<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1997
REGISTRATION NO. 333-16571
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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.
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- --------------------------------------------------------------------------------
<PAGE> 2
SUBJECT TO COMPLETION, DATED FEBRUARY 3, 1997
PROSPECTUS
<TABLE>
<S> <C>
LOGO CONSERVER CORPORATION OF AMERICA
4,000,000 SHARES OF COMMON STOCK AND
4,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
</TABLE>
------------------------
This Prospectus relates to the offering (the "Offering") of 4,000,000
shares (the "Shares") of common stock, $0.001 par value per share (the "Common
Stock"), and 4,000,000 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 [140% of
the initial public offering price 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 American Stock Exchange ("AMEX") equals or
exceeds 250% of the initial public offering price per Share 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. It is currently anticipated that the initial public offering prices
will be $6.00 per Share and $.10 per Warrant. 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 Company intends to apply for the listing of the Shares and
Warrants on AMEX where they are expected to trade separately immediately after
the Offering under the symbols "CCA" and "CCAW", 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....................... $ $ $
- ---------------------------------------------------------------------------------------------------------
Per Warrant..................... $ $ $
- ---------------------------------------------------------------------------------------------------------
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 $464,000 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
600,000 additional shares of Common Stock and/or 600,000 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 at
the offices of National Securities Corporation, Seattle, Washington 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
[SERIES OF PICTURES DEPICTING THE AFFECT OF CONSERVER 21(TM) ON
CERTAIN FRUITS AND VEGETABLES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMEX, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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 400,000 shares of Common Stock and/or
400,000 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....................... 4,000,000 Shares and 4,000,000 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 $
per share [140% of the initial public offering
price 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 250% of the initial public offering
price per Share of Common Stock 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.......... 13,500,000 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 AMEX(2)
Common Stock................ "CCA"
Warrants.................... "CCAW"
- ---------------
(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 AMEX listing 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 be accepted for
listing on the AMEX.
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 $21,724,777
Total assets.............................. 2,443,436 2,499,620 22,549,620
Total current liabilities................. 199,156 686,269 686,269
Deficit accumulated during development
stage................................... (1,387,071) (1,864,016) (5,562,016)(4)
Stockholders' equity...................... 1,244,280 813,351 21,863,351
</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 $1,150,000 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 materially adverse effect to
the Company's business 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 the 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
$3,000,000, or 14.2%, 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
$7,050,000, or 33.3%, 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 70.4% of the
outstanding shares of Common Stock. The Company's executive officers, directors
and their affiliates will beneficially own approximately 35.2% 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 $4.38, or 73%, 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 listing
of the Shares and the Warrants on the AMEX under the symbols "CCA" and "CCAW",
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
11
<PAGE> 13
Company or others, developments affecting the Company or its competitors,
suppliers or customers and other 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 13,500,000
shares of Common Stock (assuming the SES Reacquisition), the 737,683 warrants
exercisable at $2.202844 per share (the "$2.20 Warrants") and the 4,000,000
Warrants to be outstanding upon completion of this Offering, the 4,000,000
Shares and 4,000,000 Warrants offered hereby (4,600,000 Shares and 4,600,000
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, directors and
stockholders of the Company and all holders of any 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 officers, directors and stockholders
of the Company have also 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 more than
ten percent (10%) of any shares of Common Stock or any options, warrants or
other securities convertible, exercisable or exchangeable for shares of Common
Stock, whether or not owned by them, for a period of twenty-four (24) months
following the effective date of the Registration Statement without the prior
written consent of the Company and the Representative. 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."
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 400,000 shares
of Common Stock and/or 400,000 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 $ per share [120% of the initial public offering price per
Share] and $ per Warrant [120% of the initial public offering price per
Warrant]. The
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<PAGE> 14
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 $ per share [165% of the
initial public offering price 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."
THE AMEX LISTING AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
SECURITIES FROM AMEX; RISKS OF LOW-PRICED STOCKS. The Company intends to apply
for the listing of the Shares and Warrants on AMEX upon the date of this
Prospectus. The Securities and Exchange Commission has approved rules imposing
criteria for both initial listing and maintenance of securities on AMEX. Such
maintenance criteria, among other matters, would require the Company to maintain
stockholders' equity in excess of $2,000,000 if it were to sustain operating or
net losses in two of any three consecutive fiscal years subsequent to the
initial listing of the Company's securities, increasing to in excess of
$4,000,000 if such losses continue thereafter. If the Company is unable to
satisfy AMEX's minimum stockholders' equity requirement in the future, its
securities may be delisted from AMEX. Five continuous fiscal years of operating
or net losses, irrespective of the amount of the Company's stockholders' equity,
may also result in temporary suspension or delisting. In the event the Company's
Securities are delisted from AMEX, and not traded on any other exchange,
trading, if any, in the Securities would thereafter be conducted in the
over-the-counter market on the OTC Bulletin Board. Consequently, an investor may
find it more difficult to dispose of, or to obtain accurate quotations as to the
price of the Company's Securities. Quotation on AMEX does not imply that a
meaningful, sustained market for the Company's Securities will develop or, if
developed, that it will be sustained for any period of time. See "Description of
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 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 AMEX
equals or exceeds 250% of the initial public offering price per Share 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."
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<PAGE> 15
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 $21,130,000 ($24,369,100 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 9.5%
Inventory purchases of Conserver 21(TM)(2)................ 2,000,000 9.5
Purchase, storage and resale of end-of-season fruits(3)... 4,000,000 18.9
Development of new applications and products(4)........... 2,000,000 9.5
Investment in Conserver 21(TM) manufacturing
facilities(5)........................................... 3,000,000 14.2
Repayment of indebtedness(6).............................. 1,080,000 5.1
Working capital and general corporate purposes............ 7,050,000 33.3
---------- -----
Total........................................... $21,130,000 100.0%
========== =====
</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
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<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 4,000,000 Shares and 4,000,000
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; 13,500,000 shares issued and
outstanding at November 30, 1996 as adjusted(1)....... 9,557 13,500
Additional paid-in capital.............................. 2,667,810 27,411,867
Subscriptions receivable................................ -- --
Deficit accumulated during the development stage........ (1,864,016) (5,562,016)(2)
-------- --------
Total stockholders' equity......................... 813,351 21,863,351
-------- --------
Total capitalization.......................... $ 1,813,351 $ 21,863,351
======== ========
</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 4,000,000 Shares at the assumed initial public offering price of $6.00 per
Share and 4,000,000 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
$21,863,351, or approximately $1.62 per share. This represents an immediate
increase in net tangible book value of $1.53, or 1700%, to existing stockholders
and an immediate dilution of $4.38 per share, or 73%, 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..................... 1.53
----
As adjusted net tangible book value per share after this Offering.... 1.62
-----
Dilution per share to new investors.................................. $4.38
=====
</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 70.4% $ 3,175,514 11.7% $ .33
New investors.................... 4,000,000 29.6% $24,000,000(3) 88.3% $6.00
---------- ---- ----------- ----
Total.................. 13,500,000 100% $27,175,514 100%
========== ==== =========== ====
</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 26,850,851, or approximately $1.60 per share. This
represents an immediate dilution of $4.40 per share, or 73.3%, 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 $21,724,777
Total assets.............................. 2,443,436 2,499,620 22,549,620
Total current liabilities................. 199,156 686,269 686,269
Deficit accumulated during development
stage................................... (1,387,071) (1,864,016) (5,562,016)(4)
Stockholders' equity...................... 1,244,280 813,351 21,863,351
</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
$1,150,000 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 in maintaining 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 unsavory 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 to 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 better 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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<PAGE> 27
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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<PAGE> 28
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
27
<PAGE> 29
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 a consultant 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 the 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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<PAGE> 30
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
Consumer 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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<PAGE> 31
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 December 31, 1996, the Company had six 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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<PAGE> 33
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. 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
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<PAGE> 35
independent accountants to be retained by the Company, reviewing with the
Company's independent 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.
34
<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.
37
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 31, 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% 16.8%
James V. Stanton....................................... 522,053(3) 5.3% 3.8%
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% 8.4%
Jay M. Haft............................................ 453,959(6) 4.6% 3.3%
201 S. Biscayne Boulevard, Suite 300
Miami, FL 33133
Michael Jay Scharf..................................... 453,959(7) 4.8% 3.4%
704 Spinnakers Reach
Ponte Vedra, FL 32082
Jasmine Trustees Ltd................................... 1,134,896(5) 11.9% 8.4%
P.O. Box 675
St. Helier, Jersey Channel Islands
Dori Kallan, Daniel Kallan and 680,938 7.2% 5.0%
Joshua Kallan as joint tenants.......................
19999 Back Nine Drive
Boca Raton, FL 33498
The SES Family Investment and 1,248,386(8) -- 8.5%
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% 35.2%
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 person 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 as of January 31, 1997.
38
<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 January 31, 1997, there were 9,556,745 shares of Common Stock
outstanding. There will be 13,500,000 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 $ per Share [140% of the initial public offering price 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
39
<PAGE> 41
Common Stock as reported on AMEX equals or exceeds $ [250% of the
initial public offering price per Share] 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 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
40
<PAGE> 42
connection with the value attributed to such issuance. See "Management's
Discussion and Analysis of Financial Condition and Plan of
Operation -- Liquidity and Capital Resources."
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
$1,150,000 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] 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.
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.
41
<PAGE> 43
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 13,500,000 shares
of Common Stock outstanding (after giving effect to the SES Reacquisition). Of
these shares, the 4,000,000 Shares and 4,000,000 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 two years,
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 (135,000 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 three 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, directors and stockholders of the Company and all holders of
any 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 officers, directors and stockholders of the Company have also
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 more than ten percent (10%) of any
shares of Common Stock or any options, warrants or other securities convertible,
exercisable or exchangeable for shares of Common Stock, whether or not owned by
them, for a period of twenty-four (24) months following the effective date of
the Registration Statement without the prior written consent of the Company and
the Representative.
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<PAGE> 44
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............................................... 4,000,000 4,000,000
========= =========
</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 600,000 shares of Common Stock
and/or 600,000 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 400,000 shares of Common Stock and/or 400,000 Warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share of Common Stock 120% of the
initial public offering price per Share and $.12 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
43
<PAGE> 45
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.
All officers, directors and stockholders of the Company and all holders of
any 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 officers, directors and stockholders of the Company have also
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 more than ten percent (10%) of any
shares of Common Stock or any options, warrants or other securities convertible,
exercisable or exchangeable for shares of Common Stock, whether or not owned by
them, for a period of twenty-four (24) months following the effective date of
the Registration Statement without the prior written consent of the Company and
the Representative. 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 10b-6 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 period from nine (9) business days (or other such
applicable periods as Rule 10b-6 may provide) prior to any solicitation of the
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
44
<PAGE> 46
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 10b-6 during the periods
described above, the Representative undertakes to waive unconditionally its
right to receive a commission on the exercise of such Warrants.
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 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."
45
<PAGE> 47
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> 48
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> 49
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
------------- -------------
(UNAUDITED)
<S> <C> <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> 50
CONSERVER CORPORATION OF AMERICA
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE
PERIOD FROM ENDED PERIOD FROM
MARCH 6, 1996 NOVEMBER 30, MARCH 6, 1996
(DATE OF 1996 (DATE OF
INCORPORATION) INCORPORATION)
THROUGH ------------- THROUGH
AUGUST 31, NOVEMBER 30,
1996 (UNAUDITED) 1996
------------- -------------
(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> 51
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> 52
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
<S> <C> <C> <C>
-------------- ------------ --------------
(UNAUDITED) (UNAUDITED)
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> 53
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
Consumer 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> 54
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> 55
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>
NOVEMBER 30,
1996
AUGUST 31, ------------
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> 56
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 261,026
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> 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 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> 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 J) -- SUBSEQUENT EVENTS: (CONTINUED)
cancellation and reissuance of such options, a compensation charge of
approximately $226,000 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 ratably over a four-year period and
are exercisable six months 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> 59
- ------------------------------------------------------
- ------------------------------------------------------
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....... 42
Underwriting.......................... 43
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 45
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 USA LOGO]
CONSERVER
CORPORATION OF
AMERICA
4,000,000 SHARES OF
COMMON STOCK
AND
4,000,000 REDEEMABLE
COMMON STOCK
PURCHASE WARRANTS
--------------------
PROSPECTUS
--------------------
NATIONAL SECURITIES
CORPORATION
, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 60
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 nonaccountable expense allowance........................... 732,000
AMEX listing fee......................................................... 50,000
Blue sky legal fees...................................................... 35,000
Printing and engraving expenses.......................................... 95,000
Legal fees............................................................... 175,000
Accounting fees.......................................................... 40,000
Transfer and Warrant Agent fees.......................................... 3,500
Miscellaneous expenses................................................... 35,583.61
----------
$1,196,000
==========
</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 Delaware General Corporation Law 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 Delaware
General Corporation Law, as amended from time to time, any and all persons whom
it shall have power to indemnify under such section.
II-1
<PAGE> 61
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> 62
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> 63
(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> 64
<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> 65
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.
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<PAGE> 66
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 31st day of January, 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>
/s/ * Chairman of the Board, January 31, 1997
- ------------------------------------- President and Chief Executive Officer
Charles H. Stein (Principal Executive Officer)
/s/ * Director January 31, 1997
- -------------------------------------
Brian J. Bryce
/s/ * Director January 31, 1997
- -------------------------------------
Jay M. Haft
/s/ * Director January 31, 1997
- -------------------------------------
Michael Jay Scharf
/s/ * Director January 31, 1997
- -------------------------------------
James V. Stanton
/s/ * Senior Vice President -- Finance, January 31, 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
January 31, 1997
II-7
<PAGE> 1
Exhibit 4.1
NO. CCW VOID AFTER _______, 2002
REDEEMABLE WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK
WARRANTS
CONSERVER CORPORATION OF AMERICA
CUSIP 208484 11 3
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Redeemable Common Stock Purchase Warrants (the "Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement (as
hereinafter defined), one fully paid and nonassessable share of Common Stock,
$.001 par value, of Conserver Corporation of America, a Delaware corporation
(the "Company"), at any time from the Commencement Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined) upon the presentation and
surrender of this Warrant Certificate with the Subscription Form on the reverse
hereof duly executed, at the corporate office of Continental Stock Transfer &
Trust Company, Two Broadway, New York, New York 10004, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $8.40, subject to
adjustment (the "Purchase Price"), in lawful money of the United States of
America in cash or by check made payable to the Warrant Agent for the account of
the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
, 1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Commencement Date" shall mean , 1997. The term
"Expiration Date" shall mean 5:00 P.M. (New York City time) on ,
2002. If each such date shall in the State of New York be a holiday or a day on
which the banks are authorized to close, then the Expiration Date shall mean
5:00 P.M. (New York City time) the next following day which in the State of New
York is not a holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such securities
is effective or an exemption thereunder is available. The Company has covenanted
and agreed that it will file a registration statement under the Federal
securities laws, use its best efforts to cause the same to become effective, to
keep such registration statement current, if required under the Act, while any
of the Warrants are outstanding, and deliver a prospectus which complies with
Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant.
This Warrant shall not be exercisable by a Registered Holder in any state where
such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal number of Warrants will be issued
to the transferee in exchange therefor, subject to the limitations provided in
the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company at a redemption price of $.10 per Warrant,
at any time commencing eighteen months after the Commencement Date, provided
that (i) the closing price for the Company's Common Stock on the primary
exchange on which the Common Stock is traded, if the Common Stock is traded on a
securities exchange, or (ii) the high bid price for the Company's Common Stock,
as reported by the National Association of Securities Dealers Automated
Quotation System, if the Common Stock is not traded on a securities exchange,
shall have, for twenty (20) consecutive trading days immediately prior to the
notice of redemption, equalled or exceeded $15.00 per share (subject to
adjustment in the event of any stock splits or other similar events). Notice of
redemption shall be given not less than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
this Warrant except to receive the $.10 per Warrant upon surrender of this
Certificate.
In accordance with the Warrant Agreement, National Securities
Corporation shall be entitled to receive a commission equal to 5% of the
proceeds received by the Company from the exercise of the Warrants.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has cause this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
CONSERVER CORPORATION OF AMERICA
Dated:
[CONSERVER CORP SEAL]
By: By:
SECRETARY CHAIRMAN
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By:
Authorized Signature
<PAGE> 2
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrant
The undersigned Registered Holder hereby irrevocably elects to exercise
__________ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[please print or type name and address]
and be delivered to
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated:___________________________ X ____________________________________
____________________________________
____________________________________
Address
____________________________________
Social Security or Taxpayer
Identification Number
____________________________________
Signature Guaranteed
____________________________________
The undersigned represents that the exercise of the within Warrant was
solicited by National Securities Corporation. If not solicited by National
Securities Corporation, please write "unsolicited" in the space below or write
the name of the broker/dealer which solicited your exercise. Unless otherwise
indicated, it will be assumed that the exercise was solicited by National
Securities Corporation.
____________________________________________
(Write "unsolicited" on above line if not
solicited by National Securities Corporation)
Dated:___________________________ ____________________________________
Signature
ASSIGNMENT
FOR VALUE RECEIVED, __________________________________ , hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
[please print or type name and address]
_______________________________________________________________________________
of the Warrants represented by this Warrant Certificate,
and hereby irrevocably constitutes and appoints
_______________________________________________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: ___________________________ X ____________________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE> 1
Exhibit 4.2
NUMBER CONSERVER CORPORATION SHARES
CC OF AMERICA
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 208484 10 5
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH, OF THE
COMMON STOCK, OF
CONSERVER CORPORATION OF AMERICA
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated,
SECRETARY [CONSERVER CORP SEAL] CHAIRMAN
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE> 2
CONSERVER CORPORATION OF AMERICA
The Corporation will furnish without charge to each stockholder who so requests,
a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ................. Custodian .........................
(Cust) (Minor)
under Uniform Gifts to Minors
Act .................................................
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_____________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated _____________________
_____________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCK BROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT, dated as of
January __, 1997, by and between
CONSERVER CORPORATION OF AMERICA, a
Delaware Corporation (the "Company"),
and CHARLES H. STEIN (the "Employee").
The parties hereto desire to provide for the Employee's employment
by the Company in accordance with the terms and provisions set forth below.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
The Company will employ the Employee in its business and the
Employee will work for the Company, as its President and Chief Executive
officer, for a term of three (3) years commencing on January ___, 1997 and
ending on _____________, 2000, unless sooner terminated in accordance with
Section 9 hereof. Such period, together with the period of any extension or
renewal of such employment, is referred to herein as the "Employment Period."
2. DUTIES.
During the Employment Period, the Employee shall serve as the
Company's President and Chief Executive Officer, and perform duties of an
executive character consisting of administrative and managerial responsibilities
on behalf of the Company and such further duties as shall, from time to time, be
reasonably delegated or assigned to the Employee by the Board of Directors of
the Company consistent with his abilities.
3. DEVOTION OF TIME.
During the Employment Period, the Employee shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by Employee to be
detrimental to the best interests of the Company.
<PAGE> 2
4. COMPENSATION.
4.1 In consideration for the services to be performed by the
Employee during the Employment Period hereunder, the Company shall compensate
the Employee at the minimum rate of $125,000 per annum, payable in accordance
with the Company's customary payroll practices.
4.2 Employee may also be entitled to such additional
increments and bonuses as may be determined from time to time by the Company's
Board of Directors in its sole and absolute discretion.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES;
ADDITIONAL BENEFITS.
5.1 Employee shall receive an automobile allowance for the use
of an automobile owned or leased by him in accordance with the Company's then
prevalent practices for executive employees.
5.2 The Company shall pay directly, or reimburse the Employee
for, all other reasonable and necessary expenses and disbursements incurred by
him for and on behalf of the Company in the performance of his duties under this
Agreement. For such purposes, the Employee shall submit to the Company itemized
reports of such expenses in accordance with the Company's policies.
5.3 Employee shall be entitled to paid vacations during the
Employment Period in accordance with the Company's then prevalent practices for
executive employees; provided, however, that Employee shall be entitled to such
paid vacations for not less than two (2) weeks per annum.
5.4 Employee shall be entitled to participate in, and to
receive benefits under, any such employee benefit plans of the Company
(including, without limitation, pension, profit sharing, bonus, group life
insurance and group medical insurance plans) as may exist from time to time for
its executive employees.
6. TRADE SECRETS.
6.1 Employee expressly agrees and understands that the Company
owns and/or controls numerous methods, products, processes, customer lists,
trade secrets and other information applicable to its business and that it may
from time to time acquire, improve or produce additional methods, products,
processes, customer lists, trade secrets and other information (collectively,
the "Confidential Information"). Employee hereby acknowledges that each element
of the Confidential Information
2
<PAGE> 3
constitutes a unique and valuable asset of the Company, and that certain items
of the Confidential Information have been acquired from third parties upon the
express condition that such items will not be disclosed other than to the
Company in the ordinary course of its business.
6.2 Employee hereby acknowledges that disclosure of the
Confidential Information to and/or use by anyone other than in the Company's
ordinary course of business would result in irreparable and continuing damage
to the Company. Accordingly, the Employee agrees to hold the Confidential
Information in the strictest secrecy, and covenants that, during the Employment
Period or any time thereafter, he will not, without the prior written consent of
the Board of Directors, directly or indirectly, allow any element of the
Confidential Information to be disclosed, published or used, nor permit the
Confidential Information to be discussed, published or used, either by himself
or any third parties, except in effecting the Employee's duties on behalf of the
Company in the ordinary course of business. Notwithstanding anything to the
contrary herein contained, Employee's obligation to maintain the secrecy and
confidentiality of the Confidential Information under this Section 6 shall not
apply to any such Confidential Information which is disclosed through any means
other than as a result of any act by Employee constituting a breach of this
Agreement or which is required to be disclosed under applicable law.
7. EMPLOYEE KNOWLEDGE.
7.1 Employee hereby agrees to communicate and make known to
the Company all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented, patentable or
unpatentable, which relate to the business of the Company; whether acquired by
him before or during the Employment Period; provided, however, that nothing
herein shall be construed as requiring any such communication where the method,
development, invention and/or improvement is lawfully protected from disclosure
as the trade secret of a third party or by any other lawful bar to such
communications existing prior to the commencement of employment hereunder.
7.2 Any methods, developments, inventions and/or improvements,
whether patentable or unpatentable, which Employee may conceive of or develop in
connection with the Company's business (solely or jointly with another or
others), while in its employ, shall be and remain the exclusive property of the
Company. Employee further agrees on request to execute patent applications, and
any other records or memoranda requested by the Company, based on such methods,
developments, inventions and/or improvements, including instruments deemed
necessary by the Company for the
3
<PAGE> 4
prosecution of the patent application or the acquisition of Letters of Patent of
this and any foreign country or otherwise.
7.3 Employee hereby agrees to keep all such records in
connection with the Employee's employment as the Company may from time to time
direct, and all such records shall be the sole and exclusive property of the
Company.
8. RESTRICTIVE COVENANT.
8.1 The services of the Employee are unique, extraordinary and
essential to the business of the Company, particularly in view of the Employee's
access to the Confidential Information. Accordingly, the Employee agrees that if
his employment hereunder shall at any time be terminated for any reason
whatsoever, the Employee will not at any time within three (3) years of such
termination, without the prior written approval of the Board of Directors,
directly or indirectly, engage in any business activity competitive with the
business of the Company. Furthermore, the Employee agrees that, during such
three-year period, he shall not solicit, directly or indirectly, any prospective
account of the Company who at the time of such termination was then actively
being solicited by the Company and he shall not in any manner, directly or
indirectly, affect to the Company's detriment any relationship of the Company
with any customer, supplier or employee of the Company or cause any customer or
supplier to refrain from entrusting additional business to the Company. In the
event that any of the provisions of this Section 8.1 shall be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provision shall be deemed reformed in any such
jurisdiction to the maximum time, geographic or other limitations permitted by
applicable law.
8.2 As used in Sections 6, 7 and 8 hereof, the term "Company"
shall mean and include any and all corporations affiliated with Conserver
Corporation of America which either now exist or which may hereafter be
organized.
9. EARLIER TERMINATION.
9.1 Employee's employment hereunder shall automatically be
terminated upon the death of the Employee or Employee's voluntarily leaving the
employ of the Company and, in addition, may be terminated, at the sole
discretion of the Company, as follows:
(a) upon thirty (30) days' prior written notice by the
Company, in the event of the Employee's disability as set
forth in Section 9.2 below; or
4
<PAGE> 5
(b) upon thirty (30) days' prior written notice by the
Company, in the event that the Company terminates the
Employee's employment hereunder for cause as set forth in
Section 9.3 below.
9.2 Employee shall be deemed disabled hereunder if, in the
opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, he shall become physically or mentally unable to perform his
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.
9.3 For purposes hereof, "cause" shall include, but not be
limited to, the following: (a) Employee's willful malfeasance or gross
negligence; (b) any material misrepresentation or concealment of a material fact
made by Employee in connection with this Agreement; or (c) the material breach
of any covenant made by Employee hereunder.
9.4 In the event that this Agreement shall be terminated due
to the Employee's death or disability, then the Company shall pay to the
Employee or his personal representatives, as the case may be, severance pay in a
lump sum amount equal to his compensation for a period of six months as set
forth in Sections 4.1 and 4.2 hereof. If, however, this Agreement shall be
terminated for any other reason whatsoever, then the Company shall not be
obligated to make any severance payments whatsoever to the Employee hereunder,
except for the compensation set forth in Sections 4.1 and 4.2 hereof which shall
have accrued but be unpaid at the effective time of termination.
10. INJUNCTIVE RELIEF.
Employee hereby acknowledges and agrees that, in the event he
shall violate any provisions of Sections 6, 7 and 8 hereof, the Company will be
without an adequate remedy at law and, accordingly, will be entitled to enforce
such restrictions by temporary or permanent injunctive or mandatory relief
obtained in any action or proceeding instituted in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity.
11. SERVICE AS DIRECTOR.
During the Employment Period, the Employee shall, if elected
or appointed, serve as a Director of the Company and/or any subsidiary or
affiliate of the Company upon such terms as shall be mutually agreed upon by the
Employee and the Company.
5
<PAGE> 6
12. ASSIGNMENT.
This Agreement, as it relates to the employment of the
Employee, is a personal contract and the rights and interests of the Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as set forth in this Section 12 hereof. Except as otherwise herein
expressly provided, this Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns, including without limitation,
any corporation or other entity into which the Company is merged or which
acquires all of the outstanding shares of the Company's capital stock, or all
or substantially all of the assets of the Company.
13. RIGHT TO PAYMENTS.
Employee shall not under any circumstances have any option or
right to require payments hereunder otherwise than in accordance with the terms
hereof. To the extent permitted by law, the Employee shall not have any power of
anticipation, alienation or assignment of payments contemplated hereunder, and
all rights and benefits of the Employee shall be for the sole personal benefit
of the Employee, and no other person shall acquire any right, title or interest
hereunder by reason of any sale, assignment, transfer, claim or judgment or
bankruptcy proceedings against the Employee.
14. NOTICES.
Any notice required or permitted to be given pursuant to this
Agreement shall be deemed given three (3) business days after such notice is
mailed by certified mail, return receipt requested, addressed as follows: (i) if
to Employee, at 44 East 67th Street, New York, New York, 100__,; and (ii) if to
the Company, at 2655 Le Jeunne Road, Suite 535, Coral Gables, Florida 33134, or
at such other address as any such party shall designate by written notice to the
other party.
15. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, without giving
effect to principles of conflicts of law.
16. WAIVER.
The waiver by either party of a breach of any
6
<PAGE> 7
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and not in any way affect or render invalid or unenforceable
any other provisions of this Agreement, and this Agreement shall be carried out
as if such invalid or unenforceable provision were not embodied therein.
17. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties and there are no representations, warranties or commitments except as
set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether written or
oral, of the parties hereto relating to the transactions contemplated by this
Agreement; provided, however, that it is the intention of the parties hereto
that this Agreement shall be interpreted and applied in conjunction with the
terms of any option, warrant or other right now in existence or hereinafter
granted to the Employee to acquire shares of capital stock of the Company. In
the event of any conflict, however, the terms of this Agreement shall govern and
prevail. This Agreement may be amended only in writing executed by the parties
hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the day and year first above written.
CONSERVER CORPORATION OF AMERICA
By:____________________________________
_______________________________________
CHARLES H. STEIN
7
<PAGE> 1
EXHIBIT 10.5
LOAN AGREEMENT
THIS AGREEMENT is made as of the 9th day of October 1996 by and between
CONSERVER PURCHASING CORPORATION, a corporation organized and existing under the
laws of the State of Delaware whose registered office is at 1209 Orange Street,
Wilmington, Delaware 19801 ("Borrower"), and CONSERVER CORPORATION OF AMERICA, a
corporation organized and existing under the laws of the State of Delaware
having a place of business at 2655 LeJeune Road, Coral Gables, Florida 33134
("Lender").
1. LOAN
(a) Subject to and upon the terms and conditions set forth below,
the Lender agrees to lend to the Borrower an amount up to Two
Hundred Thousand Dollars ($200,000) (the "Loan"), such sum to
be delivered to the Borrower in accordance with this
Agreement.
(b) The Loan shall be evidenced by and payable with interest in
accordance with a promissory note or notes of the Borrower
substantially similar in form and substance to Exhibit A
attached hereto and made a part hereof (the "Note").
2. INTEREST RATES; PAYMENTS AND OPTIONAL PREPAYMENTS
(a) The Borrower agrees to pay interest on the unpaid principal
amount of the Loan from time to time at the rate of eight per
cent (8%) per annum, such interest to be added to the
principal amount of the Note(s) on a monthly basis and payable
upon demand together with the Loan.
(b) All payments under this Agreement or otherwise in respect to
the Loan shall be made in immediately available funds in
accordance with the instructions of the Lender at the time
demand for payment is made, and no payments shall be subject
to setoff, counterclaim, withholding or reduction of any kind
whatsoever.
(c) The Borrower shall have the right to prepay the Loan in whole
or in part, without premium or penalty, at any time and from
time to time, provided that at the time of the prepayment the
Borrower shall pay all interest accrued on the amount prepaid.
3. ADDITIONAL CONSIDERATION; SECURITY
(a) The Borrower and the Lender acknowledge that a primary purpose
of the Loan is to fund the Borrower's anticipated purchase of
an inventory of products from
<PAGE> 2
- 2 -
Conserver XXI, S.A., a Spanish company (the "lnventory"). The
Lender therefore agrees to release the Loan to the Borrower in
accordance with the Borrower's instructions after receiving
confirmation satisfactory to it that the Borrower has taken
possession of the Inventory.
(b) The Borrower agrees to grant to the Lender a security interest
in, and a lien on, all right title and interest of the
Borrower in and to all assets of the Borrower and to enter a
Security Agreement in favor of the Lender in a form
substantially similar in form and substance to Exhibit B
attached hereto and made a part hereof (the "Security
Agreement") in order to secure payment and performance of the
Borrower's obligations to the Lender under this Agreement and
the Note.
(c) The Borrower agrees to execute and deliver to the Lender upon
demand by Lender any and all documents requested by Lender
relating to the security interests and rights granted pursuant
to the Security Agreement and the perfection thereof,
including without limitation any UCC documents; all taxes,
fees and other charges in connection with the execution,
delivery and filing of this Agreement and other appropriate
documentation shall be added to the principal of the Loan.
(d) As further inducement for Lender to enter into this Agreement
and additional consideration for the Loan arising hereunder,
Borrower hereby grants to Lender (i) an option to purchase all
or any part of the Inventory at a fair market price at any
time while Borrower retains title to the Inventory, (ii) a
right of first refusal to purchase all or any part of the
Inventory at the price and upon the terms offered by an arms'
length purchaser to Borrower, such right to be exercised
within thirty (30) days of notice of such offer by Borrower to
Lender, and (iii) the right to require Borrower to assign all
of its rights and interest in the letter from Conserver XXI,
S.A. to Borrower attached hereto as Exhibit C and/or any
agreement arising thereunder or otherwise related to the
subject matter thereof.
4. CONDITIONS PRECEDENT
The Lender shall not be obligated to release the Loan to the Borrower hereunder
until the following conditions have been satisfied:
(a) This Agreement, the borrowing hereunder, the Note, the
<PAGE> 3
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Security Agreement and all transactions contemplated by this
Agreement and the Security Agreement shall have been duly
authorized by the Borrower. The Borrower shall have duly
executed and delivered to the Lender this Agreement, the Note
and the Security Agreement in form and substance reasonably
satisfactory to the Lender and its counsel.
(b) On the date hereof and on the date the Loan (or any part
thereof) is released to the Borrower, all representations and
warranties made by the Borrower in paragraph 5 of this
Agreement or otherwise in writing in connection herewith shall
be true and correct in all material respects with the same
effect as though such representations and warranties had been
made on and as of today's date, except that representations
and warranties expressly limited to a certain date shall be
true and correct as of that date.
(c) On or before the date hereof, there shall have been delivered
to the Lender the following supporting documents:
(i) legal existence and corporate good standing
certificates with respect to the Borrower dated as of
a recent date issued by the Secretary of State or
other officials of its state of organization.
(ii) a certificate of the Secretary or Assistant Secretary
of the Borrower certifying as to (i) the By-Laws of
the Borrower, as in effect on the date hereof; (ii)
the incumbency and the signatures of the officers of
the Borrower who have executed any documents in
connection with the transactions contemplated by this
Agreement; and (iii) the resolutions of the Board of
Directors and, to the extent reacquired by law, the
shareholders, of the Borrower authorizing the
execution, delivery and performance of this Agreement
and the making of the Loan hereunder, and the
execution and delivery of the Note; and
(iii) all other information and documents which the Lender
or its counsel may reasonably request in connection
with the transactions contemplated by this Agreement.
<PAGE> 4
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5. REPRESENTATIONS AND WARRANTIES
As further inducement to the Lender to enter into this Agreement and to make the
contemplated Loan the Borrower hereby represents and warrants as follows (except
to the extent qualified by supplemental disclosure set forth on Schedule A
hereto) and the following representations and warranties as so qualified shall
survive the execution and delivery of this Agreement and the release of the Loan
and shall continue until no portion of the Loan or interest thereon remain
outstanding:
(a) The Borrower is a duly organized and validly existing
corporation in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified or
licensed as a foreign corporation in good standing in each
jurisdiction in which the failure to do so would have a
Material Adverse Effect.
(b) Neither the execution, delivery or performance of this
Agreement or any other Loan Document, nor consummation of the
contemplated transactions will contravene any law, statute,
rule or regulation to which the Borrower is subject or any
judgement, decree, franchise, order or permit applicable to
the Borrower, or will conflict or be inconsistent with or will
result in any breach of, or constitute a default under, or
result in or require the creation or imposition of any Lien
(other than the lien created by the Security Agreement) upon
any of the property or assets of the Borrower pursuant to any
Contractual Obligation of the Borrower, or violate any
provision of the corporate charter or by-laws of the Borrower.
(c) The execution, delivery and performance of this Agreement and
the other Loan Documents are within the corporate powers of
the Borrower and have been duly authorized by all necessary
corporate action.
(d) This Agreement and each other Loan Document constitutes a
valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and subject to general principles
of equity, whether applied in a court of equity or at law.
(e) No order, permission, consent, approval, license,
authorization, registration or validation of, or filing with,
or exemption by, any Governmental Authority is
<PAGE> 5
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required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or any
other Loan Document by the Borrower, or the taking of any
action contemplated hereby or thereby, except for the filing
of UCC-1 financing statements in the appropriate UCC filing
offices.
(f) There are no actions, suits or proceedings pending or
threatened against or affecting the Borrower before any
Governmental Authority, which in any one case or in the
aggregate, if determined adversely to the interests of the
Borrower, would have a Material Adverse Effect.
(g) To the best of the Borrower's knowledge, the Borrower is not
in default under any Contractual Obligation, where such
default could have a Material Adverse Effect. To the best of
the Borrower's knowledge, the Borrower is not in default and
or in violation of any applicable statute, rule, writ,
injunction, decree, order or regulation of any Governmental
Authority having jurisdiction over the Borrower which default
or violation could have a Material Adverse Effect.
(h) The Borrower has no Subsidiaries.
(i) The Borrower has good and marketable title to all of its
properties and assets, and none of such properties or assets
is subject to any Lien except for (a) Permitted Liens, or (b)
a defect in title or other claim other than defects and claims
that, in the aggregate, would have no Material Adverse Effect.
The Borrower enjoys peaceful and undisturbed possession under
all leases necessary in any material respect for the operation
of its properties and assets, none of which contains any
unusual or burdensome provision which might materially affect
or impair such properties or assets. The Borrower is not aware
of the occurrence of any event which would result in the
termination of any such leases, and the Borrower has not
received, nor has the Borrower given, a notice of termination
of any such leases.
6. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Note, together with all interest thereon and all other
Obligations of the Borrower to the Lender are paid or satisfied in full:
<PAGE> 6
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(a) The Borrower will maintain its existence and comply with all
applicable statutes, rules and regulations and to remain duly
qualified as a foreign corporation, licensed and in good
standing in each jurisdiction where such qualification or
licensing is required by the nature of its business, the
character and location of its property, business, or the
ownership or leasing of its property, except where such
noncompliance or failure to so qualify would not have a
Material Adverse Effect.
(b) The Borrower will pay when due all taxes, assessments,
governmental charges or levies, or claims for labor, supplies,
rent and other obligations made against it which, if unpaid,
might become a Lien against the Borrower or on its property,
except liabilities being contested in good faith and by proper
proceedings, as to which adequate reserves are maintained on
the books of the Borrower, in accordance with GAAP.
(c) The Borrower will maintain insurance with financially sound
and reputable insurance companies in such amounts and against
such risks as is usually carried by owners of similar
businesses and properties in the same general areas in which
the Borrower operates, provided that in any event the Borrower
shall maintain or cause to be maintained (a) insurance against
casualty, loss or damage covering all property and
improvements of the Borrower in amounts and in respect of
perils usually carried by owners of similar businesses and
properties in the same general areas in which Borrower
operates; (b) comprehensive general liability insurance
against claims for bodily injury, death or property damage;
and (c) workers' compensation insurance to the extent required
by applicable law. In the case of policies referenced in
clauses (a) and (b) above, all such insurance shall (i) name
the Borrower and the Lender as loss payees and additional
insureds as their interest may appear; (ii) provide that no
termination, cancellation or material reduction in the amount
or material modification to the extent of coverage shall be
effective until at least 20 days after receipt by the Lender
of notice thereof; and (iii) be reasonably satisfactory in all
other respects to the Lender.
(d) The Borrower will furnish to the Lender:
(i) promptly upon delivery thereof to the shareholders of
the Borrower generally, copies of all financial
statements, reports, proxy statements and other
materials writings;
<PAGE> 7
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(ii) promptly upon becoming aware of any litigation or
other proceeding against the Borrower that may have a
Material Adverse Effect, notice thereof; and
(iii) promptly following the request of the Bank, such
further information concerning the business, affairs
and financial condition or operations of the Borrower
as the Lender may reasonably request.
(e) As soon as practicable, and in any event, within three (3)
Banking Days of becoming aware of the existence of any
condition or event which constitutes a Default, the Borrower
will provide the Lender with written notice specifying the
nature and period of existence thereof and what action the
Borrower is taking or proposes to take with respect thereto.
(f) The Borrower will, upon the prior request of the Lender, at
least twenty four (24) hours in advance, permit a
representative of the Lender (including any field examiner or
auditor retained by the Lender) to inspect and make copies of
the Borrower's books and records, and to discuss its affairs,
finances and accounts with its officers and accountants, at
such reasonable times and as often as the Lender may
reasonably request, including, without limiting the foregoing,
the examination of the Borrower's accounts receivable by the
Lender or its agent (which examination, prior to any
occurrence of an Event of Default, shall occur no more
frequently than semi-annually). The Borrower shall be solely
responsible for all costs, both direct and indirect, incurred
in the course of such inspections and examinations. The Lender
will use reasonable efforts not to interfere with the ordinary
course of the Borrower's business.
(g) The Lender will endeavour in good faith to maintain the
confidentiality of any non-public information relating to the
Borrower which has been identified in writing as confidential
on the information itself or otherwise (the "Confidential
Information") and, except as provided below, will exercise the
same degree of care that the Lender exercises with respect to
its own proprietary information to prevent the unauthorized
disclosure of the Confidential Information to third parties.
Confidential Information shall not include information that
either: (a) is in the public domain or in the knowledge or
possession of the Lender when disclosed to
<PAGE> 8
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the Lender, or becomes part of the public domain after
disclosure to the Lender through no fault of the Lender; or
(b) is disclosed to the Lender by a third party, provided the
Lender does not have actual knowledge that such third party is
prohibited from disclosing such information. The terms of this
sub-paragraph shall not apply to disclosure of Confidential
Information by the Lender that is, in the good faith opinion
of the Lender, compelled by laws, regulations, rules, orders
or legal process or proceedings or is disclosed to: (i) any
party, including a prospective participant, who has signed a
confidentiality agreement containing terms substantially
similar to those contained herein; (ii) legal counsel,
examiners, auditors and directors of the Lender and examiners,
auditors and investigators having regulatory authority over
the Lender; or (iii) any party in connection with the exercise
of remedies by the Lender after default in the performance of
the Borrower's obligations to the Lender.
(h) The Borrower shall use the proceeds of the Loans solely for
the purchase of the Inventory, as described in paragraph 3 of
this Agreement, and related business purposes.
(i) The Borrower will execute and deliver to the Lender any
writings and do all things necessary, effectual or reasonably
requested by the Lender to carry into effect the provisions
and intent of this Agreement or any other Loan Document.
(j) The Borrower shall immediately notify the Lender of the
organization of any foreign or domestic subsidiaries of the
Borrower. The Lender may require that any such subsidiaries
become parties to any of the Loan Documents as guarantors or
sureties and/or that the Borrower pledge the stock of any
subsidiaries as collateral for the Obligations of the
Borrower.
7. NEGATIVE COVENANTS
The Borrower covenants and agrees that for so long as this Agreement is in
effect and until the Note, together with all interest thereon and all other
Obligations of the Borrower to the Lender are paid or satisfied in full, without
the prior written consent of the Lender:
(a) The Borrower will not merge or consolidate with or into any
other Person, or make any acquisition of the
<PAGE> 9
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business of any other Person unless it obtains the prior
written consent of the Lender; provided, however, that the
Borrower may enter into any such transaction as long as (a)
the other Person is in the same or a related line of business;
and (b) no Event of Default shall have occurred and be
continuing or arise as a result thereof.
(b) The Borrower will not convey, sell, lease, transfer or
otherwise dispose of any of its property, business or assets
(including, without limitation, accounts receivable and
leasehold assets), whether now owned or hereafter acquired,
except the sale of inventory in the ordinary course of
business, subject to the terms and conditions of this
Agreement.
(c) The Borrower will not create, incur, assume or suffer to exist
any indebtedness, except:
(i) indebtedness payable to the Lender; and
(ii) Subordinated Debt incurred by the Borrower after the
date hereof; provided that, after giving effect to
the incurrence of such Subordinated Debt and to the
receipt and application of the proceeds thereof, no
Default shall have occurred and be continuing.
(d) The Borrower will not, create, incur, assume, or suffer to
exist any Lien on any of its properties or assets, except the
following (collectively, "Permitted Liens"):
(i) Liens for taxes not delinquent or being contested in
good faith and by proper proceedings, as to which
adequate reserves are maintained on the books of the
Borrower in accordance with GAAP;
(ii) carriers', warehousemen's mechanics', materialmen's,
landlord's or similar liens imposed by law incurred
in the ordinary course of business in respect of
obligations not overdue, or being contested in good
faith and by proper proceedings and as to which
adequate reserves with respect thereto are maintained
on the books of the Borrower in accordance with GAAP;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other types
of social security legislation;
<PAGE> 10
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(iv) security deposits made to secure the performance of
leases, licenses and statutory obligations incurred
in the ordinary course of business;
(v) Liens in favor of the Lender;
(vi) existing Liens, if any, listed on Schedule A hereto;
(vii) such minor defects, irregularities, encumbrances,
easements, rights of way, zoning, restrictions,
variations from building laws and clouds on title as
normally exist with respect to similar properties and
which do not materially impair the property affected
thereby for the purpose for which it was acquired;
(viii) operating leases and subleases of property to others
entered into in the ordinary course of business;
(ix) Liens on property owned by the Borrower, which
property constitutes leasehold improvements, to the
extent that such property is affixed to real estate
in such a manner as to be subjected to Liens on the
real estate to which it is affixed; and
(x) any attachment or judgment Lien individually or in
the aggregate not in excess of $10,000 unless the
judgment it secures shall, within 30 days after the
entry thereof, not have been discharged or execution
thereof stayed pending appeal, or shall not have been
discharged within thirty (30) days after the
expiration of any such stay.
(e) The Borrower will not declare or make any Restricted Payment.
(f) The Borrower will not make, maintain or acquire any investment
in any Person other than.
(i) marketable obligations issued or guaranteed by the
United States of America having a maturity of one
year or less from the date of purchase;
(ii) certificates of deposit, eurodollar time deposits,
commercial paper, bankers acceptances or any other
obligations of any bank or trust company organized or
licensed to conduct a
<PAGE> 11
- 11 -
banking business under the laws of the United States
or any State thereof and which has (or which is a
Subsidiary of a bank holding company which has)
publicly traded debt securities rated A or higher by
Standard & Poor's Corporation or A-2 or higher by
Moody's Investors Service, Inc.;
(iii) stock or obligations issued to the Borrower in
settlement of claims against others by reason of an
event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any
debtor of the Borrower or such Subsidiary;
(iv) commercial paper with maturities of not more than 90
days issued by U.S. corporate issuers whose senior
debt is at the time rated investment grade by Moody's
Investor Services, Inc. or Standard & Poor's
Corporation;
(v) investments existing on the date hereof and listed on
Schedule A; and
(vi) investments consisting of the purchase of instruments
evidencing interest rate protection for all or a
portion of the Obligations.
8. EVENTS OF DEFAULT
(a) The occurrence of any of the following events shall be an
"Event of Default" hereunder:
(i) the Borrower shall default in the due and punctual
payment of principal or interest on the Note, or
shall default in the payment of any other amount due
under any Loan Document; or
(ii) any representation, warranty or statement made herein
or any other Loan Document, or in any certificate or
statement furnished pursuant to or in connection
herewith or therewith, shall prove to be incorrect,
misleading or incomplete in any material respect on
the date as of which made or deemed made; or
(iii) the Borrower shall default in the performance or
observance of any term, covenant or agreement on its
part to be performed or observed pursuant to
paragraph 7(a) or 7(e); or
<PAGE> 12
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(iv) the Borrower shall default in the performance or
observance of any term, covenant or agreement on its
part to be performed or observed pursuant to any of
the provisions of this Agreement or any other Loan
Document (other than those referred to in paragraphs
8(a) (i) through 8(a) (iii) above) and such default
shall continue unremedied for a period of twenty (20)
days after the occurrence of such default; provided,
however, that if the curing of such default cannot be
accomplished within such period of time, and if the
Borrower commences to cure such default promptly
within such period, and thereafter prosecutes the
curing of such default with reasonable diligence,
such period of time shall be extended to a period of
time (not to exceed any additional thirty (30) days)
necessary to cure such default with reasonable
diligence; or
(v) any obligation of the Borrower in respect of any
indebtedness, (other than the Note) or any Guarantee
shall be declared to be or shall become due and
payable prior to the stated maturity thereof, or such
indebtedness or Guarantee shall not be paid as and
when the same becomes due and payable (after the
expiration of any applicable grace period), or there
shall occur and be continuing any default under any
instrument, agreement or evidence of indebtedness
relating to any such indebtedness the effect of which
is to permit the holder or holders of such
instrument, agreement or evidence of indebtedness, or
a trustee, agent or other representative on behalf of
such holder or holders, to cause such indebtedness to
become due prior to its stated maturity; or
(vi) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its
creditors (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or
composition or readjustment of debts (v) fail to
controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against
it in an
<PAGE> 13
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involuntary case under the Bankruptcy Code, or (vi)
take any corporate action for the purpose of
effecting any of the foregoing; or
(vii) a proceeding or case shall be commenced, without the
application or consent of the Borrower in any court
of competent jurisdiction, seeking (i) its
liquidation, reorganization, dissolution or
winding-up or the composition or readjustment of its
debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of the Borrower of
all or any substantial part of its assets, or (iii)
similar relief in respect of the Borrower under any
law relating to the bankruptcy, insolvency,
reorganization, winding-up or composition or
adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect,
for a period of 60 days; or an order for relief
against the Borrower shall be entered in an
involuntary case under the Bankruptcy Code; or
(viii) a judgment or judgments for the payment of money in
excess of $100,000 (net of insurance proceeds) in the
aggregate shall be rendered against the Borrower and
any such judgement or judgements shall not have been
vacated, discharged, stayed or bonded pending appeal
within thirty (30) days from the entry thereof; or
(ix) the Borrower or any Subsidiary thereof shall default
in the performance or observance of any term,
covenant or agreement on its part to be performed or
observed pursuant to any of the provisions of any
agreement with the Lender or any instrument delivered
in favor of the Lender (other than, in either case, a
Loan Document), and such default shall continue
unremedied beyond the grace period (if any) provided
for therein; or
(x) the Security Agreement shall cease to be in full
force and effect or shall cease to be effective to
grant a perfected security interest in the collateral
described in the Security Agreement with the priority
stated to be granted thereby for any reason, other
than the failure of the Lender to take action within
its control; or
<PAGE> 14
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(xi) Borrower shall make any payment on account of its
Subordinated Debt, except to the extent such payment
is expressly permitted hereby or under any
subordination agreement entered into with the Lender.
(b) If any Event of Default shall have occurred and be continuing,
the Lender may declare the principal amount then outstanding
of, and the accrued interest on, the Loan and all other
amounts payable hereunder and under the Note to be forthwith
due and payable, whereupon such amounts shall be and become
immediately due and payable, without notice (including,
without limitation, notice of intent to accelerate) ,
presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Borrower.
9. DEFINITIONS
For the purposes of this Agreement:
(a) "Agreement" shall mean this Loan Agreement.
(b) "Banking Day" shall mean any day, excluding Saturday and
Sunday and excluding any other day which in the State of
Delaware is a legal holiday or a day on which banking
institutions are authorized by law to close.
(c) "Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such
Person is a party or by which it is or any of its property is
bound.
(d) "Default" means any condition or event that constitutes an
Event of Default or that with the giving of notice or lapse of
time or both would, unless cured or waived, become an Event of
Default.
(e) "Event of Default" has the meaning set forth in paragraph 8
(a).
(f) "GAAP" means accounting principles generally accepted in the
United States applied on a consistent basis.
(g) "Governmental Authority" shall mean any federal, state,
municipal or other governmental department, commission, board,
bureau, agency, court, tribunal or other instrumentality,
domestic or foreign, and any
<PAGE> 15
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arbitrator.
(h) "Guarantee" by any Person means any obligation, contingent, or
otherwise, of such Person directly or indirectly guaranteeing
any indebtedness or other obligation at any other Person and,
without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such indebtedness or other
obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (b) entered
into for the purpose of assuring in any other manner the
obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or
deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
(i) "Indebtedness" of any Person at any date shall mean (a) all
indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services (excluding
current trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices,
but including any class of capital stock of such Person with
fixed payment obligations or with redemption at the option of
the holder) which is evidenced by a note, bond, debenture or
similar instrument, (b) all obligations of such Person under
leases that should be treated as capitalized leases in
accordance with GAAP, (c) all obligations of such Person in
respect of acceptances issued or created for the account of
such Person and all reimbursement obligations (contingent or
otherwise) of such Person in respect of any letters of credit
issued for the account of such Person, and (d) all
indebtedness secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise
become liable for the payment thereof.
(j) "Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other) ,
or preference, priority or other security agreement of any
kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any lease
that should
<PAGE> 16
- 16 -
be capitalized in accordance with GAAP, and the filing of a
financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction), together with any
renewal or extension thereof.
(k) "Loan Documents" means, collectively, this Agreement, the
Note, the Security Agreement, and all other agreements and
instruments that are from time to time executed in connection
with this Agreement, as each of such agreements and
instruments may be amended, modified, or supplemented from
time to time.
(l) "Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property, condition (financial
or otherwise) or prospects of the Borrower, or of the Borrower
and its Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform its obligations under this Agreement, the
Note or any of the other Loan Documents (c) the validity or
enforceability of this Agreement, the Note or any of the other
Loan Documents, or the rights or remedies of the Lender
hereunder or thereunder, or (d) the right of the Lender to
enforce the payment of accounts against account debtors in any
particular State.
(m) "Note" shall have the meaning set forth in paragraph 1(b).
(n) "Obligations" shall have the meaning given the term "Secured
Obligations" in the Security Agreement as well as the
obligations of Borrower arising under paragraph 3(d) of this
Agreement.
(o) "Permitted Liens" shall have the meaning set forth in
paragraph 7 (d).
(p) "Person" shall mean and include any individual, firm,
corporation, trust or other unincorporated organization or
association or other enterprise or any governmental or
political subdivision, agency, department or instrumentality
thereof.
(q) "Restricted Payment" means, with respect to the Borrower (a)
any dividend or other distribution on any shares of capital
stock of the Borrower (except dividends payable solely in
shares of capital stock or rights to acquire capital stock of
the Borrower, and dividends payable solely to the Borrower),
(b) any payment on account of the purchase, redemption,
retirement or acquisition of (i) any shares of the capital
stock of the Borrower or
<PAGE> 17
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(ii) any option, warrant, convertible security or other right
to acquire shares of the capital stock of the Borrower other
than, in either case, payments made solely to the Borrower,
and (c) any required or optional payment of any principal of,
or premium or interest on, or any required or optional
purchase, redemption or other retirement or other acquisition
of any Subordinated Debt, except for payments as may be
permitted pursuant to written subordination and intercreditor
agreements to which the Lender is a party.
(r) "Security Agreement" shall have the meaning set forth in
paragraph 3 (b).
(s) "Subordinated Debt" means indebtedness of the Borrower that is
subordinated to the indebtedness of the Borrower owing to the
Lender either (a) pursuant to a subordination agreement in
form and substance satisfactory to the Lender between the
Lender and the holder(s) of such indebtedness, or (b) pursuant
to the terms thereof, where the Lender has confirmed in
writing that such terms are satisfactory to it.
(t) "Subsidiary" means, with respect to any Person, any
corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing
similar function are at the time directly or indirectly owned
by such Person.
(u) "UCC" shall have the meaning given such term in the Security
Agreement.
10. MISCELLANEOUS
(a) No amendment or waiver of any provision of this Agreement or
the Note, nor consent to any departure by the Borrower
therefrom shall in any event be effective unless the same
shall be in writing and signed by the Lender and then such
waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) All notices and other communications provided for hereunder
shall be in writing and shall be delivered by hand, by a
nationally recognized commercial overnight delivery service,
by first class mail, or by telecopy, delivered, addressed or
transmitted, if to the Borrower, at City Tower, Level 4, 40
Basinghall Street, London
<PAGE> 18
- 18 -
EC2V 5DE, Facsimile No. 0171 638 8799, if to the Lender at the
address in the preamble to this Agreement, Facsimile No. 305
444 7550 or, as to each party, at such other address as shall
be designated by such party in a written notice to the other
party. All such notices and communications shall be deemed
effective (a) in the case of hand deliveries, when delivered;
(b) in the case of an overnight delivery service, on the next
Banking Day after being placed in the possession of such
delivery service, with delivery charges prepaid; (c) in the
case of mail, three days after deposit in the postal system,
first class postage prepaid; and (d) in the case of telecopy
notices, when electronic indication of receipt is received.
(c) No failure on the part of the Lender to exercise, and no delay
in exercising, any right hereunder or under the Note shall
operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder or under the Note preclude any
other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
(d) The Borrower shall pay on demand, if any Event of Default
occurs, all actual and reasonable costs and expenses incurred
by the Lender, including the actual and reasonable fees and
disbursements of counsel to the Lender, and of any appraisers,
environmental engineers or consultants or investment banking
firms retained by the Lender in connection with such Event of
Default or collection, bankruptcy, insolvency and other
enforcement proceedings related thereto. The Borrower agrees
to pay, indemnify and hold the Lender harmless from, any and
all recording and filing fees, and any and all liabilities
with respect to, or resulting from any delay in paying, stamp,
excise or other taxes, if any (other than taxes based upon the
Lender's net income) , which may be payable or determined to
be payable in connection with the execution and delivery of or
the consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this
Agreement or the other Loan Documents, or any documents
delivered pursuant hereto or thereto.
(e) This Agreement shall become effective when it shall have been
executed by the Borrower and the Lender and thereafter shall
be binding upon and inure to the benefit of the Borrower and
the Lender and their
<PAGE> 19
- 19 -
respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the
Lender. The Lender may assign with prior notice to the
Borrower to any financial institution or related Person all or
any part of, or any interest (undivided or divided) in, the
Lender's rights and benefits under this Agreement or the Note,
and to the extent of that assignment such assignee shall have
the same rights and benefits against the Borrower hereunder as
it would have had if such assignee were the Lender making the
Loan hereunder, and to the extent a participation interest is
sold the only rights that will be granted to a participant
will be with respect to waivers, amendments or modifications
that would reduce the principal of or interest rate on the
Loan or any fees.
(f) Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the
validity, enforceability or legality of such provision in any
other jurisdiction.
(g) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE.
(h) THE LENDER AND THE BORROWER AGREE THAT NEITHER OF THEM NOR ANY
ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED
UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED
INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE
RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF
THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE LENDER AND THE
BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS. NEITHER THE LENDER NOR THE BORROWER HAS AGREED
WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS
PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
(i) THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF DELAWARE IN ANY ACTION, SUIT, OR
PROCEEDINGS OF ANY KIND AGAINST IT.
<PAGE> 20
- 20 -
WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT, THE NOTE,
ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL
JUDGEMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVICED WITH
PROCESS IN THE MANNER PROPER IN SUCH JURISDICTION, SUBJECT TO
EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND, TO THE
EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN SUCH
ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT ITS
PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION,
THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER.
(j) Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part
of this Agreement for any other purpose.
(k) This Agreement may be signed in one or more counterparts each
of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
CONSERVER PURCHASING CORPORATION
By: /s/ SERGE NORELLA
-----------------------------------
CONSERVER CORPORATION OF AMERICA
By: /s/ CHARLES H. STEIN
-----------------------------------
<PAGE> 21
EXHIBIT A
DEMAND NOTE
$____________________ ______________________ , 199
______________________ [City] , ___________________ [State/Country]
1. On demand, we promise to pay to the order of Conserver Corporation of
America, the sum of $_________________________ , for value received,
with interest payable at the rate of eight per cent (8%) per annum,
payable at Citibank, F.S.B., 1396 Alhambra Circle, Coral Gables,
Florida 33134.
2. The makers, indorsers, and all parties to this Note hereby waive
presentment and notice of demand, protest and notice of protest and
nonpayment of this Note.
CONSERVER PURCHASING CORPORATION
BY __________________________
<PAGE> 22
AMENDMENT TO LOAN AGREEMENT
THIS AGREEMENT is made on the 31st day of December 1996 by and between
CONSERVER PURCHASING CORPORATION, a corporation organized and existing under
the laws of the State of Delaware whose registered office is at 1209 Orange
Street, Wilmington, Delaware 19801 ("Borrower"), and CONSERVER CORPORATION OF
AMERICA, a corporation organized and existing under the laws of the State of
Delaware having a place of business at 2655 LeJeune Road, Coral Gables, Florida
33134 ("Lender").
WHEREAS, the Borrower and the Lender entered into a Loan Agreement dated 9th
October 1996 (the "Loan Agreement");
WHEREAS, the Borrower and the Lender have agreed to increase the maximum amount
of the Loan (capitalized terms not defined herein shall be defined as in the
Loan Agreement); and
WHEREAS, the Borrower and the Lender wish to amend the Loan Agreement to
reflect such modification;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. LOAN
(a) The maximum amount of the Loan, as provided in
<PAGE> 23
-2-
paragraph 1(a) of the Loan Agreement, shall be Three Hundred
Fifty thousand dollars ($350,000).
(b) Each advance from the Lender to the Borrower under the Loan
Agreement shall be evidenced by a promissory note of the
borrower substantially similar in form and substance to Exhibit
A to the Loan Agreement. The Borrower and the Lender acknowledge
that Borrower's note attached hereto as Appendix 1 was made in
anticipation of this Agreement and satisfies the requirements
of this paragraph 1(b).
2. ADDITIONAL INVENTORY
The Borrower and the Lender acknowledge that a primary purpose for
increasing the maximum amount of the Loan is to fund the Borrower's
anticipated purchase of additional inventory of products from Conserver
XXI, S.A., and they hereby agree that such additional inventory shall be
included within the definition of Inventory in the Loan Agreement. The
Lender agrees to release such additional portions of the Loan to the
Borrower as are required to purchase such additional inventory in
accordance with the Borrower's instructions after receiving confirmation
satisfactory to it that the Borrower has taken possession of such
additional inventory.
<PAGE> 24
-3-
3. ADDITIONAL CONSIDERATION
As further inducement for Lender to enter into this Agreement and as
additional consideration for the Loan arising under the Loan Agreement,
Borrower hereby grants to Lender the right to require Borrower to assign
all of its rights and interest in the letter from Conserver XXI, S.A. to
Borrower attached hereto as Appendix 2 and/or any agreement arising
thereunder or otherwise related to the subject matter thereof, and it is
hereby confirmed that this right and the other rights held by the Lender
under paragraph 3(d) of the Loan Agreement shall survive payment or
pre-payment of the Loan.
4. SECURITY
It is acknowledged and agreed by the parties hereto that the Loan
Agreement, as amended by this Agreement, remains subject to the Security
Agreement.
5. CONFIRMATION
The parties hereto hereby confirm that in all other respects the Loan
Agreement remains in full force and effect, and, subject only to the
specific changes to the Loan Agreement effected hereby, this Agreement
shall be construed as if it were a part of the Loan Agreement.
6. MISCELLANEOUS
(a) This Agreement shall be governed by, and construed
<PAGE> 25
-4-
in accordance with, the laws of the State of Delaware.
(b) This Agreement may be signed in one or more counterparts each of
which shall constitute an original and all of which taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers as of the
date first above written.
CONSERVER PURCHASING CORPORATION
By: /s/ SERGE NORELLA
----------------------------
CONSERVER CORPORATION OF AMERICA
By: /s/ CHARLES H. STEIN
-----------------------------
<PAGE> 26
APPENDIX 2
[CONSERVER XXI, S.A. LETTERHEAD] [LOGO]
CONSERVER PURCHASING CORPORATION
1209 Orange Street
Wilmington, DE 19801
December 30th 1996
Gentlemen:
This letter will confirm as follows
1. We hereby reaffirm our letter to you of 9th October 1996 to the effect
that you have the absolute right to use the Conserver name and trademark as
well as all related products in the United States of America and Canada
(the "Territory").
2. From the date hereof until the execution of the long term contract
referred to paragraph 3 (the "Period"), these rights shall be exclusive,
and we shall not provide any Conserver 21 products (the "Product") for any
use in the Territory during the Period other than to you.
3. Provided (i) that you offer purchase and pay for three hundred (300)
filters and seven hundred thousand (700,000) sachets of the Product prior
to 31st December 1996, such payment to be made by wire transfer at the
prices referred to in paragraph 4, fifty percent (50%) at the time of
placing the order and fifty (50%) after inspection and loading of such
filters and sachets takes place, it being warranted by us that all of this
Product will be of the standard and have the qualities previously
represented to you, and (ii) subject to our mutual agreement of reasonable
minimum orders for the Product in a long term contract, we hereby agree to
enter into a long term contract of not less than twenty (20) years with you
under which you shall have continuing exclusive rights in the Territory to
the Product as it exists today and as we further develop and improve it, as
well as other products which enhance the life of food and flowers which we
may acquire from time to time, such long term contract to be subject to the
usual commercial conditions, it being our intention that such long term
contract be agreed as soon as is practicable, but in any event before 31st
March 1997.
<PAGE> 27
APPENDIX 1
DEMAND NOTE
$62,000 19th December 1996
London, England
1. On demand, we promise to pay to the order of Conserver Corporation
of America, the sum of $62,000, for value received, with interest
payable at the rate of eight per cent (8%) per annum, payable at
Citibank, F.S.B., 1396 Alhambra Circle, Coral Gables, Florida 33134.
2. The makers, indorsers, and all parties to this Note hereby waive
presentment and notice of demand, protest and notice of protest
and nonpayment of this Note.
CONSERVER PURCHASING CORPORATION
BY /s/ Serge Norella
-----------------------------
<PAGE> 28
4. The agreed price for such products during the Period is Fifteen
U.S. dollars (U.S. $15.00) per filter and seventeen U.S. cents
(U.S. $0.17) per sachet, ex works.
5. During the Period you shall have the right to send your
representatives to our factory to inspect the production of the Products
you have ordered and to receive technical assistance from us related to
the Product.
6. We warrant and covenant that we have the absolute authority to
grant the rights granted hereunder and to be granted under the long term
agreement and the full corporate authority to execute this letter on
behalf of Conserver XXI, S.A.
7. Any disputes arising hereunder shall be resolved by arbitration
under the International Chamber of Commerce.
8. Your rights hereunder are freely assignable by you to an entity
deemed appropriate by you.
9. Absolute confidentiality shall be maintained with respect to
the terms of this letter and all actions arising herefrom, provided,
however, that it is agreed and understood that this letter may be shown
and discussed on a confidential basis with Conserver Corporation of
America and its potential investors.
For and on behalf of Conserver XXI, S.A.
/s/ Alfonso de Sande Moreno /s/ J.A. Gomez-Arevalillo Acevedo
- ---------------------------------- ----------------------------------
Alfonso de Sande Moreno J.A. Gomez-Arevalillo Acevedo
<PAGE> 29
CONSERVER XXI, S.A.
Poligono El Canal
C/ Abedul 6-8
28500 Arganda del Rey
Madrid
Conserver Purchasing Corporation
1209 Orange Street
Wilmington, DE 19801
Madrid, 9th October 1996
Gentlemen,
This letter will confirm as follows:
1. You have the absolute right to use the Conserver name and trademark as
well as all related products in the United States of America and Canada
(the Territory)
2. From the date hereof until the execution of the long term contract
referred to in paragraph 3 (the period), these rights shall be exclusive,
and we shall not provide any Conserver products (the product) for any use
in the Territory during the period other than to you.
3. Provided (i) that you offer to purchase and pay for twelve thousand
(12,000) filters and ten thousand (10,000) sachets of the Product during
the week beginning on 7th October 1996, such payment to be made transfer at
the prices referred to in paragraph 4 immediately after inspection and
loading of such filters and sachets takes place, it being warranted by us
that all this Product is of the standard and has the qualities previously
represented to you, and (ii) subject to our mutual agreement of minimum
orders for the Product in a long term contract, then we hereby agree to
enter into a long term contract (20 years) with you under which you shall
have continuing exclusive rights in the Territory to the Product as it
exists today and as we further develop and improve it, as well as other
products which enhance the life of food and flowers which we may acquire
from time to time, such long term contract to be subject to the usual
commercial considerations, it being our intention that such long term
contract be agreed as soon as is practicable, but in any event before the
end of 1996.
4. The agreed price for such products during the period is U.S $15.00
(fifteen dollars) per filter and U.S $0.13 (thirteen cents) per sachet, ex
works.
<PAGE> 30
5. During the period you shall have the right to send your
representatives to our factory to inspect the production of the Products
you have ordered and to receive technical assistance from us related to
the product.
6. We warrant and covenant that we have the absolute authority to
grant the rights granted hereunder and to be granted under the long term
agreement and the full corporate authority to execute this letter on
behalf of Conserver XXI, S.A.
7. Any disputes arising hereunder shall be resolved by arbitration
under the International Chamber of Commerce.
8. Your rights hereunder are freely assignable by you to an entity
deemed appropriate by you.
9. Absolute confidentiality shall be maintained with respect to the
terms of this letter and all actions arising herefrom.
For and on behalf of Conserver XXI, S.A.
/s/ Alfonso de Sande Moreno /s/ J.A. Gomez-Arevalillo
----------------------------- -----------------------
Alfonso de Sande Moreno J.A. Gomez-Arevalillo
<PAGE> 1
EXHIBIT 11.1
CONSERVER CORPORATION OF AMERICA
COMPUTATION OF NET LOSS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
MARCH 6, 1996 THREE MONTHS
(DATE OF INCORPORATION) ENDED
THROUGH NOVEMBER 30, 1996
AUGUST 31, 1996 (UNAUDITED)
--------------------------- -----------------
<S> <C> <C> <C>
Founders shares 7,974,917
Shares issued to convertible
note holders 141,871
Shares issued on assumed conversion
of convertible notes 340,469
Shares eligible for treasury stock
method(1) 3,914,030
Less assumed repurchase of shares (1,087,000) 2,827,030
---------- ---------- ----------
Shares used for computation 11,284,287 11,284,287
========== ==========
Net (loss) as reported (1,387,071) (476,945)
Adjustments for interest on
convertible notes 30,000 71,250
---------- ----------
Net (loss) as adjusted (1,357,071) (405,695)
Net (loss) per share (0.12) (0.04)
========== ==========
</TABLE>
Notes and Assumptions:
(1) The company issued common stock for consideration below the initial
public offering price of $6.00. Consequently, in accordance with Staff
Accounting Bulletin 83 (during the periods covered by statements of
operations included in the registration statement) the following
methodology was used in determining weighted average shares outstanding:
Stock issued in a one year period immediately prior to the
offering was treated as outstanding for the entire period and
repurchase of shares using the treasury stock method at an
offering price of $6.00.
(2) Adjusted to reflect retroactively, a 2.128874 for 1 stock split and a
1.066194 stock split effected in November 1996 and December 1996,
respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in Amendment No. 2 to Registration
Statement on Form S-1 of Conserver Corporation of America (File #333-16571) of
our report dated September 27, 1996 (November 19, 1996 with respect to Notes A,
E, H[2] and J), relating to the financial statements of Conserver Corporation
of America, and to the reference to our firm under the caption "Experts" in the
Prospectus.
/s/ Richard A. Eisner & Company LLP
- -----------------------------------
New York, New York
January 31, 1997
