options and, if so elected, that such new or different products
will meet the Company's needs for the Conserver 21(TM) Program as effectively as
Conserver 21(TM) in its current form, or not require modifications to the
Conserver 21(TM) Program. Early termination of the Groupe Conserver Distribution
Agreement or the failure of Groupe Conserver to meet all of the Company's supply
requirements for Conserver 21(TM) could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Groupe Conserver -- Distribution Agreement."
NO CURRENT MANUFACTURING CAPABILITIES; DELAYS INHERENT IN ESTABLISHMENT;
COMPLETELY DEPENDENT ON OUTSIDE MANUFACTURER. The Company does not intend to
develop its own manufacturing facilities in the near future as it intends to
rely upon the contractual commitment of Groupe Conserver to furnish the Company
with all of its Conserver 21(TM) needs. The Groupe Conserver Distribution
Agreement, however, grants the Company the right to establish its own domestic
manufacturing facilities in the event Groupe Conserver cannot satisfy the
Company's reasonable delivery demands, either by increasing its production
capacity or implementing other corrective measures. The Company may construct
its own manufacturing facility, if and when permitted by the terms of the Groupe
Conserver Distribution Agreement and if then deemed necessary or desirable by
the Company's management. See "-- Sole Source of Supply; Dispute between Groupe
Conserver and Conserver XXI; Possible Impairment of Distribution Rights." Delays
inherent in the design, location and equipping of any such facilities may impair
the Company's ability to successfully manufacture and market its Conserver
21(TM) Program, as well as satisfy its contractual commitments to render such
services to any future customers, in the event of any unforeseen curtailment or
cessation of Groupe Conserver's own manufacturing capabilities. See
"Business -- Sources of Supply; Manufacturing."
UNPROVEN ON LARGE-SCALE COMMERCIAL BASIS. The Company has never utilized
Conserver 21(TM) under the conditions and in the volumes that will be required
to make the Conserver 21(TM) Program profitable and cannot predict all of the
difficulties that may arise in connection therewith. Other than in Spain,
Conserver 21(TM) has never been utilized on a large-scale commercial basis. All
of the tests utilizing Conserver 21(TM) conducted to date have been performed on
limited quantities of fruits and vegetables under controlled non-commercial
conditions, and there can be no assurance that the same or similar results would
or could be obtained on a large-scale commercial basis or on any specific
project. The Company has not conducted its own comprehensive independent tests
and to date, has relied on the tests performed by Groupe Conserver and Conserver
XXI. Thus, it is possible that Conserver 21(TM) may require further research,
development, design and testing, as well as regulatory clearances, prior to
larger-scale commercialization. Additionally, the Company's ability to operate
its business successfully will depend on a variety of factors, many of which are
outside the Company's control, including competition, cost and availability of
the product and changes in regulatory requirements. See "Business."
9
<PAGE> 11
SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS; NEED FOR
ADDITIONAL FINANCING. The Company's capital requirements in connection with its
development and marketing of the Conserver 21(TM) Program are expected to be
significant. Since the Company is not currently generating any operating
revenues, nor are any such revenues anticipated prior to the demonstration of
the Conserver 21(TM) Program's commercial viability, it will be materially
dependent upon the net proceeds of this Offering to defray the cost of these
ongoing activities. The Company believes that the net proceeds of the Offering
will be sufficient to finance the Company's working capital requirements for a
period of at least 24 months following the completion of this Offering. The
continued expansion and operation of the Company's business beyond such 24 month
period may be dependent upon its ability to obtain additional financing. There
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. Furthermore, any additional equity
financing may be dilutive to stockholders, and debt financing, if available,
will likely include restrictive covenants, including financial maintenance
covenants restricting the Company's ability to incur additional indebtedness and
to pay dividends. The failure of the Company to raise capital on acceptable
terms when needed could have a material adverse effect on the Company. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Plan of Operation -- Liquidity and Capital Resources."
LIMITED RELIANCE ON PATENTS AND PROPRIETARY RIGHTS. A combination of
patents, trademarks and trade secrets protect the rights and know-how relating
to Conserver 21(TM). Certain patent applications covering the inventions and
know-how upon which Conserver 21(TM) is based have been filed in Spain and The
Netherlands by Conserver XXI, which filings by international treaties, are also
deemed to have been filed concurrently in the United States and Canada. There
can be no assurance that such patents will be accepted, or if accepted, that
they will be accepted on a timely basis, or not be infringed upon, or that trade
secrets relating to Conserver 21(TM) will not otherwise become known to, or
independently developed by, competitors. In addition, there can be no assurance
that others will not be issued patents which may prevent the use of Conserver
21(TM) by the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's success is dependent upon the
Company's senior corporate management, particularly Charles H. Stein, its Chief
Executive Officer and President. The loss of Mr. Stein's services would have a
material adverse effect on the Company. The Company will enter into a three-year
employment agreement with Mr. Stein commencing on the consummation of this
Offering including a non-competition clause providing that Mr. Stein will not
compete with the Company for a period of 36 months following the termination of
his employment. The Company also intends to apply for a "key man" life insurance
policy on the life of Mr. Stein in an amount of no less than $1,000,000 prior to
the consummation of this Offering. The success of the Company will also depend
upon the ability to attract and retain highly qualified additional management
personnel as the Company grows. The failure to obtain, or delays in obtaining,
other key employees could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management."
COMPETITION. There are several methods of food preservation commercially
available that compete directly or indirectly with the Company's Conserver
21(TM) Program. Many of the Company's competitors have substantially greater
financial, human and other resources than the Company as well as more experience
in the marketing and selling of post-harvest life extension products. There can
be no assurance that the Conserver 21(TM) Program will gain commercial
acceptance or establish any meaningful market share. Furthermore, any such
market share, if and when achieved, could be lost or reduced by enhanced
competition or the emergence of new and more effective preservation
technologies. See "Business -- Competing Processes."
LIMITED EXPERTISE IN MARKETING POST-HARVEST LIFE EXTENSION PRODUCTS. The
Company's initial marketing activities will be performed by its executive
officers and advisors. To varying degrees, such persons have had prior
experience in the food industry and marketing food products and services.
However, none have had any experience with Conserver 21(TM) or in marketing the
Conserver 21(TM) Program. In order to market and sell the Conserver 21(TM)
Program, as well as any future products and services, the Company will need to
maintain a sales force with technical expertise in the food preservation and
food transportation industries. There can be no assurance that the Company will
be able to gain such expertise or that such marketing efforts will be
successful. See "Management" and "Business -- Marketing Research."
10
<PAGE> 12
BROAD DISCRETION IN APPLICATION OF OFFERING PROCEEDS. Approximately
$1,500,000, or 9.6%, of the net proceeds of this Offering will be set aside for
possible investment in the expansion of United States or non-United States
manufacturing facilities for Conserver 21(TM). Management, however, reserves the
right to reallocate the use of such proceeds in whole or in part as may be
required by future business circumstances. An additional sum of approximately
$5,600,000, or 35.7%, of such net proceeds will be applied to working capital
and other unspecified general corporate purposes. Accordingly, management of the
Company will have broad discretion over the use of proceeds. See "-- No Current
Manufacturing Capabilities; Delays Inherent in Establishment; Completely
Dependent on Outside Manufacturer" and "Use of Proceeds."
CONCENTRATION OF OWNERSHIP. Upon completion of this Offering, the current
stockholders of the Company will beneficially own approximately 76% of the
outstanding shares of Common Stock. The Company's executive officers, directors
and their affiliates will beneficially own approximately 37.8% of all the
outstanding shares of Common Stock after this Offering. Consequently, these
stockholders will be able to determine the outcome of certain corporate actions
requiring stockholder approval, and will be able to elect the Board of Directors
of the Company. Such concentration of ownership may have the effect of
preventing a change in control of the Company. See "Dilution," "Principal
Stockholders" and "Description of Securities."
LIMITATION OF DIRECTOR LIABILITY. The Company's Certificate of
Incorporation provides that a director of the Company will not be personally
liable to the Company or its stockholders for monetary damages for breach of the
fiduciary duty of care as a director, including breaches which constitute gross
negligence, subject to certain limitations imposed by the Delaware General
Corporation Law (the "DGCL"). Thus, under certain circumstances, neither the
Company nor the stockholders will be able to recover damages even if directors
take actions which harm the Company. See "Management -- Indemnification of
Directors and Officers and Related Matters."
IMMEDIATE SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION. Purchasers of
Securities in this Offering will experience immediate and substantial dilution
in the net tangible book value of the shares of Common Stock and Warrants
purchased by them in this Offering. The immediate dilution to purchasers of the
Securities offered hereby is $4.69, or approximately 78%, per share of Common
Stock. Additional dilution to future net tangible book value per share may occur
upon the exercise of the Warrants, the Representative's Warrants, currently
outstanding options and warrants, options to be issued under the Company's 1996
Stock Option Plan and warrants to be issued to a holder of convertible
debentures and its affiliates. The current stockholders of the Company,
including the Company's executive officers and directors and persons or entities
affiliated with them, acquired their shares of Common Stock for consideration
substantially less than the public offering price of the shares of Common Stock
offered hereby. As a result, new investors in this Offering will bear
substantially all of the risks inherent in an investment in the Company. See
"Capitalization," "Dilution" and "Certain Transactions."
NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather intends
to reinvest profits, if any, in its business. See "Dividend Policy."
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; VOLATILITY OF
PRICES OF THE SECURITIES. Prior to this Offering, there has been no public
market for the Securities. Although the Company intends to apply for the
quotation of the Shares and the Warrants on Nasdaq under the symbols "RIPE" and
"RIPEW", respectively, there can be no assurance that they will be quoted on
such exchange or under such symbols or that an active public market for the
Securities will be developed or be sustained after this Offering. The initial
public offering prices of the Securities offered hereby and the exercise price
and terms of the Warrants have been arbitrarily determined by negotiations
between the Company and the Representative and bear no relationship to the
Company's current earnings, book value, net worth or other established valuation
criteria. The factors considered in determining the initial public offering
prices included an evaluation by management and the Representative of the
history of and prospects for the industry in which the Company proposes to
compete, an assessment of the Company's management, the prospects of the
Company, its capital structure and certain other factors deemed relevant.
Furthermore, the trading prices of the Securities could be subject to wide
fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors, suppliers or customers and other
11
<PAGE> 13
events or factors. In addition, the stock market has experienced extreme price
and volume fluctuations in recent years. These fluctuations have had a
substantial impact on the market prices of many companies, often unrelated to
their performance, and may adversely affect the market prices for any or all of
the Securities. See "Underwriting."
POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF SECURITIES; SHARES ELIGIBLE FOR
FUTURE SALE; ADDITIONAL REGISTERED SECURITIES. Sales of substantial amounts of
the Company's securities in the public market after this Offering, or the
perception that such sales may occur, could materially adversely affect the
market prices of the Securities and may impair the Company's ability to raise
additional capital by the sale of its equity securities. Of the 12,500,000
shares of Common Stock (assuming the SES Reacquisition), the 737,683 warrants
exercisable at $2.202844 per share (the "$2.20 Warrants") and the 3,000,000
Warrants to be outstanding upon completion of this Offering, the 3,000,000
Shares and 3,000,000 Warrants offered hereby (3,450,000 Shares and 3,450,000
Warrants if the Over-Allotment Option is exercised in full) will be immediately
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act") except for any Securities purchased by an
"affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 9,500,000 shares
of Common Stock and all the $2.20 Warrants outstanding prior to consummation of
this Offering are "restricted" securities within the meaning of Rule 144 under
the Securities Act and may be sold under the conditions of such rule, including
satisfaction of certain holding period requirements. All officers and directors
of the Company have agreed unconditionally not to, directly or indirectly,
issue, offer, agree or offer to sell, sell, transfer, assign, encumber, grant an
option for the purchase or sale of, pledge, hypothecate or otherwise dispose of
any beneficial interest in such shares of Common Stock for a period of twenty
seven (27) months following the effective date of the Registration Statement.
Other stockholders of the Company and certain holders of options, warrants or
other securities convertible, exercisable or exchangeable for shares of Common
Stock have agreed not to, directly or indirectly, issue, offer, agree or offer
to sell, sell, transfer, assign, encumber, grant an option for the purchase or
sale of, pledge, hypothecate or otherwise dispose of any beneficial interest in
such shares of Common Stock for a period of twelve (12) months following the
effective date of the Registration Statement without the prior written consent
of the Company and the Representative, except in connection with private
transactions (not involving a public offering) in which the transferee(s) agrees
in writing to be similarly bound. Certain holders of warrants have agreed
unconditionally not to, directly or indirectly, issue, offer, agree or offer to
sell, sell, transfer, assign, encumber, grant an option for the purchase or sale
of, pledge, hypothecate or otherwise dispose of any beneficial interest in such
Securities for a period of twenty four (24) months following the effective date
of the Registration Statement. The holders of Convertible Debentures issued by
the Company between September and November of 1996 have agreed not to, directly
or indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such Securities for a period of
twelve (12) months following the effective date of the Registration Statement
without the prior written consent of the Company and the Representative. The
Representative has represented to Nasdaq that it will not release the
Convertible Debenture holders from such restriction prior to the lapse of the
twelve (12) month period. It is not known what effect, if any, future sales of
additional securities or the availability of such securities for sale will have
on the market price of the Securities prevailing from time to time.
Nevertheless, the sale or availability for sale of significant quantities of
securities could materially adversely affect the market prices of the
Securities. See "Shares Eligible for Future Sale."
POTENTIAL ADVERSE EFFECT OF FUTURE ISSUANCES OF AUTHORIZED PREFERRED
STOCK. The Company's Certificate of Incorporation authorizes the issuance of
preferred 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 stockholder approval, to issue preferred
stock with such rates of dividends, redemption provisions, liquidation
preferences, voting rights, conversion privileges and other characteristics as
the Board of Directors may deem necessary. Such preferred stock, if issued,
could adversely affect the holders of the Common Stock. In addition, the
preferred stock could discourage, delay or prevent a takeover of the Company.
The Company has no present intention to issue any shares of preferred stock. See
"Description of Securities."
12
<PAGE> 14
POTENTIAL ADVERSE EFFECT OF REPRESENTATIVE'S WARRANTS. At the consummation
of the Offering, the Company will sell to the Representative and/or its
designees, for nominal consideration, warrants to purchase up to 300,000 shares
of Common Stock and/or 300,000 Warrants (the "Representative's Warrants"). The
Representative's Warrants will be exercisable for a period of four years
commencing one year after the effective date of this Offering, at an exercise
price of $9.90 per share and $0.165 per Warrant. The Warrants obtained upon
exercise of the Representative's Warrants will be exercisable for a period of
four years commencing one year after the date of this Prospectus, at an exercise
price of $16.34 per share. For the term of the Representative's Warrants, the
holders thereof will have, at nominal cost, the opportunity to profit from a
rise in the market price of the Securities without assuming the risk of
ownership, with a resulting dilution in the interest of other security holders.
As long as the Representative's Warrants remain unexercised, the Company's
ability to obtain additional capital might be adversely affected. Moreover, the
Representative may be expected to exercise the Representative's Warrants at a
time when the Company would, in all likelihood, be able to obtain any needed
capital through a new offering of its securities on terms more favorable than
those provided by the Representative's Warrants. See "Underwriting."
NO ASSURANCE OF CONTINUED NASDAQ QUOTATION. The Board of Governors of the
National Association of Securities Dealers, Inc. has established certain
standards for the initial quotation and continued quotation of a security on
Nasdaq. The standards for initial quotation require, among other things, that an
issuer have total assets of $4,000,000 and capital and surplus of at least
$2,000,000; that the minimum bid price for the listed securities be $3.00 per
share; that the minimum market value of the public float (the shares held by
non-insiders) be at least $2,000,000, and that there be at least two market
makers for the issuer's securities. The maintenance standards require, among
other things, that an issuer have total assets of at least $2,000,000 and
capital and surplus of at least $1,000,000; that the minimum bid price for the
listed securities be $1.00 per share; that the minimum market value of the
"public float" be at least $1,000,000 and that there be at least two
market-makers for the issuer's securities. A deficiency in either the market
value of the public float or the bid price maintenance standard will be deemed
to exist if the issuer fails the individual stated requirement for ten
consecutive trading days. If an issuer falls below the bid price maintenance
standard, it may remain on Nasdaq if the market value of the public float is at
least $1,000,000 and the issuer has $2,000,000 in equity. There can be no
assurance that the Company will continue to satisfy the requirements for
maintaining a Nasdaq quotation. In addition, recent proposals which would impose
more strict compliance standards if enacted would make it more difficult to
maintain Nasdaq quotation for the Company's securities. If the Company's
securities were to be excluded from Nasdaq, it would adversely affect the prices
of such securities and the ability of holders to sell them, and the Company
would be required to comply with the initial listing requirements to be relisted
on Nasdaq.
If the Company is unable to satisfy Nasdaq's maintenance requirements and
the price per share were to drop below $5.00, then unless the Company satisfied
certain net asset tests, the Company's securities would become subject to
certain penny stock rules promulgated by the Securities and Exchange Commission
(the "Commission"). The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standarized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. If the Company's Common Stock becomes subject to the penny
stock rules, investors in the Offering may find it more difficult to sell their
Securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS; MARKET
OVERHANG. Commencing eighteen (18) months after the date of this Prospectus,
the Company may redeem all, but not less than all, of the Warrants
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<PAGE> 15
at $0.10 per Warrant on thirty (30) days' prior written notice to the holders of
the Warrants if the per share closing sale price of the Common Stock as reported
on Nasdaq equals or exceeds $15.00 for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. Redemption of the Warrants could
force the holders to exercise the Warrants and pay the exercise price at a time
when it may be disadvantageous for the holders to do so, to sell the Warrants at
the then current market price when they might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. Any holder who does not exercise its
Warrants prior to their expiration or redemption, as the case may be, will
forfeit his, her or its right to purchase the shares of Common Stock underlying
the Warrants. See "Description of Securities -- Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only if a current prospectus relating
to such shares is then in effect and only if the shares have been qualified for
sale under the securities laws of the applicable state or states. The Company
has undertaken to use its best efforts to file and keep effective and current a
prospectus which will permit the purchase and sale of the Warrants and the
Common Stock underlying the Warrants, but there can be no assurance that the
Company will be able to do so. Although the Company has undertaken to use its
best efforts to qualify for sale the Warrants and the shares of Common Stock
underlying the Warrants in those states in which the Securities are to be
offered, no assurance can be given that such qualifications will occur. The
Warrants may lose or be of no value if a prospectus covering the shares issuable
upon the exercise thereof is not kept current or if such underlying shares are
not, or cannot be, registered in the applicable states. See "Description of
Securities -- Warrants."
REPRESENTATIVE'S POTENTIAL INFLUENCE ON THE MARKET. A significant number
of the Securities offered hereby may be sold to customers of the Representative.
Such customers may engage in transactions for the sale or purchase of such
Securities through or with the Representative. Although it has no obligation to
do so, the Representative intends to make a market in the Securities and may
otherwise effect transactions in such Securities. If it participates in such
market, the Representative may influence the market, if one develops, for the
Securities. Such market-making activity may be discontinued at any time.
Moreover, if the Representative sells the securities issuable upon exercise of
the Representative's Warrants or acts as a warrant solicitation agent for the
Warrants, it may be required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to temporarily suspend its market-making
activities. The prices and liquidity of the Securities may be significantly
affected by the degree, if any, of the Representative's participation in such
market. See "Underwriting."
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares and Warrants in
this Offering are estimated to be approximately $15,700,000 ($18,129,325 if the
Over-allotment Option is exercised in full), after deducting the estimated
underwriting discounts and commissions and other offering expenses payable by
the Company. The Company intends to use the estimated net proceeds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
PURPOSE AMOUNT NET PROCEEDS
---------------------------------------------------------- ------------ -------------
<S> <C> <C>
Marketing and distribution(1)............................. $2,000,000 12.7%
Inventory purchases of Conserver 21(TM)(2)................ 2,000,000 12.7
Purchase, storage and resale of end-of-season fruits(3)... 2,000,000 12.7
Development of new applications and products(4)........... 1,500,000 9.6
Investment in Conserver 21(TM) manufacturing
facilities(5)........................................... 1,500,000 9.6
Repayment of indebtedness(6).............................. 1,100,000 7.0
Working capital and general corporate purposes............ 5,600,000 35.7
---------- -----
Total........................................... $15,700,000 100.0%
========== =====
</TABLE>
- ---------------
(1) Includes the costs of implementing the Company's business strategy including
identification of potential customers, researching their needs and providing
services during a short term testing period. The Company also intends to
explore marketing and other strategic alliances with growers, shippers and
retailers. Also includes the cost of establishing and acquiring computer and
laboratory equipment for field offices to support the evaluation and testing
of products by the Company's technical representatives. See
"Business -- Business Strategy -- Initial Market Entry."
(2) Includes the costs of acquiring a sufficient supply of Conserver 21(TM) to
be used for market tests as well as providing customer services. See
"Business."
(3) Includes the cost of purchasing and storing out-of-season fruits as well as
costs to be incurred in connection with their resale. See
"Business -- Business Strategy -- Market Opportunities."
(4) To be used in connection with research and development relating to
additional uses of Conserver 21(TM), as well as investigating other products
that may be complementary to the Company's use of Conserver 21(TM). See
"Business -- Marketing Research."
(5) Groupe Conserver has informed the Company that it intends to construct or
acquire Conserver 21(TM) manufacturing facilities either in Europe or the
United States. Groupe Conserver has also informed the Company that it would
be interested in the Company's investment in any such efforts by Groupe
Conserver. The Company has reserved a portion of the net proceeds of this
Offering for such investment if it deems such investment or, alternatively,
a direct investment, if the opportunity should arise, in Conserver XXI's
manufacturing facilities to be in the best interests of the Company. The
Company has not engaged in any negotiations with respect to the foregoing to
date, and there can be no assurance that the Company will be able to
successfully negotiate an agreement which is in the Company's best interest.
In the event the Company does not elect to make the foregoing investment,
the funds allocated will be reallocated to working capital. See "Risk
Factors -- Broad Discretion in Application of Offering Proceeds."
(6) Includes the repayment of $1,000,000 and accrued interest at a rate of 12%
per annum to a non-affiliate. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operation -- Liquidity and Capital
Resources."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering, based upon the current status of its
operations and anticipated business plans. It is possible, however, that the
application of funds will differ considerably from the estimates set forth
herein due to changes in the economic climate and/or the Company's planned
business operations or unanticipated complications, delays
15
<PAGE> 17
and expenses. Any reallocation of the net proceeds will be at the discretion of
the Board of Directors of the Company. See "Risk Factors -- Broad Discretion in
Application of Offering Proceeds."
Pending the foregoing uses, the net proceeds of this Offering will be
invested in short-term investment grade, interest bearing securities.
The Company currently estimates that the net proceeds from this Offering
will be sufficient to meet the Company's liquidity and working capital
requirements for a period of at least 24 months from the completion of this
Offering. However, there can be no assurance that the net proceeds of this
Offering will satisfy the Company's requirements for any particular period of
time. Additional financing may be required to implement the Company's long-term
business plans. There can be no assurance that such additional financing will be
available when needed on terms acceptable to the Company, if at all. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operation -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company plans to retain any future earnings for use in its business
and, accordingly, the Company does not anticipate paying dividends in the
foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
at November 30, 1996 and (ii) the November 30, 1996 capitalization of the
Company as adjusted to reflect the sale of the 3,000,000 Shares and 3,000,000
Warrants offered by the Company hereby and the initial application of the
estimated net proceeds therefrom after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and Plan
of Operation" and Notes A, D and J of Notes to Financial Statements. This
section should be read in conjunction with the Company's financial statements
and related notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Total long-term debt, excluding current portion......... $ 1,000,000 $ --
Preferred Stock, $.01 par value; 5,000 shares
authorized; none issued and outstanding............... -- --
Common Stock, $.001 par value, 30,000,000 shares
authorized; 9,556,745 shares issued and outstanding at
November 30, 1996; 12,500,000 shares issued and
outstanding at November 30, 1996 as adjusted(1)....... 9,557 12,500
Additional paid-in capital.............................. 2,667,810 22,082,867
Subscriptions receivable................................ -- --
Deficit accumulated during the development stage........ (1,864,016) (5,582,016)(2)
-------- --------
Total stockholders' equity......................... 813,351 16,513,351
-------- --------
Total capitalization.......................... $ 1,813,351 $ 16,513,351
======== ========
</TABLE>
- ---------------
(1) Number of shares issued and outstanding at November 30, 1996 as adjusted
assumes the consummation of the SES Reacquisition.
(2) Includes non-cash compensation charges of approximately (i) $228,000 related
to the cancellation and reissuance of 56,745 options by the Company in
January 1997 at an exercise price of $.2202844 per share; (ii) $1,150,000 in
connection with the issuance of options by the Company in January 1997 at an
exercise price of $2.202844 per share and (iii) $2,300,000 expected to be
recorded by the Company in connection with the value attributed to warrants,
issuable upon the consummation of this Offering to a holder of convertible
debentures and an affiliate thereof, exercisable for 1,248,386 shares of
Common Stock at an exercise price of $.88 per share. See Note D of Notes to
Financial Statements.
17
<PAGE> 19
DILUTION
At November 30, 1996 the Company had a net tangible book value of $813,351,
or approximately $.09 per share of outstanding Common Stock. Net tangible book
value per share represents the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to receipt of the estimated net proceeds from the Company's sale
of 3,000,000 Shares at the assumed initial public offering price of $6.00 per
Share and 3,000,000 Warrants at the assumed initial public offering price of
$.10 per Warrant (after deducting offering discounts and commissions and
estimated offering expenses payable by the Company), the net tangible book value
of the Company at November 30, 1996 as adjusted would have been approximately
$16,513,351, or approximately $1.32 per share. This represents an immediate
increase in net tangible book value of $1.23, or 1250%, to existing stockholders
and an immediate dilution of $4.68 per share, or 78%, to purchasers of Common
Stock in this Offering.
The following table illustrates this per share dilution (1):
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock...... $6.00
Net tangible book value per share as of November 30, 1996............ .09
Increase per share attributable to this Offering..................... 1.23
----
As adjusted net tangible book value per share after this Offering.... 1.32
-----
Dilution per share to new investors.................................. $4.68
=====
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by (i) existing stockholders of the Company at November 30, 1996
and (ii) new investors purchasing Shares in this Offering, before deducting the
underwriting discounts and commissions and estimated Offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION WEIGHTED
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders (2)........ 9,500,000 76% $ 3,175,514 15% $ .33
New investors.................... 3,000,000 24% $18,000,000(3) 85% $6.00
---------- ---- ----------- ----
Total.................. 12,500,000 100% $21,175,514 100%
========== ==== =========== ====
</TABLE>
- ---------------
(1) After giving effect to the receipt of the net proceeds from the exercise of
(i) the outstanding warrants to purchase 737,683 shares of Common Stock;
(ii) the outstanding options to purchase 941,965 shares of Common Stock;
(iii) the 1,248,386 warrants to be issued to a convertible debt holder and
its affiliate and (iv) the conversion of $750,000 of outstanding
indebtedness of the Company into 340,469 shares of Common Stock, the net
tangible book value of the Company at November 30, 1996 as adjusted would
have been approximately 21,500,851, or approximately $1.36 per share. This
represents an immediate dilution of $4.64 per share, or 77.3%, to purchasers
of Common Stock in this Offering. These figures do not include 600,000
shares of Common Stock available for issuance in connection with the
Company's 1996 Stock Option Plan. No options have yet been issued from the
plan, and when issued, such options will be exercisable at the then current
fair market price of the Company's Common Stock.
(2) Includes the SES Reacquisition.
(3) Attributes no value to the Warrants.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following selected financial data have been derived from the financial
statements of the Company. The statement of operations data set forth below with
respect to the period from March 6, 1996 (date of incorporation) to August 31,
1996, for the three months ended November 30, 1996 and the period from March 6,
1996 (date of incorporation) to November 30, 1996 and the balance sheet data at
August 31, 1996 and November 30, 1996 are derived from, and are qualified by
reference to, the Financial Statements included elsewhere in this Prospectus and
should be read in conjunction with those financial statements and notes thereto.
STATEMENT OF OPERATIONS DATA(1):
<TABLE>
<CAPTION>
MARCH 6, 1996 MARCH 6, 1996
(DATE OF THREE MONTHS (DATE OF
INCORPORATION) TO ENDED INCORPORATION) TO
AUGUST 31, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues............................... $ -- $ -- $ --
Compensation charges in connection with
issuance of options and
warrants(2).......................... 907,201 -- 907,201
General and administrative expenses.... 458,611 402,952 861,563
---------- ---------- -----------
Operating (loss)....................... (1,365,812) (402,952) (1,768,764)
Interest expense, net of interest
income............................... 21,259 73,993 95,252
---------- ---------- -----------
Net (loss)............................. $(1,387,071) $ (476,945) $(1,864,016)
========== ========== ===========
Net (loss) per share of Common Stock... $ (.12) $ (.04) $ (.16)
========== ========== ===========
Weighted average number of shares of
Common Stock outstanding............. 11,284,287 11,284,287 11,284,287
========== ========== ===========
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
NOVEMBER 30, 1996
----------------------------
AUGUST 31, AS
1996 ACTUAL ADJUSTED(3)
----------- ------------ -----------
<S> <C> <C> <C>
Working capital........................... $ 2,239,902 $ 1,674,777 $16,274,777
Total assets.............................. 2,443,436 2,499,620 17,099,620
Total current liabilities................. 199,156 686,269 586,269
Deficit accumulated during development
stage................................... (1,387,071) (1,864,016) (5,582,016)(4)
Stockholders' equity...................... 1,244,280 813,351 16,513,351
</TABLE>
- ---------------
(1) The Company is in the development stage, and has had no commercial
operations to date. See Note A of Notes to Financial Statements.
(2) Relates to non-cash charges recorded by the Company in connection with the
value attributed to options and warrants issued by the Company in March and
August 1996. See "Management's Discussion and Analysis of Financial
Condition and Plan of Operation" and Note E of Notes to Financial
Statements.
(3) Gives effect to the sale by the Company of the Securities offered hereby at
an assumed initial public offering price of $6.00 per Share and $.10 per
Warrant and the initial application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(4) Includes non-cash compensation charges of approximately (i) $228,000 related
to the cancellation and reissuance of 56,745 options by the Company in
January 1997 at an exercise price of $.2202844 per share; (ii) $1,150,000 in
connection with the issuance of options by the Company in January 1997 at an
exercise price of $2.202844 per share; and (iii) $2,300,000 expected to be
recorded by the Company in connection with the value attributed to warrants,
issuable upon the consummation of this Offering to a holder of convertible
debentures and an affiliate thereof, exercisable for 1,248,386 shares of
Common Stock at an exercise price of $.88 per share. See Note D of Notes to
Financial Statements.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes contained elsewhere in this
Prospectus.
GENERAL
The Company, which was organized in March 1996, is in the development stage
and its activities since the date of incorporation have been primarily limited
to negotiating the Groupe Conserver Distribution Agreement, privately raising
both debt and equity funding and recruiting management personnel. The Company
has received the exclusive license to import, promote, distribute, market, sell
and otherwise commercially exploit Conserver 21(TM) to commercial users in the
United States and Canada.
BUSINESS STRATEGY
The Company believes that there are significant opportunities to provide
technologies and services which can retard spoilage and decay in fruits,
vegetables and flowers during the course of storage and transportation from
point of packing to point of retail sale. The Company intends to offer a quality
assurance management program to its customers pursuant to which technical
representatives will provide inspection services prior to shipping to ensure
that the inspected fruits, vegetables and flowers meet certain quality standards
and to oversee the proper use of Conserver 21(TM) in the packing and
transportation of such fruits, vegetables and flowers.
RESULTS OF OPERATIONS
The Company has a limited operating history upon which an evaluation of its
performance and prospects can be made. During the period from March 6, 1996
(date of incorporation) to November 30, 1996, the Company's activities were
primarily limited to organizational efforts and privately raising capital to
defray its organizational expenses and the development of its business plan.
During such period the Company had no revenues and incurred a net loss of
$1,864,016. Included in the net loss were (i) non-cash compensation charges of
$907,201 recorded in connection with the value attributed to options and
warrants issued by the Company in March and August 1996; (ii) non-cash
compensation charges of $100,000 for services to the Company contributed by
Charles H. Stein, its President and Chief Executive Officer; (iii) a charge of
approximately $48,000 related to amortization of debt discount created by the
value attributed to shares of Common Stock issued to holders of convertible
debentures and (iv) accrued interest expense of $72,000 on convertible notes.
Through November 30, 1996, the Company has spent approximately $762,000 to fund
its operations, such expenditures consisting primarily of travel expenses and
professional and consulting fees.
LIQUIDITY AND CAPITAL RESOURCES
Since its date of incorporation, the Company has relied upon privately
raised debt and equity funding to fund its operations. From March through
November 1996, the Company raised $3,172,000 through the private placement of
Common Stock at a purchase price of $2.202844 per share. In May 1996, the
Company issued a convertible debenture to the SES Family Trading and Investment
Partnership, L.P. ("SES") in the aggregate principal amount of $1,000,000.
Pursuant to the terms of such debenture, as amended, interest accrues at the
rate of 12% per annum, with principal and interest to be paid out of the net
proceeds of this Offering. See "Use of Proceeds." The Company and SES agreed to
amend the terms of the debenture to eliminate the conversion rights contained
therein which the Company estimates would have entitled such holder to receive
in excess of 2,500,000 shares of Common Stock upon conversion. Instead, SES and
its affiliate will receive warrants upon the consummation of the Offering to
purchase 1,248,386 shares of Common Stock at an exercise price of $.88 per
share, exercisable for a period of 6 years commencing one year from the date of
issuance. The Company expects to record non-cash compensation charges of
approximately $2,300,000 in connection with the value attributed to the issuance
of such warrants. The Company will also re-acquire 56,745 shares of Common Stock
20
<PAGE> 22
from the SES affiliate upon the consummation of the Offering. In addition, the
Company expects to record non-cash compensation charges of approximately
$1,378,000 related to options issued in January 1997.
In September and November 1996, the Company issued convertible debentures
in the aggregate principal amounts of $600,000 and $150,000, respectively.
Principal, and accrued interest at a rate of 10% per annum, is payable on the
one year anniversary of the date of issuance. The holders of the debentures may
elect to convert, at any time, all unpaid principal and accrued interest into
shares of Common Stock at a rate of $2.202844 per share. In addition, the
holders of the debentures aggregating $150,000 issued in November 1996 can elect
to be paid in full upon the consummation of the Offering.
In October and November 1996, the Company repurchased 3,102,051 shares of
Common Stock from Conserver Investments, SA for an aggregate purchase price of
$1,800,000.
The Company is dependent upon Groupe Conserver as its current source of
Conserver 21(TM). As discussed elsewhere herein, there currently exists a
dispute between Groupe Conserver and Conserver XXI which may limit the Company's
ability to acquire its Conserver 21(TM) needs from Groupe Conserver. The Company
has the right, under certain circumstances, either to manufacture Conserver
21(TM) itself or source it from others, and, in addition, through a
non-affiliated intermediary, has acquired an option which, if exercised, would
accord the Company substantially identical marketing and distribution rights as
it now possesses under the Groupe Conserver Distribution Agreement, over a
longer term, and with improved pricing for its Conserver 21(TM) purchase
requirements, directly from Conserver XXI. There can be no assurance that the
Company's needs for supply of Conserver 21(TM) would not temporarily be
interrupted especially if the Company's exercise of such option is challenged by
Groupe Conserver in legal proceedings. See "Risk Factors -- Groupe Conserver
Distribution Agreement," "-- Sole Source of Supply; Dispute between Groupe
Conserver and Conserver XXI; Possible Impairment of Distribution Rights" and
"-- No Current Manufacturing Capabilities; Delays Inherent in Establishment;
Completely Dependent on Outside Manufacturer."
The provisions of Financial Accounting Standard No. 123 "Accounting for
Stock-Based Compensation" ("FAS 123") became effective for the Company's first
fiscal year-end. Pursuant to the choice afforded it in FAS 123, the Company has
elected to report under the basis of Accounting Principles Board Opinion No. 25.
Disclosures required by the Company's election may be found in Note E(2) of the
financial statements.
The Company is in the development stage and its operations are subject to
all of the risks inherent in the establishment of a new business enterprise,
including the need to obtain financing, lack of revenues and the uncertainty of
market acceptance of its business. The Company has not as yet derived any
revenues from operations and has incurred losses since inception. Its
accumulated deficit at November 30, 1996 was $1,864,016. No operating revenues
are anticipated until such time, if ever, as the Company can demonstrate the
commercial viability of its Conserver 21(TM) Program. The Company currently has
no orders and there can be no assurance that potential customers will be willing
to incur the costs of the Conserver 21(TM) Program. In addition, the use of
Conserver 21(TM) in a post-harvest quality maintenance assurance program such as
the Conserver 21(TM) Program has not yet been demonstrated on a commercial
basis. There can be no assurance regarding whether or when the Company will
successfully implement its business plan or operate profitably. See "Risk
Factors."
The Company currently estimates that the net proceeds from this Offering
will be sufficient to meet the Company's liquidity and working capital
requirements for a period of at least 24 months following the consummation of
this Offering. The continued expansion and operation of the Company's business
beyond such 24 month period may be dependent on its ability to obtain additional
financing. In the event the Company's plans change, its assumptions prove to be
inaccurate or the net proceeds of this Offering together with the privately
raised funds prove to be insufficient to fund operations (as a result of future
changes in the industry, general economic conditions, unanticipated increases in
expenses or other factors) the Company may be required to seek additional
financing. Any additional equity financing may be dilutive to stockholders and
debt financing, if available, will likely include restrictive covenants,
including financial maintenance covenants restricting the Company's ability to
incur additional indebtedness and to pay dividends. The Company has no current
arrangement with respect to, or sources of, additional financing and there can
be no assurance that any needed financing would be available to the Company on
acceptable terms, or at all. The Company's ability to
21
<PAGE> 23
obtain additional financing will depend upon, among other things, the
willingness of financial organizations to participate in funding and the
Company's financial condition and results of operations.
The Company's future performance will be subject to a number of business
and other factors, including those beyond the Company's control, such as
economic downturns and changes in the marketplace, as well as the level of
competition and the ability of the Company to successfully implement its
business strategy and effectively monitor and control its costs. Further, there
can be no assurance that the Company will be able to generate significant
revenues or achieve profitable operations.
22
<PAGE> 24
BUSINESS
THE COMPANY
Conserver Corporation of America has licensed the exclusive right to
distribute, market, sell and otherwise commercially exploit Conserver 21(TM), a
product composed of a non-toxic mixture of sepiolite and mineral salts, to
commercial users in the United States and Canada through May 2005, subject to
extension. Tests performed over the past 30 months by the Company, the
manufacturer and the distributor of Conserver 21(TM), respectively, as well as
by non-affiliated laboratories at the request of the manufacturer and
distributor in various parts of the world utilizing independently derived
protocols, have shown that the use of Conserver 21(TM) can extend the
post-harvest life of fruits, vegetables and flowers.
Conserver 21(TM) works like a sponge by cleansing from the atmosphere of a
storage or transport container ethylene and other gases emitted by fruits,
vegetables and flowers thereby retarding their spoilage, lengthening their
post-harvest life and minimizing their shrinkage during ripening. These gases if
allowed to remain in the atmosphere of the container, would be reabsorbed by the
perishable cargo during its maturation process, resulting in its accelerated
decay. Conserver 21(TM) also releases carbon dioxide and water vapor, thereby
assisting fruits, vegetables and flowers to maintain their freshness. Conserver
21(TM), a non-invasive product, is manufactured in the form of cylindrical
granules and placed in sealed filters or packets which are then positioned
within a storage or transport space.
The Company believes that Conserver 21(TM) can be used in conjunction with
a comprehensive quality assurance maintenance program to provide more
commercially saleable fruits, vegetables and flowers more reliably and cost
effectively than is achieved by current industry practices. It is currently
common for some growers of fresh fruits and vegetables to pick and ship their
products prior to their being fully ripened in an effort to reduce spoilage and
to minimize the extent of the natural decay that occurs in the transportation of
perishables. This often results in delivery of fruits and vegetables that are
unevenly ripened, have less mass and a compromised taste. Growers and
distributors have resorted to using expensive storage and transportation methods
in an effort to reduce the incidence of such commercially unsatisfactory
products. The Company believes that Conserver 21(TM) which, for illustrative
purposes, has the capacity, as demonstrated by independent testing, to extend
the post-harvest life of certain varieties of tomatoes, strawberries, sweet
peppers and lilies by as much as 7, 10, 9 and 5 days, respectively, offers an
improved alternative to such methods. The Company intends to develop a quality
assurance maintenance program utilizing Conserver 21(TM) that will provide
fruit, vegetable and/or flower inspection and supervision services from point of
harvest or packing to point of retail sale (the "Conserver 21(TM) Program"). The
Company intends to market the Conserver 21(TM) Program to growers, distributors,
supermarket chains and other retailers who can benefit from the availability of
more saleable perishables.
The Company believes that the Conserver 21(TM) Program can offer the
following benefits:
- Increase in shelf-life of fruits, vegetables and flowers.
- Fruits and vegetables will be able to be harvested nearer their height of
ripeness, which would enable them to have higher sugar content, richer
color, greater weight and better taste.
- Shrinkage and spoilage of such fruits and vegetables during storage will
be reduced, thus resulting in a greater product yield available for sale
by supermarkets and other retailers.
- The time and expense involved in handling and sorting of produce in
storage and transport will be reduced.
- The selling season for many fruits and vegetables will be extended.
- Reduction of the costs of transport of highly perishable fruits,
vegetables and flowers as slower and less expensive means can be utilized
due to the longer post-harvest life of the perishables.
The Company also intends to purchase seasonal fruits and vegetables, store
them utilizing its Conserver 21(TM) Program and then resell them "out of
season."
23
<PAGE> 25
The Company's distribution and marketing rights are derived from a
Distribution Agreement with Conserver International B.V. ("BV") which, together
with its affiliates Conserver Engineering Ltd. ("Engineering") and Conserver
North America, Inc. ("Nord"), are based in Brussels and Paris and are
hereinafter referred to as "Groupe Conserver." Groupe Conserver's marketing and
distribution rights with respect to Conserver 21(TM) are derived from its
contractual arrangements with Conserver XXI, S.A. ("Conserver XXI"), a Spanish
company that manufactures and packages Conserver 21(TM) in Madrid and whose
principal stockholder is Alfonso de Sande Moreno, the developer of Conserver
21(TM).
The Company is aware of a dispute between Groupe Conserver and Conserver
XXI which could limit the Company's ability to obtain Conserver 21(TM) from
Groupe Conserver, the Company's current supplier, and result in the possible
impairment of the Company's marketing and distribution rights licensed to it by
Groupe Conserver. The Company has entered into an agreement by which it may
acquire substantially identical marketing and distribution rights over a longer
term directly from Conserver XXI, with improved pricing for Conserver 21(TM)
purchases, if required.
MARKET OVERVIEW
The Company has targeted the fruit, vegetable and flower markets for the
initial introduction of its Conserver 21(TM) Program. The fresh fruit market
generated (in billions) $16.7 and $15.9 in U.S. retail sales in 1995 and 1994,
respectively, while the fresh vegetable market generated $42.0 and $38.9 in U.S.
retail sales in 1995 and 1994, respectively. The flower market generated $14.1,
$13.2, and $12.9 in U.S. retail sales in 1995, 1994, and 1993, respectively.
Over the last decade, there has been a significant increase in demand for
high quality fresh fruits and vegetables. The Company believes that this demand
is evidenced by the increase in vine-ripened and organic products, the increased
supply of fresh-cut salads and fruits and the trend among growers to employ
company branding of fresh produce.
The Company believes that today's consumers will purchase branded produce
because of the expectation of uniform quality associated with established
brands. For example, names like Dole and Chiquita have become synonymous with
premium quality pineapples and bananas. The Company believes it can generate
consumer loyalty and establish the kind of brand name market success that has
been achieved with processed foods, but has been comparatively undeveloped to
date in the fresh produce market. The Company believes that its Conserver 21(TM)
Program will be attractive to growers and retailers who want to offer branded
fruits and vegetables with an extended post-harvest life as well as uniform
quality.
The Company also believes that the Conserver 21(TM) Program will be
attractive to flower growers and retailers. Approximately 48%, or $6.7 billion,
of the flowers sold in the United States are from foreign countries. Using the
Conserver 21(TM) Program would lessen the time pressure of delivery and enable
the flowers to be transported by cargo ship or other economical means, thereby
reducing the transportation cost.
COMPETING PROCESSES
There are several methods used today to extend the post-harvest life of
fruits, vegetables and flowers. The most commonly used are ethylene "adsorbers,"
modified atmosphere packaging, controlled atmosphere systems and gamma
irradiation.
Ethylene Adsorbers reduce the amount of ethylene in the atmosphere
surrounding produce, by adsorbing the ethylene being released by the produce.
These products can only adsorb or "scrub" ethylene until they reach their point
of saturation. Without inspection and management, these products often reach
their level of saturation, after which they essentially stop working, allowing
the produce to rapidly decay and spoil. Additionally, they are often not
marketed in an integrated fashion which would provide a service and benefit to
shippers, retailers and consumers. The Company believes that these products are
of significantly reduced efficacy and value in a humid environment, which
greatly limits their usefulness on a practical basis.
Modified atmosphere packaging involves changing the mixture of gases
(usually nitrogen and carbon dioxide) in the atmosphere in which fruits,
vegetables and flowers are stored or shipped to prevent the growth
24
<PAGE> 26
and spread of mold. In a typical modified atmosphere system, gases are
introduced to control the enzyme systems that cause tissue respiration. Although
modified atmosphere systems can assist in the reduction of mold, they do not
restrict the normal spoilage and decay process of fruit and vegetables. Another
drawback is that each variety of produce has to be stored separately because of
its differing requirements for preservation.
Controlled atmosphere systems maintain a pre-defined mixture of poisonous
gases in the atmosphere surrounding fruits or vegetables, by constantly
measuring and replenishing the component gases as needed. When fruit is released
from such an artificial environment, however, there is a significant possibility
of the entire stored load being spoiled and unfit for sale or consumption
(sources normally estimate this likelihood at 2-5%). In addition, fruits and
vegetables spoil quickly and unpredictably after release from this artificial
environment. As a result, the Company believes that the controlled atmosphere
process represents only a partial solution to some of the problems of long-term
storage. Additionally, it is publicly unpopular to treat foods in a poisonous
gas environment, however scientifically harmless to the foods.
Gamma irradiation in carefully controlled dosages can be effective in
controlling decay and insect infestations on such produce as papayas, mangos,
bananas, pineapples and grapefruits. Commercial application of gamma irradiation
is limited due to the cost and size of the equipment required for the treatment,
as well as public reluctance to purchase and consume irradiated foods. In a less
costly and sophisticated solution, ultraviolet lamps are sometimes used to
control bacteria and mold in refrigerated storage. Although ultraviolet light
can play a role in the control of bacteria and fungi, it has no effect on
preventing or slowing the decomposition and decay of fruits, vegetables or
flowers.
CONSERVER 21(TM)
The Company believes that use of its Conserver 21(TM) Program offers a
natural, non-invasive method of extending the post-harvest life of fruits,
vegetables and flowers for a longer period of time than any other currently
utilized technique. Conserver 21(TM), which is composed of sepiolite and mineral
salts, works like a sponge. When placed in a storage or transport area with
fresh fruit, vegetables and flowers, it adsorbs gases, most notably ethylene,
detrimental to the preservation of food and also stimulates the creation of
carbon dioxide and water vapors. This combination of ethylene removal, which
helps delay the food maturation process, and the increase in carbon dioxide and
water vapors, which enhances the produce's natural ability to remain vital,
produces a uniquely beneficial environment for post-harvest life extension.
Unlike other methods of extending post-harvest life, Conserver 21(TM) is not
applied directly to the fruits, vegetables or flowers or into the environment.
Conserver 21(TM) is manufactured in the form of cylindrical granules and is
currently available in two packaged forms: filters and packets. The filters are
designed to be placed in front of the vents of air conditioning or ventilation
systems of storage areas and transport vehicles so that the gases emitted by
fruits, vegetables and flowers can be adsorbed. Each filter provides the
effective coverage for the volume equivalent of a 20 foot container, or
approximately 30 cubic meters. Generally, filters may be attached to air vents
through the use of a universal bracket, and do not require any change to the
existing air conditioning or ventilation equipment. The packets can be placed in
boxes or crates containing the produce being stored or shipped. The granules
within the packet are activated by the gases emitted by the ripening fruits,
vegetables and/or flowers.
Conserver 21(TM) may be stored for up to 18 months in its original sealed
packaging prior to being opened for use. After the sealed packaging is opened,
Conserver 21(TM) retains its effectiveness for up to 30 days, depending on the
particular environment in which the product is being used. Each filter or packet
will be bar coded or otherwise identified, to insure its use only prior to its
expiration date and so each filter or packet can be tracked from its initial
point of installation until it is returned to the Company.
Tests conducted by independent laboratories over the last 30 months in
France, Spain, The Netherlands, Denmark, Israel and the United States, as well
as the Company's own market tests with potential customers, have demonstrated
that Conserver 21(TM) can retard the spoilage of perishable produce and flowers,
lengthen their post-harvest life and reduce shrinkage in the transport process.
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CONSERVER 21(TM) PROGRAM
The Company's Conserver 21(TM) Program is intended to ensure that fruits,
vegetables and flowers purchased from growers meet quality standards of
freshness which are then maintained through the packing and transportation
process until delivery and sale to the consumer.
Pre-Transport Inspection. Prior to shipping, the fruits, vegetables or
flowers will be inspected by one of the Company's technical representatives. The
Company intends to primarily hire retired or off-duty inspectors from the United
States Department of Agriculture, already experienced in the area of food and
flower inspection, to act as technical representatives.
The Company's inspection standards will be formulated to ensure that the
fruits, vegetables or flowers subject to inspection are:
- at the optimal level of maturation and ripeness, freshly harvested and
free from visually apparent disease; and
- in conformity with quality standards established by the Company's
customers relating to taste, smell and appearance.
Conserver 21(TM) Installation. After inspection, the Company's technical
representatives will install, or oversee the installation of, Conserver 21(TM)
filters or packets at appropriate sites, including trucks, storage areas,
cooling rooms and warehouse areas, in accordance with protocols being developed
by the Company for each particular line of fruits, vegetables and flowers.
Post-Transportation Inspection and Collection. Depending upon the
customer's requirements, shipped items may be re-inspected at the point of
retail warehouse delivery by a technical representative during unloading and
delivery to ensure that quality standards have been maintained during the
storage and shipping process.
Potential Benefits.
- Higher Level of Consumer Satisfaction. Retail distributors using the
Conserver 21(TM) Program will be able to offer customers higher quality
produce without a significant increase in cost. Foods which were
previously harvested before maximum ripeness to avoid spoilage in
shipping can now be harvested when riper. Generally, harvesting nearer to
peak maturation means that most fruits and vegetables will have a higher
sugar content, richer color and better taste. In addition, the selling
season for produce which is not available year-round can be extended
because riper produce can be harvested, stored with reduced spoilage and
delivered for retail sale "out of season."
- Reduced Shipping Costs. In some instances, retail distributors' cost of
products may decrease significantly due to the Conserver 21(TM) Program,
which can slow the decay of highly perishable items, thereby allowing
shipment by less expensive means of transport than otherwise used.
Unusual and exotic produce and flowers which currently have to be shipped
overseas via air transport can be shipped via slower, less expensive
means of transport.
- Increased Weight. The Conserver 21(TM) Program should generally result
in a higher weight yield of fruits, vegetables and flowers upon delivery
because of reduced spoilage. Since the retail distributor often pays the
grower by weight at the time of transport, this would generate increased
profitability for growers. In addition, the production of water vapor
attributable to the use of Conserver 21(TM) reduces the amount of
shrinkage in the cargo during shipment. Consequently, if there is less
spoilage and shrinkage through the use of Conserver 21(TM), the weight
and marketability of fruits and vegetables delivered for retail sale is
higher, thereby generating additional profits for the retail distributor
as well.
- Reduced Handling Costs. The Conserver 21(TM) Program, by reducing the
detrimental effects of ethylene, could cut the time and expense needed to
maintain shipments of produce in storage. Currently, distributors and
handlers must inspect shipments by hand to remove individual fruits and
vegetables whose advanced stage of decay could accelerate the maturation
of the remaining fruits and
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vegetables. With Conserver 21(TM), the deterioration of ripened fruits
and vegetables would be reduced, lessening the need for hand-inspections
and eliminating the cost for those extra inspections as well as the costs
incurred by the delay in the shipment of fruits, vegetables and flowers
to market.
BUSINESS STRATEGY
Market Opportunities. Based on tests performed by Groupe Conserver and
Conserver XXI, the following examples highlight some of the market opportunities
for the Company's Conserver 21(TM) Program.
- Strawberries
Growers and distributors in California ship more than 600
million pounds of strawberries annually, most requiring
transport over several days. The post-harvest life of
strawberries can be extended for up to 10 additional days
utilizing Conserver 21(TM), resulting in greater volume and
higher quality berries for distributors to sell.
- Oranges Conserver 21(TM) can extend the post-harvest life of certain
types of oranges from 21 days to as much as 60 days allowing
growers to harvest at the end of the season when the oranges
are at their highest quality.
- Tomatoes Most tomatoes are harvested before they are ripe and then
ripened to specific customer specifications by repackers using
a "forced ripening" system. This results in compromised taste
and added expense. The Company believes that Conserver 21(TM)
can extend the post-harvest life of tomatoes from 12 to as much
as 40 days, enabling tomatoes to be harvested when they are
vine ripened and allowing them to be sold for a premium price,
at their maximum weight and at their height of natural
ripeness.
- Flowers Approximately 48% of the flowers sold in the United States are
imported via air freight. The Company believes that its
Conserver 21(TM) Program can slow down the post-harvest decay
and increase the post-harvest life of certain varieties of
carnations and lilies to as long as 7 and 5 days, respectively,
enabling these flowers to be shipped by less expensive means of
transport. In addition, flowers can be harvested and stored
longer to meet peak demand for the major holidays for flower
sales -- Valentine's Day, Mother's Day and Easter.
- "Out of
Season"
Produce The Company intends to purchase seasonal fruits and vegetables,
and store them utilizing Conserver 21(TM) so that these stored
fruits and vegetables can be sold at "out of season" premium
prices. The Company plans to use a portion of the net proceeds
of this Offering for such purpose. See "Use of Proceeds."
Initial Market Entry. In order to demonstrate projected savings to
prospective customers, the Company's management and advisors will work with its
prospective customers in analyzing their: (i) specific sources of supply of
fruits and vegetables; (ii) distribution and storage policies; and (iii)
warehouse and delivery procedures.
After completing its analysis, the Company will request a prospective
customer to agree to a demonstration by the Company of the potential cost
savings and other benefits which may be derived by the prospective customer from
its use of the Conserver 21(TM) Program. The Company will implement such
demonstration utilizing operational procedures designed specifically for the
customer, including but not limited to, pre-shipment inspections, installation
and recovery of Conserver 21(TM) packets and filters and coordination with
transporters and warehouses. The Company will also provide the prospective
customer with an analysis of the results of the demonstration and the potential
economic benefits of its use of the Conserver 21(TM) Program, all at no cost to
the prospective customer. Although the Company believes that the anticipated
results of these demonstrations will result in firm orders for use of the
Conserver 21(TM) Program, there can be no assurance that the Company's attempts
at initial market development will be successful.
Price. The Company expects to charge customers a fee based on the weight
of each shipment of fruits, vegetables or flowers it transports or stores using
the Conserver 21(TM) Program. The Company intends that its fee will represent a
percentage of the financial benefit derived by its customers through the sale of
the
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enhanced fruits, vegetables and flowers shipped or stored using the Conserver
21(TM) Program and, as a result, will represent no increased cost to its
customers.
Branded Service. The Company intends to establish a Conserver 21(TM)
"Freshness Seal" or other identifying trademark which will identify products
utilizing the Conserver 21(TM) Program.
MARKETING RESEARCH
The Company has engaged Mr. Elie Toledano as an advisor to assist the
Company with the development of its protocols, marketing strategies and
research, as well as identifying the products with which Conserver 21(TM) can be
effectively utilized. Mr. Toledano served as Groupe Conserver's scientific
coordinator for almost two years, during which time he was responsible for
organizing and supervising the testing of Conserver 21(TM).
The Company will continue to perform studies to demonstrate the advantages
of Conserver 21(TM) over ethylene adsorbers and other methods of produce life
extension. The Company also expects to explore additional uses of Conserver
21(TM), including its potential use in pre-packaged produce items such as
salads, as well as its potential to extend the lives of other foodstuffs such as
meat, poultry and fish, in addition to other diverse applications such as
absorbing cigarette and cigar smoke. The Company will work closely with the
respective European research and development teams of Conserver XXI and Groupe
Conserver on any related modifications to Conserver 21(TM).
GROUPE CONSERVER
Introduction
Groupe Conserver, comprised of Conserver International BV ("BV"), Conserver
Engineering Ltd. ("Engineering") and Conserver North America, Inc. ("Nord"),
maintains offices in Brussels, which is responsible for sales administration,
advertising and promotion activities, legal issues, and the importation and
shipment of product, and Paris, which is responsible for sales and marketing,
accounting and finance, and technical supervision and research.
Distribution Agreement
On October 9, 1996, the Company entered into a Distribution Agreement (the
"Groupe Conserver Distribution Agreement") with BV, which holds worldwide
distribution rights for Conserver 21(TM) as the licensee of Conserver XXI, and
Nord, superceding a prior agreement entered into in March 1996 with BV and Nord
pursuant to which BV and Nord, as sublicensees of Engineering, granted the
Company the exclusive right to import, promote, distribute, market and otherwise
commercially exploit Conserver 21(TM) products in the United States and its
possessions, territories and dependencies, as well as in Canada, for commercial
users, excluding domestic consumers. The Company has agreed to purchase all of
its Conserver 21(TM) requirements from BV for as long as BV can satisfy the
Company's demand. Conserver XXI has granted all of its intellectual property
rights in Conserver 21(TM), as well as worldwide marketing and distribution
rights with respect thereto, to Engineering, but has retained the exclusive
right to manufacture Conserver 21(TM) and to supply it to Groupe Conserver. A
combination of patents, trademarks and trade secrets protect the proprietary
aspects of the composition of Conserver 21(TM). Conserver XXI has filed patent
applications with respect thereto which are effective in both the United States
and Canada. See "-- Dispute between Groupe Conserver and Conserver XXI; Company
Option to Acquire Distribution Rights Directly from Conserver XXI."
The Company's cost for Conserver 21(TM) is equal to prices paid by other
Conserver 21(TM) distributors. The Company is also required to pay a royalty to
BV equal to 6% of net revenues of up to $100,000,000 generated by the commercial
exploitation of Conserver 21(TM), and increasing to a royalty of 7% thereafter.
Royalties are payable 45 days after the end of each calendar quarter. Net
revenues are defined as the gross proceeds actually received by the Company from
the "commercial exploitation" of Conserver 21(TM) reduced by the cost of
packing, freight, insurance, federal, state and local taxes. The Company is
required to provide to BV, among other things, quarterly financial statements
and sales summaries.
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BV has the right, upon 60 days' written notice to the Company, to
substitute a new product or to modify the specifications, manufacture or design
of any Conserver 21(TM) product, so long as any such new product or
modification, as applicable, does not result in a diminution of current
Conserver 21(TM) standards. The Company has a right of first refusal for a
license or distributorship with respect to (i) any proposed use of Conserver
21(TM) other than for individual use and (ii) any products acquired or developed
by BV or Engineering for use as a preserver of foodstuffs and flowers.
Pursuant to the terms of the Distribution Agreement, the Company has also
received the non-exclusive right in the United States and Canada to use the
trademark "Conserver 21(TM)" for use in connection with the marketing of
Conserver 21(TM) Products.
The Groupe Conserver Distribution Agreement shall remain in effect for an
initial term equal to the duration of the license granted to BV and Engineering
(currently expiring on May 12, 2005); provided, however, that, to the extent BV
or Engineering succeeds in obtaining a license for a longer duration, or
succeeds in obtaining exclusive proprietary rights to the intellectual property
rights or the Conserver 21(TM) trademark and on all rights relating to the
know-how and inventions upon which the Conserver 21(TM) products are based, the
initial term shall be extended for a total duration of 20 years (the "Initial
Term").
The Groupe Conserver Distribution Agreement is automatically renewable
beyond the Initial Term for subsequent periods of three years; provided,
however, that the Groupe Conserver Distribution Agreement can be terminated by
either party by written notice one year prior to the end of the Initial Term and
thereafter by written notice six months prior to the end of each succeeding
three year term.
The Groupe Conserver Distribution Agreement may be terminated by either
party in case of the insolvency or bankruptcy of the other party; substantial
breach of any material provision if the breaching party has not cured such
breach within 30 days of written notice thereof; or failure of the Company to
meet 75% of minimum sales levels (to be mutually agreed upon by the parties) for
two consecutive years, commencing January 1, 1998. Conserver BV may also
terminate the Agreement if the Company does not pay amounts due within 20 days
of receipt of notice to that effect.
Dispute between Groupe Conserver and Conserver XXI; Company Option to
Acquire Distribution Rights Directly from Conserver XXI.
There is a dispute between Groupe Conserver and Conserver XXI which could
limit Groupe Conserver's ability to supply the Company with its Conserver 21(TM)
requirements and could raise substantial uncertainties as to the future validity
of the Company's marketing and distribution rights under the Groupe Conserver
Distribution Agreement.
To alleviate the consequences of any future interruption in its ability to
obtain Conserver 21(TM) from Groupe Conserver, the Company, by agreement dated
October 9, 1996, as subsequently amended on December 31, 1996, agreed to lend
Conserver Purchasing Corporation ("CPC") up to $350,000 for the purpose of
enabling CPC to acquire an inventory of Conserver 21(TM) directly from Conserver
XXI, of which $258,350 had been advanced to CPC through January 31, 1997 leaving
$91,700 available for this purpose. These loans, which are payable on demand,
bear interest at a rate of 8% per annum and are collateralized by a lien upon
CPC's inventory of Conserver 21(TM).
In transactions contemporaneous with the Company's loans to CPC, Conserver
XXI granted CPC an option (the "CPC Option") to acquire exclusive marketing and
distribution rights for Conserver 21(TM) in the United States and Canada for a
term of 20 years upon terms and conditions substantially identical to those
accorded the Company under the Groupe Conserver Distribution Agreement but with
a more favorable pricing structure. The CPC Option, which has no specified
expiration date, would be exercised by the Company only if it determined that
such exercise would not breach the Groupe Conserver Distribution Agreement. CPC
is required by the terms of its loan from the Company to assign the CPC Option
to the Company if and when the Company decides to exercise it. The Company and
CPC have further agreed that the Company's right to acquire the CPC Option would
indefinitely survive payment of CPC's indebtedness to the Company.
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CPC, a Delaware corporation whose officers, directors and sole stockholder
have no affiliation with the Company, acted as the Company's intermediary
without any compensation. Future sales of Conserver 21(TM) to the Company by
CPC, if any, will be made upon terms that will result in no net profit to CPC.
SOURCES OF SUPPLY; MANUFACTURING
Conserver 21(TM) is currently exclusively manufactured and packaged by
Conserver XXI in its own facilities located in Madrid, Spain. The Company
believes that its Conserver 21(TM) supply requirements, which are currently
fulfilled by Groupe Conserver, will comprise 20% of Conserver XXI's current
manufacturing capacity. A portion of the net proceeds from this Offering have
been reserved by the Company to invest in the expansion of Conserver 21(TM)
manufacturing facilities, as needed. See "Use of Proceeds."
The Groupe Conserver Distribution Agreement requires BV to establish a
manufacturing facility in either the United States, Canada or Mexico if BV is
unable to deliver orders in a timely fashion after making reasonable efforts to
increase production and further entitles the Company to source Conserver 21(TM)
other than from Groupe Conserver, if Groupe Conserver is unable to supply the
Company. See "Risk Factors -- Sole Source of Supply; Dispute between Groupe
Conserver and Conserver XXI; Possible Impairment of Distribution Rights" and
"Business -- Groupe Conserver -- Dispute between Groupe Conserver and Conserver
XXI; Company Option to Acquire Distribution Rights Directly from Conserver XXI."
REGULATORY REQUIREMENTS
The Company's intended utilization of Conserver 21(TM) to adsorb gases in
storage or transport containers filled with fruits, vegetables and flowers will
result in the natural production of carbon dioxide, which will have the effect
of retarding the growth of microorganisms and fungi also present in such
containers. Such retardation effect, however, may result in the technical
classification of Conserver 21(TM) as a "pesticide" under the rules and
regulations of the United States Environmental Protection Agency ("EPA") and
thus subject Conserver 21(TM) to the provisions of the Federal Insecticide
Fungicide and Rodenticide Act ("FIFRA"). The Company and its special counsel,
based on a review of the relevant statutes and regulations, have taken the
position that Conserver 21(TM) is not a pesticide. The Company has requested a
confirmation from the EPA that Conserver 21(TM) is not a pesticide, which
request has not as yet been acted upon. There can be no assurance that the EPA
will not determine Conserver 21(TM) to be a pesticide. Pesticides are required
to be registered with the EPA and their use is subject to compliance with EPA
labeling and packaging requirements. If the EPA determines that Conserver 21(TM)
is a pesticide, the Company will promptly proceed with EPA registration as both
FIFRA and applicable customs regulations prohibit the importation of
unregistered pesticides under penalty of possible civil and criminal sanctions.
FIFRA registration may require the performance of formal tolerance studies of
Conserver 21(TM)'s interaction with fruits and vegetables, which the Company
estimates may cost it between $75,000 and $150,000, and would take at least six
months to complete, thereby extensively delaying the Company's planned
commercialization of the Conserver 21(TM) Program. There can be no assurance
that the registration procedure will not entail longer delays and greater costs
and expenses. If FIFRA registration is not required, the Company's use of
Conserver 21(TM) may require it to comply with the federal Toxic Substance and
Control Act which could subject it to other reporting and registration
obligations. Based on its review of applicable regulations, the Company believes
that Conserver 21(TM) is not subject to United States Department of
Transportation hazardous materials requirements which regulate the transport of
certain hazardous substances.
The Company's proposed use of Conserver 21(TM) does not currently subject
it to any other material federal, state, or local regulatory approvals.
INSURANCE
The Company currently maintains comprehensive general liability and
property insurance with coverage of $1,000,000 per occurrence and umbrella
insurance of $2,000,000 per occurrence. There can be no assurance that such
coverage will be adequate to protect the Company from all potential losses.
EMPLOYEES
As of February 28, 1997, the Company had seven employees, including its
five executive officers.
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FACILITIES
The Company's offices are located in an executive office suite comprising
600 square feet in Coral Gables, Florida on a month-to-month rental basis at a
cost of approximately $5,000 per month. After the Offering, the Company expects
to move its offices to a larger facility in the same area, although the Company
has not entered into any negotiations for such facilities.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------- ---- -------------------------------------
<S> <C> <C>
Charles H. Stein..................... 65 Chairman, President and Chief
Executive Officer
James V. Stanton..................... 64 Vice Chairman and Director
Douglas C. Rice...................... 53 Vice President -- Corporate
Development
Miles R. Greenberg................... 39 Senior Vice President -- Finance,
Treasurer and Chief Financial
Officer
Jeffrey H. Berg...................... 53 Vice President -- Research and
Development
Gerald M. Breslauer.................. 59 Vice President -- Administration and
Secretary
Brian J. Bryce....................... 62 Director
Jay M. Haft.......................... 61 Director
Michael Jay Scharf................... 54 Director
</TABLE>
CHARLES H. STEIN has been Chairman, President and Chief Executive Officer
of the Company since its inception in March 1996. From June 1994 until March
1996, Mr. Stein was a private investor and consultant. From October 1993 until
June 1994, Mr. Stein was Chairman of HMI International Ltd., a Florida based
wholesaler and retailer of resale products. From 1985 to 1987, he was President
and Chief Executive Officer of Night Hawk Resources, Ltd. (Vancouver Stock
Exchange) which was engaged in oil and gas exploration in Texas and Alaska.
Prior thereto and from 1987, Mr. Stein was a private investor. Early in his
career, Mr. Stein pioneered the concept of packaging fresh orange juice in
"milk-type" cartons, which business was sold to Kraft Foods, Inc. From December
1968 to October 1983, Mr. Stein was Chairman and Chief Executive Officer of
Hardwicke Companies Inc. (Nasdaq), which built, developed, or operated more than
50 restaurants (including Tavern on the Green, Maxwell's Plum, and Benihana),
health spas, theme parks in North America, Europe and Asia (including Great
Adventure in New Jersey), and duty-free shops. He was previously President and
Chief Executive Officer of Kitchens of Sara Lee, the world's largest bakery, as
well as a director, member of the Executive Committee, and a Vice President of
Consolidated Foods Corporation (NYSE), the parent company of Sara Lee.
JAMES V. STANTON has been Vice Chairman and a director of the Company since
its inception. From 1981 to 1988 he served as Executive Vice President of the
Delaware North Company, one of the largest privately held food companies in the
United States. Mr. Stanton has been an attorney and a registered lobbyist in
Washington, D.C. since 1988, and represented the 20th Congressional District of
Ohio in the United States House of Representatives from 1971 to 1977, where he
served on the Select Committee on Intelligence, the Government Operations
Committee, and the Public Works and Transportation Committee.
DOUGLAS C. RICE has been Vice President -- Corporate Development of the
Company since May 1996. Prior to joining the Company and from 1986, Mr. Rice was
an independent food technologies consultant, during which time he provided
advice and guidance for six years to the Charoen Pokphand Group, one of Asia's
largest food producers, on the operation, financing, management and distribution
aspects of businesses specializing in shrimp, fish, and chicken products.
MILES R. GREENBERG was appointed Vice President and Chief Financial Officer
of the Company in September 1996 and appointed Senior Vice President on January
18, 1997. From 1994 until joining the Company, Mr. Greenberg served as Vice
President and Chief Financial Officer of F3 Software Corporation ("F3"), a
developer and marketer of electronic forms composition and automation software.
From 1992 until assuming his positions at F3, he served as Controller of BLOC
Development Corporation (former parent company of F3), a publicly held entity
primarily engaged in the development, publishing and direct marketing
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<PAGE> 34
of computer software and hardware products. From 1985 to 1992, Mr. Greenberg
served as Vice President and Chief Financial Officer of The Levenshon Companies,
Inc. and its affiliates, a diversified financial services company. Mr. Greenberg
is a Certified Public Accountant formerly with KPMG Peat Marwick.
GERALD M. BRESLAUER has been Vice President -- Administration of the
Company since its inception. From 1991 until he joined the Company in March
1996, Mr. Breslauer was an agent of The Equitable Life Assurance Society of the
United States and the Equitable Variable Life Insurance Company and was a
registered representative of Equico Securities, Inc. Mr. Breslauer is licensed
to practice law in the State of New York.
BRIAN J. BRYCE has been a director of the Company since July 1996. Since
1988, Mr. Bryce has been the sole principal and a director of Bryce & Company,
Limited, a consulting firm engaged in project finance. Mr. Bryce was employed by
Hyatt International Corporation from 1969 until 1988, initially as a Vice
President, ultimately becoming Vice Chairman in 1981.
JAY M. HAFT has served as a director of the Company since October 1996. A
practicing attorney for over 25 years, Mr. Haft also serves as Chairman of Noise
Cancellation Technologies, Inc., Extech, Inc., and Healthcare Acquisition Corp.,
each a public company whose respective securities are traded on the Nasdaq
SmallCap Market. He is a Managing General Partner of Venture Capital Associates,
Ltd. and of Gen Am "1" Venture Fund, a domestic and an international venture
capital fund, respectively. From 1989 until 1994, he was a partner at Parker
Duryee Rosoff & Haft, counsel to the Company, in New York, New York. He is
currently of counsel to such firm.
MICHAEL JAY SCHARF has been a director of the Company since September 1996.
Mr. Scharf has been Chairman, President and Chief Executive Officer of Niagara
Corporation (formerly International Metals Acquisition Corporation), a publicly
held specialty steel and metal company, since 1993. From 1989 until 1993, Mr.
Scharf was a private investor. From 1983 until 1989, he was Chairman and Chief
Executive Officer of Edgecomb Corporation, a leading independent metals
distribution company which was sold in 1989 to the Blackstone Group. Mr. Scharf
is also a director of Financial Services Acquisition Corp., a publicly held
company.
JEFFREY H. BERG, PH.D. was appointed Vice President of Research and
Development in January 1997. He will assume such office upon the effectiveness
of the Offering. Dr. Berg, who has agreed to devote approximately 50% of his
working time to Company affairs, will also seek new business opportunities for
the Company that are compatible with its current or future business. Since 1987
Dr. Berg has worked in the financial community as an analyst covering the health
care industry, including as a part-time employee of M. H. Meyerson & Co., Inc.,
a financial services firm, since September 1995. From 1981 to 1987 Dr. Berg
worked at PA Technology, an international consulting agency where he counseled
clients in the food industry and the health care industry. From 1974 to 1981 he
led product development laboratories at Johnson & Johnson's Patient Care
Division, and subsequently for the Consumer Products Division of Ortho
Pharmaceutical Corporation. Dr. Berg received a Ph.D in organic chemistry from
New York University in 1969 and subsequently spent four years at General Foods
in research.
The Company has agreed that, for a period of five years from the effective
date of the Registration Statement, the Representative may designate one person
to attend all meetings of the Company's Board of Directors and to receive all
notices of meetings of the Company's Board of Directors and all other
correspondence and communications sent by the Company to members of its Board of
Directors. Such designee may be an officer or director of the Representative.
The Company has agreed to reimburse designees of the Representative for their
reasonable out-of-pocket expenses incurred in connection with their attendance
at meetings of the Company's Board of Directors. The Representative has not
designated an individual to serve in such capacity. See "Underwriting."
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee, a Compensation
Committee and a Stock Option Committee. The responsibility of the Audit
Committee (which, upon completion of this Offering, will consist of Messrs.
Stanton, Bryce and Scharf) include recommending to the Board of Directors the
firm of independent accountants to be retained by the Company, reviewing with
the Company's independent
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<PAGE> 35
accountants the scope and result of their audits, and reviewing with the
independent accountants and management the Company's accounting and reporting
principles, policies and practices, as well as the Company's accounting,
financial and operating controls and staff. The Compensation Committee (which,
upon completion of this Offering, will consist of Messrs. Stein, Stanton and
Scharf) has responsibility for establishing and reviewing employee compensation.
The Stock Option Committee (which, upon completion of this Offering, will
consist of Messrs. Stein, Bryce and Haft) has responsibility for administering
and interpreting the Company's 1996 Stock Option Plan (the "Plan"), and
determining the recipients, amounts and other terms (subject to the requirements
of the Plan) of options which may be granted under the Plan from time to time.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain summary information concerning the
aggregate total annual salary and bonus paid or accrued by the Company for
services rendered from inception through November 30, 1996 to its chief
executive officer.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
PRINCIPAL ALL OTHER
NAME POSITION SALARY$ BONUS$ OPTIONS COMPENSATION$
- ------------------------- ------------------------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Charles H. Stein......... Chief Executive Officer 0(1) 0 0 0
</TABLE>
- ---------------
(1) Pursuant to his employment agreement with the Company, Mr. Stein will begin
drawing an annual salary of $125,000 upon the consummation of this Offering
together with such additional increases as the Company's Board of Directors,
in its sole discretion, from time to time determines are appropriate. The
Company recorded non-cash compensation charges of $100,000 for services
contributed by Mr. Stein from inception through November 30, 1996.
EMPLOYMENT AGREEMENT
Upon consummation of this Offering, the Company will enter into an
employment agreement with Charles H. Stein, President and Chief Executive
Officer of the Company. The agreement will have a three-year term which renews
for an additional year on each anniversary of the agreement, and will provide
for an annual base compensation of $125,000 together with such additional
increases as the Company's Board of Directors, in its sole discretion, from time
to time determines are appropriate. The agreement provides for certain employee
benefits including medical insurance, vacation and a car allowance, and also
contains a non-competition provision covering the term of the agreement as well
as for 36 months following termination.
STOCK OPTION PLAN
The Company's Board of Directors has adopted the Plan for officers,
employees, directors and consultants of the Company or any of its subsidiaries.
The Plan authorizes the granting of stock options to purchase an aggregate of
not more than 600,000 shares of the Company's Common Stock.
The Plan is administered by the Stock Option Committee of the Company's
Board of Directors (the "Committee"). In general, the Committee will select the
persons to whom options will be granted and will determine, subject to the terms
of the Plan, the number, the exercise period and other provisions of such
options. The options granted under the Plan will be exercisable in such
installments as may be provided in the grant.
Options granted to employees may be either incentive stock options ("ISOs")
under the Internal Revenue Code of 1986, as amended (the "Code") or non-ISOs.
The Committee may determine the exercise price, provided that, in the case of
ISOs, such price may not be less than 100% (110% in the case of ISOs granted to
holders of 10% of the voting power of the Company's stock) of the fair market
value (as defined in the Plan) of the Company's Common Stock at the date of
grant. The aggregate fair market value (determined at time of option grant) of
stock with respect to which ISOs become exercisable for the first time in any
year cannot exceed $100,000.
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<PAGE> 36
All options will be evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the Plan as the
Committee may impose. Each option, unless sooner terminated, shall expire no
later than 10 years (five years in the case of ISOs granted to holders of 10% of
the voting power of the Company's stock) from the date of the grant, as the
Committee may determine. The Committee has the right to amend, suspend or
terminate the Plan at any time, provided, however, that unless ratified by the
Company's stockholders within 12 months thereafter, no amendment or change in
the Plan will be effective: (a) increasing the total number of shares which may
be issued under the Plan; (b) reducing below fair market value on the date of
grant the price per share at which any option which is an ISO may be granted;
(c) extending the term of the Plan or the period during which any option which
is an ISO may be granted or exercised; (d) altering in any way the class of
persons eligible to participate in the Plan; (e) materially increasing the
benefits accruing to participants under the Plan; or (f) with respect to options
which are ISOs, amending the Plan in any respect which would cause such options
to no longer qualify for ISO treatment pursuant to the Code.
As of the date hereof, no options have been granted under the Plan.
ADVISORS
Mr. Walter Ford, on an as needed basis, will assist the Company's
management in developing potential clients. Mr. Ford has 46 years of experience
in the produce industry, including: (i) 25 years with Kroger Supermarkets with
whom he served in a variety of capacities including senior produce buyer for a
138 store district and Assistant Division Merchandiser in charge of field
merchandising; (ii) 4 years as Senior Produce Buyer for Schnuck Markets Inc.;
and (iii) most recently serving as Vice President-Produce of Bi-Lo Supermarkets
in Greenville, South Carolina. Ahold, a major global supermarket retailer, has
acquired seven U.S. regional supermarket chains, including BiLo, Edwards, Tops
Markets, Giant Foods, Stop 'n Shop, Finast, and Pic-n-Pay, and has combined
their purchasing and marketing functions. Mr. Ford for many years directed all
these combined produce functions.
Mr. Elie Toledano has been engaged by the Company as an advisor to assist
the Company with the development of its testing protocols, marketing strategies
and research, as well as identifying the products with which Conserver 21(TM)
can be effectively utilized. Mr. Toledano served as Groupe Conserver's
scientific coordinator for almost two years, during which time he was
responsible for organizing and supervising the testing of Conserver 21(TM) in
laboratories around the world.
Dr. Guiwen Cheng, Ph.D has been engaged by the Company as an advisor to
assist the Company with research on, and testing and evaluation of Conserver
21(TM). Dr. Cheng has been a research associate in the University of Florida
Horticultural Sciences Department since 1994 and, before that, held a similar
position with the University of California Davis, Department of Pomology. Dr.
Cheng has advanced degrees from two post-harvest technology academic centers
including an M.S. in Horticulture from the University of California, Davis and a
Ph.D. in Horticulture from Oregon State University. Dr. Cheng has published over
20 papers on various aspects of post-harvest horticultural technology.
COMPENSATION OF DIRECTORS
Following the consummation of this Offering, directors who are not employed
by the Company will be paid fees of $1,000 for each meeting a director attended
in person and reimbursement of any attendant personal expenses incurred in
connection therewith. In addition, all directors will be reimbursed for expenses
incurred on behalf of the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND RELATED MATTERS
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by the Delaware General Corporation Law ("DGCL"), the personal
liability of directors and officers for monetary damages for breach of their
fiduciary duties as directors and officers (other than liabilities arising from
acts or omissions which involve intentional misconduct, fraud or knowing
violations of law or the payment of distributions in violation of the DGCL). The
Certificate of Incorporation provides further that the Company shall indemnify
35
<PAGE> 37
to the fullest extent permitted by the DGCL any person made a party to an action
or proceeding by reason of the fact that such person was a director, officer,
employee or agent of the Company. Subject to the Company's Certificate of
Incorporation, the By-laws provide that the Company shall indemnify directors
and officers for all costs reasonably incurred in connection with any action,
suit or proceeding in which such director or officer is made a party by virtue
of his being an officer or director of the Company, except where such director
or officer is finally adjudged to have been derelict in the performance of his
duties as such director or officer.
The Company expects to enter into separate indemnification agreements with
its officers and directors containing provisions which are in some respects
broader than the specific indemnification provisions contained in the Company's
Certificate of Incorporation and By-laws. The indemnification agreements may
require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance, if available on reasonable terms. The
Company believes these agreements are necessary to attract and retain qualified
persons as directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
36
<PAGE> 38
CERTAIN TRANSACTIONS
Following the Company's incorporation in March 1996, the Company issued an
aggregate of 11,076,968 shares of Common Stock to 24 persons, including Messrs.
Stein, Stanton, Breslauer, Haft and Scharf and Conserver Investments, SA, at a
price of $.001 per share.
During the period from April 1996 through November 1996, the Company issued
an aggregate of 1,439,957 shares of Common Stock to 49 persons at a price of
$2.202844 per share, including two persons who had previously acquired shares of
Common Stock at $.001 per share and 68,094 shares to two adult children of James
V. Stanton, a director of the Company.
In March 1996, options to purchase 170,234 shares of Common Stock at an
exercise price of $.2202844 per share were granted to Douglas Rice, Vice
President -- Corporate Development. The Company recorded compensation charges of
$337,500 in connection with the issuance of such options. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operation." In August
1996, warrants to purchase 340,469 shares at a purchase price of $2.202844 per
share were granted to each of Messrs. Haft and Stanton, and options to purchase
79,443 shares of Common Stock at an exercise price of $2.202844 per share were
granted to Michael Stanton, an employee of the Company and James Stanton's son.
In September 1996, options to purchase 102,141 shares of Common Stock at an
exercise price of $2.202844 per share were granted to Miles R. Greenberg, Senior
Vice President and Chief Financial Officer.
In October and November 1996, the Company repurchased, for an aggregate
repurchase price of $1,800,000, 3,102,051 of the 3,782,989 shares of Common
Stock originally acquired by Conserver Investments, SA (an affiliate of Groupe
Conserver) ("CI") in March 1996.
Pursuant to a Stockholder Agreement dated March 7, 1996 by and among
Charles Stein, Bruce Denis Allet on behalf of CI and a non-affiliate
stockholder, Mr. Allet has served on the Board of Directors as a designee of CI.
This agreement terminated effective upon the disposition by CI of its remaining
shares of Common Stock in November 1996, and Mr. Allet subsequently resigned as
a director of the Company.
Jay M. Haft, a director of the Company, is of counsel to Parker Duryee
Rosoff & Haft A Professional Corporation, which firm will be passing upon the
validity of the Securities being offered by the Company.
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<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 28, 1997 for (i) each executive
officer and director of the Company, (ii) each stockholder known by the Company
to be the beneficial owner of more than 5% of the outstanding Common Stock, and
(iii) all executive officers and directors as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common Stock
listed below, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community
property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE BENEFICIALLY
NUMBER OF OWNED
SHARES ---------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER(1) OWNED OFFERING(9) OFFERING(9)
- ------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Charles H. Stein....................................... 2,269,793(2) 23.9% 18.2%
James V. Stanton....................................... 522,053(3) 5.3% 4.1%
Douglas C. Rice........................................ 56,745(4) * *
Miles R. Greenberg..................................... -- -- --
Jeffrey H. Berg........................................ -- -- --
Gerald M. Breslauer.................................... 113,490 1.2% *
Brian J. Bryce......................................... 1,134,896(5) 11.9% 9.1%
Jay M. Haft............................................ 453,959(6) 4.6% 3.5%
201 S. Biscayne Boulevard, Suite 300
Miami, FL 33133
Michael Jay Scharf..................................... 453,959(7) 4.8% 3.6%
704 Spinnakers Reach
Ponte Vedra, FL 32082
Jasmine Trustees Ltd................................... 1,134,896(5) 11.9% 9.1%
P.O. Box 675
St. Helier, Jersey Channel Islands
Dori Kallan, Daniel Kallan and 680,938 7.2% 5.4%
Joshua Kallan as joint tenants.......................
19999 Back Nine Drive
Boca Raton, FL 33498
The SES Family Investment and 1,248,386(8) -- 9.1%
Trading Partnership, L.P.............................
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109
All executive officers and directors as a group (9 5,004,895 48.9% 37.8%
persons)
(2)(3)(4)(5)(6) and (7)..............................
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Unless otherwise indicated, the holders' address is c/o the Company, 2655
LeJeune Road, Suite 535, Coral Gables, Florida 33134.
(2) Represents shares held by a trust for the benefit of Mr. Stein's spouse and
children. Mr. Stein disclaims voting and investment power with respect to
the shares.
(3) Includes 45,396 shares held jointly by Mr. Stanton and his spouse and
340,469 shares of Common Stock underlying warrants exercisable within 60
days of the date of the Prospectus. Does not include 68,094 shares owned by
Mr. Stanton's adult children.
(4) Represents currently exercisable options to purchase 56,745 shares of the
Company's Common Stock at an exercise price of $.2202844 per share
exercisable after March 7, 1997.
(5) Represents shares held by Jasmine Trustees Ltd., a trust established for the
benefit of Mr. Bryce and his children. Mr. Bryce does not have voting or
dispositive power with respect to such shares.
(6) Includes 340,469 shares of Common Stock underlying warrants exercisable
within 60 days of the date of this Prospectus.
(7) Includes 453,959 shares held by the Scharf Family 1989 Trust for the benefit
of Mr. Scharf and his family.
(8) Represents shares issuable upon the exercise of warrants to be issued to
this entity upon consummation of this Offering and the concurrent repayment
by the Company of $1,000,000 in principal amount of indebtedness to this
entity. Does not include 56,745 shares presently owned by such entity which
are to be surrendered to the Company contemporaneously with such repayment
of indebtedness and issuance of warrants. See Note D of Notes to Financial
Statements.
(9) Assumes consummation of the SES Reacquisition upon the consummation of the
Offering.
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<PAGE> 40
DESCRIPTION OF SECURITIES
The following descriptions of the Company's securities are qualified in all
respects by reference to the Certificate of Incorporation and By-laws of the
Company and the warrant agreement (the "Warrant Agreement"), dated ,
1997, by and among the Company, the Representative and Continental Stock
Transfer & Trust Company (the "Warrant Agent"), copies of which are filed as
Exhibits to the Registration Statement of which this Prospectus is a part. The
Certificate of Incorporation of the Company authorizes the Company to issue up
to 5,000 shares of preferred stock, par value $.01 per share (the "Preferred
Stock"), none of which is outstanding and 30,000,000 shares of Common Stock, par
value $.001 per share. As of the date hereof, there are no Warrants outstanding.
COMMON STOCK
As of February 28, 1997, there were 9,556,745 shares of Common Stock
outstanding. There will be 12,500,000 shares of Common Stock outstanding after
giving effect to the sale of the Shares offered hereby and the SES
Reacquisition. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Subject to preferential rights with respect to any outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and satisfaction of preferential rights and have no rights to
convert their Common Stock into any other securities. All shares of Common Stock
have equal, non-cumulative voting rights, and have no preference, exchange,
preemptive or redemption rights. The outstanding shares of Common Stock are, and
the Common Stock to be outstanding upon completion of the Offering will be,
fully paid and nonassessable. See "Capitalization."
WARRANTS
Exercise Price and Terms. Each Warrant entitles the registered holder
thereof to purchase, at any time over a fifty-four (54) month period commencing
six (6) months after the date of this Prospectus, one share of Common Stock at a
price of $8.40 per Share, subject to adjustment in accordance with the
anti-dilution and other provisions referred to below. The holder of any Warrant
may exercise such Warrant by surrendering the certificate representing the
Warrant to the Warrant Agent, with the subscription form thereon properly
completed and executed, together with payment of the exercise price. The
Warrants may be exercised at any time in whole or in part at the applicable
exercise price until expiration of the Warrants. No fractional shares will be
issued upon the exercise of the Warrants.
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the Securities offered hereby.
Adjustments. The holders of the Warrants are protected against dilution of
their interests by adjustments, as set forth in the Warrant Agreement, of the
exercise price and the number of shares of Common Stock purchasable upon the
exercise of the Warrants upon the occurrence of certain events, including stock
dividends, stock splits, combinations or reclassification of the Common Stock,
or sale by the Company of shares of its Common Stock or other securities
convertible into Common Stock at a price below the then-applicable exercise
price of the Warrants. Additionally, an adjustment would be made in the case of
a reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation (other than a consolidation or merger
in which the Company is the surviving corporation) or sale of all or
substantially all of the assets of the Company in order to enable warrantholders
to acquire the kind and number of shares of stock or other securities or
property receivable in such event by a holder of the number of shares of Common
Stock that might otherwise have been purchased upon the exercise of the Warrant.
Redemption Provisions. Commencing eighteen (18) months after the date of
this Prospectus, all, but not less than all, of the Warrants are subject to
redemption at $0.10 per Warrant on not less than thirty (30) days' prior written
notice to the holders of the Warrants provided the per share closing sale price
of the
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<PAGE> 41
Common Stock as reported on Nasdaq equals or exceeds $15.00 per Share for any
twenty (20) trading days within a period of thirty (30) consecutive trading days
ending on the fifth (5th) trading day prior to the date on which the Company
gives notice of redemption. The Warrants will be exercisable until the close of
business on the day immediately preceding the date fixed for redemption in such
notice. If any Warrant called for redemption is not exercised by such time, it
will cease to be exercisable and the holder will be entitled only to the
redemption price.
Transfer, Exchange and Exercise. The Warrants are in registered form and
may be presented to the Warrant Agent for transfer, exchange or exercise at any
time on or prior to their expiration date five (5) years from the date of this
Prospectus, at which time the Warrants become wholly void and of no value. If a
market for the Warrants develops, the holder may sell the Warrants instead of
exercising them. There can be no assurance, however, that a market for the
Warrants will develop or continue.
The Warrants are not exercisable unless, at the time of the exercise, the
Company has a current prospectus covering the shares of Common Stock issuable
upon exercise of the Warrants, and such shares have been registered, qualified
or deemed to be exempt under the securities laws of the state of residence of
the exercising holder of the Warrants. Although the Company will use its best
efforts to have all the shares of Common Stock issuable upon exercise of the
Warrants registered or qualified on or before the exercise date and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
there can be no assurance that it will be able to do so.
The Warrants are separately transferable immediately upon issuance.
Although the Warrants will not knowingly be sold to purchasers in jurisdictions
in which the Warrants are not registered or otherwise qualified for sale or
exemption, purchasers may buy Warrants in the after-market in, or may move to,
jurisdictions in which Warrants and the Common Stock underlying the Warrants are
not so registered or qualified or are exempt. In this event, the Company would
be unable lawfully to issue Common Stock to those persons desiring to exercise
their Warrants (and the Warrants would not be exercisable by those persons)
unless and until the Warrants and the underlying Common Stock are registered, or
qualified for sale in jurisdictions in which such purchasers reside, or an
exemption from registration or qualification exists in such jurisdiction.
Warrantholder Not a Stockholder. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.
Modification of Warrants. The Company and the Warrant Agent may make such
modifications to the Warrants as they deem necessary and desirable that do not
adversely affect the interests of the warrantholders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days' prior written
notice to the warrantholders and the Representative. Modification of the number
of securities purchasable upon the exercise of any Warrant, the exercise price
and the expiration date with respect to any Warrant requires the consent of
two-thirds of the warrantholders. No other modifications may be made to the
Warrants without the consent of two-thirds of the warrantholders.
OTHER WARRANTS AND CONVERTIBLE SECURITIES
Prior to the Offering, in August 1996, as a means of compensating certain
founders of the Company for their efforts in connection with the organization
and development of the business, the Company issued warrants to purchase
340,469, 340,469 and 56,745 shares of Common Stock to Jay M. Haft, James V.
Stanton and Gregory Pilkington, respectively, at an exercise price of $2.202844
per share. The Company has recorded compensation charges in the amount of
$457,201 in connection with the value attributed to the issuance of such
warrants. In September and November 1996, the Company issued 10% Convertible
Debentures in the aggregate principal amounts of $600,000 and $150,000,
respectively. The holders of the debentures may elect to convert at any time all
unpaid principal and accrued interest into shares of Common Stock at a rate of
$2.202844 per share. The holders of the debentures have agreed not to, directly
or indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such Securities for a period of
twelve (12) months following the effective date of the Registration Statement
without the prior written consent of the Representative and
40
<PAGE> 42
the Company. The Representative has represented to Nasdaq that it will not
release the Convertible Debenture holders from such restriction prior to the
lapse of the twelve (12) month period. The holders of the debentures aggregating
$150,000 issued in November 1996 can elect to be paid in full upon the
consummation of the Offering. In addition, the Company has agreed to issue, upon
the completion of the Offering, 1,248,386 warrants at an exercise price of $.88
to SES and one of its affiliates. The Company anticipates that it will record a
non-cash compensation charge of approximately $2,300,000 in connection with the
value attributed to such issuance. SES and its affiliate have also agreed
unconditionally not to, directly or indirectly, issue, offer, agree or offer to
sell, sell, transfer, assign, encumber, grant an option for the purchase or sale
of, pledge, hypothecate or otherwise dispose of any beneficial interest in such
securities for a period of twenty-four (24) months following the effective date
of the Registration Statement. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operation -- Liquidity and Capital Resources"
and "Shares Eligible for Future Sale."
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of 5,000
shares of Preferred Stock with designations, rights and preferences determined
from time to time by its Board of Directors. Accordingly, the Company's Board of
Directors is empowered, without stockholder approval, to issue Preferred Stock
with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the Common
Stock. In the event of issuance, the Preferred Stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Although the Company has no present intention
to issue any shares of its Preferred Stock, there can be no assurance that it
will not do so in the future.
OPTIONS
As of the date of this Prospectus, options to purchase 283,724 shares of
Common Stock at an exercise price of $.2202844 and options to purchase 658,241
shares of Common Stock at an exercise price of $2.202844 per share have been
granted to 6 persons. Of these options, 488,006 vest pro-rata over three years
commencing one year from the date of grant and 453,959 options granted in
January 1997 vest fully six months from the date of issuance. The Company has
recorded non-cash compensation charges of $678,000 in connection with the
issuance of the 283,724 options exercisable at $.2202844 per share and
$1,378,000 for 453,959 of the options exercisable at $2.202844 per share. No
options have been granted under the Company's 1996 Stock Option Plan. See
"Management --Stock Option Plan" and Note J[5] and [6] of Notes to Financial
Statements.
SECTION 203 OF THE DGCL
The Company has elected to be bound by the provisions of Section 203 of the
DGCL which prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation; (ii) upon
consummation of the transactions which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (iii) on or after such date, the business
combination is approved by the board of directors and by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person, who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
TRANSFER AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent for the
Warrants is Continental Stock Transfer & Trust Company, New York, New York.
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<PAGE> 43
ANNUAL AND OWNER REPORTS
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
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<PAGE> 44
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no market for the Shares or
Warrants. No predictions can be made with respect to the effect, if any, that
public sales of shares of the Common Stock or Warrants or the availability of
Shares or Warrants for sale will have on the market price of the Common Stock or
Warrants after this Offering. Sales of substantial amounts of the Common Stock
or Warrants in the public market following this Offering, or the perception that
such sales may occur, could adversely affect the market price of the Common
Stock and Warrants or the ability of the Company to raise capital through sales
of its equity securities.
Upon completion of this Offering, the Company will have 12,500,000 shares
of Common Stock outstanding (after giving effect to the SES Reacquisition). Of
these shares, the 3,000,000 Shares and 3,000,000 Warrants sold in this Offering
will be freely tradeable without restriction or further registration under the
Securities Act.
The remaining 9,500,000 shares and the 737,683 $2.20 Warrants held by
existing stockholders will be restricted securities as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"). Restricted Shares may
be sold in the public market only if registered under the Securities Act or if
they qualify for an exemption from registration under Rule 144 which is
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market prices
of the Common Stock and Warrants.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
including the holding period of any securities which converted into the
Restricted Shares and including the holding period of any prior owner except an
affiliate of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of the
then outstanding shares of Common Stock (125,000 shares upon completion of this
Offering) or the average weekly trading volume of the Common Stock reported
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Any person (or
persons whose shares are aggregated with such person) who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned shares for at least two years (including
any period of ownership of preceding non-affiliated holders), would be entitled
to sell such shares under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements.
All officers and directors of the Company have agreed unconditionally not
to, directly or indirectly, issue, offer, agree or offer to sell, sell,
transfer, assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such shares of
Common Stock for a period of twenty seven (27) months following the effective
date of the Registration Statement. Other stockholders of the Company and
certain holders of options, warrants or other Securities convertible,
exercisable or exchangeable for shares of Common Stock have agreed not to,
directly or indirectly, issue, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such shares of
Common Stock for a period of twelve (12) months following the effective date of
the Registration Statement without the prior written consent of the Company and
the Representative, except in connection with private transactions (not
involving a public offering) in which the transferee(s) agrees in writing to be
similarly bound. Certain holders of warrants have agreed unconditionally not to,
directly or indirectly, issue, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such Securities
for a period of twenty four (24) months following the effective date of the
Registration Statement. The holders of Convertible Debentures issued by the
Company between September and November of 1996 have agreed not to, directly or
indirectly, issue, offer, agree or offer to sell, sell, transfer, assign,
encumber, grant an option for the purchase or sale of, pledge, hypothecate or
otherwise dispose of any beneficial interest in such Securities for a period of
twelve (12) months following the effective date of the Registration Statement
without the prior written consent of the Company and the Representative. The
Representative has represented to Nasdaq that it will not release the
Convertible Debenture holders from such restriction prior to the lapse of the
twelve (12) month period.
43
<PAGE> 45
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation is acting as representative (in such capacity, the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement (the "Underwriting Agreement") to purchase from the
Company and the Company has agreed to sell to the Underwriters on a firm
commitment basis, the respective number of Shares and Warrants set forth
opposite their names:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
UNDERWRITER OF SHARES WARRANTS
-------------------------------------------------------------- --------- ---------
<S> <C> <C>
National Securities Corporation...............................
--------- ---------
Total............................................... 3,000,000 3,000,000
========= =========
</TABLE>
The Underwriters are committed to purchase all the Shares of Common Stock
and Warrants offered hereby, if any of such securities are purchased. The
Underwriting Agreement provides that the obligations of the several Underwriters
are subject to conditions precedent specified therein.
The Company has been advised by the Representative that the Underwriters
propose initially to offer the Securities to the public at the initial public
offering prices set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Share
and $ per Warrant. Such dealers may reallow a concession not in excess
of $ per Share and $ per Warrant to certain other dealers.
After the commencement of the Offering, the public offering prices, concession
and reallowance may be changed by the Representative.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed five percent (5%) of the
Securities offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay to the Representative a non-accountable expense allowance equal to
3% of the gross proceeds derived from the sale of the Securities underwritten.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the forty-five (45) day period from the date of this
Prospectus, to purchase up to an additional 450,000 shares of Common Stock
and/or 450,000 Warrants at the initial public offering price per Share and
Warrant, respectively, offered hereby, less underwriting discounts and the
non-accountable expense allowance. Such option may be exercised only for the
purpose of covering over-allotments, if any, incurred in the sale of the
Securities offered hereby. To the extent such option is exercised in whole or in
part, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the number of the additional securities proportionate to
its initial commitment.
In connection with this Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 300,000 shares of Common Stock and/or 300,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $9.90 per share of Common Stock and $0.165 per Warrant
for a period of four (4) years, commencing at the beginning of the second year
after their issuance and sale and are restricted from sale, transfer, assignment
or hypothecation for a period of twelve (12) months from the date hereof, except
to officers of the Representative. The Representative's Warrants provide for
adjustment in the number of shares of Common Stock and Warrants issuable upon
the exercise thereof and in the exercise price of the Representative's Warrants
as a result of certain events, including subdivisions and combinations of the
Common Stock. The Representative's Warrants grant to the holders thereof certain
rights of registration for the securities issuable upon exercise thereof.
44
<PAGE> 46
All officers and directors of the Company have unconditionally agreed not
to, directly or indirectly, issue, offer, agree or offer to sell, sell,
transfer, assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such shares of
Common Stock for a period of twenty seven (27) months following the effective
date of the Registration Statement. Other stockholders of the Company and
certain holders of options, warrants or other Securities convertible,
exercisable or exchangeable for shares of Common Stock have agreed not to,
directly or indirectly, issue, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such shares of
Common Stock for a period of twelve (12) months following the effective date of
the Registration Statement without the prior written consent of the Company and
the Representative, except in connection with private transactions (not
involving a public offering) in which the transferee(s) agrees in writing to be
similarly bound. Certain holders of warrants have agreed unconditionally, not to
directly or indirectly, issue, offer, agree or offer to sell, sell, transfer,
assign, encumber, grant an option for the purchase or sale of, pledge,
hypothecate or otherwise dispose of any beneficial interest in such shares of
Common Stock for a period of twenty four (24) months following the effective
date of the Registration Statement. Certain holders of Convertible Debentures
have agreed not to directly or indirectly, issue, offer, agree or offer to sell,
sell, transfer, assign, encumber, grant an option for the purchase or sale of,
pledge, hypothecate or otherwise dispose of any beneficial interest in such
shares of Common Stock for a period of twelve (12) months following the
Effective Date of the Registration Statement without the prior written consent
of the Company and the Representative. The Representative has contractually
agreed with Nasdaq not to consent to the release of the Convertible Debenture
holders from such restriction until the lapse of the twelve (12) month period.
An appropriate legend shall be marked on the face of certificates representing
all such Securities.
The Company has agreed not to, without the prior written consent of the
Representative, issue, sell, agree or offer to sell, grant an option for the
purchase or sale of, or otherwise transfer or dispose of any of its securities
for a period of eighteen (18) months following the effective date of the
Registration Statement.
The Company has also agreed that, for a period of five (5) years from the
effective date of the Registration Statement, the Representative may designate
one person to attend all meetings of the Company's Board of Directors and to
receive all notices of meetings of the Company's Board of Directors and all
other correspondence and communications sent by the Company to members of its
Board of Directors. Such designee may be an officer or director of the
Representative. The Company has agreed to reimburse designees of the
Representative for their reasonable out-of-pocket expenses incurred in
connection with their attendance of meetings of the Company's Board of
Directors.
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants. Consequently, the initial public offering prices of the
Securities have been determined by negotiation between the Company and the
Representative and do not necessarily bear any relationship to the Company's
asset value, net worth, or other established criteria of value. The factors
considered in such negotiations, in addition to prevailing market conditions,
included the history of and prospects for the industry in which the Company
competes, an assessment of the Company's management, the prospects of the
Company, its capital structure, the market for initial public offerings and
certain other factors as were deemed relevant.
Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission of five percent (5%)
of the aggregate exercise price of such Warrants in connection with bona fide
services provided by the Representative relating to any warrant solicitation
undertaken by the Representative. However, no compensation will be paid to the
Representative in connection with the exercise of the Warrants if (a) the market
price of the Common Stock is lower than the exercise price, (b) the Warrants
were held in a discretionary account, or (c) the Warrants are exercised in an
unsolicited transaction where the holder of the Warrants has not stated in
writing that the transaction was solicited and has not designated in writing the
Representative as soliciting agent. Unless granted an exemption by the
Commission from its Rule 101 under the Exchange Act, the Representative and any
soliciting broker-dealers will be prohibited from engaging in any market-making
activities or solicited brokerage activities with regard to the Company's
securities for the periods prescribed by Rule 101) prior to any solicitation of
the
45
<PAGE> 47
exercise of the Warrants until the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Representative or any soliciting broker-dealers may have to receive a fee for
the exercise of the Warrants following such solicitation. As a result, the
Representative and any soliciting broker-dealers may be unable to continue to
provide a market for the Common Stock or Warrants during certain periods while
the Warrants are exercisable. If the Representative has engaged in any of the
activities prohibited by Rule 101 during the periods described above, the
Representative undertakes to waive unconditionally its right to receive a
commission on the exercise of such Warrants.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Securities. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase
Common Stock or Warrants for the purpose of stabilizing their respective market
prices. The Underwriters also may create a short position for the account of the
Underwriters by selling more Securities in connection with the Offering than
they are committed to purchase from the Company and in such case may purchase
Securities in the open market following completion of the Offering to cover all
or a portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Underwriters' Over-allotment
Options referred to above. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriters, the selling concession
with respect to Securities that are distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Securities at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Parker Duryee Rosoff & Haft A Professional Corporation, New York,
New York. Jay M. Haft, a director and stockholder of the Company, is counsel to
such Firm. Orrick, Herrington & Sutcliffe LLP, New York, New York, has acted as
counsel to the Underwriters in connection with this Offering.
EXPERTS
The financial statements of the Company as at August 31, 1996 and for the
period from March 6, 1996 (date of incorporation) through August 31, 1996,
included in this Prospectus, have been audited by Richard A. Eisner & Company,
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein. Such financial statements are included herein and in the
Registration Statement in reliance upon such report and upon the authority of
said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1 in
accordance with the provisions of the Securities Act of 1933, as amended, with
respect to the Securities offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits filed thereto. For further information
regarding the Company and the Securities offered hereby, reference is made to
such Registration Statement and to the exhibits filed therewith. Statements
herein contained concerning the provisions of any document are not necessarily
complete and, in each
46
<PAGE> 48
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement. The Registration Statement and the exhibits may be
inspected without charge at the offices of the Commission and, upon payment to
the Commission of prescribed fees and rates, copies of all or any part thereof
may be obtained from the Commission's principal office at the Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 or at the Northeast Regional Office, 7 World Trade Center, New York, New
York 10048. The Registration Statement may also be accessed on the World Wide
Web through the Commission's Internet address at "http://www.sec.gov."
47
<PAGE> 49
[This page intentionally left blank]
<PAGE> 50
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
-INDEX -
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
REPORT OF INDEPENDENT AUDITORS..................................................... F-2
BALANCE SHEETS AS AT AUGUST 31, 1996 AND NOVEMBER 30, 1996 (UNAUDITED)............. F-3
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCORPORATION)
THROUGH AUGUST 31, 1996, FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(UNAUDITED), AND FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCORPORATION)
THROUGH NOVEMBER 30, 1996 (UNAUDITED)............................................ F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM MARCH 6, 1996
(DATE OF INCORPORATION) THROUGH AUGUST 31, 1996 AND FOR THE THREE MONTHS ENDED
NOVEMBER 30, 1996 (UNAUDITED).................................................... F-5
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCORPORATION)
THROUGH AUGUST 31, 1996, FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
(UNAUDITED), AND FOR THE PERIOD FROM MARCH 6, 1996 (DATE OF INCORPORATION)
THROUGH NOVEMBER 30, 1996 (UNAUDITED)............................................ F-6
NOTES TO FINANCIAL STATEMENTS...................................................... F-7
</TABLE>
F-1
<PAGE> 51
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Conserver Corporation of America
Coral Gables, Florida
We have audited the accompanying balance sheet of Conserver Corporation of
America (a development stage company) as at August 31, 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for the
period from March 6, 1996 (date of incorporation) through August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Conserver Corporation of
America at August 31, 1996 and the results of its operations and its cash flows
for the period from March 6, 1996 (date of incorporation) through August 31,
1996 in conformity with generally accepted accounting principles.
Richard A. Eisner & Company LLP
New York, New York
September 27, 1996
With respect to Notes A, E, H[2] and J
November 19, 1996
F-2
<PAGE> 52
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................... $2,403,588 $2,100,860
Advances to officers and employees...... 17,968 39,163
Note receivable (Note J)................ 181,300
Other current assets.................... 17,502 39,723
------------- -------------
Total current assets................. 2,439,058 2,361,046
Fixed assets, net (Notes B[2] and C)...... 4,378 6,177
Costs of public offering.................. 132,397
------------- -------------
TOTAL................................ $2,443,436 $2,499,620
============= =============
LIABILITIES
Current liabilities:
Return of subscription funds (Note
H[2])................................ $90,000
Due to officers and employees........... 3,839 $5,228
Notes payable -- current (net of
$264,375 discount) (Note J[1])....... 485,625
Accrued expenses........................ 75,317 124,166
Accrued interest........................ 30,000 71,250
------------- -------------
Total current liabilities............ 199,156 686,269
Notes payable (Note D).................... 1,000,000 1,000,000
------------- -------------
Total liabilities.................... 1,199,156 1,686,269
------------- -------------
Commitments and other matters (Note H)
STOCKHOLDERS' EQUITY
(Notes A, D, E and J)
Preferred stock, par value $.01, 5,000,000
shares authorized, none issued and
outstanding
Common stock, par value $.001, 30,000,000
shares authorized, 11,829,177 shares and
9,556,745 shares issued and outstanding
at August 31 and November 30
(unaudited), respectively............... 11,829 9,557
Subscriptions receivable.................. (2,741)
Additional paid-in capital................ 2,622,263 2,667,810
(Deficit) accumulated during the
development stage....................... (1,387,071) (1,864,016)
------------- -------------
Total stockholders' equity........... 1,244,280 813,351
------------- -------------
TOTAL................................ $2,443,436 $2,499,620
============= =============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-3
<PAGE> 53
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
MARCH 6, 1996 MARCH 6, 1996
(DATE OF (DATE OF
INCORPORATION) THREE MONTHS INCORPORATION)
THROUGH ENDED THROUGH
AUGUST 31, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Compensation charges in connection with
issuance of options (Note E[2])......... $ 450,000 $ 450,000
Compensation charges in connection with
issuance of warrants (Note E[1])........ 457,201 457,201
General and administrative expenses....... 458,611 $ 402,952 861,563
------------- ------------- -------------
Operating (loss).......................... (1,365,812) (402,952) (1,768,764)
Interest expense, net of $8,741 and
$15,392 interest income in August and
November, respectively.................. 21,259 73,993 95,252
------------- ------------- -------------
NET (LOSS) (NOTE D)....................... $(1,387,071) $ (476,945) $(1,864,016)
------------- ------------- -------------
Net (loss) per share of common stock...... $ (.12) $ (.04) $ (.16)
============= ============= =============
Weighted average number of common shares
outstanding............................. 11,284,287 11,284,287 11,284,287
============= ============= =============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE> 54
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(NOTE E)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
PAR VALUE $.001 ADDITIONAL DURING THE
------------------------- SUBSCRIPTIONS PAID-IN DEVELOPMENT
SHARES AMOUNT RECEIVABLE CAPITAL STAGE TOTAL
--------- ------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock for cash of
$2,140 and
subscriptions in
March 1996........ 11,076,968 $4,881 $ (2,741) $ 2,140
Transfer of
additional paid-in
capital in
recognition of the
December 1996
stock split....... 6,196 $ (6,196) 0
Issuance of common
stock for cash
from April through
August 1996
($2.202844 per
share)............ 752,209 752 1,656,258 1,657,010
Compensation
charges in
connection with
issuance of
options (Note
E[2])............. 450,000 450,000
Compensation
charges in
connection with
issuance of
warrants (Note
E[1])............. 457,201 457,201
Compensation charge
in connection with
officer's
salary............ 65,000 65,000
Net (loss) for the
period from March
6, 1996 (date of
incorporation)
through August 31,
1996.............. $(1,387,071) (1,387,071)
--------- ------ ------------ --------- ---------- ----------
Balance -- August
31, 1996.......... 11,829,177 11,829 (2,741) 2,622,263 (1,387,071) 1,244,280
Repurchase and
cancellation of
shares originally
issued (Note
J[2])............. (3,102,051) (3,102) 1,367 (1,798,265) (1,800,000)
Shares issued and
treated as debt
discount.......... 141,871 142 312,358 312,500
Sale of common
stock ($2.202844
per share) from
September 1, 1996
to November 7,
1996.............. 687,748 688 1,514,312 1,515,000
Legal services
provided by
stockholder
without charge.... 11,500 11,500
Collection of
subscriptions
receivable........ 1,374 1,374
Legal services in
connection with
sale of common
stock............. (29,358) (29,358)
Compensation charge
in connection with
officer's
salary............ 35,000 35,000
Net (loss) for the
period from
September 1, 1996
through November
30, 1996.......... (476,945) (476,945)
--------- ------ ------------ --------- ---------- ----------
BALANCE -- NOVEMBER
30, 1996
(UNAUDITED)....... 9,556,745 $9,557 $ 0 $2,667,810 $(1,864,016) $ 813,351
========= ====== ============ ========= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE> 55
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
MARCH 6, 1996 MARCH 6, 1996
(DATE OF (DATE OF
INCORPORATION) THREE MONTHS INCORPORATION)
THROUGH ENDED THROUGH
AUGUST 31, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
-------------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss)...................................... $ (1,387,071) $ (476,945) $ (1,864,016)
Adjustments to reconcile net (loss) to net cash
(used in) operating activities:
Depreciation and amortization................ 487 48,420 48,907
Compensation expense relating to officer's
salary..................................... 65,000 35,000 100,000
Compensation expense relating to stock
options and warrants....................... 907,201 907,201
Legal services provided by shareholder
without charge............................. 11,500 11,500
Changes in operating assets and liabilities:
(Increase) in advances to officers and
employees............................... (14,129) (19,806) (33,935)
(Increase) in other assets................. (17,502) (22,221) (39,723)
Increase in accrued expenses............... 105,317 90,099 195,416
-------------- ------------ --------------
Net cash (used in) operating
activities............................ (340,697) (333,953) (674,650)
-------------- ------------ --------------
Cash flows from investing activities:
Acquisition of fixed assets..................... (4,865) (2,094) (6,959)
Funds used for note receivable.................. (181,300) (181,300)
-------------- ------------ --------------
Net cash (used in) investing
activities............................ (4,865) (183,394) (188,259)
-------------- ------------ --------------
Cash flows from financing activities:
Subscriptions receivable........................ 1,374 1,374
Repurchase of shares of common stock............ (1,800,000) (1,800,000)
Cost of public offering......................... (132,397) (132,397)
Legal services provided in connection with sale
of common stock.............................. (29,358) (29,358)
Proceeds from notes payable..................... 1,000,000 750,000 1,750,000
Return of subscription funds.................... 90,000 (90,000) -- 0 --
Proceeds from sale of common stock.............. 1,659,150 1,515,000 3,174,150
-------------- ------------ --------------
Net cash provided by financing
activities............................ 2,749,150 214,619 2,963,769
-------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH................... 2,403,588 (302,728) 2,100,860
Cash -- beginning of period....................... 2,403,588
-------------- ------------ --------------
CASH -- END OF PERIOD............................. $ 2,403,588 $ 2,100,860 $ 2,100,860
============== ============ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........ $ -- 0 -- $ -- 0 -- $ -- 0 --
============== ============ ==============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE> 56
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE A) -- THE COMPANY:
[1] Conserver Corporation of America (the "Company") is a development stage
company that has the rights for the exclusive distribution of a product which
can be used to retard spoilage and decay in food and flowers for commercial use
in the United States and Canada. The Company was incorporated in Delaware on
March 6, 1996 and has adopted a fiscal year ending August 31. The Company's
activities since inception have largely consisted of organizational matters,
negotiating agreements and obtaining funds to finance the Company's operations
and development of its marketing and business plan.
[2] In connection with the organization of the Company, 3,782,989 shares of
common stock were subscribed to by Conserver Investments, S.A., which together
with certain of its affiliates are referred to hereafter as the "Groupe
Conserver".
Subsequent to August 31, 1996, the Company in a series of negotiated
transactions repurchased 3,102,051 of such shares for an aggregate sum of
$1,800,000.
[3] In March 1996, the Company entered into an agreement with Groupe
Conserver (the "Distribution Agreement") which granted it commercial
distribution rights in the United States for certain products designed to
preserve foodstuffs and flowers ("Conserver 21(TM)"). Groupe Conserver had
obtained such rights pursuant to a license from Conserver XXI, S.A. ("Conserver
XXI"). In October 1996, the Distribution Agreement was amended in an effort to
clarify certain provisions of the agreement.
The Distribution Agreement requires the Company to buy such products as it
may need from one of the affiliates at its regular distributor price. In
addition, the Company will pay one of the affiliates royalties of 6% on the
first $100,000,000 of net revenues and 7% thereafter.
[4] There is a dispute between Groupe Conserver and Conserver XXI which
could limit Groupe Conserver's ability to supply the Company with its Conserver
21(TM) requirements and could raise substantial uncertainties as to the future
validity of the Company's marketing and distribution rights under the
Distribution Agreement.
To alleviate the consequences of any future interruption in its ability to
obtain Conserver 21(TM) from Groupe Conserver, the Company, by agreement dated
October 9, 1996, as subsequently amended on December 31, 1996, agreed to lend
Conserver Purchasing Corporation ("CPC") up to $350,000 for the purpose of
enabling CPC to acquire an inventory of Conserver 21(TM) directly from Conserver
XXI, of which $258,350 had been advanced to CPC through January 31, 1997 leaving
$91,700 available for this purpose. These loans, which are payable on demand,
bear interest at a rate of 8% per annum and are collateralized by a lien upon
CPC's inventory of Conserver 21(TM).
In transactions contemporaneous with the Company's loans to CPC, Conserver
XXI granted CPC an option (the "CPC Option") to acquire exclusive marketing and
distribution rights for Conserver 21(TM) in the United States and Canada for a
term of 20 years upon terms and conditions substantially identical to those
accorded the Company under the Distribution Agreement but with a more favorable
pricing structure. The CPC Option, which has no specified expiration date, would
be exercised by the Company only if it determined that such exercise would not
breach the Distribution Agreement. CPC is required by the terms of its loan from
the Company to assign the CPC Option to the Company if and when the Company
decides to exercise it. The Company and CPC have further agreed that the
Company's right to acquire the CPC Option would indefinitely survive payment of
CPC's indebtedness to the Company.
F-7
<PAGE> 57
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE A) -- THE COMPANY: (CONTINUED)
CPC, a Delaware corporation whose officers, directors and sole stockholder
have no affiliation with the Company, acted as the Company's intermediary
without any compensation. Future sales of Conserver 21(TM) to the Company by
CPC, if any, will be made upon terms that will result in no net profit to CPC.
[5] Management's business plan will require financing; the Company has
received a letter of intent from an underwriter for a proposed public offering
of its common stock and redeemable common stock purchase warrants (see Note G).
There is no assurance that the public offering will be successful, or that any
other additional financing will be available. If the Company is unable to raise
additional funds, it may be forced to change or delay its contemplated marketing
and business plans.
[6] In November 1996, the Board of Directors approved a 2.128874 for 1
stock split. In December 1996, the Board of Directors approved a 1.066194 for 1
stock split. The stock splits have been retroactively reflected in the
accompanying financial statements.
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
[1] Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[2] Fixed assets:
Office equipment is carried at cost. Depreciation is provided using the
straight-line method over 5 years, the useful lives of the assets.
[3] Loss per share of common stock:
Net loss per share of common stock is based on the weighted average number
of shares outstanding during the period. Common shares issued and options and
warrants granted by the Company at prices less than the proposed offering price
during the twelve months preceding the offering date have been included in the
calculation of common and common equivalent shares outstanding as if they were
outstanding since inception using the treasury stock method and an assumed
initial public offering price of $6.00 per share.
[4] Income taxes:
The Company has applied to the accompanying financial statements provisions
required by accounting standards under which deferred income taxes are provided
for temporary differences between financial statement and taxable income or
loss.
[5] Stock based compensation:
The Company accounts for employee stock based compensation including stock
options under the basis of Accounting Principles Board Opinion No. 25.
Disclosures required by Financial Accounting Standards Board No. 123 are to be
found in Note E[2] to the financial statements.
F-8
<PAGE> 58
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE B) -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
[6] Fair value of financial instruments:
The carrying value of cash, accounts receivable and accounts payable
approximates fair value because of the short-term maturity of those instruments.
For other debt instruments, the carrying value approximates the fair value
in consideration of the subsequent and pending financings.
[7] Interim financial information:
The financial information presented as of November 30, 1996 and for the
three months ended November 30, 1996 and for the period from March 6, 1996 (date
of incorporation) through November 30, 1996 is unaudited, but in the opinion of
management contains all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of such financial information.
Results of operations for interim periods are not necessarily indicative of
those to be achieved for full fiscal years.
(NOTE C) -- FIXED ASSETS:
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Office equipment................................... $ 4,865 $ 6,959
Less accumulated depreciation...................... (487) (782)
------ ------
Balance.......................................... $ 4,378 $ 6,177
====== ======
</TABLE>
(NOTE D) -- DEBT:
The Company's convertible note payable is due June 30, 2001. Interest at
12% is payable quarterly commencing September 30, 1997. The note is convertible
into common stock after March 31, 1999 at a price equal to the lesser of $2.64
or the book value per share. If the Company completes a public offering, half of
the note may be converted at that time and the other half six months later.
In the event that the Company has not completed a public offering by June
30, 2001, the Company is required to pay an additional 50% of any then remaining
balance not converted to common stock.
In the event that the Company has not completed a public offering by July
10, 2003, the holder of any shares received pursuant to the conversion of the
note may require the Company to purchase all such shares at the greater of book
value or the original amount paid by the holder of the convertible note with
respect to such shares plus 50% of such investment.
In November 1996, the Company entered into an agreement suspending certain
provisions of the agreement with the lender for six months. The new agreement
provides for repayment of the note and accrued interest from proceeds received
upon the completion of an effective public offering. In addition, the Company
will issue warrants for the purchase of 1,248,386 shares of common stock at $.88
per share. The warrants are expected to be valued at approximately $2,300,000
and charged to expense concurrent with the completion of the public offering.
Should the warrants be issued, 56,745 shares of previously issued common stock
are to be
F-9
<PAGE> 59
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE D) -- DEBT: (CONTINUED)
surrendered to the Company. If no public offering is consummated during the
six-month suspension period, the original provisions of the agreement are to be
in effect.
(NOTE E) -- STOCKHOLDERS' EQUITY:
[1] Warrants:
In August 1996, the Company issued three-year warrants to purchase 737,683
shares of the Company's common stock at $2.202844 per share. The warrants have
been valued at $457,201 in the accompanying financial statements.
[2] Options granted:
The Company has granted options for the purchase of 226,979 shares of
common stock at $.2202844 per share and options for the purchase of 261,027
shares of common stock at $2.202844 per share. The options vest 1/3 on each
anniversary date of their issue. The Company has recorded compensation expense
of $450,000 in connection with options exercisable at $.2202844 per share. See
Note J[5].
In estimating the value of options pursuant to the accounting provisions of
Financial Accounting Standards No. 123 ("FAS 123"), the Company used the
following assumptions:
<TABLE>
<S> <C>
Risk free interest rate............................................. 6%
Expected life....................................................... 3 years
Expected volatility................................................. .3
Dividend yield...................................................... .00
</TABLE>
If such accounting provisions of FAS 123 were applied then the Company's
net loss and net loss per share would have been $1,396,482 and $.12,
respectively, for the period ended August 31, 1996 and $488,989 and $.04,
respectively, for the three months ended November 30, 1996.
[3] Stock option plan:
In November 1996 and as later amended in December 1996, the Company adopted
a stock option plan. Under the plan, which authorizes the granting of incentive
stock options or nonincentive stock options, the maximum number of shares of
common stock for which options may be granted is 600,000 shares. As of the date
hereof, no options have been granted under this stock option plan.
(NOTE F) -- RELATED PARTY TRANSACTIONS:
The Company incurred approximately $75,000 and $52,000 in legal fees to a
related party from March 6, 1996 (date of incorporation) through August 31, 1996
and the three months ended November 30, 1996 (unaudited), respectively. In
addition, the Company received free legal services amounting to $11,500 which is
included in the above legal fees for the three months ended November 30, 1996
(unaudited) from a related party, which was recorded as additional paid-in
capital.
(NOTE G) -- PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection
F-10
<PAGE> 60
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE G) -- PROPOSED PUBLIC OFFERING: (CONTINUED)
therewith the Company anticipates incurring substantial expenses which, if the
offering is not consummated, will be charged to expense.
(NOTE H) -- COMMITMENTS AND OTHER MATTERS:
[1] Employment contract:
The Company expects to enter into a three-year employment contract with its
Chief Executive Officer which will take effect upon the consummation of the
Company's proposed public offering of securities. The Chief Executive Officer is
also a member of the Board of Directors. The contract is expected to provide for
an annual salary of an amount not less than $125,000 and a three-year noncompete
clause upon termination.
[2] Return of subscription funds:
Based on the Company's review of investors' subscription documents prior to
the acceptance and issuance of shares to such investors, certain individuals who
had subscribed to shares of the Company's common stock were found not to be
"Qualified Investors" within the meaning of rules promulgated under the
Securities Act of 1933, as amended. Accordingly, subsequent to August 31, 1996,
the Company returned all $90,000 of such subscription amounts.
[3] Royalties:
The Distribution Agreement with Groupe Conserver (Note A) requires the
Company to pay a royalty of 6% on the first $100,000,000 of net revenues
generated from the commercial use of the product and a 7% royalty on net
revenues generated in excess thereof.
(NOTE I) -- INCOME TAXES:
The Company, for tax purposes, does not have any operations or net
operating loss, as its expenses are considered pre-operating, and accordingly
will be capitalized and amortized when operations commence.
(NOTE J) -- SUBSEQUENT EVENTS:
Subsequent to August 31, 1996, the Company entered into the following
transactions:
[1] The Company issued one-year 10% convertible subordinated debentures in
the aggregate amount of $750,000. The holders of $150,000 of such debentures
have the option of requiring repayment upon consummation of the proposed initial
public offering. The debentures and accrued interest are convertible into common
shares at $2.202844 per share.
In connection with the sale of the debentures, the Company issued 141,871
shares of its common stock. The issuance of the shares has been valued at
$312,500 and is being accounted for as debt discount which will be charged to
expense over the term of the note.
[2] The Company repurchased 3,102,051 shares of its common stock for
$1,800,000 (Note A).
[3] The Company sold 687,748 shares of common stock for $1,515,000.
[4] Refunds due to subscribers were paid (Note H[2]).
[5] Options to purchase 56,745 shares of common stock originally issued at
an exercise price of $2.202844 were subsequently cancelled and reissued at an
exercise price of $.2202844. In connection with the
F-11
<PAGE> 61
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED WITH RESPECT TO NOVEMBER 30, 1996 AND THE
THREE MONTHS ENDED NOVEMBER 30, 1996)
(NOTE J) -- SUBSEQUENT EVENTS: (CONTINUED)
cancellation and reissuance of such options, a compensation charge of
approximately $228,000 will be recorded by the Company.
[6] In January 1997, the Company granted options to purchase 453,959 shares
of its Common Stock at $2.202844 per share. The options were issued to a
consultant of the Company. The options vest fully in six months and are
exercisable over a four-year period after issuance. Compensation expense of
approximately $1,150,000 will be recorded by the Company in connection with the
above-described transaction.
F-12
<PAGE> 62
======================================================
NO UNDERWRITER, DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Plan of
Operation........................... 20
Business.............................. 23
Management............................ 32
Certain Transactions.................. 37
Principal Stockholders................ 38
Description of Securities............. 39
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 46
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
[CONSERVER LOGO]
CONSERVER
CORPORATION OF
AMERICA
3,000,000 SHARES OF
COMMON STOCK
AND
3,000,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
--------------------
PROSPECTUS
--------------------
NATIONAL SECURITIES
CORPORATION
, 1997
======================================================
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering. Other than
the SEC registration fee, NASD filing fee and the non-accountable expense
allowance of National Securities Corporation (the "Underwriter"), amounts set
forth below are estimates:
<TABLE>
<S> <C>
SEC registration fee..................................................... $22,117.59
NASD filing fee.......................................................... 7,798.80
Underwriter's non-accountable expense allowance.......................... 549,000
Nasdaq listing fee....................................................... 10,000
Blue sky legal fees...................................................... 50,000
Printing and engraving expenses.......................................... 125,000
Legal fees............................................................... 175,000
Accounting fees.......................................................... 50,000
Transfer and Warrant Agent fees.......................................... 3,500
Miscellaneous expenses................................................... 52,083.61
----------
$1,044,500
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law (the "DGCL"),
Conserver Corporation of America (the "Registrant") has broad powers to
indemnify its directors, officers and other employees. This section (i) provides
that the statutory indemnification and advancement of expenses provisions of the
DGCL are not exclusive, provided that no indemnification may be made to or on
behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his acts were committed in
bad faith or were the result of active and deliberate dishonesty and were
material to the cause of action so adjudicated, or that he personally gained in
fact a financial profit or other advantage to which he was not legally entitled,
(ii) establishes procedures for indemnification and advancement of expenses that
may be contained in the certificate of incorporation or by-laws, or, when
authorized by either of the foregoing, set forth in a resolution of the
stockholders or directors or an agreement providing for indemnification and
advancement of expenses, (iii) applies a single standard for statutory
indemnification for third-party and derivative suits by providing that
indemnification is available if the director or officer acted in good faith, for
a purpose which he reasonably believed to be in the best interests of the
corporation, and, in criminal actions, had no reasonable cause to believe that
his conduct was unlawful, and (iv) permits the advancement of litigation
expenses upon receipt of an undertaking to repay such advance if the director or
officer is ultimately determined not to be entitled to indemnification or to the
extent the expenses advanced exceed the indemnification to which the director or
officer is entitled. Section 145(g) of the DGCL permits the purchase of
insurance to indemnify a corporation or its officers and directors to the extent
permitted.
Article Sixth (b) of the Certificate of Incorporation of the Registrant
provides that no director shall have any personal liability to Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to
Registrant or its stockholders, (2) acts or omissions not in good faith which
involve intentional misconduct or a knowing violation of law, (3) liability
under Section 174 of the DGCL or (4) a transaction from which the director
derived an improper personal benefit. Article Sixth (a) of the Certificate of
Incorporation of Registrant provides that Registrant shall indemnify, to the
fullest extent permitted by Section 145 of the DGCL, as amended from time to
time, any and all persons whom it shall have power to indemnify under such
section.
II-1
<PAGE> 64
Article Sixth (c) of the Registrant's Certificate of Incorporation provides
that the Registrant will indemnify its directors, officers and employees against
judgments, fines, amounts paid in settlement and reasonable expenses.
Reference is also made to Section 7 of the Underwriting Agreement, which
provides for indemnification of the officers and directors of Registrant under
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of
Registrant sold within the past three years without registering the securities
under the Securities Act of 1933, as amended (the "Securities Act"):
In March 1996 the Company issued its Common Stock to founders upon its
incorporation as follows:
(a) 1,000,000 shares to Charles Stein Intervivos Trust for a purchase price of
$1,000;
(b) 300,000 shares to Dori Kallan, Daniel Kallan and Joshua Kallan for a
purchase price of $300;
(c) 200,000 shares to Argus Investors, LLC for a purchase price of $200;
(d) 500,000 shares to Jasmine Trustees Ltd. for a purchase price of $500;
(e) 200,000 shares to Doree Harr Peltz for a purchase price of $200;
(f) 100,000 shares to Irv Tobocman for a purchase price of $100;
(g) 50,000 shares to James V. Stanton for a purchase price of $50;
(h) 50,000 shares to Jay M. Haft for a purchase price of $50;
(i) 25,000 shares to Rosenbaum Investment Company for a purchase price of
$25;
(j) 15,000 shares to Steve Shulman for a purchase price of $15;
(k) 10,000 shares to Lester Weingarten for a purchase price of $10;
(l) 75,000 shares to Paul Arora for a purchase price of $75;
(m) 100,000 shares to Francis Hoogewerf for a purchase price of $100;
(n) 10,000 shares to Nick Torregiani for a purchase price of $10;
(o) 20,000 shares to Clive Vlielland-Boddy for a purchase price of $20;
(p) 1,666,667 shares to Conserver Investments, S.A. for a purchase price of
$1,667 of which 1,366,667 shares were repurchased by the Company in
October and November 1996;
(q) 25,000 shares to Farhat Tabbah for a purchase price of $25;
(r) 25,000 shares to Gerald N. Agranoff for a purchase price of $25;
(s) 200,000 shares to the Scharf Family Trust for a purchase price of $200;
(t) 200,000 shares to Steven Greenberg for a purchase price of $200;
(u) 50,000 shares to Gerald Breslauer for a purchase price of $50;
(v) 6,000 shares to Greg Kroning for a purchase price of $6;
(w) 27,500 shares to Lions Holding Company for a purchase price of $27.50; and
(x) 25,000 shares to Gregory Pilkington for a purchase price of $25.
II-2
<PAGE> 65
From March through October 1996, the Company issued its Common Stock
through private offerings as follows:
(a) 10,000 shares to Doree Harr Peltz for a purchase price of $50,000;
(b) 10,000 shares to James V. Stanton for a purchase price of $50,000;
(c) 10,000 shares to Alan Shulman for a purchase price of $50,000;
(d) 10,000 shares to F. Lorenzo Crutchfield for a purchase price of $50,000;
(e) 8,000 shares to Carl F. Steinfield for a purchase price of $40,000;
(f) 2,000 shares to Herbert Goldman for a purchase price of $10,000;
(g) 5,000 shares to Wilcox Family Trust 12/29/70 for a purchase price of
$25,000;
(h) 5,000 shares to Gordon Conner for a purchase price of $25,000;
(i) 5,400 shares to Paul King Investment Co. Profit Sharing Trust for a
purchase price of $27,000;
(j) 15,000 shares to Bridget M. Stanton for a purchase price of $75,000;
(k) 15,000 shares to Michael J. Stanton for a purchase price of $75,000;
(l) 20,000 shares to James V. Stanton and Margaret M. Stanton, joint tenants
for a purchase price of $100,000;
(m) 5,000 shares to Thomas H. Ford for a purchase price of $25,000;
(n) 95,000 shares to Rogers Family Investments, LP for a purchase price of
$475,000;
(o) 5,000 shares to Robert J. Rogers for a purchase price of $25,000;
(p) 19,000 shares to Rogers Family Properties, LP for a purchase price of
$95,000;
(q) 1,000 shares to Robert J. Rogers for a purchase price of $5,000;
(r) 11,000 shares to Claude and Linda Rogers for a purchase price of $55,000;
(s) 3,000 shares to Robert J. Rogers for a purchase price of $15,000;
(t) 6,000 shares to Claude and Linda Rogers for a purchase price of $30,000;
(u) 6,000 shares to Jerry R. Smith for a purchase price of $30,000;
(v) 10,000 shares to Randolph W. Hunter for a purchase price of $50,000;
(w) 6,000 shares to Marshall H. Cole for a purchase price of $30,000;
(x) 2,000 shares to Marshall H. Cole IRA for a purchase price of $10,000;
(y) 2,000 shares to Melissa W. Cole IRA for a purchase price of $10,000;
(z) 20,000 shares to Teleco Inc. Profit Sharing Plan for a purchase price of
$100,000;
(aa) 5,000 shares to Marc Katzenberg for a purchase price of $25,000;
(bb) 5,000 shares to Robert Mufson for a purchase price of $25,000;
(cc) 5,000 shares to Robert Mufson, Trustee -- Harris Brett Whitney Dev
Retirement Account for a purchase price of $25,000;
(dd) 5,000 shares to Alan Shulman for a purchase price of $25,000;
(ee) 5,000 shares to Elizabeth Shulman for a purchase price of $25,000;
(ff) 10,000 shares to G & G Overseas Investments Co. LTD for a purchase price
of $50,000;
II-3
<PAGE> 66
(gg) 13,000 shares to Thomas M. Ward, MD for a purchase price of $65,000;
(hh) 20,000 shares to James J. Donohue & Assoc. Defined Benefit Pension Plan
for a purchase price of $100,000;
(ii) 100,000 shares to Winstar Investment Trust for a purchase price of
$500,000;
(jj) 19,000 shares to William Rogers for a purchase price of $95,000;
(kk) 5,000 shares to Smith Family Trust for a purchase price of $25,000;
(ll) 10,000 shares to O'Neill and Athy Profit Sharing Plan for a purchase
price of $50,000;
(mm) 20,000 shares to DH Strategic Partners for a purchase price of $100,000;
and
(nn) 10,000 shares to David Shulman for a purchase price of $50,000.
In May 1996, the Company issued a 12% convertible debenture in the
aggregate principal amount of $1,000,000 to the SES Family Investment and
Trading Partnership, L.P.
From September to November 1996, the Company issued 10% Convertible
Debentures and shares of Common Stock as follows:
(a) To D&M Capital Investment Corp. in the aggregate principal amount of
$210,000 and 17,500 shares;
(b) To Chana Sasha Foundation in the aggregate principal amount of $150,000
and 12,500 shares;
(c) To Morris Wolfson Family Limited Partnership in the aggregate amount of
$115,000 and 9,584 shares;
(d) To Quest Enterprises, Inc. in the aggregate principal amount of $25,000
and 2,084 shares;
(e) To Daniel Federbush in the aggregate principal amount of $100,000 and
8,334 shares;
(f) To Bernard Leff in the aggregate principal amount of $25,000 and 2,084
shares;
(g) To Dr. Ronald Krenick in the aggregate principal amount of $100,000 and
8,334 shares; and
(h) To Jeffrey Kaplan in the aggregate principal amount of $25,000 and 2,084
shares.
In November and December 1996, the Company effected a 2.128874-for-one
stock split and a 1.066194-for-one stock split, respectively, with respect to
the foregoing shares.
Each purchaser named herein is an "accredited investor", as such term is
defined in Rule 501, promulgated under the Securities Act and purchased
Registrant's Common Stock or Convertible Debentures, as applicable, for
investment and not with a view to their public distribution. The certificates
evidencing the securities so purchased each bear an appropriate restrictive
legend to such effect. Exemption from registration under the Securities Act is
claimed for the sales of the aforementioned securities in reliance upon the
exemption afforded by Section 4(2) of the Securities Act for transactions not
involving a public offering. None of these sales involved participation by an
underwriter or a broker-dealer.
ITEM 16. EXHIBITS
(a) The following is a list of exhibits filed herewith as part of the
Registration Statement:
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement between Registrant and National Securities
Corporation, as representative of the several underwriters named therein (the
"Representative")
3.1* Certificate of Incorporation and amendments thereto of Registrant
3.2* By-laws of Registrant
4.1* Form of certificate evidencing Warrants
4.2* Form of certificate evidencing shares of Common Stock
4.3* Form of Representative's Warrant Agreement between Registrant and the Representative
(including form of Representative's Warrant)
</TABLE>
II-4
<PAGE> 67
<TABLE>
<S> <C>
4.4* Form of Warrant Agreement between Registrant, the Representative and Continental
Stock Transfer and Trust Company, as Warrant Agent (including form of Redeemable
Common Stock Purchase Warrant)
4.5* Amendatory Agreement dated November 6, 1996 between the Registrant and The SES
Family Investment and Trading Partnership, L.P.
4.6* Form of 10% Debenture dated September 1996
4.7* Form of 10% Convertible Debenture dated November 1996
5.1** Opinion of Parker Duryee Rosoff & Haft A Professional Corporation
10.1* 1996 Stock Option Plan
10.2* Distribution Agreement dated October 9, 1996 between Registrant and Conserver
International, B.V. and Conserver North America, Inc.
10.3* Form of Employment Agreement between Charles H. Stein and the Registrant
10.4* Form of $2.35 Warrant Agreement dated August 1996
10.5* Loan Agreement dated October 9, 1996 between Registrant and Conserver Purchasing
Corporation ("CPC"), as amended by Letter Agreement dated December 31, 1996 between
Registrant and CPC
11.1* Statement as to Computation of Per Share Earnings
21.1* Subsidiaries of Registrant
23.1* Consent of Richard A. Eisner & Company, LLP
23.2** Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page of Part II of this Registration
Statement)
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** Filed herewith
(b) Financial Statement Schedules. Financial statement schedules are
omitted because the conditions requiring their filing do not exist or the
information required thereby is included in the financial statements filed,
including the notes thereto.
ITEM 17. UNDERTAKINGS
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually
II-5
<PAGE> 68
or in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act of
1933 if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(5) To provide to the Representative at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered
in such names as required by the Representative to permit prompt delivery
to each purchaser.
(6) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Registrant pursuant to Item 14 of this Part II to the
Registration Statement, or otherwise, Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against the public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York, on the 11th day of March, 1997.
CONSERVER CORPORATION OF AMERICA
By: /s/ CHARLES H. STEIN
------------------------------------
Charles H. Stein
President
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement was signed by the following persons in the capacities and
on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------- -----------------
<C> <S> <C>
* Chairman of the Board, March 11, 1997
- ------------------------------------- President and Chief Executive Officer
Charles H. Stein (Principal Executive Officer)
* Director March 11, 1997
- -------------------------------------
Brian J. Bryce
* Director March 11, 1997
- -------------------------------------
Jay M. Haft
* Director March 11, 1997
- -------------------------------------
Michael Jay Scharf
* Director March 11, 1997
- -------------------------------------
James V. Stanton
* Senior Vice President -- Finance, March 11, 1997
- ------------------------------------- Treasurer and Chief Financial Officer
Miles R. Greenberg (Principal Accounting Officer)
</TABLE>
- ---------------
* Charles H. Stein, pursuant to Powers of Attorney (executed by each of the
officers and directors listed above and filed with the Securities and Exchange
Commission), by signing his name hereto does hereby sign and execute this
Amendment to the Registration Statement on behalf of the persons referenced
above.
/s/ CHARLES H. STEIN
--------------------------------------
Charles H. Stein
March 11, 1997
II-7
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement between Registrant and National Securities
Corporation, as representative of the several underwriters named therein
(the "Representative")....................................................
3.1* Certificate of Incorporation and amendments thereto of Registrant.........
3.2* By-laws of Registrant.....................................................
4.1* Form of certificate evidencing Warrants...................................
4.2* Form of certificate evidencing shares of Common Stock.....................
4.3* Form of Representative's Warrant Agreement between Registrant and the
Representative (including form of Representative's Warrant)...............
4.4* Form of Warrant Agreement between Registrant, the Representative and
Continental Stock Transfer and Trust Company, as Warrant Agent (including
form of Redeemable Common Stock Purchase Warrant).........................
4.5* Amendatory Agreement dated November 6, 1996 between the Registrant and
The SES Family Investment and Trading Partnership, L.P....................
4.6* Form of 10% Debenture dated September 1996................................
4.7* Form of 10% Convertible Debenture dated November 1996.....................
5.1** Opinion of Parker Duryee Rosoff & Haft A Professional Corporation.........
10.1* 1996 Stock Option Plan....................................................
10.2* Distribution Agreement dated October 9, 1996 between Registrant and
Conserver International, B.V. and Conserver North America, Inc. ..........
10.3* Form of Employment Agreement between Charles H. Stein and the
Registrant................................................................
10.4* Form of $2.35 Warrant Agreement dated August 1996.........................
10.5* Loan Agreement dated October 9, 1996 between Registrant and Conserver
Purchasing Corporation ("CPC"), as amended by Letter Agreement dated
December 31, 1996 between Registrant and CPC..............................
11.1* Statement as to Computation of Per Share Earnings.........................
21.1* Subsidiaries of Registrant................................................
23.1* Consent of Richard A. Eisner & Company, LLP...............................
23.2** Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1)..........
24.1* Power of Attorney (included on the signature page of Part II of this
Registration Statement)...................................................
27.1* Financial Data Schedule...................................................
</TABLE>
- ---------------
* Previously filed.
** Filed herewith
<PAGE> 1
Exhibit 5.1
PARKER DURYEE ROSOFF & HAFT
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
March 11, 1997
Conserver Corporation of America
2655 Le Jeunne Road
Coral Gables, Florida 33134
Re: Registration Statement on Form S-1
Under the Securities Act of 1933
----------------------------------
Gentlemen:
In our capacity as counsel to Conserver Corporation of America, a Delaware
corporation (the "Company"), we have been asked to render this opinion in
connection with a registration statement on Form S-1 as amended, heretofore
filed by the Company with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Registration Statement"), covering (i)
3,000,000 shares (the "Initial Common Stock") of Common Stock, par value $.001
per share, of the Company (the "Common Stock"), (ii) 3,000,000 Redeemable
Common Stock Purchase Warrants to purchase an identical number of shares of
Common Stock (the "Warrants"), (iii) 3,000,000 shares of Common Stock issuable
upon exercise of the Warrants (the "Warrant Stock"), (iv) 450,000 shares of
Common Stock (the "Over-Allotment Stock"), (v) 450,000 Warrants to purchase an
identical number of shares of Common Stock (the "Over-Allotment Warrants"),
(vi) 450,000 shares of Common Stock issuable upon exercise of the
Over-Allotment Warrants (the "Over-Allotment Warrant Stock"), (vii) (A) 300,000
shares of Common Stock (the "Underwriters' Stock"), and (B) 300,000 Warrants to
purchase an identical number of shares of Common Stock (the "Underwriters'
Warrants") which may be acquired upon exercise of an option granted to the
underwriter named in the Registration Statement, and (viii) 300,000 shares of
Common Stock issuable upon exercise of the Underwriters' Warrants (the
"Underwriters' Warrants (the "Underwriters' Warrant Stock").
In that connection, we have examined the Certificate of Incorporation, and
the By-laws, each as amended, of the Company, the Registration Statement,
corporate proceedings of the Company relating to the issuance of the Common
Stock, Warrants, Warrant Stock, Over-Allotment Stock, Over-Allotment Warrants,
Over-Allotment Warrant Stock, Underwriters' Warrants, Underwriters' Stock, the
Underwriters' Warrant Stock, respectively, and such other instruments and
documents as we have deemed relevant under the circumstances.
<PAGE> 2
Conserver Corporation of America
MARCH 11, 1997
Page 2
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Initial Common Stock, the Warrant Stock, Over-Allotment Stock,
Over-Allotment Warrant Stock, Underwriters' Stock and Underwriters'
Warrant Stock have each been duly and validly authorized and, when
issued and paid for as described in the Registration Statement, will be
duly and validly issued, fully paid and non-assessable.
3. The Warrants, Over-Allotment Warrants, Underwriters' Warrants have each
been duly and validly authorized and, when issued and paid for as
described in the Registration Statement, will be duly and validly
issued.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
PARKER DURYEE ROSOFF & HAFT
/s/ Parker Duryee Rosoff & Haft
