SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-22191
CONSERVER CORPORATION OF AMERICA
------------------------------------
(Exact Name of Registrant)
Delaware 65-0675901
--------------------------------- -----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3250 Mary Street
Suite 405
Coconut Grove, FL 33133
----------------------------------------
(Address of Principal Executive Offices)
(305) 444-3888
-------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
----------------------
(Former Name, Former Address and Former Fiscal Year,
if changed Since Last Report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No. [ ]
State the number of shares outstanding of each of the registrant's classes
of common equity, as of the latest practicable date.
Class Outstanding at November 12, 1997
---------- --------------------------------
Common Stock, $.001 par value 6,793,404 shares
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1997
and September 30, 1997 (unaudited)....................................1
Condensed Statements of Operations for the Three Months ended August 31, 1996
(unaudited), the Three Months ended September 30, 1997 (unaudited),
and for the period from March 6, 1996 (inception) to
September 30, 1997 (unaudited)........................................2
Condensed Statements of Cash Flows for the Three Months ended August 31, 1996
(unaudited), the Three Months ended September 30, 1997 (unaudited),
and for the period from March 6, 1996 (inception) to September 30,
1997 (unaudited)......................................................3
Notes to Condensed Financial Statements.......................................4
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations...................14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........................23
Item 6. Exhibits and Reports on Form 8-K.................................24
SIGNATURES...................................................................25
i
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED BALANCE SHEETS
<TABLE>
ASSETS June 30, September 30,
1997 1997
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,715,460 $ 7,402,482
Advances to officers and employees 26,965 36,296
Loans receivable 41,041
Inventory 20,000 20,000
Other current assets 166,783 203,636
------------ --------------
Total current assets 7,929,208 7,703,455
Property and equipment, net 21,986 54,136
Note receivable 500,000
------------ --------------
TOTAL $ 7,951,194 $ 8,257,591
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 476,602 741,523
Notes payable - current (net of $60,328 discount) 689,672
Accrued interest 55,000
------------- --------------
Total current liabilities 1,221,274 741,523
------------- --------------
Commitments and contingencies
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Preferred stock, par value $.01, 5,000 shares
authorized, none issued and outstanding
Common stock, par value $.001; 30,000,000 shares 6,386 6,794
authorized; 6,385,404 and 6,793,404 shares issued and
outstanding at June 30, 1997 and September 30, 1997,
respectively
Additional paid-in capital 16,672,672 18,865,637
(Deficit) accumulated during the development stage (9,949,138) (11,356,363)
------------- --------------
Total stockholders' equity 6,729,920 7,516,068
------------- --------------
TOTAL $ 7,951,194 $ 8,257,591
============= ==============
</TABLE>
See notes to condensed financial statements.
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
For the Three For the Three Period from
Months Months March 6, 1996
Ended Ended (Inception) to
August 31, September 30, September 30,
1996 1997 1997
------------- ------------- --------------
<S> <C> <C> <C>
REVENUES $ $ 5,470 $ 5,470
OPERATING EXPENSES:
Marketing and sales 102,312 217,888
Research and development 34,027 86,274
General and administrative 412,584 1,078,630 3,224,413
Write-down of inventory 355,800
Provision for bad debt 1,000,000
Compensation charges in connection with
issuance of options and warrants 457,201 228,000 6,130,307
----------- ------------- --------------
Total operating expenses 869,785 1,442,969 11,014,682
----------- ------------- --------------
(LOSS) FROM OPERATIONS (869,785) (1,437,499) (11,009,212)
OTHER INCOME (EXPENSE):
Interest income 8,741 103,552 163,473
Interest expense (30,000) (12,950) (198,124)
Amortization of debt discount (60,328) (312,500)
----------- ------------- --------------
Total other income (expense) (21,259) 30,274 (347,151)
----------- ------------- --------------
NET (LOSS) $(891,044) $(1,407,225) $(11,356,363)
=========== ============= ==============
NET (LOSS) PER SHARE OF
COMMON STOCK $(0.20) $(0.21)
=========== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND
COMMON SHARE EQUIVALENTS
OUTSTANDING 4,490,400 6,744,737
============ =============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
For the Three For the Three Period from
Months Months March 6, 1996
Ended Ended (Inception) to
August 31, September 30, September 30,
1996 1997 1997
------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (Loss) $(891,044) $(1,407,225) $(11,356,363)
Adjustments:
Compensation expense in connection with 457,201 228,000 6,130,307
issuance of options and warrants
Impairment of inventory 355,900
Provision for bad debt 1,000,000
Depreciation and amortization 487 70,154 324,490
Compensation expense relating to 65,000 30,000 200,000
officer's salary
Legal services provided by shareholder without charge 41,500 101,500
Consulting services provided for common stock 26,250 26,250
Changes in current assets and current liabilities:
Advances to officers and employees 5,571 (9,331) (25,619)
Prepaid expenses and other current assets: (17,502) (16,686) (183,469)
Accounts payable and accrued expenses 105,317 236,475 757,400
----------- ------------- --------------
Total adjustments 616,074 606,362 8,686,759
----------- ------------- --------------
Net cash (used) by operating activities (274,970) (800,863) (2,669,604)
----------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,865) (33,643) (57,793)
Funds used for notes receivable (541,041) (1,916,841)
----------- ------------- --------------
Net cash (used) by investing activities (4,865) (574,684) (1,974,634)
----------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subscriptions receivable 1,374
Subscription funds to be returned 90,000
Repurchase of shares of common stock (1,800,000)
Net proceeds form public offering 1,447,569 10,306,296
Proceeds from sale of common stock 1,306,000 3,174,150
Proceeds from notes payable 2,250,000
Repayments of notes payable (385,000) (1,885,000)
------------ ------------- -------------
Net cash provided (used) by financing activities 1,396,000 1,062,569 12,046,820
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,116,165 (312,978) 7,402,582
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,287,423 7,715,460
------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $2,403,588 $7,402,482 $7,402,582
============= ============= =============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(Note A) Basis of Presentation and the Company:
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included. Operating results
for the three-month period ended September 30, 1997 are not necessarily
indicative of the results that may be expected for any interim period or the
year ending June 30, 1998.
The Company was incorporated on March 6, 1996 and initially adopted a
fiscal year ending August 31. Subsequently, in June 1997 the Company elected to
change its fiscal year end to June 30. Accordingly, the condensed statements of
operations and cash flows have been prepared for the three months ended
September 30, 1997 as compared to the three months ended August 31, 1996.
The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the audited financial
statements and footnotes thereto included in the Form 10-K for the year ended
June 30, 1997 filed by the Company.
(Note B) The Company:
Conserver Corporation of America (the "Company") is a development stage
company incorporated under the laws of the State of Delaware on March 6, 1996.
The Company holds the exclusive right to promote, import, distribute, market,
sell and otherwise commercially exploit Conserver 21(TM), a non-toxic product
which can be used to retard spoilage and decay in food and flowers, in the
United States and Canada. The Company also holds an option and a right of first
refusal to exercise such rights throughout the world. Conserver 21(TM) is
currently packaged in two forms: packets and filters.
As a development stage company, the Company's activities since its
inception have been primarily focused on raising both debt and equity financing
(public and private), recruiting management personnel, testing, developing and
exploiting Conserver 21(TM) and negotiating distribution and other arrangements.
Since the first quarter of fiscal 1998, the management of the Company has also
been engaged in exploring new business opportunities for the Company.
From March 1996 through November 1996, the Company raised capital
necessary for its business development through debt and equity private
placements. In June and July 1997, the Company raised additional capital through
an initial public offering (the "Offering"). (See Note D.) While the Company has
incurred losses since the date of its incorporation, for the first time since
its inception, the Company recorded nominal revenues of $5,470 for the three
months ended September 30, 1997.
4
<PAGE>
In August 1997, the Company announced that it was considering
diversifying beyond its sole line of business of marketing, distributing and
otherwise commercially exploiting Conserver 21(TM) (the "Principal Line of
Business") and was exploring a possible new line of business in the hotel and
casino industry (the "New Line of Business"). At a Special Meeting of
Stockholders, which the Company anticipates will be held during December 1997,
the Company's stockholders will be asked to consider and to vote on a proposal
regarding the New Line of Business and related matters. (See Notes E and F.)
(Note C) Summary of Significant Accounting Policies:
[1] 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 $5.00 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.
[2] Stock based compensation:
The Company applies Accounting Principal Board Opinion No. 25 and
related interpretations in accounting for its employee stock option and purchase
plans. In October 1995, Statement of Financial Accounting Standards No. 123
("SFAS 123") was issued and requires the Company to elect either expense
recognition or disclosure-only alternative for stock based employee
compensation. The expense recognition provision encouraged by SFAS 123 would
require fair-value based financial accounting to recognize compensation expense
for the employee stock compensation plans. The Company has elected the
disclosure-only alternative.
The Company has computed the pro forma disclosures required under SFAS 123 for
employee stock options granted as of August 31, 1996 and June 30, 1997 using the
Black Scholes option pricing model prescribed by SFAS 123.
(Note D) Initial Public Offering:
In June 1997, the Company completed the Offering in which it received
net proceeds of approximately $8,900,000 from the sale of 2,200,000 shares of
its common stock, $0.001 par value (the "Common Stock") at a per share price of
$5.00. In July 1997, the Company's underwriter exercised its over-allotment
option to purchase an aggregate of 330,000 shares of Common Stock at $5.00 per
share, resulting in the Company receiving additional net proceeds of
approximately $1,448,000. Aggregate net proceeds to the Company from the
Offering amounted to approximately $10,348,000. Also in connection with the
Offering, the Company sold to the underwriters, for nominal consideration,
Underwriters' Warrants to purchase 220,000 shares of Common Stock exercisable
for a period of four years at $8.25 per share.
5
<PAGE>
During the three months ended September 30, 1997, approximately
$1,761,000 of the proceeds from the Offering were used for general business
purposes, including the initial $500,000 payment made in August 1997 under the
Sakhalin Agreement (see Note F) and the retirement of convertible debentures in
the amount of $385,000. In October 1997, the Company utilized an additional
$250,000 from the proceeds of the Offering in connection with certain payments
due under the Sakhalin Agreement. At June 30, 1997, approximately $2,130,000 of
the proceeds from the Offering was used for general business purposes, including
the $1,000,000 loan to Agrotech under the Distribution Agreement and the
repayment of a $1,000,000 convertible debenture, together with the accrued
interest thereon. The Company anticipates that the balance of the proceeds from
the Offering will be used for working capital and general business purposes
primarily in connection with its Conserver 21(TM) business.
(Note E) The Conserver 21(TM) Distribution Agreement:
The Company's distribution and marketing rights for Conserver 21(TM) are
derived from a distribution agreement entered into in March 1997 (the
"Distribution Agreement") with Agrotech 2000 S.L. ("Agrotech"), a Spanish
company that manufactures and packages Conserver 21(TM) and whose principal
stockholder is the developer of Conserver 21(TM). Pursuant to the Distribution
Agreement, if the Company fails to purchase a minimum of $2,000,000 of Conserver
21(TM) products between April 1997 and April 1998, or fails to meet the minimum
annual purchase goals, Agrotech may sell Conserver 21(TM) to other customers in
the United States and Canada. The Distribution Agreement requires the Company to
purchase a minimum of $2,000,000 of Conserver 21(TM) products by April 1998 (the
"Initial Volume Commitment") and thereafter to continue to meet mutually agreed
upon minimum annual purchase goals. The purchase by the Company of the Conserver
21(TM) packets and filters from Agrotech is at a fixed per-unit price. The
Company is also required to pay Agrotech a 4% royalty on net revenues derived
from the Company's sales of Conserver 21(TM). Should the Company fail to meet
the minimum annual volume commitments established for any period, Agrotech may
sell Conserver 21(TM) to other customers in the United States and Canada after
90 days' written notice to the Company.
Initial marketing efforts of the Conserver 21(TM) packets in the United
States have indicated that the Company needs to renegotiate the terms of its
Distribution Agreement with Agrotech and to improve the packaging of the
Conserver 21(TM) packets. The Company is currently in discussions with Agrotech
with a view to reduce the pricing arrangements regarding the Conserver 21(TM)
packets and to modify the manufacturing arrangements so that all packaging is
done in the United States. Management of the Company is currently in discussions
with a U.S.-based company that specializes in packaging products comparable to
Conserver 21(TM), and has identified other U.S.-based packaging plants capable
of packaging Conserver 21(TM). Estimated packaging costs provided by these
entities indicate that the Company would be able to reduce the wholesale costs
of the Conserver 21(TM) packets if the product were packaged in the United
States. Management believes that this cost reduction even if partially offset by
an increase in the royalty percentage to be paid to Agrotech would enable the
Company to competitively price the packets at a level that would be profitable
to the Company. There can be no assurance, however, that the Company will be
able to successfully renegotiate the Distribution Agreement on more favorable
terms or enter into a packaging arrangement with a third party to its
satisfaction. Under such circumstances the Company would have to shift its
initial marketing efforts and focus on the sale of the Conserver 21(TM) filters.
There can be no
6
<PAGE>
assurance that the Company would be able to successfully implement this revised
marketing strategy. If the Company is unable to successfully renegotiate the
Distribution Agreement or if there is a sustained impairment of the Company's
ability to market Conserver 21(TM), the Company's ability to successfully
commercialize Conserver 21(TM) may be materially adversely affected.
The Distribution Agreement requires the Company to make loans to
Agrotech of up to $1,500,000 for the enhancement of Agrotech's manufacturing
capacity. Under the terms of the Distribution Agreement, the first $1,000,000 of
such loan is repayable over a three-year period as an offset against Conserver
21(TM) purchases by the Company in excess of $2,000,000 annually and the balance
of any such loan is payable out of royalties which may be due Agrotech from such
sales over a three- to four-year period. At September 30, 1997, the Company had
advanced Agrotech $1,000,000 (the "Agrotech Loan") under the terms of the
Distribution Agreement.
Due to the current uncertainty as to the outcome of the renegotiation of
the Distribution Agreement with Agrotech and recent limitations with Agrotech's
current packaging of the Conserver 21(TM) product, management of the Company
believes that exceeding the Initial Volume Commitment necessary to offset the
Company's purchases from Agrotech against the Agrotech Loan is remote.
Accordingly, the Company has established a reserve equal to the Agrotech Loan.
Under the terms of the Distribution Agreement, the Company may be obligated to
extend an additional loan of $500,000 to Agrotech. Due to the current
renegotiations, the Company cannot determine at the present time whether any
additional loans, under the terms of the Distribution Agreement, will be made or
whether any offsets under the Distribution Agreement will be available.
(Note F) Proposed New Line of Business and New Business Opportunities:
In August 1997, the Company announced that it was considering
diversifying beyond its sole line of business of marketing, distributing and
otherwise commercially exploiting Conserver 21(TM) (the "Principal Line of
Business") and was exploring a possible new line of business in the hotel and
casino industry (the "New Line of Business"). At a Special Meeting of
Stockholders, which the Company anticipates will be held during December 1997,
the Company's stockholders will be asked to consider and to vote on a proposal
regarding the New Line of Business and New Business Opportunities (as
hereinafter defined). (See Note G.)
In connection with the New Line of Business, and subject to the receipt
of requisite approval by the Company's stockholders, the Company has, as more
fully described herein, (i) entered into an agreement to acquire certain rights
to develop a hotel and casino project in Yuzhno-Sakhalinsk on the Sakhalin
Island of the Russian Federation (the "Sakhalin Project"), located 20 minutes by
air from Sapporo, Japan, (ii) entered into an agreement with Dato David Chiu to
provide certain development services with respect to the Sakhalin Project, (iii)
reached an agreement to manage certain hotels of Dorsett Hotels and Resorts
International, including hotels presently operating or being developed in the
United States, Bali, Australia, Canada, Cambodia, Malaysia and Thailand and (iv)
entered into several other related agreements, including the Surinam Project, as
hereinafter described (collectively, the "New Business Opportunities"). The
foregoing agreements (other than the agreement relating to the Surinam Project),
if approved by the Company's stockholders, would obligate the Company to pay
7
<PAGE>
approximately $6.75 million and to provide for the issuance by the Company,
under certain circumstances and subject to the completion of certain terms and
obligations thereunder, of up to 5,500,000 million shares of Common Stock and
options to purchase 600,000 shares of Common Stock. In connection with the
Company seeking New Business Opportunities, the Company entered into an
agreement in principle, as of October 3, 1997, with Parbhoe Handelmij NV, a
Surinamese limited liability, to create a joint venture company to develop a
casino project (the "Surinam Project") in Paramaribo, the capital city of
Surinam (the former Dutch Guyana). Pursuant to the agreement, the joint venture
company will also enter into an operating agreement with the Company to manage
the casino. If the Surinam Project is developed as contemplated, the Company,
subject to stockholder approval, is expected to provide the joint venture
company with approximately $3,000,000 in initial capital.
In addition to the direct issuance of shares of the Company's Common
Stock in connection with the proposed transactions, the Company anticipates
funding the cash portion of the initial capital required for the proposed New
Line of Business and New Business Opportunities with the proceeds from the
private offering of shares of additional Common Stock and/or other securities of
the Company. Both the proposed New Line of Business and New Business
Opportunities are subject to receipt of requisite stockholder approval.
Sakhalin Agreement. In connection with the Sakhalin Project, the Company
entered into an agreement dated as of August 12, 1997, and amended September 9,
1997 (as amended, the "Sakhalin Agreement"), subject to receipt of requisite
approval by the Company's stockholders, with Sakhalin Trading and Investments
Limited ("SGTI") and Sovereign Gaming and Leisure Limited ("Sovereign"), each a
limited liability company organized under the laws of Cyprus, pursuant to which
the Company would acquire: (i) all of the share capital of SGTI, which includes
(a) all of SGTI's rights and interest in a project to develop the Sakhalin
Project, and (b) SGTI's ownership interest in 50% of the shares of Sakhalin City
Centre Limited ("SCC"), a closed joint stock company incorporated under the laws
of the Russian Federation, which, in turn, holds certain rights, including a
guarantee by the city of Yuzhno-Sakhalinsk to issue a gaming license to SCC and
(ii) all rights and interest to or in the Sakhalin Project held by Sovereign,
including certain operating and project management agreements with respect to
the Project (collectively, the "Shares and Rights").
In consideration of the Shares and Rights, the Company is required under
the terms of the Sakhalin Agreement, as amended, to pay to SGTI and its
stockholders (i) an initial payment of $500,000 paid August 1997, (ii)
$1,000,000 payable by October 15, 1997, (iii) $1,500,000 payable by October 31,
1997 and (iv) an aggregate of 1,538,462 shares of the Company's Common Stock
(valued for the purpose of the Sakhalin Agreement at an aggregate of $10,000,000
or $6.50 per share) (collectively, the "Purchase Price"). The Company's Common
Stock was trading at $6.125 per share on the date of execution of the Sakhalin
Agreement.
In connection with the $1,000,000 payment due October 15, 1997 and the
$1,500,000 payment due October 31, 1997, the Company delivered an additional
$250,000 due under the Sakhalin Agreement on October 16, 1997. As of the date
hereof, the Company has paid to SGTI $750,000 with respect to its obligations
under the Sakhalin Agreement. As to the $2,225,000 balance due by the Company
under the Sakhalin Agreement, the Company, SGTI and Messrs. William Stephan
Cairns and John Byrne Horgan, as directors of SGTI, agreed pursuant to the
8
<PAGE>
terms of a stock purchase agreement (see Note G), dated as of October 24, 1997
(the "Stock Purchase Agreement"), that the Company would pay the balance of
$2,500,000 of the Purchase Price due under the Sakhalin Agreement, on or about
October 31, 1997, or as soon as possible thereafter.
Upon completion of the Company's due diligence in connection with the
Sakhalin Agreement, should the Company conclude for any reason that it does not
wish to proceed with the Sakhalin Project (including the failure of the
stockholders of the Company to approve the New Line of Business and the New
Business Opportunities) and the transactions contemplated under the Sakhalin
Agreement, the Company has the right to convert any cash portion of the Purchase
Price then delivered to SGTI into shares of SGTI at a conversion rate of one
ordinary share of SGTI for each $30.00 so delivered. Any such conversion
resulting in an investment in SGTI will likely be illiquid and there can be no
assurance that the Company will recoup any cash paid under the Sakhalin
Agreement. The Sakhalin Agreement further provides that, upon request of the
Company, Sovereign agrees to become project manager during the construction
phase of the Sakhalin Project, subject to agreement on reasonable compensation
for such services, which shall not exceed 5% of the construction cost of the
Sakhalin Project or $5,000,000, whichever is less.
In connection with the execution of the Sakhalin Agreement and with the
Company's approval, SGTI acquired an additional 15% of the share capital of SCC
from certain shareholders of SCC resulting in SGTI owning 65% of the share
capital of SCC. As a result of the acquisition of the additional 15% of the
share capital of SCC, the Purchase Price payable by the Company for the shares
of SGTI under the Sakhalin Agreement will increase by 461,538 shares of the
Company's Common Stock. Thus, with respect to the Sakhalin Agreement, aggregate
total consideration for the Shares and Rights payable by the Company to SGTI and
its shareholders will be $3,000,000 and 2,000,000 shares of the Company's Common
Stock. In addition, it is the Company's understanding that the $3,000,000 cash
portion of the Purchase Price will be used by SGTI as a loan to SCC (in which
SGTI holds a 65% interest) for the initial development and costs for the
Sakhalin Project.
Development Services Agreement. On October 2, 1997, the Company entered
into an agreement (the "Development Services Agreement") with Dato David Chiu
("Chiu"), pursuant to which the Company, subject to approval by its stockholders
and subject to the Company acquiring all of the shares of SGTI (which would
result in the Company owning 65% of the share capital of SCC), would, as
described below, transfer to Chiu 38.46% of the share capital of SGTI and would
issue to Chiu one share of convertible junior preferred stock of the Company
(the "Convertible Preferred Stock Share") which would convert, under specified
conditions and certain circumstances, into 1,500,000 shares of Common Stock of
the Company. The Development Services Agreement provides that Chiu will provide
certain development services to the Company in connection with the Sakhalin
Project, including using his best efforts to procure or secure the necessary
debt financing and guarantees (on behalf of the Company and its subsidiaries and
affiliates) for the complete turnkey construction of the Sakhalin Project which
financing is to be on mutually acceptable terms. Construction costs for the
Sakhalin Project are currently estimated at US$100 million. The shares of Common
Stock underlying the Convertible Preferred Stock Share and the shares of SGTI to
be issued to Chiu in consideration for his services will be issued on the date
of mutual execution by the Company or its nominated affiliate
9
<PAGE>
of a legally enforceable and binding agreement from a lender, the terms of which
are acceptable to the Company, SGTI and SCC, to provide the financing. In the
event Chiu is unable to procure or secure the necessary financing and guarantees
acceptable to the Company in accordance with the Development Services Agreement,
the Convertible Preferred Stock Share issued to Mr. Chiu would not convert into
1,500,000 shares of Common Stock of the Company. If the financing is not
realized as contemplated pursuant to the Development Services Agreement, the
Company and the other investors in the Sakhalin Project would be required to
obtain additional financing on behalf of SCC from a variety of sources,
including borrowings under bank credit facilities, sales of securities and
placement of term debt, to construct the hotel and casino. There can be no
assurance that such additional financing would be available on terms
satisfactory to the Company. Furthermore, here can be no assurance that the
Company will not be required to issue additional securities of the Company in
connection with the financing of the construction of the Sahkalin Project.
Chiu has also agreed that he shall not for a period of three years from
the date of issuance or transfer, as applicable, of the Convertible Preferred
Stock Share (and the underlying Common Stock) received under the Development
Services Agreement, voluntarily or involuntarily, directly or indirectly, sell,
contract to sell, grant a right to purchase, exchange, mortgage, pledge,
hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any
other way whatsoever dispose of (hereinafter collectively called "transfer") any
of such shares, including any options and warrants with respect to such shares,
received by way of dividend or upon an increase, reduction, substitution or
reclassification or combination of stock of the Company or upon any
reorganization of the Company, as applicable.
Notwithstanding any of the foregoing, Chiu may transfer such shares to
any affiliate, subject to the Company's consent, which consent shall not be
unreasonably withheld. Chiu also agreed, until three years from the issuance
date of the shares to give the Company an irrevocable proxy, with full power of
substitution, to vote on all matters as the Company deems appropriate, with
respect to the shares at all meetings of the stockholders of the Company and by
means of any written consent of stockholders with respect to all matters. The
Company has designated Charles H. Stein, the Chairman, President and Chief
Executive Officer of the Company as the authorized person to exercise the
aforementioned voting rights on behalf of the Company, until such time as the
Mr. Stein is incapacitated to act.
Furthermore, the Development Services Agreement provides that, in the
event that Chiu wishes to sell all or any part of the shares after the three
year period described above, the Company shall have the first option to purchase
all or any part of the shares from Chiu. Chiu agreed to give the Company written
notice thereof of its intent to sell any or all of the shares. The Company has a
right to purchase said shares at a price equal to the (i) closing price per
share as reported on the Nasdaq (as reported in The Wall Street Journal) on the
date written notice is given to the Company or (ii) the price offered to Chiu by
an unaffiliated third party (not a competitor of the Company) in an irrevocable
and unconditional bona fide written offer (the "Bona Fide Offer"), as
applicable. The Company has the right to purchase all or a portion of the shares
by giving Chiu written notice no later than ten business days after written
notice is provided to the Company. In the event that the Company fails to
exercise its option, Chiu has the right to sell the shares to such third party
at the price offered to the Company without any further obligations to sell the
shares to the Company. If, however, any or all of the shares are not
10
<PAGE>
sold pursuant to the Bona Fide Offer within 30 days from the receipt by the
Company of Chiu's notice of intent to sell, the unsold shares shall remain
subject to the terms of the Development Services Agreement.
Consummation of Sakhalin Agreement and Development Services Agreement.
Assuming consummation of each of the transactions contemplated above, the
Company and Chiu would own through their respective shares in SGTI, a 40% and
25% interest in SCC, respectively, and the remaining 35% of the interests would
continue to be held 20% by the City of Yuzhno-Sakhalinsk and 15% by the Sakhalin
Oblast (the regional government).
Proposed Pledge Agreement. Brian J. Bryce, Jay M. Haft and James V.
Stanton, directors of the Company, and Jasmine Trustees Ltd., a trust for the
benefit of Mr. Bryce and his children, have agreed to enter into a pledge
agreement (the "Proposed Pledge Agreement") with the Company in connection with
the transactions contemplated by the Sakhalin Agreement. This matter was
approved by the Board of Directors at its meeting held on September 10, 1997. In
November 1997, it was agreed that the Proposed Pledge Agreement would provide
that in the event the proposal relating to the New Line of Business and the New
Business Opportunities is not approved by the stockholders of the Company at a
Special Meeting of Stockholders to be held for such purpose, Messrs. Bryce, Haft
and Stanton would jointly reimburse the Company for the $750,000 advanced by the
Company under the Sakhalin Agreement. As presently contemplated, these
obligations would be secured by an aggregate of 150,000 shares of Common Stock
of the Company owned, either directly or beneficially, by such directors.
Sakhalin Casino Consulting Agreement. Effective as of August 14, 1997,
the Company entered into an agreement (the "Casino Consulting Agreement"),
subject to the receipt of the requisite approval from the Company's stockholders
(the "Commencement Date"), with Star Casinos Limited, a limited liability
company organized under the laws of Cyprus (the "Consultant"), whereby the
Consultant has agreed to provide consulting and technical services to the
Company and any affiliated entities for a period of two years from the
Commencement Date with respect to the development and ongoing operations of the
Sakhalin Project casino. Under the terms of the Casino Consulting Agreement, the
Consultant has agreed to make available the services of David Hartley
("Hartley"). As of the Commencement Date, the Consultant will receive (i) a fee
of $21,000 per month plus reimbursement of reasonable expenses for the term of
the agreement, adjusted pro rata for any partial month of service and (ii)
options to purchase 100,000 shares of the Company's Common Stock, at $6.50 per
share, with 50% of the options becoming exercisable on each of the first and
second anniversary dates of the Commencement Date and expiring on the third
anniversary date. At the end of the term of the agreement, provided that the
Consultant is not in breach of the Casino Consulting Agreement, the Consultant
will also be entitled to receive a $250,000 bonus. From the period between
October 1, 1997 through the Commencement Date, the Consultant will be paid by
the Company a fee of $21,000 a month, adjusted pro rata for any partial month of
service, plus reimbursement of reasonable expenses. The Company may terminate
the Casino Consulting Agreement for "cause," which includes (i) a material
breach of the agreement, (ii) the unavailability of Hartley, (iii) material
misconduct injurious to the Company by the Consultant or Hartley or (iv) the
conviction of an act of fraud or conviction of a crime by the Consultant or
Hartley. The agreement also binds the Consultant and Hartley to a two-year
non-compete, non-solicitation provision.
11
<PAGE>
Hotel Management Services. On October 2, 1997, the Company entered an
agreement (the "Hotel Management Agreement") with Dorsett Hotels and Resorts
International, Ltd. ("Dorsett"), a company controlled 100 percent by Chiu,
pursuant to which the Company, directly or through a subsidiary, would act as
exclusive operator and manager of certain hotels owned by Dorsett. In
consideration for Dorsett entering into the Hotel Management Agreement, the
Company, subject to requisite approval of the Company's stockholders, would (i)
issue to Dorsett up to an aggregate 2,000,000 shares of the Company's Common
Stock, upon specified conditions being satisfied and (ii) pay Dorsett
$3,000,000. The Hotel Management Agreement provides for twenty year exclusive
operating agreements (which have not yet been executed) with respect to the
management of the Dallas Grand Hotel, Dallas, Texas, Dorsett Regency Bali,
Indonesia and Rockman's Regency Melbourne, Australia, as well as operating
agreements on substantially similar terms for five other hotels scheduled to
open within the next two years (the "Operating Agreements").
The Company, pursuant to the terms of the Operating Agreement for each
hotel managed, would be entitled to management fees equal to three percent of
gross revenues plus ten percent of gross operating profits. In addition, the
Company would receive service fees equal to four percent of gross revenues for
marketing, promotion and advertising expenses as well as an additional one-half
of one percent of gross revenues for training costs which would be used in turn
to fund such expenses. Each Operating Agreement would further provide that in
the event Dorsett terminates the Operating Agreement for any reason other than
for a material breach by the Company, the Company would be entitled to a
termination fee. The termination fee shall be calculated based on the formula
which is the remaining number of years under such Operating Agreement multiplied
by a factor which is: (i) in the event of a termination during the first five
years of the Agreement, the factor shall be the sum of the actual fees paid or
payable to the Company based on revenues generated to date plus fees payable to
the Company based on projected revenues for the rest of the year, (ii) in the
event of a termination after the first five years, the factor shall be the
average of the fees paid or payable to the Company for the preceding two years,
or (iii) in the event of a termination after the first ten years, the factor
shall be the average of the fees paid or payable to the Company for the
preceding three years. If the Hotel Management Agreement is consummated, subject
to requisite stockholder approval, the Company plans to add a management team
with experience with major international hotel chains in the operation and
management of hotels and leisure time activities worldwide.
Dorsett agreed that it shall not for a period of three years from the
date of issuance or transfer, as applicable, of the shares received under the
Hotel Management Agreement, voluntarily or involuntarily, directly or
indirectly, sell, contract to sell, grant a right to purchase, exchange,
mortgage, pledge, hypothecate, give, bequeath, transfer, assign, encumber,
alienate or in any other way whatsoever dispose of (hereinafter collectively
called "transfer") any of such shares, including any options and warrants with
respect to such shares, received by way of dividend or upon an increase,
reduction, substitution or reclassification or combination of stock of the
Company or upon any reorganization of the Company, as applicable.
Notwithstanding any of the foregoing, Dorsett may transfer the shares to any
subsidiary or affiliate of Dorsett, subject to the Company's consent, which
consent shall not be unreasonably withheld. Dorsett also agreed, until three
years from the issuance date of the shares, to give the Company an irrevocable
proxy, with full power of substitution, to vote on all matters as the Company
deems appropriate, with respect to the shares at all meetings of the
stockholders of the Company and by means of
12
<PAGE>
any written consent of stockholders with respect to all matters. The Company has
designated Charles H. Stein, the Chairman, President and Chief Executive Officer
of the Company as the authorized person to exercise the aforementioned voting
rights on behalf of the Company, until such time as Mr. Stein is incapacitated
to act.
Furthermore, the Hotel Management Agreement provides that, in the event
that Dorsett wishes to sell all or any part of the shares after the three-year
period described above, the Company shall have the first option to purchase all
or any part of the shares from Dorsett. Dorsett agreed to give the Company
written notice thereof of its intent to sell any or all of the shares received
under the Hotel Management Agreement.
The Company has a right to purchase said shares at a price equal to the
(i) closing price per share as reported on the Nasdaq (as reported in The Wall
Street Journal) on the date written notice is given to the Company or (ii) the
price offered to Dorsett by an unaffiliated third party (not a competitor of the
Company) in an irrevocable and unconditional bona fide written offer (the "Bona
Fide Offer"), as applicable. The Company has the right to purchase all or a
portion of the shares by giving Dorsett written notice no later than 10 business
days after written notice is provided to the Company. In the event that the
Company fails to exercise its option, Dorsett has the right to sell the shares
to such third party at the price offered to the Company without any further
obligations to sell the shares to the Company. If, however, any or all of the
shares are not sold pursuant to the Bona Fide Offer within 30 days from the
receipt by the Company of Dorsett's notice of intent to sell, the unsold shares
shall remain subject to the terms of the Hotel Management Agreement.
Other. In connection with the Company entering into the New Line of
Business, the Board of Directors has adopted resolutions to issue to Brian J.
Bryce and Jay M. Haft, respectively, options to purchase 300,000 and 200,000
shares of Common Stock at an exercise price equal to $6.125 per share. The
issuance of the options to Messrs. Bryce and Haft, who are directors of the
Company, is subject to receipt of requisite shareholders' approval for the
Company to enter into the New Line of Business and the New Business
Opportunities.
The Surinam Project. As of October 3, 1997, the company entered into an
agreement in principle with Parbhoe Handelmij NV, a Surinamese limited
liability, to create a joint venture company to develop a casino project (the
"Surinam Project") in Paramaribo, the capital city of Surinam (the former Dutch
Guyana). Pursuant to the agreement, the joint venture company will also enter
into an operating agreement with the Company to manage the casino. There can be
no assurance that the Surinam Project will be developed or, if developed, will
be profitable for the Company. If the Surinam Project is developed as
contemplated, the Company, subject to stockholder approval, is expected to
provide the joint venture company with approximately $3,000,000 in initial
capital.
General. The transactions contemplated under the Sakhalin Agreement, the
Development Services Agreement, the Hotel Management Agreement, the Casino
Consulting Agreement and the Stock Purchase Agreement are subject to several
conditions precedent, including, but not limited to, satisfactory results from
the Company's due diligence investigation, obtaining certain local governmental
concessions and incentives for the Sakhalin Project and
13
<PAGE>
stockholder approval. In addition to the foregoing, the Surinam Project would
also require the completion of a definitive agreement.
With regard to the New Line of Business and the New Business
Opportunities, there is no guarantee that the Company will receive the requisite
approval of it stockholders, or if approved, whether the Company can
successfully implement its business plan or operate profitably. The Company's
stockholders will experience significant dilution in their percentage ownership
interest in the Company upon the issuance of the shares of Common Stock as
contemplated under the agreements related to the New Line of Business and the
New Business Opportunities.
(Note G) Subsequent Events:
Stock Purchase Agreement. On October 24, 1997, the Company, SGTI and
Messrs. William Stephan Cairns and John Bryne Horgan, as directors of SGTI,
entered into a stock purchase agreement (the "Stock Purchase Agreement")
pursuant to which the parties agreed, that the Company would pay to SGTI the
remaining $2,500,000 of the Purchase Price under the Sakhalin Agreement on or
about October 31, 1997 or as soon as practicable thereafter, and, subject to
requisite approval of the Company's stockholders, to transfer all of the capital
stock of SGTI and SGTI's rights in the Sakhalin Project to the Company and to
issue 2,000,000 shares of Common Stock of the Company to certain stockholders of
SGTI and certain entities having an interest in SGTI. Pursuant to the terms of
the Stock Purchase Agreement, the Company's obligation to purchase all of the
shares of SGTI is subject to certain conditions including, but not limited to,
obtaining the requisite approval of the Company's stockholders, customary
representations and warranties with respect to SGTI and SCC being true and
correct on the date of the purchase of the shares of SGTI, the valid assignment
to the Company of all of Sovereign's rights in the Sakhalin Project under each
of the project management agreement and operational management agreement and the
receipt of all required consents and approvals.
Proposed Pledge Agreement. See Note F, "Proposed Pledge Agreement,"
which is incorporated herein by reference.
Sakhalin Agreement Payments. On October 16, 1997 the Company delivered
an additional $250,000 with respect to its obligations under the Sakhalin
Agreement. A total of $750,000 has been paid to SGTI by the Company with respect
to the Company's cash obligations under the Sakhalin Agreement.
Preliminary Proxy Statement. On November 13, 1997 the Company filed with
the Securities and Exchange Commission a preliminary proxy statement for a
Special Meeting of Stockholders (the "Special Meeting"). At the Special Meeting,
the Company's stockholders will be requested to: (i) approve a proposal
permitting the Company to enter into the New Line of Business in the hotel and
casino industry and the New Business Opportunities, and to authorize the
issuance of up to 5,500,000 shares of the Company's common stock $.001 par value
(the "Common Stock") and options to purchase 600,000 shares of Common Stock in
connection with the proposal; (ii) approve an amendment to the Company's
Certificate of Incorporation to change the Company's name from "Conserver
Corporation of America" to "CCA Companies Incorporated"; (iii) approve an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of the Company's Common Stock and preferred stock, $.01 par
value (the "Preferred Stock"); (iv) approve an amendment to the Company's 1996
Stock Option Plan to increase the number of Common Stock shares authorized for
issuance thereunder; and (v) take such other action as may properly come before
the Meeting or any adjournments thereof (the "Proxy Statement"). The preliminary
Proxy Statement is subject to the completion of a definitive Proxy Statement,
the timing of which no assurances can be given. The Company anticipates that the
Special Meeting will be held in December 1997.
Item 2. Management's Discussion And Analysis
Of Financial Condition And Results of Operation
The following discussion and analysis of significant factors affecting
the Company's operating results and liquidity and capital resources should be
read in conjunction with the accompanying financial statement and related notes.
Overview
The Company, which was organized in March 1996, is in the development
stage and its activities since the date of incorporation have been primarily
focused on raising both debt and equity financing (public and private),
recruiting management personnel, testing, developing and
14
<PAGE>
exploiting Conserver 21(TM) and negotiating distribution and other arrangements.
Since the first quarter of fiscal 1998, management of the Company has also been
engaged in exploring new business opportunities for the Company.
The Company's 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, reliability of sources of supply and the
uncertainty of market acceptance of its business. The company has incurred
losses since inception. From March 6, 1996 to June 30, 1997, the Company did not
derive any revenues from operations. During the three months ended September 30,
1997, the Company had nominal revenues of $5,470 from the preliminary sales of
its Conserver 21(TM) products. The Company's accumulated deficit at September
30, 1997 was $11,356,363, which included $6,130,307 of non-compensation charges
related to the value attributed to stock options and warrants issued by the
Company.
From March 1996 to November 1996, the Company raised the capital
necessary for its business development through debt and equity private
placements. In June 1997, the Company completed an initial underwritten public
offering (the "Offering") in which it received net proceeds of approximately
$8,900,000 from the sale of 2,200,000 shares of its Common Stock at a per share
price of $5.00. In July 1997, the Company's underwriter exercised it
over-allotment option to purchase an aggregate of 330,000 shares of Common Stock
at $5.00 per share resulting in the Company receiving additional net proceeds of
$1,448,000. Aggregate net proceeds to the Company from the Offering amounted to
$10,348,000. Also in connection with the Offering, the Company sold to the
underwriters, for nominal consideration, Underwriters' Warrants to purchase
220,000 shares of Common Stock exercisable for a period of four years at $8.25
per share. During the three months ended September 30, 1997, approximately
$1,761,000 of the proceeds from the Offering was used for general business
purposes, including the initial $500,000 payment made under the Sakhalin
Agreement in connection with the New Business Opportunities and the partial
retirement of convertible debentures outstanding in the amount of $385,000. At
June 30, 1997, approximately $2,130,000 of the proceeds from the Offering was
used for general business purposes, including the $1,000,000 loan to Agrotech
under the Distribution Agreement and the repayment of a $1,000,000 convertible
debenture, together with the accrued interest thereon. The Company anticipates
that the balance of the proceeds from the Offering will be used for working
capital and general business purposes primarily in connection with its Conserver
21(TM) business.
The marketing and sale of Conserver 21(TM) currently constitutes the
Company's sole line of business and will account for substantially all of the
Company's revenues, if any, for the foreseeable future and until the Company's
New Line of Business and New Business Opportunities, if approved by
stockholders, result in a viable operation. There are several methods of food
preservation commercially available that compete directly or indirectly with the
Company's Conserver 21(TM). In order to market and sell Conserver 21(TM), the
Company will need to maintain a sales force with technical expertise in the food
preservation and food transportation industries. The success of the Company's
Principal Line of Business will depend on its ability to demonstrate the
commercial viability and effectiveness of Conserver 21(TM). The Company
currently has no orders for Conserver 21(TM) and there can be no assurance that
potential customers will be willing to incur the costs of Conserver 21(TM).
15
<PAGE>
Initial marketing efforts of the Conserver 21(TM) packets in the United
States have indicated that the Company needs to renegotiate the terms of its
Distribution Agreement with Agrotech and to improve the packaging of the
Conserver 21(TM) packets. The Company is currently in discussions with Agrotech
with a view to reduce the pricing arrangements regarding the Conserver 21(TM)
packets and to modify the manufacturing arrangements so that all packaging is
done in the United States. Management of the Company is currently in discussions
with a U.S.-based company that specializes in packaging products comparable to
Conserver 21(TM) packets. If the product were packaged in the United States,
Management believes that this cost reduction even if partially offset by an
increase in the royalty percentage to be paid to Agrotech would enable the
Company to competitively price the packets at a level that would be profitable
to the Company. There can be no assurance, however, that the Company will be
able to successfully renegotiate the Distribution Agreement on more favorable
terms or enter into a packaging arrangement with a third party to its
satisfaction. Under such circumstances the Company would have to shift its
initial marketing efforts and focus on the sale of the Conserver 21(TM) filters.
There can be no assurance that the Company would be able to successfully
implement this revised marketing strategy. Any sustained impairment of the
Company's ability to market Conserver 21(TM) could significantly delay or
materially impair the Company's ability to commercialize Conserver 21(TM).
In August 1997, the Company announced that it was considering
diversifying beyond its Principal Line of Business of marketing and distributing
Conserver 21(TM) and was exploring a possible New Line of Business in the hotel
and casino industry. The Company has entered into certain agreements regarding
the proposed New Business Opportunities. The New Line of Business and the New
Business Opportunities (including the issuance of shares of Common Stock of the
Company in connection therewith) are subject to receipt of requisite approval by
the Company's stockholders. (See "Subsequent Events" in this section and Note G
to the financial statements included in this report.)
In connection with the New Line of Business, and subject to the receipt
of requisite approval by the Company's stockholders, the Company has, as more
fully described herein, (i) entered into an agreement to acquire certain rights
to develop a hotel and casino project in Yuzhno-Sakhalinsk on the Sakhalin
Island of the Russian Federation (the "Sakhalin Project"), located 20 minutes by
air from Sapporo, Japan, (ii) entered into an agreement with Dato David Chiu to
provide certain development services with respect to the Sakhalin Project, (iii)
reached an agreement to manage certain hotels of Dorsett Hotels and Resorts
International, including hotels presently operating or being developed in the
United States, Bali, Australia, Canada, Cambodia, Malaysia and Thailand and (iv)
entered into several other related agreements, including the Surinam Project
(collectively, the "New Business Opportunities"). The foregoing agreements,
other than the agreement for the Surinam Project, if approved by the Company's
stockholders, would obligate the Company to pay approximately $6.75 million and
to provide for the issuance by the Company, under certain circumstances and
subject to the completion of certain terms and obligations thereunder, of up to
5,500,000 million shares of Common Stock and options to purchase 600,000 shares
of Common Stock. As of October 3, 1997, the Company entered into an agreement in
principle with Parbhoe Handelmij NV, a Surinamese limited liability, to create a
joint venture company to develop a casino project in Paramaribo, the capital
city of Surinam (the former Dutch Guyana). Pursuant to the agreement, the joint
venture company will also enter into an operating agreement with the Company to
manage the casino. If the Surinam Project is developed as contemplated, the
Company, subject to stockholder
16
<PAGE>
approval, is expected to provide the joint venture company with approximately
$3,000,000 in initial capital.
In addition to the direct issuance of shares of the Company's Common
Stock in connection with the proposed transactions, the Company anticipates
funding the cash portion of the initial capital required for the proposed New
Line of Business and New Business Opportunities with the proceeds from the
private offering of additional shares of Common Stock and/or other securities of
the Company. For further information, see Note F to the Company's financial
statements included in this report, which is incorporated herein by reference.
Changes in Fiscal Year
The Company initially adopted a fiscal year ending August 31, when it
incorporated on March 6, 1996. During the current calendar year, the Company
elected to change its fiscal year end to June 30. Accordingly, the following
discussion of the Company's results for the three months ended September 30,
1997 is compared to the three months ended August 31, 1996.
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
to September 30, 1997, the Company's activities were primarily limited to
organization efforts and raising public and private capital to defray its
organizational expenses and the development and initial implementation of its
business plan for its Principal Line of Business. From March 6, 1996 to June 30,
1997 the Company had no revenues. During the three months ended September 30,
1997 the Company had nominal revenues of $5,470. Since the first quarter of
fiscal 1998, the Company has also been involved in the development of its
proposed New Line of Business and New Business Opportunities.
Comparison of Three Months Ended September 30, 1997
to Three Months Ended August 31, 1996
Net Loss. The Company incurred a net loss of $1,407,225, or $0.21 per
share, for the three months September 30, 1997, as compared to a net loss of
$891,044, or $0.20 per share, for the three months ended August 31, 1996. This
increase was primarily due to increases in general and administrative expenses,
which were partially offset by a decrease in compensation charges in connection
with the issuance of options and warrants.
Revenues. For the three months ended September 30, 1997, the Company had
nominal revenues of $5,470 from the preliminary sales of its Conserver 21(TM)
products. During the three months ended August 31, 1996, the Company had no
revenues.
Compensation Charges. During the three months ended September 30, 1997,
non-cash compensation charges were $228,000 compared to $457,201 for the three
months ended August 31, 1996. This 50% decrease from the prior period was
primarily the result of a decrease in the Company's utilization of stock options
and warrants in lieu of cash compensation payments.
17
<PAGE>
General and Administrative Expenses. General and administrative
expenses, which include travel expenses, salaries and professional and
consulting fees, were $1,078,630 for the three months ended September 30, 1997
compared to $412,584 for the three months ended August 31, 1996. This 162%
increase was primarily the result of costs associated with increases in the
Company's business activities for its Principal Line of Business, additional
expenses incurred as a result of the Company's status as a publicly traded
entity and expenses incurred in exploring the New Line of Business and New
Business Opportunities.
Marketing and Sales. During the three months ended September 30, 1997,
the Company incurred $102,312 in marketing and sales expenses in connection with
its preliminary marketing and sales efforts for Conserver 21(TM). The Company
incurred no marketing and sales expenses for the three months ended August 31,
1996.
Research and Development. During the three months ended September 30,
1997, the Company incurred $34,027 in research and development expenses for
Conserver 21(TM) which consisted primarily of product testing for the Conserver
21(TM) products. The Company incurred no research and development expenses for
the three months ended August 31, 1996.
Interest Income. For the three months ended September 30, 1997 interest
income was $103,552, compared to $8,741 for the three months ended August 31,
1996. This increase was due to additional cash being available for investment
from the proceeds of the Offering.
Interest Expense. For the three months ended September 30, 1997,
interest expense was $12,950 compared to $30,000 for the three months ended
August 31, 1996. This decrease was the result of the repayment of certain
outstanding obligations by the Company from the proceeds of the Offering.
Income Taxes. For the three months ended September 30, 1997 and August
31, 1996, the Company, for tax purposes, did not have any operations or net
operating losses. The Company's expenses are pre-operating and therefore, will
be capitalized and amortized when operations commence.
Liquidity and Capital Resources
Since its date of incorporation through November 1996, the Company has
relied primarily upon privately raised debt and equity financing to fund its
operations and raised $3,172,000 through the private placement of its Common
Stock at $5.00 per share.
In June 1997, the Company completed an initial underwritten public
offering in which it received net proceeds of approximately $8,900,000 through
the sale of 2,200,000 shares of its Common Stock at a price of $5.00 per share.
Additional net proceeds of $1,448,000 were received by the Company in July 1997
as a result of the underwriter's exercise of its over-allotment option to
purchase an aggregate of 330,000 shares of Common Stock at $5.00 per share.
During the three months ended September 30, 1997, approximately
$1,761,000 were used for general purposes, including the initial $500,000
payment made under the Sakhalin Agreement in connection with the New Business
Opportunities and the retirement of convertible
18
<PAGE>
debentures outstanding in the amount of $385,000. At June 30, 1997,
approximately $2,130,000 of proceeds was used for general business purposes,
including the $1,000,000 loan to Agrotech under the Distribution Agreement and
the repayment of the $1,000,000 convertible debenture, together with accrued
interest thereon. The Company anticipates that the balance of the proceeds from
the Offering will be used for working capital and general business purposes and
general business purposes primarily in connection with its Conserver 21(TM)
business. On October 16, 1997, the Company made an additional payment under the
Sakhalin Agreement of $250,000.
At June 30, 1997 and at September 30, 1997, the Company had available
cash and cash equivalents of $7,715,460 and $7,402,482, respectively.
During the three months ended September 30, 1997, in connection with the
convertible debentures issued by the Company in September and November 1996 in
the aggregate principal amounts of $600,000 and $150,000, respectively, the
$150,000 debenture issued in November 1996 was repaid in full from the proceeds
of the Offering, and of the $600,000 debenture issued in September 1996,
$365,000 of such debenture was converted into Common Stock at $5.00 per share
and $235,000 was repaid from the proceeds of the Offering.
The Company's 1996 Stock Option Plan (the "Plan") was adopted in
November 1996, and amended in December 1996 and April 1997. 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 1,300,000 shares. During the three months ended September 30, 1997,
the Company issued to employees stock options under the Plan to purchase an
aggregate of 40,000 shares of Common Stock and to consultants stock options to
purchase 137,500 shares of Common Stock. As at September 30, 1997, options to
purchase 1,132,500 shares of Common Stock had been granted under the Plan.
During the three months ended September 30, 1997, the Company also issued to a
consultant 5,000 shares of Common Stock and issued to another consultant
currently exercisable warrants to purchase 100,000 shares of Common Stock at
$6.50 per share which expire in August 2001. Historically, the Company has used
Common Stock issuances and stock option grants and warrants to pay a significant
portion of its compensation expenses.
In August 1997, the Company made a $210,000 loan to D&M Investments,
Inc. ("D&M"), an unaffiliated party due September 24, 1997 and bearing interest
at 10% per annum. At June 30, 1997, D&M Investments held a $210,000 convertible
debenture issued by the Company. In connection with the loan, D&M pledged to the
Company the rights to the convertible debenture. On September 24, 1997, in lieu
of demanding payment on the loan, the Company elected to deduct amounts due
under the loan from the amounts payable by the Company under the debenture. In
connection with the above transaction, D&M Investments signed a lockup agreement
with respect to any securities of the Company that it holds.
In connection with the Company's Principal Line of Business, the
Distribution Agreement requires the Company to make loans to Agrotech of up to
$1,500,000 for the enhancement of Agrotech's manufacturing capacity. Under the
terms of the Distribution Agreement, the first $1,000,000 of such loan is
repayable over a three-year period as an offset against Conserver 21(TM)
purchases by the Company in excess of $2,000,000 annually and the balance of any
such loan is payable out of royalties which may be due to Agrotech from such
sales
19
<PAGE>
over a three- to four-year period. At September 30, 1997, the Company had
advanced Agrotech $1,000,000 under the terms of the Distribution Agreement. The
Company has established a reserve equal to the amount advanced to Agrotech.
Under the terms of the Distribution Agreement, the Company may be
obligated to extend an additional loan of $500,000 to Agrotech. Due to the
current renegotiations, the Company cannot determine at the present time whether
any additional loans, under the terms of the Distribution Agreement, will be
made or whether any offsets under the Distribution Agreement will be available.
During the three months ended September 30, 1997, the Company incurred
$102,312 and $34,027 in marketing and sales expenses and research and
development costs for Conserver 21(TM), respectively. Although the Company has
completed some initial testing of Conserver 21(TM), the Company has not
completed all of its own comprehensive independent tests. 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. During the fiscal year ending June 30, 1998, the Company
anticipates a significant increase in marketing and sale costs and research and
development costs for Conserver 21(TM), particularly if the Distribution
Agreement is renegotiated to the Company's satisfaction.
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 derived only nominal revenues
from operations and has incurred losses since inception. No significant
operating revenues are anticipated until such time, if ever, as the Company can
demonstrate the commercial viability of Conserver 21(TM). The Company currently
has nominal orders for Conserver 21(TM) and there can be no assurance that
potential customers will be willing to incur the costs of Conserver 21(TM).
There can be no assurance regarding whether or when the Company will
successfully implement its Conserver 21(TM) business plan or operate profitably.
The Company anticipates, particularly if the Distribution Agreement is
renegotiated to its satisfaction, that during the fiscal year ended June 30,
1998 it will enter the operating stage for its Conserver 21(TM) Principal Line
of Business and as a result will incur additional costs in connection with
inventory purchases, warehousing and shipping and hiring additional employees
and consultants. The Company currently estimates that its available cash
reserves will be sufficient to meet the Company's liquidity and working capital
requirements for its Principal Line of Business, including additional
expenditures for inventory purchase, hiring additional employees, consultants
and warehouse space through June 1999. The continued expansion and operation of
the Company's Principal Line of Business beyond such period may be dependent on
its ability to obtain additional financing.
The Company currently has eight employees. Should the Company commence
sales of Conserver 21(TM) and/or if the New Line of Business or the New Business
Opportunities are approved by its stockholders, management of the Company would
anticipate a significant increase in the number of employees and consultants
during the fiscal year ended June 30, 1998. Such possible increase in the number
of employees and consultants and the attendant costs cannot be estimated at this
time. Management does not anticipate, however, such workforce
20
<PAGE>
increases until such time the Company's Principal New Line of Business and/or
proposed New Line of Business have the potential to generate sufficient revenues
to offset such costs.
In the event the Company proceeds with its New Line of Business and the
New Business Opportunities, the Company would not utilize current cash reserves.
In addition to the direct issuance of shares of the Company's Common Stock, the
Company anticipates funding the cash portion of the initial capital required for
the proposed New Line of Business and New Business Opportunities with the
proceeds from the private sale of additional Common Stock and/or other
securities of the Company. Issuances of securities would be dilutive to
stockholders and any other types of financing would likely constrain the
Company's financial and operating flexibility. In the event the Company proceeds
with its New Line of Business and the New Business Opportunities, the Company
would be obligated to pay an aggregate of approximately $6.75 million under the
Sakhalin Agreement, the Hotel Management Agreement, the Development Services
Agreement and the Casino Consulting Agreement, and $3 million in connection with
the Surinam Project. In addition, under the Sakhalin Agreement and the Hotel
Management Agreement, the Company would also be required to issue, under certain
circumstances and subject to the completion of certain terms and obligations
thereunder, up to 5,500,000 shares of Common Stock and options to purchase
600,000 shares of Common Stock. The Company's stockholders will experience
significant dilution in their percentage ownership interest in the Company upon
the issuance of the shares of Common Stock as contemplated under the agreements
related to the New Line of Business and the New Business Opportunities.
In the event the Company's plans change, its assumptions prove to be
inaccurate or its available cash reserves together with the privately raised
funds prove to be insufficient to fund its 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. Except as disclosed herein
with respect to the New Line of Business and the New Business Opportunities, 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 obtain additional financing will depend upon, among other things, the
willingness of financial organizations to participate in the 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 the successful renegotiation of the Distribution
Agreement and many factors 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. There can be no assurance that
the Company will be able to generate significant revenues or achieve profitable
operations.
Subsequent Events
Stock Purchase Agreement. On October 24, 1997, the Company, SGTI and
Messrs. William Stephan Cairns and John Bryne Horgan, as directors of SGTI
entered into a stock
21
<PAGE>
purchase agreement (the "Stock Purchase Agreement") pursuant to which the
parties agreed, that they would pay to SGTI the remaining $2,500,000 of the
Purchase Price under the Sakhalin Agreement on or about October 31, 1997 or as
soon as practicable thereafter, and, subject to requisite approval of the
Company's stockholders, to transfer all of the capital stock of SGTI and SGTI's
rights in the Sakhalin Project to the Company and to issue 2,000,000 shares of
Common Stock of the Company to certain stockholders of SGTI and certain entities
having an interest in SGTI. Pursuant to the terms of the Stock Purchase
Agreement, the Company's obligation to purchase all of the shares of SGTI is
subject to certain conditions including, but not limited to, obtaining the
requisite approval of the Company's stockholders, customary representations and
warranties with respect to SGTI and SCC being true and correct on the date of
the purchase of the shares of SGTI, the valid assignment to the Company of all
of Sovereign's rights in the Sakhalin Project under each of the project
management agreement and operational management agreement, and the receipt of
all required consents and approvals.
Proposed Pledge Agreement. Brian J. Bryce, Jay M. Haft and James V.
Stanton, directors of the Company, and Jasmine Trustees Ltd., a trust for the
benefit of Mr. Bryce and his children, have agreed to enter into a pledge
agreement (the "Proposed Pledge Agreement") with the Company in connection with
the transactions contemplated by the Sakhalin Agreement. This matter was
approved by the Board of Directors at its meeting held on September 10, 1997. In
November 1997, it was agreed that the Proposed Pledge Agreement would provide
that in the event the proposal relating to the New Line of Business and New
Business Opportunities is not approved by the stockholders of the Company at the
Special Meeting of Stockholders, Messrs. Bruce, Haft and Stanton would jointly
reimburse the Company for the $750,000 paid by the Company under the Sakhalin
Agreement. As presently contemplated, these obligations would be secured by an
aggregate of 150,000 shares of Common Stock of the Company owned, either
directly or beneficially, by such directors.
Preliminary Proxy Statement. On November 13, 1997 the Company filed with
the Securities and Exchange Commission a preliminary proxy statement for a
Special Meeting of Stockholders (the "Special Meeting"). At the Special Meeting,
the Company's stockholders will be requested to: (i) approve a proposal
permitting the Company to enter into the New Line of Business in the hotel and
casino industry and the New Business Opportunities, and to authorize the
issuance of up to 5,500,000 shares of the Company's common stock $.001 par value
(the "Common Stock") and options to purchase 600,000 shares of Common Stock in
connection with the proposal; (ii) approve an amendment to the Company's
Certificate of Incorporation to change the Company's name from "Conserver
Corporation of America" to "CCA Companies Incorporated"; (iii) approve an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of the Company's Common Stock and preferred stock, $.01 par
value (the "Preferred Stock"); (iv) approve an amendment to the Company's 1996
Stock Option Plan to increase the number of Common Stock shares authorized for
issuance thereunder; and (v) take such other action as may properly come before
the Meeting or any adjournments thereof (the "Proxy Statement"). The preliminary
Proxy Statement is subject to the completion of a definitive Proxy Statement,
the timing of which no assurances can be given. The Company anticipates that the
Special Meeting will be held in December 1997.
Other
Certain statements in this Quarterly Report on Form 10-Q are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risks, uncertainties and other
factors that may cause the Company's actual results, performance or achievements
to be materially different form the results, performance or achievements
expressed or implied by the forward looking statement. Factors that impact such
forward looking statements include, among others, risk factors included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997.
22
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The following information is furnished pursuant to Item 701(f) of
Regulation S-K in connection with the Company's Offering:
The effective day of the Securities Act registration: June 5, 1997
The commission file number assigned to the subject registration
statement: 333-15639
The date on which the offering commenced: June 6, 1997
The date on which the offering terminated: June 13, 1997; the offering
terminated after all of the securities were sold.
The names of the sole underwriter(s): Janssen/Meyers Associates, L.P.
The title of securities registered: Common Stock, $0.001 par value
For each of securities registered, the amount registered: 2,530,000
shares (including underwriter's overallotment)
Aggregate price of the offering amount registered: $12,650,000
For each of securities, the amount sold: 2,530,000 shares (including
underwriter's overallotment)
Aggregate offering price of the amount of each securities sold:
$12,650,000
24
<PAGE>
From the effective date of the Securities Act registration statement to
the ending date of the reporting period, the amount of expenses incurred
for the Company's account in connection with the issuance and
distribution of the Securities registered: $2,302,000.
Underwriters discounts and commissions $1,075,250
Expenses paid to or for underwriter $ 561,750
Auditors Fees $ 85,000
Legal Fees $ 280,000
Printing Expenses $ 233,000
Miscellaneous Filing Fees and Other Expenses $ 67,000
Such payments referred to above were not direct or indirect payments to
officers, directors, general partners of the issuer or their associates,
affiliates of the issuer or any person owning 10% or more of any class
of equity securities of the issuer, nor were such payments referred to
above were direct or indirect payments to others, except as indicated
Net offering proceeds were: $10,348,000
From the effective date of the Securities Act registration to the end of
the reporting period the amount of net offering proceeds used for any
purpose for which at least 5% of the issuer's total offering proceeds,
whichever is less, has been used were:
Retirement of Convertible Debentures, together
with accrued interest thereon $1,583,000
Loan pursuant to Distribution Agreement $1,000,000
Payment under Sakhalin Agreement $ 500,000
Working Capital and General Business Purposes $ 808,000
Such payments referred to above were not direct or indirect payments to
officers, directors, general partners of the issuer or their associates,
affiliates of the issuer or any person owning 10% or more of any class
of equity securities of the issuer, nor were such payments referred to
above were direct or indirect payments to others, except as indicated
If the use of proceeds disclosed represents a material change in the use of
proceeds described in the prospectus, describe the material change: As of
the end of the reporting period $500,000 had been used in connection with
payments due under the Sakhalin Agreement. (See Note F to the Company's
financial statements included in this report.)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Documents
----------- ---------
10.1 Stock Purchase Agreement dated as
of October 24, 1997 among the
Company, SGTI, William Stephen
Cairns and John Byrne Horgan,
directors of SGTI.
27 Financial Data Schedule
(b) Reports on Form 8-K
A Report on Form 8-K was filed with the Securities and Exchange
Commission on September 18, 1997, noticing proposed financing plans
for the Sakhalin Project and international hotel management
opportunity.
25
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSERVER CORPORATION OF AMERICA
Dated: November 14, 1997 By: /s/ Charles H. Stein
------------------------------
Charles H. Stein
Chairman, Chief Executive
Officer and President
By: /s/ Miles R. Greenberg
------------------------------
Miles R. Greenberg
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001026671
<NAME> Conserver Corporation of America
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 7,402,482
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,703,455
<PP&E> 57,794
<DEPRECIATION> 3,658
<TOTAL-ASSETS> 8,257,591
<CURRENT-LIABILITIES> 741,523
<BONDS> 0
0
0
<COMMON> 6,794
<OTHER-SE> 7,509,274
<TOTAL-LIABILITY-AND-EQUITY> 8,257,591
<SALES> 5,470
<TOTAL-REVENUES> 5,470
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,442,969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,278
<INCOME-PRETAX> (1,407,255)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,407,255)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
Exhibit 10.1
STOCK PURCHASE AGREEMENT
CONSERVER CORPORATION OF AMERICA
and
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
and
WILLIAM STEPHEN CAIRNS
and
JOHN BYRNE HORGAN
Dated as of 24 October 1997
McFadden, Pilkington & Ward
City Tower - Level 4
40 Basinghall Street
London EC2V 5DE
<PAGE>
TABLE OF CONTENTS
Part Page
- ---- ----
Preamble............................................. 1
ARTICLE 1 - SALE AND PURCHASE OF SHARES.............. 2
1.1 SGTI Shares to be Acquired..................... 2
1.2 Conveyance of the SGTI Shares.................. 3
1.3 Resignations................................... 3
1.4 Default by SGTI................................ 3
ARTICLE 2 - CASH ADVANCES; PURCHASE PRICE............ 3
2.1 Cash Advances.................................. 3
2.2 Purchase Price................................. 4
2.3 Conveyance of the CCA Shares................... 4
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SGTI
AND THE DIRECTORS........................ 4
3.1 Organization, Power, Standing and Qualification 5
3.2 Corporate Power and Authority.................. 5
3.3 Validity of Contemplated Transactions.......... 5
3.4 Capitalization of SGTI......................... 6
3.5 Ownership of SGTI Shares....................... 6
3.6 SGTI's Subsidiary and Principal Business....... 7
3.7 The Subsidiary - SCC........................... 7
3.8 Financial Statements........................... 8
3.9 Title to Properties............................ 9
3.10 Absence of Undisclosed Liabilities............. 9
3.11 Certain Tax Matters............................ 10
3.12 Litigation; Compliance with Laws............... 10
3.13 Contracts...................................... 11
3.14 Other Transactions............................. 12
3.15 Bank Accounts.................................. 13
3.16 Compensation Arrangements...................... 13
3.17 Copies of Memorandum and Articles.............. 13
3.18 Condition of Tangible Assets................... 14
3.19 Directors and Officers......................... 14
3.20 Accounts Receivable............................ 14
3.21 No Changes..................................... 14
3.22 Number of Purchasers of CCA Shares............. 15
3.23 Veracity of Statements......................... 16
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF CCA.... 17
4.1 Organization and Good Standing................. 17
4.2 Corporate Power and Authority.................. 17
4.3 Conflict With Authority, Bylaws, etc........... 18
4.4 CCA Shares..................................... 18
ARTICLE 5 - ACTIVITIES PRIOR TO THE CLOSING DATE BY
SGTI..................................... 18
5.1 Operation of Business.......................... 18
5.2 Access to Information.......................... 20
<PAGE>
Part Page
- ---- ----
ARTICLE 6 - CONDITIONS PRECEDENT TO THE CLOSING...... 21
6.1 Obligation of CCA to Close..................... 21
6.1.1 Shareholder Approval.................... 21
6.1.2 Action of SGTI Directors................ 21
6.1.3 Representations and Warranties;
Compliance with Agreement............... 22
6.1.4 Assignment of Sovereign Agreements...... 22
6.1.5 Opinion of Cyprus Counsel............... 22
6.1.6 Opinion of Russian Counsel.............. 22
6.1.7 Litigation Affecting Closing............ 23
6.1.8 Required Consents....................... 23
6.1.9 No Material Damage to Business.......... 23
6.1.10 Approval of Counsel; Corporate Matters.. 24
6.1.11 Other Documents......................... 24
6.2 Obligation of the Shareholders to Close........ 24
6.2.1 Representations and Warranties.......... 24
6.2.2 Litigation Affecting Closing............ 25
ARTICLE 7 - THE CLOSING.............................. 25
7.1 Time and Place................................. 25
7.2 Conduct of Closing............................. 25
ARTICLE 8 - CONDUCT OF THE PARTIES AFTER CLOSING..... 26
ARTICLE 9 - SURVIVAL OF REPRESENTATIONS, WARRANTIES,
GUARANTEES, AND COVENANTS................ 27
9.1 Date Certain For Survival...................... 27
ARTICLE 10 - INDEMNIFICATION......................... 27
10.1 By the Directors............................... 27
10.2 By CCA......................................... 28
10.3 Limitation of Indemnity........................ 28
10.4 Notice; Proceedings............................ 29
10.5 Money Damages.................................. 31
ARTICLE 11 - BROKERAGE; EXPENSES..................... 31
11.1 Brokerage...................................... 31
11.2 Expenses....................................... 32
ARTICLE 12 - TAXES................................... 32
ARTICLE 13 - ARBITRATION............................. 32
13.1 ICC Rules...................................... 32
13.2 Arbitrators.................................... 33
<PAGE>
Part Page
- ---- ----
ARTICLE 14 - TERMINATION............................. 33
14.1 Events of Termination.......................... 33
14.2 Consequences of Termination.................... 34
ARTICLE 15 - GENERAL................................. 34
15.1 Entire Agreement; Amendments................... 34
15.2 Headings....................................... 35
15.3 Gender; Number................................. 35
15.4 Exhibits and Schedules......................... 35
15.5 Notices........................................ 35
15.6 Waiver......................................... 37
15.7 Assignment..................................... 37
15.8 Successors and Assigns......................... 37
15.9 Governing Law.................................. 37
15.10 No Benefit to Others........................... 38
15.11 Publicity...................................... 38
15.12 Counterparts................................... 38
SCHEDULES
- ---------
1.2 Registered Shareholders of SGTI
2.3 Allocation to the Subcribers of Shares in CCA
3.7.2 Shareholders of SCC
3.9 SGTI Properties
3.15 Bank Accounts
3.17 SGTI and SCC Company Documents
3.19 SCC Directors and Officers
3.23 Documents Provided to CCA
13.1 Arbitration Agreement
EXHIBITS
- --------
1.2A Share Transfer Form
1.2B Share Transfer Form
2.3 Subscription Agreement
6.1.2 Minutes of the Board of Directors of SGTI
<PAGE>
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (the "Agreement") dated as of 24th October 1997
among (i) CONSERVER CORPORATION OF AMERICA, a corporation organized under the
laws of the State of Delaware having its principal place of business at Suite
405, 3250 Mary Street, Coconut Grove, Florida 33133, U.S.A. ("CCA"), (ii)
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED, a limited liability company
organized under the laws of Cyprus whose legal office is at Doma Building, 227
Archbishop Markarios III Avenue, Limassol, Cyprus ("SGTI"), (iii) WILLIAM
STEPHEN CAIRNS, a British subject having his principal residence at Key West,
Doyle Road, St. Peter Port, Guernsey, Channel Islands GY1 1RG ("Mr. Cairns") and
a Director of SGTI, and (iv) JOHN BYRNE HORGAN, an Australian citizen having his
principal residence at Vasse Highway, Pemberton, Western Australia 6260 and a
Director of SGTI ("Mr. Horgan"; Messrs. Cairns and Horgan being together called
the "Directors").
PREAMBLE
WHEREAS, CCA, SGTI and Sovereign Gaming and Leisure Limited, a Cypriot limited
liability company ("Sovereign"), entered into an agreement dated 12th August
1997, which was amended in writing on 9th September 1997, by the terms of which
(i) SGTI agreed, subject to certain terms and conditions, to transfer the whole
of its share capital to CCA and (ii) SGTI and Sovereign agreed, subject to
certain terms and conditions, to transfer to CCA all of their rights and
interest in the hotel, casino, retail, commercial and residential project that
is to be established in Yuzhno-Sakhalinsk, Russia, by Sakhalin City Centre,
Limited ("SCC", which is described in Section 3.6 below) in collaboration with
the Sakhalin Oblast and the City of Yuzhno-Sakhalinsk (the "Sakhalin Project");
WHEREAS, the said terms and conditions either have been satisfied or will be
satisfied simultaneously with the performance of this Agreement; and
WHEREAS, CCA, SGTI and the Directors have therefore agreed to complete the sale
and transfer by the shareholders of SGTI of all of the share capital of SGTI to
CCA and wish to set forth the terms and conditions of that agreement in writing;
NOW, THEREFORE, in consideration of the foregoing and of the mutual promises,
covenants, representations, warranties, and agreements herein contained, and
intending to be legally bound, CCA, SGTI and the Directors hereby agree as
follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 SGTI Shares to be Acquired Subject to the terms and conditions
contained herein, SGTI and the Directors agree that all of the shareholders of
SGTI shall, on the Closing Date (as defined in Section 7.1), sell, assign,
transfer and deliver to CCA, free and clear of all pledges, liens, security
interests, encumbrances or other restrictions, and CCA shall purchase from the
shareholders of SGTI, all of the outstanding share capital of SGTI (the "SGTI
Shares") for an aggregate purchase price as set forth in Article 2 hereof. It is
understood and agreed that CCA's obligation to purchase any of the SGTI Shares
is conditioned upon all of the SGTI Shares being tendered to it, and CCA shall
have no obligation to purchase any of the SGTI Shares or otherwise to comply
with its obligations hereunder if fewer than all of the SGTI Shares are tendered
to it on the Closing Date, provided, however, that CCA shall have the right to
acquire fewer than all of the SGTI Shares if it so elects.
<PAGE>
1.2 Conveyance of the SGTI Shares SGTI and the Directors agree to arrange
for the registered shareholders of SGTI, as named on Schedule 1.2 attached
hereto (the "Shareholders"), to deliver to CCA on the Closing Date the stock
certificates evidencing the SGTI Shares, together with stock transfer forms in
substantially the form of Exhibits 1.2A and 1.2B attached hereto ("Share
Transfer Forms"), duly executed by each Shareholder in favour of CCA, in order
to effect a transfer of such Shareholder's SGTI Shares to CCA.
1.3 Resignations The Directors shall resign as directors of SGTI effective
as of the Closing Date, and SGTI will make their written resignations available
to CCA at the Closing. SGTI shall cause the nominees of CCA to be elected as
directors of SGTI by the resigning directors, effective as of the Closing Date,
in accordance with the Memorandum and Articles of SGTI.
1.4 Default by SGTI SGTI and the Directors acknowledge that the SGTI Shares
are unique and otherwise not available and agree that, in addition to any other
remedies, CCA may invoke any equitable remedies to enforce performance
hereunder, including an action or suit for specific performance.
ARTICLE 2
CASH ADVANCES; PURCHASE PRICE
2.1 Cash Advances CCA agrees to make cash advances to SGTI as follows:
2.1.1 Five Hundred Thousand U.S. Dollars ($500,000), which amount SGTI
acknowledges was paid to it on 15th August 1997;
2.1.2 Two Million Five Hundred Thousand U.S. Dollars ($2,500,000), to
be paid in accordance with SGTI's instructions on or about 31st October 1997 or
as soon as practicable thereafter.
2.2 Purchase Price The total purchase price to be paid by CCA for the SGTI
Shares (the "Purchase Price") shall be a total of two million (2,000,000) shares
of CCA common stock, par value $.001 per share (such two million shares being
referred to herein as the "CCA Shares"), which shall be subject to a lock-up
period of one year from the Closing Date, in accordance with the provisions of
the Subscription Agreements referred to in Section 2.3.
2.3 Conveyance of the CCA Shares SGTI instructs CCA to issue the share
certificates representing the CCA Shares in the names of the persons and
entities named on Schedule 2.3 ("Subscribers"), each Subscriber to receive the
number of CCA Shares indicated opposite his, her or its name on Schedule 2.3,
and to deliver the CCA Shares to the Subscribers (or to their designated
representatives on their behalf) on the Closing Date. SGTI and the Directors
agree to arrange for each of the Subscribers to execute and deliver to CCA on
the Closing Date a Subscription Agreement in substantially the form of Exhibit
2.3 attached hereto ("Subscription Agreement").
2
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF SGTI AND THE DIRECTORS
SGTI and each of the Directors, jointly, severally and (in the case of the
Directors) personally, represent and warrant and, where applicable, covenant as
follows:
3.1 Organization, Power, Standing and Qualification SGTI is a company
limited by shares duly organized, validly existing, and in good standing under
the laws of the Republic of Cyprus and has full corporate power and authority to
carry on its business as it is now being conducted and to own and operate, as
applicable, the properties and assets now owned and operated by it. The only
jurisdictions in which SGTI carries on business or owns property or assets are
the Republic of Cyprus and the Russian Federation, and SGTI is duly qualified to
do business and is in good standing in each of these jurisdictions to the extent
required by applicable law and/or to the extent that the failure to qualify or
to be in good standing would have a material adverse effect upon its financial
condition, the conduct of its business or the ownership of its property and
assets.
3.2 Corporate Power and Authority SGTI has the corporate power and
authority to execute, deliver and perform this Agreement. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of SGTI, and this Agreement is a valid and binding
obligation of SGTI, enforceable against SGTI in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditors generally.
3.3 Validity of Contemplated Transactions The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby do not and will not as at the Closing Date contravene any
provision of the Memorandum and Articles of Association of SGTI; or violate, be
in conflict with, or constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing, validity, or
effectiveness of any agreement, contract, indenture, lease, or mortgage, or
subject any property or asset of SGTI to any indenture, mortgage, contract,
commitment or agreement, other than this Agreement, to which SGTI is a party or
by which SGTI or any of its assets is bound; or violate any provision of law,
rule, regulation, order, permit, or license to which SGTI is subject.
3.4 Capitalization of SGTI The authorized share capital of SGTI is Two
Hundred Seventy-Nine Thousand Six Hundred Fifty-Five Cypriot Pounds (C(pound)
279,655) consisting of Two Hundred Seventy-Nine Thousand Six Hundred Fifty-Five
(279,655) authorized ordinary shares, par value One Cypriot Pound (C(pound)1.00)
each, of which Two Hundred Twenty-Nine Thousand Six Hundred Fifty-Five (229,655)
ordinary shares are presently outstanding, validly issued, fully paid and
non-assessable. SGTI has no other classes of shares besides its ordinary shares.
There are no outstanding options, warrants, conversion privileges, subscription,
calls, commitments or rights of any character relating to the SGTI Shares or any
authorized but unissued capital shares of SGTI.
3.5 Ownership of SGTI Shares The persons and entities named on Schedule 1.2
are all of the registered shareholders of SGTI and the number of shares
indicated opposite the name of each Shareholder on Schedule 1.2 is the exact
number of ordinary shares of SGTI held by such Shareholder. The Shareholders
collectively hold all legal ownership of and title to the SGTI Shares, in the
respective amounts set forth in Schedule 1.2, free and clear of any liens,
security interests, restrictions or encumbrances of any kind whatsoever. The
Subscribers are, or they represent, the beneficial owners of the share capital
of SGTI in proportion to the numbers of CCA Shares specified opposite their
names on Schedule 2.3.
3
<PAGE>
3.6 SGTI's Subsidiary and Principal Business SGTI is the registered and
beneficial owner of Six Thousand Five Hundred (6500) ordinary shares, nominal
value One Thousand Russian Rubles (RUR 1,000) each, in the charter capital of
Closed Joint Stock Company "Sakhalin City Centre, Limited" ("SCC" or the
"Subsidiary"), a company established under the laws of the Russian Federation
having its registered office at 32 Kommunistichesky Prospect, Office 452, 693000
Yuzhno-Sakhalinsk, in the Sakhalin Oblast of the Russian Federation. SGTI's
shareholding constitutes sixty-five per cent (65%) of the total charter capital
of SCC. The principal and only business of SGTI is to act as a holding company
for the registered and beneficial ownership of such shares in SCC. SCC is the
only company wholly or partially owned by SGTI. As such, the "ordinary course of
business" of SGTI, as used in this Agreement, consists of, and only of, the
management and supervision of the financing and operations of SCC and fulfilling
the administrative requirements of a Cyprus limited liability company.
3.7 The Subsidiary - SCC
3.7.1 SCC is a closed joint stock company having limited liability
that is duly organized, validly existing and in good standing under the laws of
the Russian Federation, which has all requisite corporate power and authority to
conduct its business as it has been and is now being conducted, and to own,
lease and operate the properties and assets used in connection therewith, and
which is duly qualified to do business in and is in good standing in each
jurisdiction wherein the conduct of its business or the ownership or leasing of
its properties and assets requires such qualification.
3.7.2 The chartered capital of SCC is Ten Million Russian Rubles (RUR
10,000,000) divided into ten thousand (10,000) ordinary shares, nominal value
One Thousand Russian Rubles (RUR 1,000) each. The shareholders of SCC are listed
on Schedule 3.7.2. The shares in SCC owned by SGTI are owned of record and
beneficially by SGTI, free and clear of all pledges, liens, claims and
encumbrances of every kind, including, without limitation, any agreements,
subscriptions, options, warrants, calls, commitments or rights of any character
granting to any person, firm, corporation or other entity any interest in or
right to acquire from SGTI, at any time, or upon the happening of any event, any
of its shares of the issued and outstanding capital stock of the Subsidiary.
3.7.3 All of the shares in SCC owned by SGTI have been duly authorized
and are validly issued, fully paid and non-assessable.
3.7.4 There are no existing agreements, subscriptions, options,
warrants, calls, commitments or rights of any character to purchase or otherwise
acquire from the Subsidiary at any time, or upon the happening of any event, any
shares of the capital stock of the Subsidiary, whether or not presently issued
or outstanding; no outstanding securities of the Subsidiary which are
convertible into shares of such Subsidiary; and no agreements, subscriptions,
options, warrants, calls, commitments or rights to purchase or otherwise acquire
from the Subsidiary any such securities so convertible.
3.8 Financial Statements SGTI has delivered to CCA the audited financial
statements for the entire existence of SGTI since its incorporation on 28th
September 1994 through 30th September 1997, consisting of a consolidated balance
sheet of SGTI as at 31st March 1995, 31st March 1996, 31st March 1997 and 30th
September 1997 (30th September 1997 being defined as the "Financial Statement
Date"), together with a consolidated income statement and statement of changes
in financial condition of SGTI for each of the periods then ended (such balance
sheets, income statements and statements of change in financial condition being
referred to herein collectively as the "Financial Statements"). Each of such
Financial Statements has been reported on and certified by P.G. Economides & Co,
independent Certified Public Accountants (Cyprus). The Financial Statements are
in accordance with the applicable books and records of SGTI and have been
prepared in accordance with the Company Law, Cap. 113, of Cyprus and in
conformity with generally accepted accounting principles, consistently applied
during the relevant period, and present fairly the financial condition of SGTI
and the results of their operations for the respective periods ended on such
dates.
4
<PAGE>
3.9 Title to Properties All of SGTI's and the Subsidiary's material
properties and assets, real, personal and mixed, including all of the properties
and assets reflected on the balance sheet which is part of the Financial
Statements and those acquired since the Financial Statement Date, are listed on
Schedule 3.9 hereto, and except as set forth in Schedule 3.9, SGTI has good,
valid and marketable title to all such properties and assets, free and clear of
all mortgages, liens, pledges, security interests and other encumbrances.
3.10 Absence of Undisclosed Liabilities Neither SGTI nor the Subsidiary has
any liabilities or obligations except for (i) those reflected or reserved
against (which reserves the Directors represent are adequate) in the Financial
Statements and (ii) those which are specifically disclosed in this Agreement.
Neither SGTI nor the Directors know or have any reasonable grounds to know of
any basis for the assertion against SGTI or the Subsidiary as of the Financial
Statement Date of any liability of any nature or in any amount that is not fully
reflected or reserved against in SGTI's balance sheet as of such date or as
disclosed by this Agreement. For the purposes of this Agreement, the term
"liabilities or obligations" shall include any direct or indirect indebtedness,
claim, loss, damage, deficiency (including deferred income tax and other net tax
deficiencies), cost, expense, obligation, guarantee, or responsibility, whether
accrued, absolute, or contingent, known or unknown, fixed or unfixed, liquidated
or unliquidated, secured or unsecured.
3.11 Certain Tax Matters SGTI and the Subsidiary have each duly filed all
tax returns and reports required to be filed by it and all taxes, including
income, gross receipt, value added and other taxes and any penalties with
respect thereto, due and payable, have been paid, withheld, or reserved for or,
to the extent that they relate to periods on or prior to the Financial Statement
Date, are reflected as a liability on the Financial Statements. SGTI and the
Subsidiary have caused to be delivered to CCA correct and complete copies of
such income tax returns for the periods covered by the Financial Statements.
Neither SGTI nor the Subsidiary has entered into any agreements for the
extension of time for the assessment of any tax or tax delinquency, has received
any outstanding or unresolved notices from any taxing body of any proposed
examination or of any proposed deficiency or assessment, and each of them has
properly withheld all amounts required by law to be withheld for income or other
taxes and relating to its employees and remitted such withheld amounts to the
appropriate taxing authority.
3.12 Litigation; Compliance with Laws There is (a) no suit, action, claim,
arbitration, administrative or legal or other proceeding, or governmental
investigation pending or, to SGTI's or the Directors' knowledge, threatened
against or related to SGTI or the Subsidiary, nor (b) any failure to comply
with, nor any default under, any law, ordinance, requirement, regulation, or
order applicable to SGTI or the Subsidiary, nor (c) any violation of or default
with respect to any order, writ, injunction, judgment, or decree of any court or
governmental department, official, commission, authority, board, bureau, agency,
or other instrumentality issued or pending against SGTI or the Subsidiary, any
of which might have a material, adverse effect on the financial condition,
business, results of operations, properties, or assets of SGTI or the Subsidiary
(as the case may be) or CCA's purchase or ownership of the SGTI Shares. SGTI and
the Subsidiary have obtained all permits, licenses, and other required
authorization for the complete operation of its business as presently operated.
All such permits, licenses, and authorizations are presently valid and in full
force and no renovation, cancellation, or withdrawal thereof has been effected
or, to SGTI's or the Directors' individual knowledge, threatened. The execution
of this Agreement and the performance of the transactions contemplated hereby
will not change in any respect, or result in the termination of, any such
permits, licenses, certificates, or authorizations. There have been no illegal
payments, kickbacks, bribes or political contributions made by, on behalf of, or
for the benefit of, SGTI or the Subsidiary.
3.13 Contracts Except for the contracts, agreements, commitments, leases,
and other indentures listed in Schedule 3.13, copies of which have been made
available to CCA, neither SGTI nor the Subsidiary is a party to:
3.13.1 any written or oral contract, agreement, lease or commitment of
any kind (including, without limitation, mortgages, contracts for the future
purchase and delivery of goods or rendition of services, or government
contracts), which provides for the payment from or to it of One Thousand U.S.
Dollars ($1,000) or more after the date hereof and such contracts, agreements
and commitments do not, in the aggregate, provide for a payment from or to it of
Three Thousand U.S. Dollars ($3,000) or more after the date hereof;
5
<PAGE>
3.13.2 any written or oral (i) contract, agreement or commitment for
the employment of any officer or individual employee, (ii) profit sharing,
bonus, commission, stock option, pension, vacation pay, employee's insurance,
retirement plan or agreement, or other welfare plans or agreements, (iii)
agreement or indenture relating to the borrowing of money or to the mortgaging,
pledging or otherwise placing of a lien on its assets, (iv) lease or agreement
under which it is lessee of or holds or operates any material property, real or
personal, owned by any other party, or (v) lease or agreement under which it is
lessor of, or permits any third party to hold or operate, any material property,
real or personal, owned by it.
SGTI and the Subsidiary have each in all material respects performed all the
material obligations required to be performed by it to date, and is not in
material default under any such material contract, agreement, commitment, lease,
or indenture, nor has an event occurred which with the passage of time or giving
of notice or both will result in the occurrence of a material default by SGTI or
the Subsidiary (as the case may be) under any of the aforesaid documents.
3.14 Other Transactions Each of SGTI and the Subsidiary has not, since the
Financial Statement Date, (a) operated its business except in the ordinary
course, (b) incurred any debts, liabilities or obligations, (c) discharged or
satisfied any material liens or encumbrances, or paid any material liens or
encumbrances, or paid any material debts, liabilities or obligations, (d)
mortgaged, pledged or subjected to lien or other encumbrance any of its assets,
tangible or intangible, (e) sold or transferred any of its tangible assets or
cancelled any material debts or claims, or (f) suffered any material
extraordinary losses or waived any rights of substantial value.
3.15 Bank Accounts Schedule 3.15 hereto lists the names and addresses of
every bank and other financial institution in which SGTI or the Subsidiary
maintains an account (whether checking, savings or otherwise), lock box or safe
deposit box, and the account numbers and names of persons having signing
authority or other access thereto.
3.16 Compensation Arrangements Except as reflected in the Financial
Statements, the aggregate annual compensation paid or to be paid to all of the
directors, officers or employees of SGTI or the Subsidiary, the value of any
accrued sick leave or vacation and any bonus or similar arrangement with any of
them does not exceed US$50,000.
3.17. Copies of Memorandum and Articles The copies of SGTI's Memorandum and
Articles of Association and of SCC's Charter (certified by an appropriate
official in the respective jurisdictions of incorporation) and internal
constituent documents, such as by-laws (certified by the Secretaries of the
respective entities), which have been delivered to CCA, are correct and are in
effect as at the date of this Agreement and will be in effect on the Closing
Date. There are no other material books and records of SGTI or the Subsidiary.
All such books and records of SGTI and the Subsidiary, including those set forth
in Schedule 3.17, have been regularly and properly kept and are complete,
accurate and legally sufficient under applicable law.
6
<PAGE>
3.18 Condition of Tangible Assets All material tangible portions of the
property, including the real property and structures thereon, of SGTI and the
Subsidiary are in good operating condition and the operation and use of such
property in SGTI's and the Subsidiary's respective businesses conform in all
material respects to all applicable laws, ordinances, regulations, permits,
licenses and certificates that are material to the business and operations of
SGTI or the Subsidiary, as the case may be.
3.19 Directors and Officers Mr. Cairns and Mr. Horgan are both directors of
SGTI, each has been duly elected as such, and they are the only directors of
SGTI. Schedule 3.19 is a true and complete list as of the date of this Agreement
showing the names of each of the Subsidiary's directors and officers, each of
whom has been duly elected or appointed in accordance with applicable law.
3.20 Accounts Receivable Neither SGTI nor the Subsidiary has any accounts
receivable.
3.21 No Changes Since the Financial Statement Date, other than in the
ordinary course of business, there has not been:
3.21.1 any change in the financial or other condition, assets,
liabilities or business of SGTI or the Subsidiary;
3.21.2 any damage, destruction or loss (whether or not covered by
insurance) or any condemnation by governmental authorities which has or may
materially adversely affect the business, prospects or any property of SGTI or
the Subsidiary;
3.21.3 any strike, lockout, labor trouble or any event or condition of
any similar character materially adversely affecting the business or prospects
of SGTI or the Subsidiary;
3.21.4 any declaration, setting aside or payment of any dividend or
other distribution in respect of any of SGTI's or the Subsidiary's shares of
stock, or any direct or indirect redemption, purchase or other acquisition of
any such shares; or
3.21.5 any increase in the compensation payable or to become payable
by SGTI or the Subsidiary to any of its or their officers, employees or agents,
or any known payment or arrangement made to or with any thereof.
3.22 Number of Purchasers of CCA Shares There are no more than thirty-five
(35) "purchasers" of the CCA Shares under this Agreement. For purposes of
calculating the number of purchasers (including the Subscribers and perhaps
certain other persons and entities), the following shall apply:
7
<PAGE>
3.22.1 The following purchasers shall be excluded: (i) any relative,
spouse or relative of the spouse of a purchaser who has the same principal
residence as the purchaser; (ii) any trust or estate in which a purchaser or any
of the persons related to him or her as specified in clause (i) or (iii) of this
Section 3.22.1 collectively have more than fifty per cent (50%) of the
beneficial interest (excluding contingent interests); (iii) any corporation or
other organization of which a purchaser or any of the persons related to him or
her as specified in clause (i) or (ii) of this Section 3.22.1 collectively are
beneficial owners of more than fifty per cent (50%) of the CCA Shares; and (iv)
any "accredited investor" (as defined in the Subscription Agreement).
3.22.2 A corporation, partnership or other entity shall be counted as
one purchaser. If, however, that entity is organized for the specific purpose of
acquiring CCA Shares and it is not an "accredited investor" (as defined in the
Subscription Agreement), then each beneficial owner of CCA Shares shall count as
a separate purchaser, except as provided in Section 3.22.1.
3.23 Veracity of Statements No representation or warranty by SGTI or the
Directors contained in this Agreement and no statement contained in any
certificate, schedule, instrument or other document furnished to CCA pursuant
hereto or in connection with the transactions contemplated hereby, contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
with respect to SGTI, the Subsidiary and their affairs. Schedule 3.23 is a list
of all such certificates, schedules, instruments and documents provided to CCA
to date, and this warranty is limited to the representations and statements made
in this Agreement, in the documents to be delivered to CCA in accordance with
Articles 6 and 7 hereof and in the certificates, schedules, instruments and
documents described on Schedule 3.23, provided that, if any additional
certificates, schedules, instruments or documents are provided to CCA after the
date of this Agreement, any party hereto may add such certificates, schedules,
instruments and documents to the coverage of this warranty by written notice to
the other parties. The Directors are not aware of any other information with
respect to SGTI, the Subsidiary and their affairs that a reasonable investor
would consider important in making a decision to acquire the SGTI Shares.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CCA
CCA hereby represents and warrants to SGTI, the Directors and the
Shareholders as follows:
4.1 Organization and Good Standing CCA is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware,
United States of America, and it has full corporate power and authority to carry
on its business as it is now being conducted and to own and operate, as
applicable, the properties and assets now owned and operated by it. CCA is duly
qualified to do business and is in good standing in each and every jurisdiction
where the failure to qualify or to be in good standing would have a material
adverse effect upon its financial condition, the conduct of its business or the
ownership of its property and assets.
8
<PAGE>
4.2 Corporate Power and Authority CCA has full corporate power and
authority to enter into this Agreement and to perform all of CCA's covenants and
undertakings herein set forth, including without limitation the full corporate
power and authority to purchase and take title to the SGTI Shares upon the terms
and conditions set forth herein; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of CCA; and this
Agreement is a valid and binding obligation of CCA, enforceable in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the rights of
creditors generally.
4.3 Conflict With Authority, Bylaws, etc . Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby in the manner herein provided will (i) contravene any provision of the
Certificate of Incorporation or Bylaws of CCA; (ii) violate, be in conflict
with, constitute a default under, cause the acceleration of any payments
pursuant to, or otherwise impair the good standing, validity, and effectiveness
of any lease, license, permit, authorization, or approval applicable to CCA; or
(iii) violate any provision of law, rule, regulation, order, or permit to which
CCA is subject.
4.4 CCA Shares All of the CCA Shares shall be, on the Closing Date, validly
issued, fully paid and non-assessable.
ARTICLE 5
ACTIVITIES PRIOR TO THE CLOSING DATE BY SGTI
5.1 Operation of Business SGTI hereby agrees that from and after the date
hereof to the Closing Date, except as otherwise contemplated by this Agreement,
SGTI shall, and it shall cause the Subsidiary to, conduct its business solely in
the ordinary course and SGTI and the Subsidiary shall:
5.1.1 not amend SGTI's Memorandum and Articles of Association or the
Subsidiary's Charter or other constituent documents except as may be necessary
to carry out this Agreement or as required by law;
5.1.2 not change its corporate name or permit the use thereof by any
other company;
5.1.3 not pay or agree to pay to any employee, officer, or director of
SGTI or the Subsidiary, without the consent of CCA, compensation that is in
excess of the current compensation level of such employee, officer, or director;
5.1.4 not make any changes in the management of SGTI or the Subsidiary
without the consent of CCA;
5.1.5 not merge or consolidate itself or the Subsidiary with any other
company or allow it to acquire or agree to acquire or be acquired by any
corporation, association, partnership, joint venture, or other entity;
5.1.6 not sell, transfer, or otherwise dispose of any of its or the
Subsidiary's assets without the prior written consent of CCA;
9
<PAGE>
5.1.7 not, nor allow the Subsidiary to, create, incur, assume, or
guarantee any indebtedness for money borrowed; create or suffer to exist any
mortgage, lien, or other encumbrance on any of its properties or assets, real or
personal, except those in existence on the date hereof; or increase the amount
of any indebtedness outstanding under any loan agreement, mortgage, or other
borrowing arrangement in existence on the date hereof; provided that SGTI may
make a loan advance to SCC in an amount not exceeding Two Million Five Hundred
Thousand U.S. Dollars ($2,500,000) during the period from the date of this
Agreement up to the Closing Date on terms acceptable to CCA;
5.1.8 pay when due, and in any event within thirty (30) days from the
date of invoice (unless other payment terms are expressly set forth thereon),
all accounts payable and trade obligations of SGTI and the Subsidiary;
5.1.9 maintain the facilities, assets, and properties of SGTI and the
Subsidiary in good operating repair, order, and condition, reasonable wear and
tear excepted, and notify CCA immediately upon any loss of, damage to, or
destruction of any of the assets of SGTI or the Subsidiary;
5.1.10 maintain in full force and effect all agreements, contracts,
leases, licenses, permits, authorizations, and approvals necessary for or
related to the operation of the business of SGTI and the Subsidiary in all
respects and in all places as such business is now conducted;
5.1.11 use their best efforts to preserve SGTI's and the Subsidiary's
business organization intact, to keep available the services of its present
employees and to preserve the good will of those having business relations with
it;
5.1.12 promptly advise CCA in writing of the commencement of, and of
any known threat to commence any, suit, claim, action, arbitration, legal or
administrative proceeding, governmental investigation, or tax audit against SGTI
or the Subsidiary; and
5.1.13 deliver to CCA as soon as available any monthly financial
statements ("Monthly Financial Statements") of SGTI and the Subsidiary
commencing with the month of October 1997 and for each calendar month thereafter
prior to the Closing Date.
5.2 Access to Information SGTI and the Directors will cooperate fully with
CCA and shall provide CCA and its accountants, legal advisers, and other
representatives, during normal business hours, full access to the books,
records, equipment, real estate, contracts, and other assets of SGTI and the
Subsidiary, and full opportunity to discuss SGTI's and the Subsidiary's
business, affairs, and assets with its officers, employees, and independent
accountants, and furnish to CCA and its representatives copies of such
documents, records, and information with respect to the affairs of SGTI and the
Subsidiary as CCA or its representatives may reasonably request. In addition to
the foregoing right of access and information, CCA may designate on-site
observers of the business and operations of SGTI and the Subsidiary, which
observers shall be permitted such access to SGTI's and the Subsidiary's business
and operations as CCA may reasonably request and shall be fully informed by SGTI
and the Subsidiary concerning all of their assets, operation, and business
affairs.
10
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSING
6.1 Obligation of CCA to Close The obligation of CCA to consummate the
purchase of the SGTI Shares on the Closing Date shall be subject to the
satisfaction or the waiver by CCA of the following conditions on or prior to the
Closing Date:
6.1.1 Shareholder Approval The shareholders of CCA shall have approved
the consummation of the transactions contemplated by this Agreement.
6.1.2 Action of SGTI Directors The Directors shall have approved a
resolution substantially in the form of Exhibit 6.1.2, approving the necessary
actions for the transfer of the SGTI Shares to CCA, and delivered a certified
copy of such resolution to CCA on the Closing Date.
6.1.3 Representations and Warranties; Compliance with Agreement The
representations and warranties of SGTI and the Directors set forth in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date, and they shall
have performed all covenants and agreements to be performed by them under this
Agreement on or prior to the Closing Date, and SGTI shall have delivered to CCA
certificates to such effect dated the Closing Date signed on behalf of SGTI by
its Directors and by the Directors in their individual capacity, which
certificates shall be in form and substance satisfactory to CCA's counsel. The
representations and warranties of the Shareholders in the Share Transfer Forms
and of the Subscribers in the Subscription Agreements shall be true and correct
as of the Closing Date.
6.1.4 Assignment of Sovereign Agreements Sovereign shall have executed
and delivered to CCA assignments to CCA of all of Sovereign's right, title and
interest in and to (a) the Project Management Agreement dated 18th December 1994
between SCC and Sovereign relating to the establishment of the Sakhalin Project
and (b) the Operational Management Agreement dated 18th December 1994 between
SCC and Sovereign relating to the operation and management of the Sakhalin
Project.
6.1.5 Opinion of Cyprus Counsel Messrs. Andreas Neocleous & Co,
special Cypriot counsel for CCA, shall have delivered to CCA their favorable
opinion, dated the Closing Date, as to matters related to SGTI and Cyprus law,
as required by CCA counsel.
6.1.6 Opinion of Russian Counsel Mr. Igor I. Golub, special Russian
counsel for CCA, shall have delivered to CCA his favorable opinion, dated the
Closing Date, as to matters related to SGTI, SCC and Russian law, as required by
CCA counsel.
6.1.7 Litigation Affecting Closing On the Closing Date, no proceeding
shall be pending or threatened before any court or governmental agency in which
it is sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, and no investigation that might result in any such suit,
action or proceeding shall be pending or threatened.
11
<PAGE>
6.1.8 Required Consents The holders of any indebtedness of SGTI or the
Subsidiary, the lessors of any real or personal property or assets leased by
SGTI or the Subsidiary, the parties (other than SGTI or the Subsidiary) to any
other contract, commitment or agreement to which SGTI or the Subsidiary is a
party, any governmental agency or body or any other person, firm or company
which owns or has authority to grant any franchise, license, permit, easement,
right or other authorization necessary for the business or operations of SGTI or
the Subsidiary, and any governmental body or regulatory agency having
jurisdiction over CCA, SGTI or the Subsidiary, to the extent that their consent
or approval is required under the pertinent debt, lease, contract, commitment or
agreement or other document or instrument or under applicable laws, rules or
regulations for the consummation of the transaction contemplated hereby in the
manner herein provided, shall have granted such consent or approval.
6.1.9 No Material Damage to Business The assets, properties and
business of SGTI and the Subsidiary shall not have been and shall not be
threatened to be materially adversely affected in any way as a result of fire,
explosion, earthquake, disaster, accident, labor dispute, any action by any
governmental authority, flood, drought, embargo, riot, civil disturbance,
uprising, activity of armed forces or act of God or public enemy.
6.1.10 Approval of Counsel; Corporate Matters All actions,
proceedings, resolutions, instruments and documents required to carry out this
Agreement or incidental hereto and all other related legal matters shall have
been approved on the Closing Date by Messrs. McFadden, Pilkington & Ward,
counsel for CCA, in the exercise of their reasonable judgment, and CCA or its
counsel shall have been furnished with certified copies, satisfactory in form
and substance to CCA's counsel in the exercise of their reasonable judgment, of
all such corporate records of SGTI and of the proceedings of SGTI authorizing
its execution, delivery and performance of this Agreement as CCA or its counsel
shall reasonably require.
6.1.11 Other Documents CCA shall have been provided with such other
documents as it shall have reasonably requested from SGTI.
6.2 Obligation of the Shareholders to Close The obligation of the
Shareholders (or the Directors on their behalf) to consummate the sale of the
SGTI Shares on the Closing Date shall be subject to the satisfaction of the
following conditions on or prior to the Closing Date:
6.2.1 Representations and Warranties The representations and
warranties of CCA set forth in this Agreement shall be true and correct as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date, and CCA shall have delivered to SGTI a certificate to such
effect, dated the Closing Date and signed by its Chairman and President or one
of its directors or vice presidents, which certificate shall be in form and
substance satisfactory to SGTI's counsel.
6.2.2 Litigation Affecting Closing On the Closing Date, no proceeding
shall be pending or threatened before any court or governmental agency in which
it is sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transaction
contemplated hereby, and no investigation that might eventuate in any such suit,
action or proceeding shall be pending or threatened.
12
<PAGE>
ARTICLE 7
THE CLOSING
7.1 Time and Place The closing of the transactions contemplated hereby
shall be held at 10.00 A.M. on the fifth business day following the approval of
the shareholders of CCA in satisfaction of Section 6.1.1, or at such other time
and on such other date as the parties hereto may mutually agree to in writing
(the "Closing Date"). The closing shall be held at the offices of McFadden,
Pilkington & Ward at City Tower, 40 Basinghall Street, London EC2V 5DE, England.
7.2 Conduct of Closing
7.2.1 Subject to the fulfillment of all of the conditions set forth in
Sections 6.1 and 7.2.2 and the delivery of all certificates and opinions
required thereby, except such conditions as may be waived by the parties, on the
Closing Date CCA shall deliver share certificates to each of the Subscribers (or
the authorized representative of a Subscriber) representing that number of
shares of the common stock of CCA to which each Subscriber is entitled, in
accordance with Schedule 2.3.
7.2.2 Subject to the fulfillment of all of the conditions set forth in
Sections 6.2 and 7.2.1 and the delivery of all certificates and opinions
required thereby, except such conditions, certificates, and opinions as may be
waived by the parties, (a) the Shareholders shall deliver to CCA the stock
certificates described in Section 1.3 and their respective Share Transfer Forms,
and all other good and sufficient instruments of transfer and conveyance as may
be necessary in CCA's counsel's opinion to vest in CCA good, absolute, and
marketable title to the SGTI Shares, and (b) the Subscribers shall deliver to
CCA their respective Subscription Agreements.
ARTICLE 8
CONDUCT OF THE PARTIES AFTER CLOSING
CCA, SGTI and the Directors will cooperate upon and after the Closing Date
in effecting the orderly transfer of the operations of SGTI to CCA. Without
limiting the generality of the foregoing, at the request of any party and at the
requesting party's expense, but without additional consideration, each party
shall, and the Directors agree to ensure that the Shareholders and the
Subscribers shall, (a) execute and deliver from time to time such further
instruments of assignment, conveyance and transfer, (b) cooperate in the conduct
of litigation and the processing and collection of insurance claims, and (c)
take such other actions as may reasonably be required to convey and deliver more
effectively to CCA the SGTI Shares or to confirm and perfect any Shareholder's
present title to the SGTI Shares, and otherwise to accomplish the orderly
transfer to CCA of the SGTI Shares and the business assets and operations of
SGTI as contemplated by this Agreement.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS,
WARRANTIES, GUARANTEES, AND COVENANTS
9.1 Date Certain For Survival Except for any representations or warranties
made by a party to this Agreement which were not true when made and which were
made by such party fraudulently or with intent to defraud or mislead, which
representations and warranties shall survive without limitation as to time, all
representations and warranties made by SGTI, the Directors and CCA in this
Agreement, by the Shareholders in the Share Transfer Forms, or by the
Subscribers in the Subscription Agreements, or pursuant hereto or thereto, shall
survive the closing hereunder for a period ending one year following the Closing
Date, notwithstanding any investigation made by or on behalf of CCA, SGTI, the
Directors, the Shareholders or the Subscribers prior to or after the Closing
Date.
13
<PAGE>
ARTICLE 10
INDEMNIFICATION
10.1 By the Directors From and after the Closing Date, the Directors shall
indemnify and hold harmless CCA (a) from and against any and all damages,
losses, obligations, deficiencies, liabilities, claims, encumbrances, penalties,
costs, and expenses, including reasonable legal fees and expenses, which CCA may
suffer or incur, resulting from, related to, or arising out of any
misrepresentation, breach of warranty, or nonfulfillment of any of the
respective covenants of SGTI or the Directors in this Agreement, or of the
Shareholders in the Stock Transfer Forms or the Subscribers in the Subscription
Agreements, or any misrepresentation in or omission from any Schedule to this
Agreement, certificate, financial statement, or any other document furnished or
to be furnished to CCA hereunder, and (b) from any and all actions, suits,
investigations, proceedings, demands, assessments, audits, judgments, and claims
(including employment-related claims) arising out of any of the foregoing or out
of facts that have occurred on or prior to the Closing Date even though such
proceeding or claim may not be filed or come to light until after the Closing
Date; provided, however, that before CCA may assert a claim for indemnity under
this Section, CCA must give or cause to be given written notice of such claim to
the Directors as provided in Section 10.4.
10.2 By CCA From and after the Closing Date, CCA agrees to indemnify and
hold harmless SGTI, the Directors and the Subscribers (a) from and against any
and all damages, losses, obligations, deficiencies, liabilities, claims,
encumbrances, penalties, costs, and expenses, including reasonable legal fees,
which the Subscribers may suffer or incur, resulting from, related to, or
arising out of any misrepresentation, breach of warranty, or nonfulfillment of
any of the covenants or agreements of CCA in this Agreement or any
misrepresentation in or omission from any certificate or document furnished or
to be furnished to the Shareholders hereunder and (b) from any and all suits,
actions, investigations, proceedings, demands, assessments, audits, judgments,
and claims arising out of any of the foregoing; provided, however, that before a
Subscriber may assert a claim for indemnity under this Section, said Subscriber
must give or cause to be given written notice of such claim to CCA as provided
in Section 10.4.
10.3 Limitation of Indemnity Notwithstanding any provisions herein to the
contrary:
10.3.1 except for any representations or warranties made by a party to
this Agreement which were not true when made and which were made by such party
fraudulently or with intent to defend or mislead, which representations and
warranties shall survive without limitation as to time, neither party shall be
liable to the other party for any claim based on a misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement herein for which it has
not received written notice prior to one year from the Closing Date;
10.3.2 the liability of any party computed otherwise in accordance
with this Section 10 shall be limited to the after-tax consequence to the
indemnified party (or the affiliated group of which such indemnified party is a
member) of any such damage, loss, liability, deficiency cost or expense suffered
or incurred by such indemnified party; and
10.3.3 The liability of any party for misrepresentation, breach of
warranty, or non-fulfillment any covenant or agreement in this Agreement or for
indemnity under this Section 10 shall not exceed, in the case of CCA, the value
of the SGTI Shares, and in the case of the Directors, the lesser of (a)
$13,000,000 (being the equivalent of $6.50 per share for all of the CCA Shares)
or (b) the mid-market value of the CCA Shares on the date when liability under
this Article is finally determined or admitted.
10.4 Notice; Proceedings
10.4.1 Promptly after acquiring knowledge of any damage, loss,
deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment, or claim against
which the Directors or Subscribers are giving an indemnity to CCA or against
which CCA is giving an indemnity to the Subscribers, the Directors, Subscribers
or CCA, as the case may be, shall give to the other party written notice
thereof.
14
<PAGE>
10.4.2 Each indemnifying party shall, at its own expense, promptly
defend, contest or otherwise protect against any damage, loss, deficiency,
liability, claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment, or claim against
which it has indemnified an indemnified party, and each indemnified party shall
receive from the other party all necessary and reasonable cooperation in said
defense including, but not limited to, the services of employees of the other
party who are familiar with the events out of which any such damage, loss,
deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit,
investigation, proceeding, demand, assessment, audit, judgment, or claim may
have arisen.
10.4.3 The indemnifying party shall have the right to control the
defense of any such proceeding unless it is relieved of its liability hereunder
with respect to such defense by the indemnified party. The indemnifying party
shall have the right, at its option, and, unless so relieved, to compromise or
defend, at its own expense by its own legal counsel, any such matter involving
the asserted liability of the indemnified party. In the event that the
indemnifying party shall undertake to compromise or defend any such asserted
liability, it shall promptly notify the indemnified party of its intention to do
so.
10.4.4 In the event that an indemnifying party, after written notice
from an indemnified party, fails to take timely action to defend the same, the
indemnified party shall have the right to defend the same by legal counsel of
its own choosing, but at the cost and expense of the indemnifying party.
10.5 Money Damages If the damages, losses, obligations, deficiencies,
liabilities, claims, encumbrances, penalties, costs, and expenses indemnified
against pursuant to the provisions of Sections 10.1 and 10.2 hereof can be
compensated by the payment of money to the other party, the indemnifying party
shall, within twenty-one (21) days after receipt of a written notice of a claim
pursuant to Section 10.4, deliver to the other Party either: (i) the amount of
such claim by check or by wire transfer to the bank account of that party's
choosing, or (ii) a written notice stating that it objects to the validity of
such claim and setting forth in reasonable detail the grounds on which it is
contesting the validity of the claim.
ARTICLE 11
BROKERAGE; EXPENSES
11.1 Brokerage None of the parties, nor, where applicable, any of their
respective shareholders, officers, directors, or employees, has employed or will
employ any broker, agent, finder, or consultant (a "Financial Agent") or has
incurred or will incur any liability for any brokerage fees, commissions,
finders' fees, or other fees, in connection with the negotiation or consummation
of the transactions contemplated by this Agreement, except as herein set forth.
11.1.1 Neither SGTI, nor either Director nor any Shareholder has
engaged any Financial Agent.
11.1.2 CCA may engage a Financial Agent in connection with the cash
advances, as set forth in Section 2.1, for whose fees CCA will be solely
responsible, and CCA hereby indemnifies and holds SGTI and the Directors
harmless against and in respect of any claim for brokerage fees, commissions, or
other finders' fees or commissions of such Financial Agent and any additional
such claims incurred by CCA relative to this Agreement and the transactions
contemplated hereby.
11.2 Expenses Except as otherwise expressly provided in this Agreement, the
parties agree to bear their respective expenses individually, each in respect of
all expenses of any character incurred by it in connection with this Agreement
or the transactions contemplated hereby.
15
<PAGE>
ARTICLE 12
TAXES
12.1 The Shareholders shall pay any applicable sales, documentary, use,
filing, transfer, and other taxes payable as a result of the transfer of the
SGTI Shares. CCA shall pay any applicable sales, documentary, use, filing,
transfer, and other taxes payable as a result of the transfer of the CCA Shares.
Subject to the foregoing undertaking, all other taxes on or measured by the net
income or revenues of CCA, SGTI, the Shareholders, or the Subscribers (including
without limitation, income, gross receipts, value added and net worth taxes)
imposed or levied by or payable to any taxing authority shall be paid or payable
by the party upon whom such taxes are imposed or levied.
ARTICLE 13
ARBITRATION
13.1 ICC Rules All disputes arising in connection with this Agreement shall
be finally settled under the Rules on Conciliation and Arbitration of the
International Chamber of Commerce. The place of arbitration shall be London,
England. The arbitration shall be conducted in the English language. Certain
additional provisions relating to any arbitration are set forth in Schedule 13.1
hereto.
13.2 Arbitrators The Arbitral Tribunal shall consist of three arbitrators.
One arbitrator shall be nominated by CCA. One arbitrator shall be nominated
jointly by the Directors. The two party-nominated arbitrators shall appoint the
third arbitrator, who shall act as chairman of the Arbitral Tribunal. If a party
fails to appoint an arbitrator, the appointment shall be made in accordance with
the ICC Rules referred to in Section 13.1.
ARTICLE 14
TERMINATION
14.1 Events of Termination Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated by written notice of
termination at any time before the Closing Date only as follows:
14.1.1 by mutual consent of SGTI, the Directors and CCA;
14.1.2 provided that CCA is not in material default hereunder, by the
Board of Directors of CCA, upon fourteen (14) days' written notice to the SGTI
given at any time after the Closing Date (or such later date as shall have been
specified in a writing authorized on behalf of the Shareholders and CCA) if all
of the conditions precedent set forth in Section 6.2 hereof have not been met
within such fourteen-day period; or
14.1.3 provided that SGTI, the Directors and the Shareholders are not
in material default hereunder, by SGTI, upon fourteen (14) days' written notice
to CCA given at any time after the Closing Date (or such later date as shall
have been specified in a writing authorized on behalf of SGTI and CCA) if all of
the conditions precedent set forth in Section 6.1 hereof have not been met
within such fourteen-day period.
14.2 Consequences of Termination In the event of the termination and
abandonment hereof pursuant to the provisions of this Section 14:
14.2.1 CCA shall have the right to convert any cash sums advanced to
SGTI in accordance with Section 2.1 of this Agreement into shares in SGTI at the
conversion rate of one (1) ordinary share of SGTI for each Thirty U.S. Dollars
(US$30) so advanced, and SGTI agrees to take all necessary steps to accomplish
such conversion and the issuance of shares in SGTI to CCA therefor; and
14.2.2 except as provided in Section 14.2.1, this Agreement shall
become void and have no effect, without any liability on the part of any of the
parties or their directors or officers or stockholders in respect of this
Agreement.
16
<PAGE>
ARTICLE 15
GENERAL
15.1 Entire Agreement; Amendments This Agreement constitutes the entire
understanding among the parties with respect to the subject matter contained
herein and supersedes any prior understandings and agreements among them
respecting such subject matter, other than the Agreement dated 12th August 1997
and the amendment thereto dated 9th September 1997, which shall remain in full
force and effect, in particular clauses 1(a), 2, 3 and 4(a) thereof, except for
clause 1(b) which is replaced by provisions of this Agreement. This Agreement
may be amended, supplemented, and terminated only by a written instrument duly
executed by all of the parties.
15.2 Headings The headings in this Agreement are for convenience of
reference only and shall not affect its interpretation.
15.3 Gender; Number Words of gender may be read as masculine, feminine, or
neuter, as required by context. Words of number may be read as singular or
plural, as required by context.
15.4 Exhibits and Schedules Each Exhibit and Schedule referred to herein is
incorporated into this Agreement by such reference.
15.5 Notices All notices and other communications hereunder shall be in
writing and shall be given to the person either personally or by sending a copy
thereof by first class or express mail, postage prepaid, or by courier services,
charges prepaid, or by fax, to such party's address (or to such party's fax). If
the notice is sent by mail or courier services, it shall be deemed to have been
given to the person entitled thereto three days after deposit in a recognized
postal service or courier service for delivery to that person or in the case of
fax, when received.
17
<PAGE>
If to CCA, to:
Conserver Corporation of America
3250 Mary Street - Suite 405
Coconut Grove, Florida 33133
U.S.A.
Attention: Mr. Charles H. Stein
Fax No.: 1-305-444-7550
With a copy to:
McFadden, Pilkington & Ward
City Tower - Level 4
40 Basinghall Street
London EC2V 5DE
England
Attention: Gregory K. Pilkington, Esq.
Fax No.: 44-171-638-8799
If to SGTI, to:
Sakhalin General Trading & Investments Ltd.
c/o Weighbridge Trust Limited
P. O. Box 182
Belmont Court
Kings Road
St. Peter Port, Guernsey,
Channel Islands GY1 4HL
Attention: W. S. Cairns, Esq.
Fax No.: 44-1481-712634
If to Mr. Cairns, to him c/o SGTI at the address
set forth above.
If to Mr. Horgan, to:
John B. Horgan, Esq.
Vasse Highway
P. O. Box 261
Pemberton
Western Australia 6260
Fax No.: 61-897-761 504
18
<PAGE>
If to a Shareholder, to the address set forth in Schedule 1.2, with a
copy to SGTI at the address set forth above.
If to a Subscriber, to the address set forth in Schedule 2.3, with a
copy to SGTI at the address set forth above.
Notice of any change in any such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
15.6 Waiver The failure of any party to insist upon strict performance of
any of the terms or conditions of this Agreement will not constitute a waiver of
any of its rights hereunder.
15.7 Assignment No party may assign any of its rights or delegate any of
its obligations hereunder without the prior written consent of the other parties
hereto, provided, however, that CCA shall have the right to assign its rights
hereunder to any entity which it controls, is controlled by, or is under common
control with.
15.8 Successors and Assigns This Agreement binds, inures to the benefit of,
and is enforceable by the successors and permitted assigns of the parties, and
does not confer any rights on any other persons or entities.
15.9 Governing Law This Agreement shall be construed and enforced in
accordance with the law of the State of New York.
15.10 No Benefit to Others The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and the Shareholders and their successors and assigns, and they shall not
be construed as conferring and are not intended to confer any rights on any
other persons.
15.11 Publicity Prior to the Closing Date, all notices to third parties and
all other publicity relating to the transactions contemplated by this Agreement
shall be planned, coordinated and agreed to by CCA. Prior to the Closing Date,
none of the parties hereto shall act unilaterally in this regard without the
prior approval of CCA; provided, however, that such approval shall not be
unreasonably withheld.
15.12 Counterparts This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
personally or by their duly authorized representatives on the date first above
written.
CONSERVER CORPORATION OF AMERICA
By: /s/ Charles H. Stein
--------------------------
Title: Chairman
-----------------------
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
By: /s/
--------------------------
Title: Chairman
-----------------------
WILLIAM STEPHEN CAIRNS
/s/ William Stephen Cairns
--------------------------
JOHN BYRNE HORGAN
/s/ John Byrne Horgan
--------------------------
19
<PAGE>
SCHEDULE 1.2
Registered Shareholders
of
SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
<TABLE>
<CAPTION>
NAME AND CONTACT NO. OF
DETAILS DETAILS SHARES %
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALDERSGATE NOMINEE LTD 15,000 7%
- ----------------------
P O Box 3175 Mr David Solomon
Road Town, Tortola E.B.C. Trust Corporation
British Virgin Islands "Le Montaigne", No. 6
Boulevard des Moulins
MC 98000 Monaco
Tel: (377) 92 16 59 99
Fax: (377) 93 25 55 60
BEECHWIRTH PTY LTD 6,325 3%
- ------------------
152 St George's Terrace P O Box 204
Perth Subiaco
Western Australia Western Australia 6160
Tel: 61-89 430 7554
Fax: 61-89 430 7559
GILPIN PARK PTY LTD 10,000 4%
- -------------------
34th Floor 51 Saunders St
Central Park Mosman Park
152 St George's Terrace Western Australia 6012
Perth Tel: 61-89 334 3310
Western Australia Fax: 61-89 362 1845
HOLBROOK PROPERTIES LTD 45,500 20%
- -----------------------
P O Box 3175 Mr David Solomon
Road Town E.B.C. Trust Corporation
Tortola "Le Montaigne", No. 6
British Virgin Islands Boulevard des Moulins
MC 98000 Monaco
Tel: (377) 92 16 59 99
Fax: (377) 93 25 55 60
TOXFORD CORPORATION 5,000 2%
- -------------------
Hong Kong Bank Building Daniel M. Fleming Esq.
Sixth Floor Rathbone Trust Company SA
Samuel Lewis Avenue Place de Saint-Gervais 1
Panama City Case Postale 2049
Panama 1211 Geneve 1
Switzerland
Tel: 41-22 909 8900
Fax: 41-22 909 8939
WEIGHBRIDGE TRUST LTD 147,829 64%
- ---------------------
P O Box 182 W.S. Cairns
Channel House Director
Forest Lane Tel: 44-1481-720 581
St Peter Port Fax: 44-1481-712 634
Guernsey
Channel Islands GY1 2NF
WEIGHBRIDGE TRUST ADMINISTRATION LTD 1 -
- ------------------------------------
(As Weighbridge Trust Ltd.)
TOTAL SHARES IN ISSUE 229,655 100%
======= ===
</TABLE>
<PAGE>
SCHEDULE 2.3
Allocation to the Subscribers of Shares in
CONSERVER CORPORATION OF AMERICA
<TABLE>
<CAPTION>
NAME AND DETAILS CONTACT DETAILS NO. OF SHARES
- ---------------- --------------- -------------
<S> <C> <C>
ALDERSGATE NOMINEES LTD. 69,231
P O Box 3175 Mr David Solomon
Road Town, Tortola E.B.C. Trust Corporation
British Virgin Islands "Le Montaigne", No. 6
Boulevard des Moulins
MC 98000 Monaco
Tel: (377) 92 16 59 99
Fax: (377) 93 25 55 60
BEECHWIRTH PTY LTD. 29,192
- -------------------
152 St George's Terrace P O Box 204
Perth Subiaco
Western Australia Western Australia 6160
Tel: 61-89 430 7554
Fax: 61-89 430 7559
CLOISTER FINANCE LTD. 307,692
P O Box 3175 Mr David Solomon
Road Town, Tortola E.B.C. Trust Corporation
British Virgin Islands "Le Montaigne", No. 6
Boulevard des Moulins
MC 98000 Monaco
Tel: (377) 92 16 59 99
Fax: (377) 93 25 55 60
CLUBS LTD. 50,000
- ----------
3rd Floor, R. Redmayne
1-4 Goldie Terrace Director
Douglas Tel/Fax: 44-1624-611 355
Isle of Man
CRAYFORD ASSOCIATES LTD. 153,846
2nd Floor, Mr Doran
42 Upper Baggot Street Falcon Management
Dublin 4 Isle of Man
Ireland Tel: 44-1624-611 929
Fax: 44-1624-612 343
DIAMONDS HOLDINGS LTD. 50,000
- ----------------------
3rd Floor, R. Redmayne
1-4 Goldie Terrace Director
Douglas Tel/Fax: 44-1624-611 355
Isle of Man
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
E.B.C. TRUST CORPORATION 478,516
"Le Montaigne", No. 6 Mr. David Solomon
Boulevard des Moulins Tel: (377) 92 16 59 99
MC 98000 Monaco Fax: (377) 93 25 55 60
GILPIN PARK PTY LTD 46,154
34th Floor 51 Saunders Street
Central Park Mosman Park
152 St George's Terrace Western Australia 6012
Perth Tel: 61-89 334 3310
Western Australia Fax: 61-89 362 1845
HEARTS LTD. 50,000
- -----------
3rd Floor, R. Redmayne
1-4 Goldie Terrace Director
Douglas Tel/Fax: 44-1624-611 355
Isle of Man
HOLBROOK PROPERTIES LTD 210,000
P O Box 3175 Mr David Solomon
Road Town E.B.C. Trust Corporation
Tortola "Le Montaigne", No. 6
British Virgin Islands Boulevard des Moulins
MC 98000 Monaco
Tel: (377) 92 16 59 99
Fax: (377) 93 25 55 60
SPADES LTD. 50,000
- -----------
3rd Floor, R. Redmayne
1-4 Goldie Terrace Director
Douglas Tel/Fax: 44-1624-611 355
Isle of Man
TOXFORD CORPORATION 23,077
- -------------------
Hong Kong Bank Building Daniel M. Fleming Esq.
Sixth Floor Rathbone Trust Company SA
Samuel Lewis Avenue Place de Saint-Gervais 1
Panama City Case Postale 2049
Panama 1211 Geneve 1
Switzerland
Tel: 41-22 909 8900
Fax: 41-22 909 8939
WEIGHBRIDGE TRUST LTD. 482,292
- ----------------------
P O Box 182 W.S. Cairns
Channel House Director
Forest Lane Tel: 44-1481-720 581
St Peter Port Fax: 44-1481-712 634
Guernsey
Channel Islands GY1 2NF
TOTAL 2,000,000
=========
</TABLE>
<PAGE>
SCHEDULE 3.7.2
SHAREHOLDERS
of
SAKHALIN CITY CENTRE, LIMITED
Administration of the City of Yuzhno-Sakhalinsk, Sakhalin
Oblast, Russian Federation
2,000 shares - 20%
Administration of the Sakhalin Oblast, Russian Federation
1,500 shares - 15%
Sakhalin General Trading and Investments Limited
6,500 shares - 65%
<PAGE>
SCHEDULE 3.9
SGTI PROPERTIES
1. 6,500 shares, nominal value RUR 1,000 per share, in the
charter capital of Sakhalin City Centre, Limited ("SCC").
2. Receivables from SCC for loans made in the aggregate
principal amount of US$511,000 as of the Financial
Statement Date.
<PAGE>
SCHEDULE 3.15
BANK ACCOUNTS
SGTI
1. Hambros Bank (Guernsey) Limited
Guernsey, Channel Islands
Account no. 3274760027
SCC
2. INKOMBANK
Yuzhno-Sakhalinsk Branch
Yuzhno-Sakhalinsk, Russia
Account No. 7467715
Currency Account: 460070613/001
Correspondent Account: 700161000
MFO: 046401700
Transferring funds:
Beneficiary: Sakhalin City Centre Ltd
Yuzhno-Sakhalinsk, Russia
Account: 460070613/20089006/001
Bank: Inkombank, Moscow, Branch Sakhalinsky
SWIFT BIC: INCORUMM VIA ACCOUNT / 890-0056-096
The Bank of New York
New York
CHIPS UID 315784
3. MOSCOW NARODNY BANK LTD
London, UK
US Dollar Account: 10684021
Of: Sakhsotsbank
Yuzhno-Sakhalinsk, Russia
Beneficiary: Sakhalin City Centre Ltd
Account no. 11070864
in Sakhsotsbank
<PAGE>
SCHEDULE 3.17
SGTI AND SCC DOCUMENTS
Sakhalin General Trading and Investments Limited ("SGTI")
- ---------------------------------------------------------
Memorandum and Articles of Association
Sakhalin City Centre, Limited ("SCC")
- -------------------------------------
Charter dated 25 January 1996
Joint Venture Agreement for the Construction of a Tourist and entertainment
Centre on Sakhalin dated 7 October 1994 between the Administration of
the City of Yuzhno-Sakhalinsk ("City") and SCC
Agreementon mutual obligations for creating and managing a tourism and
entertainment complex on Sakhalin dated 15 December 1994 between the
City and SCC
Project Management Agreement dated 18 December 1994 between
SCC and Sovereign Gaming and Leisure Limited
("Sovereign")
Operation Management Agreement dated 18 December 1994 between
SCC and Sovereign
Agreement dated 13 February 1996 between Municipal enterprise
"Gorstroizakaztchik" and SCC
Agreementfor Lease relating to a site in Yuzhno-Sakhalinsk, Russian Federation,
dated 3 June 1996 between the City and SCC
Lease No. 326 of a site in Yuzhno-Sakhalinsk, Russian
Federation dated 3 June 1996 between the City and SCC
SGTI and SCC
Agreementabout closer definition and conclusion of the additional agreements
for realization of the project, construction and operation of the
tourist entertainment centre in Yuzhno-Sakhalinsk dated 20 July 1995
between the Administration of the Sakhalin Oblast ("Oblast"), the City,
SCC, Sovereign and SGTI
Various loan agreements relating to advances made by SGTI to
SCC
<PAGE>
SCHEDULE 3.19
SCC DIRECTORS AND OFFICERS
Directors:
William Stephen Cairns (UK)
Dallas Reginald Dempster (UK)
John Byrne Horgan (Australia)
Richard Cameron Maclellan (Monaco)
Michael Boyd Marshall (UK)
Scott Sherwood Spencer (Australia)
Valery Pavlovich Mozolevsky (Russia)
Igor Pavlovich Farkhutdinov (Russia)
Vladimir Petrovich Yagubov (Russia)
Raisa Alexeyevna Yarovikova (Russia)
Victor Ivanovich Peretyagin (Russia)
Officers:
General Director Mr. Dallas Dempster
Executive Directors Mr. Dallas Dempster
Mr. V. P. Mozolevsky
Chief Accountant Ms. Okhsana Romantsova
<PAGE>
SCHEDULE 3.23
DOCUMENTS PROVIDED TO CCA
ALL DOCUMENTS LISTED IN SCHEDULE 3.17
SCC DOCUMENTS
- - Agreement Between CCA, SGTI and Sovereign dated
12 August 1997
- - Amendment to Agreement of 12 August 1997 dated
1 September 1997
- - Foundation Agreement of SCC dated 9 March 1994
- - Certification of Registration of SCC dated 2 March 1994
- - Minutes of SCC:
- Founders Meeting #2 dated 20 September 1994
- Founders Meeting #3 dated 20 September 1994
- Shareholders Meeting #2 dated 25 January 1996
- Board of Directors Meeting #1 dated 26 January 1996
- Shareholders Meeting #3 dated 26 January 1996
- - Shareholders' Appointment of Representatives to the SCC
Shareholders Meeting of 25 January 1996
- - City of Yuzhno-Sakhalinsk Resolution of the Mayor dated
16 August 1995, no. 1130
- - Appendix to Agreement on Land Rent Settlement for SCC as
Tenant dated 17 August 1995, no. 159
- - SCC Memorandum dated 5 June 1996, with Government
Resolutions on Licensing Activity dated 24 December 1994,
no. 1418
- - SGTI Submission to the Sakhalin Oblast for Exemption from
Gaming Tax, no date
- - City of Yuzhno-Sakhalinsk Letter to SCC Concerning
Guarantee of Grant of Long-Term Gaming License dated
19 March 1997, no. 05-188
- - City of Yuzhno-Sakhalinsk Letter to SCC Concerning
Guarantee of Grant of Long-Term Gaming License dated
12 March 1996, no. 208
- - SCC letter to Governor of Sakhalin Oblast dated
31 May 1996
- - Letter of Mayor of Yuzhno-Sakhalinsk to SCC Approving SCC
Tourist Terminal at Airport and Supporting Short-Term
Visa Proposal, (June) 1996
- - SCC fax dated 25 September 1997, with Resolutions of the
City of Yuzhno-Sakhalinsk
- - Audit Report of Vostok-Audit Concerning SCC dated
25 March 1996
- - SCC Memorandum Concerning Financial Report dated
1 June 1996
<PAGE>
- - Financial Statement of SCC as of 1 July 1995
- - Auditors Report of "Audit-INFO" as of 1 January 1995
- - Stock Sale and Purchase Agreements dated
23 February 1996:
- Between SGTI and Sassey Pty. Ltd.
- Between SGTI and Sovereign
- Between SGTI and Trout Nominees Pty. Ltd.
- Between SGTI and Limited Liability Company "Trade House
Potential Sakhalina"
- - Curriculum Vitae of V. P. Mozolevsky delivered to CCA
4 September 1997
- - SCC Memorandum dated 11 November 1996, with letter of
Governor of Sakhalin Oblast dated 10 November 1996,
no. 2804
- - Registration Documents of SCC by Sakhalin Oblast dated
21 March 1994, nos. 199 and 85-SP
- - Decree of the Mayor of the City of Yuzhno-Sakhalinsk
dated 25 March 1996, no. 401
- - SCC fax dated 24 April 1996, with texts of documents from
the City of Yuzhno-Sakhalinsk and the Sakhalin Oblast
- - Letter from the Sakhalin Oblast to SCC dated 4 June 1996,
no. 01-449
- - Letter from the Governor of the Sakhalin Oblast to SCC
dated 30 August 1996, no. 1-2204
- - Letter from the Mayor of the City of Yuzhno-Sakhalinsk to
SCC dated 10 November 1996, no. 1-2804
- - Stock Sale and Purchase Agreement Between Limited
Liability Company "Sakhin, Ltd." and SGTI dated
24 November 1996
- - Stock Sale and Purchase Agreement Between V. P.
Mozolevsky and SGTI dated 10 October 1996
- - SCC Memorandum dated 3 October 1997, with Resolutions of
the City of Yuzhno-Sakhalinsk Duma dated
25 September 1997, nos. 98/7 and 99/7
- - Extract from the SCC Register of Shareholders Confirming
SGTI as Owner of 6500 Common Shares dated
4 September 1997
SGTI DOCUMENTS
- --------------
- - Bank Confirmations of Hambros Bank (Guernsey) Limited
- - Certificate from the Companies Registrar of Cyprus dated
8 August 1996
- - Certificate from the Companies Registrar of Cyprus dated
13 August 1996
- - SGTI Letter Concerning Shareholdings dated 3 June 1997,
and Enclosures
- - Central Bank of Cyprus Letter dated 27 June 1997
- - Various Documents of Sassey Pty. Ltd.
- - Various Documents of Sovereign
- - Various Documents of Trout Nominees Pty. Ltd.
- - Various Documents of Weighbridge Trust Limited
- - SGTI Financial Statements as at 31 March 1997
- - SGTI Financial Statements as at 31 May 1996
- - Prospectus Concerning SCC Project, 1997
<PAGE>
SCHEDULE 13.1
ARBITRATION AGREEMENT
Dated as of 24th October 1997
This Arbitration Agreement relates to the agreements, contracts and other
documents related to the acquisition by Conserver Corporation of America ("CCA")
of all of the share capital of Sakhalin General Trading & Investments Limited
("SGTI"), and in
particular to the following agreements:
o Agreement dated 12th August 1997 among CCA, SGTI and Sovereign Gaming and
Leisure Limited ("Sovereign") and the amendment thereto dated 9th September
1997.
o Stock Purchase Agreement dated as of 24th October 1997 ("Stock Purchase
Agreement") among CCA, SGTI, William Stephen Cairns ("Mr. Cairns") and John
Byrne Horgan ("Mr. Horgan").
o Share Transfer Forms to be executed and delivered to CCA by the
Shareholders of SGTI, in accordance with the Stock Purchase Agreement.
o Subscription Agreements to be executed and delivered to CCA by the
Subscribers to CCA Shares, in accordance with the Stock Purchase Agreement.
o Assignments to be executed and delived by Sovereign to CCA in accordance
with the Stock Purchase Agreement of (a) the Project Management Agreement
dated 18th December 1994 between Sakhalin City Centre, Limited ("SCC") and
Sovereign relating to the establishment of the Sakhalin Project and (b) the
Operational Management Agreement dated 18th December 1994 between SCC and
Sovereign relating to the operation and management of the Sakhalin Project.
All of the agreements and documents named above are herein collectively called
the "Agreements".
THE PARTIES AGREE AS FOLLOWS:
1. Any and all disputes, controversies or claims arising out of, involving or
relating to:
(a) one or more of the Agreements and any amendments, modifications or
supplements thereto, or the existence, validity, performance, breach or
termination thereof.
(b) the existence, validity, performance, breach or termination of any
other contract or document between two or more of the parties related to
the Agreements, and/or
(c) any other legal, regulatory, contractual or other matters related to
the Agreements,
shall be referred to, settled and finally resolved exclusively by
arbitration in accordance with the Rules of Conciliation and Arbitration of
the International Chamber
of Commerce (the "ICC Rules").
<PAGE>
2. In application of the ICC Rules:
(a) the place of arbitration shall be London, England.
(b) There shall be three (3) arbitrators who must be fluent in the English
language.
(i) One arbitrator will be appointed by CCA.
(ii) One arbitrator will be appointed by Messrs. Cairns and Horgan
(both of whom are on the date of this Arbitration Agreement directors
of SGTI), acting on behalf of SGTI, the Shareholders of SGTI who
executed Share Transfer Forms, the Subscribers to CCA Shares, and
themselves personally.
(iii) The third arbitrator will be appointed by the first two
arbitrators. If the two party-appointed arbitrators fail to appoint
the third presiding arbitrator, he will be appointed in accordance
with the ICC Rules.
(c) The language to be used in the arbitral proceedings shall be English.
All documents in another language shall be translated into English.
(d) The parties to any arbitration under this Agreement shall each bear
their own expenses in connection with such arbitration.
3. All disputes, controversies and claims described in clause 1 above arising
among all or some of the parties hereto will be included and settled in a
single comprehensive arbitration. In this regard:
(a) Any party hereto shall have the right to pursue any type of claim
described in clause 1 above against any other party hereto regardless of
whether or not they are parties to the same contract.
(b) Any party hereto shall have the right to intervene in any arbitration
proceeding between two or more other parties hereto under this Arbitration
Agreement, regardless of whether or not they are parties to the same
contract, without having to obtain the consent of the other parties hereto
and regardless of whether the claims of the intervening party against any
or all of the parties to the pending arbitration proceeding arise out of
the claims or matters in issue in the said pending arbitration proceeding.
(c) Any party hereto who is a defendant in an arbitration under this
Arbitration Agreement shall have the right to involve one or more of the
other parties hereto in arbitration, and such other party(ies) shall be
obliged to participate in the arbitration.
(d) Any party commencing an arbitration against any other party hereunder
shall notify all of the other parties hereto of the commencement of such
arbitration.
<PAGE>
(e) Any party joining, intervening or brought into an arbitration
proceeding under this Arbitration Agreement after the arbitration shall
have commenced shall be required to accept the arbitrators who shall have
been already appointed, and such joining, intervening or brought-in party
shall be bound by all procedural and substantive decisions and awards
already made by the arbitrators in such proceeding, provided they were
notified of the existence of such arbitration proceeding (and thus were
given an adequate opportunity to become parties to the arbitration) and of
all such procedural and substantive decisions and awards.
(f) Any party hereto shall have the right to obtain the recognition of and
compliance with any partial or final award of the arbitral tribunal by all
the other parties hereto, whether or not they were parties to the
arbitration proceeding under this Arbitration Agreement, provided they were
notified of the existence of such arbitration proceeding (and thus were
given an adequate opportunity to become parties to the arbitration) and of
all procedural and substantive decisions and awards made by the arbitrators
in such proceeding.
4. All notices and communications in connection with this Arbitration Agreement
and any arbitration or other proceeding commenced hereunder shall be in writing
and shall be delivered or sent to each of the parties at its address set forth
in the agreement or contract to which this Arbitration Agreement is a part (or
to such other address as it may indicate to the other parties). All such notices
and communications shall be delivered by hand or sent by registered air mail,
messenger, courier, facsimile or other reliable means of telecommunication (a
confirmation copy of facsimiles or other telecommunications should be sent by
mail). All notices shall be effective on receipt of the original transmission
(and not receipt of the confirmation copy).
5. This Arbitration Agreement shall be governed by and construed in accordance
with the law of the State of New York. This Arbitration Agreement shall be a
contract separate and apart from the Agreements to which a reference is made in
this Arbitration Agreement.
Exhibit 1.2A
Share Transfer Form
I, ___________________ of ____________________ in consideration of
_______________ paid to me by Conserver Corporation of America of 3250 Mary
Street - Suite 405, Coconut Grove, Florida 33133, U.S.A. (herein called the
"said transferee") hereby transfer to the said transferee the share(s) numbered
__________ in the undertaking called Sakhalin General Trading and Investments
Limited so that the said transferee, his executors, administrators and assigns
shall hold the same subject to the same terms as I held the same at the time of
the execution of this transfer.
Made and signed the ...........day of ..............1997.
And I, the said transferee hereby agree to accept the said shares
subject to the aforesaid terms.
Made and signed the ................. day of .................... 1997.
CONSERVER CORPORATION OF AMERICA
By
-----------------------------
Witness to the Signatures of ..........................
Exhibit 1.2B
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
SHARE TRANSFER FORM
-------------------
Name of Shareholder
______________ 1997
Conserver Corporation of America
3250 Mary Street - Suite 405
Coconut Grove, Florida 33133
U. S. A.
Gentlemen:
1. The undersigned shareholder (the "Shareholder") of Sakhalin General Trading
and Investments Limited, a limited liability company organized under the
laws of Cyprus whose legal office is at Doma Building, 227 Archbishop
Markarios III Street, Limassol, Cyprus ("SGTI"), recognising that Conserver
Corporation of America, a corporation organized under the laws of the State
of Delaware in the United States of America ("CCA"), is and will be relying
upon the information, representations and warranties set forth herein,
hereby acknowledges, represents and warrants that the Shareholder has
received, has carefully read and reviewed, and is familiar with the Stock
Purchase Agreement dated 24th October 1997 ("Stock Purchase Agreement") by
and among (i) CCA, (ii) SGTI, (iii) William Stephen Cairns, a British
subject having his principal residence at Key West, Doyle Road, St. Peter
Port, Guernsey, Channel Islands, and (iv) John Byrne Horgan, an Australian
citizen having his residence at Vasse Highway, Pemberton, Western Australia
6260 (Mr. Cairns and Mr. Horgan, both of whom are directors of SGTI, are
referred to herein as the "Directors").
2. The Shareholder acknowledges that, pursuant to the Stock Purchase
Agreement, the Directors have recommended to the Shareholder that he, she
or it transfer all of the ordinary shares in SGTI held by the Shareholder
to CCA as part of the consummation of the transactions contemplated by the
Stock Purchase Agreement, and the Shareholder hereby transfers to CCA the
following ordinary shares, One Cypriot Pound (C, 1.00) per share, in SGTI:
Share Certificate No. ___________
<PAGE>
Sakhalin General Trading and Investment Limited
Share Transfer Form
_______________ 1997
Page 2
Representing ______________________________ Shares
being all of such shares held by the Shareholder (the "SGTI Shares"), so
that CCA and its successors and assigns shall hold the SGTI Shares subject
to the same terms as the Shareholder held the SGTI Shares at the time of
execution and delivery of the Share Transfer Form.
3. (a) The Shareholder holds full legal ownership of and title to the SGTI
Shares, free and clear of any liens, security interests, restrictions
or encumbrances of any kind whatsoever.
(b) If the Shareholder does not hold full beneficial title to the SGTI
Shares, the holder of such beneficial interest has authorized the
Shareholder to transfer the SGTI Shares to CCA, to execute this Share
Transfer Form and otherwise to take such actions as may be required to
consummate the transactions contemplated hereunder and under the Stock
Purchase Agreement.
(c) No representation or warranty by the Shareholder contained in this
Share Transfer Form contains any untrue statement of a material fact
or omits to state a material fact necessary to make it not misleading
with respect to matters arising under this Share Transfer Form. The
Shareholder does not have of his, her or its personal knowledge any
information which would cause him, her or it to believe that any
representation or warranty given by SGTI or the Directors in the Stock
Purchase Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
therein not misleading, or that such representations and warranties
contain all the information related to SGTI, the Subsidiary (as
defined in the Stock Purchase Agreement) and their affairs that a
reasonable investor would consider important in making a decision to
acquire the SGTI Shares.
4. The Shareholder hereby agrees to indemnify and hold harmless CCA for any
costs or other damages CCA may sustain (including reasonable lawyers' fees
and costs) by reason of, or arising out of, any misrepresentation in this
Share Transfer Form by the Shareholder, any breach of the representations
and warranties contained herein,
<PAGE>
Sakhalin General Trading and Investment Limited
Share Transfer Form
_______________ 1997
Page 3
or any other breach of this Share Transfer Form by the Shareholder,
provided that the Shareholder shall not be liable to CCA for any claim
based upon a misrepresentation, breach of representation or warranty or
nonfulfillment of any covenant or agreement contained herein for which it
has not received written notice prior to one year from the date of issuance
of the CCA Shares. The liability of the Shareholder with respect to the
second sentence of clause 3(c) above shall be subject to the overall
limitations set forth in Section 10.3 of the Stock Purchase Agreement.
5. (a) This Share Transfer Form shall be construed and enforced in accordance
with the law of the State of New York; any dispute arising under this
Share Transfer Form shall be resolved by arbitration conducted in
accordance with Article 13 of the Stock Purchase Agreement and the
Arbitration Agreement contained in Schedule 13.1 attached thereto. The
Shareholder expressly authorizes Messrs. Cairns and Horgan jointly to
appoint an arbitrator on his, her or its behalf in connection with any
arbitration commenced under said Article 13 and Schedule 13.1.
(b) This Share Transfer Form and the Stock Purchase Agreement, including
any additional documentation provided hereunder, contain the entire
agreement between the Shareholder and CCA with respect to the matters
provided for herein.
(c) This Share Transfer Form and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the
benefit of the successors and assigns of CCA.
(d) All notices, demands or other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by
certified or registered airmail or by air courier, with return receipt
requested, if to CCA, to the address set out at the head of this Share
Transfer Form, and if to the Shareholder, at the address set forth
below, or to such other address as may be designated by notice from
either party to the other. Any notice, demand or other communication
given or made in the manner prescribed in this paragraph shall be
deemed to have been received as of the date on the receipt reflecting
delivery.
[END OF PAGE]
<PAGE>
Sakhalin General Trading and Investment Limited
Share Transfer Form
_______________ 1997
Page 4
IN WITNESS WHEREOF, the Shareholder has executed and delivered this Share
Transfer Form personally or by its duly authorized representative this
day of , 1997.
___________________________
Signature of Shareholder
___________________________
Full Name of Shareholder
Address of Shareholder:
___________________________
___________________________
___________________________
ACCEPTED:
CONSERVER CORPORATION OF AMERICA
By:_____________________________
Title:
Date:
Exhibit 2.3
SUBSCRIPTION AGREEMENT
------------------
Name of Subscriber
______________ 1997
Conserver Corporation of America
3250 Mary Street - Suite 405
Coconut Grove, Florida 33133
U. S. A.
Gentlemen:
1. The undersigned (the "Subscriber"), recognising that Conserver
Corporation of America, a corporation organized under the laws of the State of
Delaware in the United States of America ("CCA"), is and will be relying upon
the information, representations and warranties set forth herein and in the
Stock Purchase Agreement (as defined below), hereby acknowledges, represents and
warrants that the Subscriber has received, has carefully read and reviewed, and
is familiar with the Stock Purchase Agreement dated as of 24th October 1997
("Stock Purchase Agreement") by and among (i) CCA, (ii) Sakhalin General Trading
and Investments Limited, a limited liability company organized under the laws of
Cyprus whose legal office is at Doma Building, 227 Archbishop Markarios III
Street, Limassol, Cyprus ("SGTI"), (iii) William Stephen Cairns, a British
subject having his principal residence at Key West, Doyle Road, St. Peter Port,
Guernsey, Channel Islands GY1 1RG, and (iv) John Byrne Horgan, an Australian
citizen having his residence at Vasse Highway, Pemberton, Western Australia 6260
(Mr. Cairns and Mr. Horgan, both of whom are directors of SGTI, are referred to
herein as the "Directors").
2. Pursuant to the Stock Purchase Agreement, which remains subject to
approval of the stockholders of CCA, the Subscriber hereby subscribes to:
___________________________________________________ shares of the common stock
of CCA, par value $.001 (the "CCA Shares"), to be delivered to the Subscriber or
its authorized representative at the Closing under the Stock Purchase Agreement.
The Subscriber hereby acknowledges receipt of the CCA Shares.
3. The Subscriber hereby acknowledges, represents and warrants to,
and agrees with, CCA as follows:
<PAGE>
-2-
(a) The Subscriber is acquiring the CCA Shares for his, her or its
own account as principal or as a nominee for a principal known to the
Subscriber, in either case for investment purposes only, and not with a view to,
or for, resale, distribution or fractionalization thereof in whole or in part
and no other person has a direct or indirect beneficial interest in the CCA
Shares. Further, the Subscriber does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
CCA Shares for which the Subscriber is subscribing.
(b) The Subscriber has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the Subscriber.
(c) The Subscriber acknowledges his, her or its understanding that
the offering and sale of the Shares is intended to be exempt from registration
in the United States under the Securities Act of 1933, as amended (the
"Securities Act") by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D promulgated thereunder ("Regulation D"). In
furtherance thereof, the Subscriber represents and warrants to and agrees with
CCA and its affiliates as follows:
(i) the Subscriber realizes that the basis for the exemption may
not be present if, notwithstanding such representations, the
Subscriber has in mind merely acquiring the CCA Shares for a fixed or
determinable period in the future, or for a market rise, or for sale
if the market does not rise; the Subscriber represents and warrants
that he, she or it does not have any such intention;
(ii) the Subscriber has the financial ability to bear the economic
risk of his, her or its investment, has adequate means for providing
for his, her or its current needs and personal contingencies and has
no need for liquidity with respect to his, her or its investment in
CCA;
(iii) if the Subscriber has appointed a Purchaser Representative
(which term is used herein with the same meaning as given in Rule
501(h) of Regulation D), the Subscriber has been advised by his, her
or its Purchaser Representative as to the merits and risks of an
investment in CCA in general and the suitability of an investment in
the CCA Shares for the Subscriber in particular; and
<PAGE>
-3-
(iv) the Subscriber (together with his, her or its Purchaser
Representative(s), if any) has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment in the CCA Shares; if
other than an individual, the Subscriber also represents it has not
been organized for the purpose of acquiring the CCA Shares.
(v) the Subscriber understands that an investment in the CCA
Shares is a speculative investment which involves a high degree of
risk of loss of his, her or its entire investment.
(vi) the Subscriber's overall commitment to investments which are
not readily marketable is not disproportionate to the Subscriber's net
worth, and an investment in the CCA Shares will not cause such overall
commitment to become excessive.
(d) The Subscriber is an "accredited investor," as that term is
defined in Rule 501 of Regulation D. To qualify as an accredited investor under
Regulation D, the Subscriber must satisfy at least one of the following
alternative criteria:
ALTERNATIVE ONE: The Subscriber (natural persons only) has an individual net
worth (or joint net worth with spouse) at the time of the purchase in excess of
$1,000,000;
ALTERNATIVE TWO: The Subscriber (natural persons only) had an individual income
in excess of $200,000 in each of 1995 and 1996, or joint income with that
person's spouse in excess of $300,000 in each of such years, and reasonably
expects reaching the same income level in 1997;
ALTERNATIVE THREE: The Subscriber is (i) a bank (as defined in Section 3(a)(2)
of the Securities Act) or any savings and loan association or other institution
as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; (ii) any broker-dealer registered pursuant to
Section 15 of the U.S. Securities Exchange Act of 1934, as amended; (iii) an
insurance company (as defined in Section 2(13) of the Securities Act); (iv) an
investment company registered under the U.S. Investment Company Act of 1940, as
amended, or a business development company (as defined in Section 2(a)(48) of
that Act); (v) a Small Business Investment Company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the U.S. Small Business
Investment Act of 1958, as amended; (vi) any plan established and maintained by
a state, its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees, if such plan
has total assets in excess of $5,000,000; or
<PAGE>
-4-
(vii) an employee benefit plan within the meaning of the U.S. Employee
Retirement Income Security Act of 1974, as amended, if the investment decision
is made by a plan fiduciary (as defined in Section 3(21) of such Act), which is
either a bank, savings and loan association, insurance company, or registered
investment advisor, or if such employee benefit plan has total assets in excess
of $5,000,000, or if such employee benefit plan is a self-directed plan with
investments made solely by person who are accredited investors;
ALTERNATIVE FOUR: The Subscriber is a private business development company
as defined in Section 202(a)(22) of the Investment Advisors Act of 1940, as
amended;
ALTERNATIVE FIVE: The Subscriber is an organization described in Section
501(c)(3) of the U.S. Internal Revenue Code, as amended, or is a corporation,
Massachusetts or similar business trust, or partnership not formed for the
specific purpose of acquiring the CCA Shares, with total assets in excess of
$5,000,000;
ALTERNATIVE SIX: The Subscriber is a director or executive officer of CCA;
ALTERNATIVE SEVEN: The Subscriber is an entity in which all of the equity
owners are accredited investors; or
ALTERNATIVE EIGHT: The Subscriber is a trust with assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the CCA Shares
offered hereby, whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) under the Securities Act.
(e) The Subscriber and his, her or its Purchaser Representative,
if any:
(i) have been furnished with the Prospectus of CCA dated 6th June
1997 and a copy of the Form 10-K filed by CCA with the United States
Securities & Exchange Commission on 15th October 1997, including all
exhibits thereto and any documents which may have been made available
upon request for a reasonable time prior to the date hereof, and the
Subscriber or his, her or its Purchaser Representative(s) have
carefully read the Prospectus and Form 10-K and understand and have
evaluated the risks set forth under "Risk Factors" and the
considerations described in the Prospectus and Form 10-K and have
relied solely (except as indicated in subsections (ii) and (iii)
below) on the information contained in the Prospectus and Form 10-K
(including all exhibits thereto);
(ii) have been provided an opportunity for a reasonable time prior
to the date hereof to obtain
<PAGE>
-5-
additional information concerning the issue of the CCA Shares, CCA and
all other information to the extent CCA possesses such information or
can acquire it without unreasonable effort or expense;
(iii) have been given the opportunity for a reasonable time prior
to the date hereof to ask questions of, and receive answers from, CCA
or its representatives concerning the terms and conditions of the
issue of the CCA Shares and other matters pertaining to this
investment, and have been given the opportunity for a reasonable time
prior to the date hereof to obtain such additional information
necessary to verify the accuracy of the information contained in the
Prospectus and Form 10-K or that which was otherwise provided in order
for the Subscriber to evaluate the merits and risks of subscribing for
the CCA Shares to the extent CCA possesses such information or can
acquire it without unreasonable effort or expense;
(iv) have not been furnished with any oral representation or oral
information in connection with the "issue" of the CCA Shares which is
not contained in the Prospectus or Form 10-K; and
(v) have determined that the CCA Shares are a suitable investment
for the Subscriber and that at this time the Subscriber could bear a
complete loss of such investment.
(f) The Subscriber is not relying on CCA, or its affiliates with
respect to economic considerations involved in this investment. The Subscriber
has relied on the advice of, or has consulted with only those persons, if any,
who have acted as Purchaser Representative(s) to the Subscriber. Each Purchaser
Representative is capable of evaluating the merits and risks of an investment in
the CCA Shares on the terms and conditions set forth herein and in the Stock
Purchase Agreement, and each Purchaser Representative has disclosed to the
Subscriber in writing (a copy of which is annexed to this Agreement) the
specific details of any and all past, present or future relationships, actual or
contemplated, between himself and CCA or any affiliate or subsidiary thereof.
(g) The Subscriber represents, warrants and agrees that he will
not sell or otherwise transfer the CCA Shares without registration under the
Securities Act or an exemption therefrom and fully understands and agrees that
he must bear the economic risk of his, her or its purchase because, among other
reasons, the CCA Shares have not been registered under the Securities Act or
under the securities laws of any state of the United States or any other
jurisdiction and, therefore, cannot be resold, pledged, assigned or otherwise
disposed of unless they are subsequently registered under the Securities Act and
<PAGE>
-6-
under the applicable securities laws of such states or an exemption from such
registration is available. In particular, the Subscriber is aware that the CCA
Shares will be "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Subscriber also understands that, except as otherwise provided herein or in the
Stock Purchase Agreement, CCA is under no obligation to register the CCA Shares
on his, her or its behalf or to assist the Subscriber in complying with any
exemption from registration under the Securities Act or applicable state
securities laws. The Subscriber further understands that sales or transfers of
the CCA Shares are further restricted by applicable securities laws of the
various states of the United States and other jurisdictions.
(h) No representations or warranties have been made to the
Subscriber by CCA, or any officer, employee, agent, affiliate or subsidiary of
CCA, other than the representations of CCA contained herein or in the Stock
Purchase Agreement, and in subscribing for the CCA Shares the Subscriber is not
relying upon any representations other than those contained herein or in the
Stock Purchase Agreement.
(i) Any information which the Subscriber has heretofore furnished
to CCA with respect to his, her or its financial position and business
experience is correct and complete as of the date of this Agreement and if there
should be any material change in such information, he will immediately furnish
such revised or corrected information to CCA.
(j) The Subscriber consents to the placing of legends and
stop-transfer orders with the transfer agent of CCA's securities with respect to
any CCA Shares that may be registered in the name of the Subscriber or
beneficially owned by the Subscriber.
4. Recognising that CCA is and will be relying on his, her or its
representations and warranties set forth herein, the Subscriber hereby further
represents and warrants that:
(a) In subscribing for the CCA Shares, the Subscriber has relied
solely upon (i) an independent investigation of CCA and CCA's business (whether
such investigation has been conducted directly or indirectly through the
Subscriber's business advisers), (ii) such independent investment, legal, tax
and accounting advisers as he, she or it may have elected to use, and (iii) such
other matters relating to this transaction as the Subscriber deemed to be
appropriate, and the Subscriber is not acting upon the basis of any
representations or warranties of CCA other than those contained in the Stock
Purchase Agreement.
<PAGE>
-7-
(b) Neither the Subscriber nor any person with a beneficial
interest in the CCA Shares is a "U.S. Person", which term shall mean for the
purposes of this Agreement (i) a natural person resident in the United States;
(ii) a partnership or corporation organized or incorporated under the laws of
the United States; (iii) an estate of which any executor or administrator is a
U.S. Person; (iv) any trust of which any trustee is a U.S. Person; (v) an agency
or branch of a foreign entity located in the United States; (vi) a
non-discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary for the benefit or account of a U.S. Person;
(vii) a discretionary account or similar account (other than an estate or trust)
held by a dealer or other fiduciary organized, incorporated, or (if an
individual) resident in the United States; and (viii) any partnership or
corporation if it is both (A) organized or incorporated under the laws of any
foreign jurisdiction and (B) formed by a U.S. Person principally for the purpose
of investing in securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by accredited investors (as defined in
Rule 501(a) under the Securities Act and referred to in Section 3(d) above) who
are not natural persons, estates or trusts.
(c) If the Subscriber is an individual, he or she is over 21 years
of age; if the Subscriber is a company or trust, it is authorized and has full
power under its governing laws and is otherwise duly qualified to transfer the
SGTI Shares to CCA and hold title to the CCA Shares.
(d) No representation or warranty by the Subscriber contained in
this Agreement contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading with respect to matters contained herein and
arising under this Agreement. The Subscriber does not have of his, her or its
personal knowledge any information which would cause him, her or it to believe
that any representation or warranty given by SGTI or the Directors in the Stock
Purchase Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein not misleading,
and such representations and warranties contain all the information related to
SGTI, the Subsidiary (as defined in the Stock Purchase Agreement) and their
affairs that a reasonable investor would consider important in making a decision
to acquire the SGTI Shares.
The Subscriber agrees to furnish to CCA such documentary and other information
as CCA may reasonably require to enable CCA to satisfy itself as to the accuracy
of the foregoing representations and warranties. All such information shall
constitute a representation and warranty under this Agreement and shall be kept
confidential by CCA.
<PAGE>
-8-
5. (a) The Subscriber undertakes that he, she or it shall not for a
period of one year from the Closing Date (as defined in the Stock Purchase
Agreement) voluntarily or involuntarily, directly or indirectly, (i) offer,
sell, contract to sell, grant a right to purchase, exchange, mortgage, pledge,
hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any
other way whatsoever dispose of (hereinafter collectively called "transfer") any
of the CCA Shares, including any options, warrants or rights with respect to the
CCA Shares received by way of dividend or upon an increase, reduction,
substitution or reclassification or combination of stock of CCA or upon any
reorganisation or CCA, as applicable, or (ii) enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the CCA Shares or other securities of CCA whether any of the foregoing
transactions is to be settled by the delivery of CCA Shares, common stock or
other securities of CCA, in cash or otherwise. Notwithstanding any of the
foregoing, a corporate Subscriber may transfer the CCA Shares to any
wholly-owned subsidiary of such Subscriber, subject to the transferee agreeing
in writing to be similarly bound and subject to CCA's consent, which consent
shall not be unreasonably withheld. Each corporate Subscriber agrees not to
indirectly transfer CCA Shares as described in clauses (i) and (ii) of the
previous sentence by changing the shareholders of the corporate Subscriber or
otherwise transferring any interest in such corporate Subscriber for the
one-year period described in the previous sentence.
(b) So long as this Agreement is in effect stop transfer
instructions shall be issued to CCA's transfer agent, if any, or, if CCA
transfers its own securities, a notation shall be made in the appropriate
records of CCA with respect to CCA Shares, and so long as required, the
certificate(s) representing the CCA Shares shall bear substantially the
following legend:
The securities represented by this certificate are subject to
restrictions on transfer and may not (nor may any interest therein),
directly or indirectly, voluntarily or involuntarily, be sold,
exchanged, mortgaged, pledged, hypothecated, given, bequeathed,
transferred, assigned, encumbered, alienated, or in any other way
whatsoever be disposed of except in accordance with and subject to all
the terms and conditions of a certain Stock Purchase Agreement dated
as of 24th October 1997, and a Subscription Agreement relating to
these securities, copies of which are on file at the principal office
of Conserver Corporation of America.
(c) The Subscriber understands and agrees that the CCA Shares
shall bear substantially the following legend until: (i) such securities shall
have been registered under
<PAGE>
-9-
the Securities Act and effectively been disposed of in accordance with the
registration statement; or (ii) in the opinion of counsel reasonably acceptable
to CCA such securities may be sold without registration under the Securities Act
as well as any applicable "Blue Sky" or similar securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED
EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE
SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE
"BLUE SKY" OR SIMILAR SECURITIES LAW."
(d) Notwithstanding the foregoing, in the event of the Subscriber
being liable to satisfy a warranty or indemnity claim by CCA under this
Agreement, the Subscriber may transfer all or part of the CCA Shares to CCA or
to another single purchaser provided that (i) CCA shall have consented in
writing to such transfer, which consent shall not be unreasonably withheld, and
(ii) CCA shall have received an opinion of counsel reasonably acceptable to CCA
to the effect that such transfer may be made without registration under the
Securities Act and such transfer is consistent with all applicable provisions of
the Securities Act as well as any applicable "Blue Sky" or similar securities
law of any applicable jurisdiction.
6. The Subscriber hereby agrees to indemnify and hold harmless CCA, its
directors, officers or agents for any losses, claims, actions, liabilities,
costs or other damages CCA may sustain (including reasonable lawyers' fees and
costs) (collectively, "losses") by reason of, or arising out of, any
misrepresentation in this Agreement by the Subscriber, any breach of the
representations and warranties contained herein and in the Stock Purchase
Agreement, or any other breach of this Agreement by the Subscriber, provided
that:
(a) the Subscriber shall not be liable to CCA for any claim based
upon a misrepresentation, breach of representation or warranty or nonfulfillment
of any covenant or agreement contained herein for which the Subscriber has not
received written notice prior to one year from the date of issuance of the CCA
Shares, except for any representations or warranties made by the Subscriber
which were not true when
<PAGE>
-10-
made and which were made by such party fraudulently or with intent to defraud or
mislead, which representations and warranties shall survive without limitation
as to time;
(b) in the event of any loss or award of damages in favor of CCA
against the Subscriber arising from a claim by CCA against the Subscriber for
which CCA has been indemnified by the Subscriber hereunder, CCA shall have the
right to require (by simple notice to the Subscriber but without any requirement
on CCA to give the Subscriber any formal notice, demand or protest) the
Subscriber to transfer to CCA that number of CCA Shares at the then market value
of the CCA Shares, as quoted by Nasdaq on the date of such award, as would
satisfy such award, it being understood and agreed that such action would
constitute full and final satisfaction of such monetary award; and
(c) the Subscriber's liability computed otherwise in accordance
with this section shall be limited to the after-tax consequence to the
indemnified party (or the affiliated group of which such indemnified party is a
member) of any such damage, loss, liability, deficiency cost or expense suffered
or incurred by such indemnified party, and shall not exceed the lesser of (a)
$6.50 per share for all of the Subscriber's CCA Shares or (b) the mid-market
value of the CCA Shares on the date when liability under this Article is finally
determined or admitted.
7. (a) This Agreement shall be construed and enforced in accordance with
the law of the State of New York, without giving effect to its conflict of laws
principles; any dispute arising under this Agreement shall be resolved by
arbitration conducted in accordance with Article 13 of the Stock Purchase
Agreement and the Arbitration Agreement contained Schedule 13.1 attached
thereto. The Subscriber expressly authorizes Messrs. Cairns and Horgan to
appoint an arbitrator on his, her or its behalf in connection with any
arbitration commenced under said Article 13 and Schedule 13.1.
(b) This Agreement and the Stock Purchase Agreement, including any
additional documentation provided hereunder, contain the entire agreement
between the Subscriber and CCA, and the provisions of this Agreement may be
amended, supplemented, or terminated only by a written instrument duly executed
by the Subscriber and CCA.
(c) This Agreement and the rights, powers and duties set forth
herein shall, except as set forth herein, bind and inure to the benefit of the
heirs, beneficiaries, executors, administrators, legal representatives,
successors in interest of the Subscriber and CCA.
<PAGE>
(d) All notices, demands or other communications hereunder shall
be given or made in writing and shall be delivered personally, or sent by
certified or registered airmail or by air courier, with return receipt
requested, if to CCA, to the address set out at the head of this Agreement, and
if to the Subscriber, at the address set forth below, or to such other address
as may be designated by notice from either party to the other. Any notice,
demand or other communication given or made in the manner prescribed in this
paragraph shall be deemed to have been received as of the date on the receipt
reflecting delivery.
IN WITNESS WHEREOF, the Subscriber has executed and delivered this Agreement
personally or by its duly authorized representative this day of , 1997.
Witness:
- ------------------------- ---------------------------
Signature of Witness Signature of Subscriber
- ------------------------- ---------------------------
Name of Witness Full Name of Subscriber
Address of Witness Address of Subscriber:
- ------------------------- ---------------------------
- ------------------------- ---------------------------
- ------------------------- ---------------------------
Subscriber's fax: ______
ACCEPTED:
CONSERVER CORPORATION OF AMERICA
By:_____________________________
Title:
Date:
Exhibit 6.1.2
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
("the Company")
MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY, HELD ON THE
, 1997 AT
PRESENT: Mr. William Stephen Cairns - Director
Mr. John Byrne Horgan - Director
....................... - On behalf of
TOTALSERVE
MANAGEMENT LIMITED
Secretary
MINUTES 1. The minutes of the previous meeting are read and confirmed.
TRANSFER 2. Mr. William Cairns lays before the Board instruments of
OF SHARES Transfer of shares for the following transfer of shares:
147829 shares nos. ...... from Messrs Weighbridge Trust Ltd to
Messrs Conserver Corporation of America
15000 shares nos. ...... from Messrs Aldersgate Nominees Ltd to
Messrs Conserver Corporation of America
6325 shares nos. ...... from Messrs Beechwirth Pty Ltd to Messrs
Conserver Corporation of America
10000 shares nos. ...... from Messrs Gilpin Park Pty Ltd to Messrs
Conserver Corporation of America
45500 shares nos. ...... from Messrs Holbrook Properties Ltd to
Messrs Conserver Corporation of America
5000 shares nos. ...... from Messrs Toxford Corporation to Messrs
Conserver Corporation of America
<PAGE>
1 share no. ...... from Messrs Weighbridge Trust
Administration Ltd to ....................
for and on behalf of Messrs Conserver
Corporation of America
The Board unanimously APPROVES the above transfer of shares and
AUTHORIZES Messrs Andreas Neocleous & Co., to draft and file an
application with the Central Bank of Cyprus requesting its permission
to effect the above transfers of shares pursuant to the Cypriot
Exchange Control Laws, INSTRUCTS the Secretary to issue the new Share
Certificates, ANNOTATE the Register of Members accordingly, and FILE
the necessary returns with the Registrar of Companies.
There being no other matter, the Meeting is concluded at
....................
THE SECRETARY THE DIRECTORS
