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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended June 30, 1997
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from _____________ to ____________
Commission file number 0-22191
CONSERVER CORPORATION OF AMERICA
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 65-0675901
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3250 Mary Street, Suite 405
Coconut Grove, FL 33133
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(Address of Principal Executive Offices)
305-444-3888
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $0.001 par value Nasdaq SmallCap Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by Check Mark whether the Issuer: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 past 90
days. Yes /X/ No / /
Indicate by Check Mark if there is disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates as of
September 30, 1997 was $40,411,833.
The number of shares of Common Stock, $0.001 par value, outstanding as of
September 30, 1997 was 6,793,404.
DOCUMENTS INCORPORATED BY REFERENCE: Not Applicable
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TABLE OF CONTENTS
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Item 1. Business......................................................... 1
The Company..................................................... 1
Conserver 21[TM]................................................ 2
Proposed New Line Of Business and New Business Opportunities.... 7
Insurance....................................................... 11
Employees....................................................... 11
Item 2. Properties....................................................... 12
Item 3. Legal Proceedings................................................ 12
Item 4. Submission of Matters to a Vote of Securities Holders............ 12
Item 5. Market for Common Equity and Related Stockholder Matters......... 13
Item 6. Selected Financial Data.......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 14
Overview........................................................ 14
Change in Fiscal Year........................................... 16
Results of Operations........................................... 17
Liquidity and Capital Resources................................. 19
Accounting Pronouncements....................................... 22
Subsequent Events............................................... 23
Factors That Could Affect Operating Results..................... 28
Item 8. Financial Statements............................................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................. 33
Item 10. Directors and Executive Officers of the Registrant............... 33
Compliance with Section 16(A) Of The Securities Exchange
Act Of 1934...................................................... 35
Item 11. Executive Compensation........................................... 36
Summary Compensation Table....................................... 36
Employment Agreement............................................. 36
Option Grants For the Ten Months Ended June 30, 1997............. 37
Item 12. Security Ownership of Certain Beneficial Owners and Management... 37
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Item 13. Certain Relationships and Related Transactions.................. 40
Item 14. Exhibits, Financial Statement & Schedules, and Reports on
Form 8-K........................................................ 42
SIGNATURES................................................................ 45
Report of Independent Auditors............................................ F-2
Financial Statements...................................................... F-3
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This Annual Report on Form 10-K contains forward-looking statements. Additional
written and oral forward-looking statements may be made by the Company from time
to time in Securities and Exchange Commission ("SEC") filings and otherwise. The
Company cautions readers that results predicted by forward-looking statements,
including, without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, capital needs, interest costs,
and income are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward-looking
statements due to risks and factors identified from time to time in the
Company's filings with the SEC including those discussed in this Report.
PART I
Item 1. Business
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.
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.
The Company has incurred losses since its inception, and, as of June 30, 1997,
the Company had yet to derive any revenues from its operations. Its accumulated
deficit at June 30, 1997 was $9,949,138, which included $5,902,307 of non-cash
compensation charges related to the value attributed to stock options and
warrants issued by 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 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, $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 $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.
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Subsequent to the Company's fiscal year end, the Company announced in
August 1997 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"). In connection with the New Line of Business, and subject to the
receipt of requisite approval by the Company's stockholders, the Company has (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 (collectively, the "New Business
Opportunities"). The agreements, if approved by the Company's stockholders,
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 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 sale of additional Common Stock and/or other securities of the Company
in private offerings. Both the proposed New Line of Business and New Business
Opportunities are subject to receipt of requisite stockholder approval. (See
"Item 1. Proposed New Line of Business and New Business Opportunities".)
Conserver 21[TM]
The Product. Conserver 21[TM] is a non-toxic product composed of
sepiolite and mineral salt which can be used to retard spoilage and decay in
food and flowers. When placed in a storage or transport area with fresh fruit,
vegetables and flowers, it adsorbs gases, most notably ethylene, detrimental to
the preservation of food and also stimulates the creation of carbon dioxide and
water vapors. This combination of ethylene removal, which helps delay the food
maturation process, and the increase in carbon dioxide and water vapors, which
enhances the produce's natural ability to remain vital, produces a beneficial
environment for post-harvest life extension. Conserver 21[TM] is not applied
directly to the fruits, vegetables or flowers or into the environment.
Conserver 21[TM] is manufactured in the form of cylindrical granules
and is currently available in two packaged forms: filters and packets. The
packaging criteria for Conserver 21[TM] is critical to the effectiveness of the
product. Conserver 21[TM] packets are designed to be placed in boxes or crates
containing the produce or flowers being stored or shipped. The granules within
the packets are activated by the gases emitted by the ripening produce or
flowers. Conserver 21[TM] filters are designed to be placed in front of the
vents of air conditioning or ventilation systems of storage areas and transport
vehicles so that the gases emitted by fruits, vegetables and flowers can be
adsorbed. Each filter provides the effective coverage for the volume equivalent
of a 20 foot container, or approximately 30 cubic meters. Generally, filters may
be attached to air vents through the use of a universal bracket, and do not
require any change to the existing air conditioning or ventilation equipment.
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Based on the Company's testing, properly packaged Conserver 21[TM]
products may be stored for up to 12 months in their original sealed packaging,
and once opened, the products retain their effectiveness for up to 30 days,
depending on the particular environment in which the products are being used.
Marketing Strategy and Efforts. The Company believes that there are
significant opportunities to provide technologies and services which can retard
spoilage and decay in fruits, vegetables and flowers during the course of
storage and transportation from point of packing through retail sale, provided
that the product is competitively priced and properly packaged. The Company is
currently marketing Conserver 21[TM] products to selected supermarkets,
restaurants and other retailers, distributors and growers. Marketing efforts to
date have focused primarily on the sale of the Conserver 21[TM] packets. As part
of the Company's marketing strategy, technical representatives will oversee the
proper use of Conserver 21[TM] in the packaging and transportation of clients'
produce and flowers.
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 (as defined herein) with Agrotech 2000 S.L., a Spanish
company ("Agrotech") that manufactures and packages Conserver 21[TM] and whose
principal stockholder is the developer of Conserver 21[TM], 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 which
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 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].
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.
Agrotech holds the patent rights to Conserver 21[TM]. The Company's rights under
the Distribution Agreement specifically cover the United States and Canada and
include an option and a right of first refusal for any other territory
throughout the world. The Company has reached an agreement in principle to form
a joint venture, whereby the Company would hold a 51% interest, to market
Conserver 21[TM] in Canada. The Company has also begun initial market and
product testing in Canada. In addition to marketing Conserver 21[TM] in the
United States and Canada, the Company is also exploring opportunities
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to market and distribute Conserver 21[TM] in Japan and Israel. (See "Potential
International Markets" below.)
The Distribution Agreement automatically extends through March 2022 and
is renewable for subsequent annual periods and may be terminated by either party
by written notice 90 days prior to the end of any term. The Distribution
Agreement (i) will be terminated automatically in case of the insolvency or
bankruptcy of one of the parties; or (ii) may be terminated by either party for
the substantial breach of any material provision by the other party if the
breaching party has not cured such breach within 30 days of written notice
thereof. Under the terms of the Distribution Agreement, the Company will be
deemed to have accepted without reservation, all Conserver 21[TM] products
delivered by Agrotech, unless claims for alleged shortages or defects are made
in writing by the Company and delivered to Agrotech as soon as discovered, and
in any event not later than 15 days in the case of shortages, and 30 days in the
case of defects, after the date of delivery to the Company.
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.
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. Interest for the loan would be based on the one-year interest rate for
Spanish Pesetas published in the Financial Times on the nearest business day
following each anniversary date of the Distribution Agreement. 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. As of June 30, 1997, the Company had advanced Agrotech
$1,000,000 (the "Agrotech Loan") under the terms of the Distribution Agreement.
Delivery of the initial $500,000 of the Agrotech Loan was advanced on behalf of
the Company by Mr. James V. Stanton, Vice-Chairman and director of the Company,
in May 1997 at an interest rate of 10% per annum. In June 1997, the Company
repaid the $500,000, together with accrued interest of $5,600, from the proceeds
of the Offering.
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, for the ten months ended June 30, 1997, the Company
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
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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.
Potential International Markets. As part of the Company's effort to
exploit international markets, it is developing strategic alliances primarily to
market and distribute Conserver 21[TM] outside the United States.
The Company has commenced market and product testing of Conserver
21[TM] in Canada. The Company has reached an agreement in principle with Thomas
Smyth and Robert D. Morrison to form a Canadian joint venture to market
Conserver 21[TM] in Canada, whereby the Company would hold a 51% interest. The
Company intends to grant the Canadian joint venture a license to market, sell
and otherwise commercially exploit Conserver 21[TM] in Canada and in the states
of Washington and Alaska. The Company has begun its initial market and product
testing in Canada.
As of August 20, 1997, the Company entered into a memorandum of
understanding with an individual to develop a joint venture to sell Conserver
21[TM] products in Israel, pursuant to which the Company would hold a 50%
interest in the joint venture. The Company is also in preliminary discussions
with a Japanese entity regarding a distribution arrangement in Japan.
The foregoing agreements represent agreements in principle and are not
binding. There can be no assurance that the Company will successfully negotiate
definitive agreements relating to any joint ventures, or if definitive
agreements are executed, whether the Company's joint venture partners will be
successful in distributing the Conserver 21[TM] product in each of their
respective markets.
Risk of Loss of Exclusivity Arrangement, Dependency on a Single
Supplier. Should the Company fail to meet its obligations including the Initial
Purchase Commitment or subsequent purchase commitments under the Distribution
Agreement, the Company could lose its exclusive right to sell Conserver 21[TM]
in the United States and Canada, which would materially adversely impact the
development of the Company's business for Conserver 21[TM]. If the Distribution
Agreement were to terminate as a result of a material breach by either party to
the agreement, the Company would not be able to distribute Conserver 21[TM]
products, and accordingly, the Company could be without its current principal
line of business of distributing Conserver 21[TM] products and its results of
operations could be materially adversely impacted.
Currently, the Company is dependent on Agrotech as the sole supplier of
Conserver 21[TM] for the manufacture, supply and quality of the Conserver 21[TM]
products. The Company experienced some limitations in the variety and quality of
the packaging available from Agrotech. If the Company is unable to renegotiate
the terms of the Distribution Agreement with Agrotech, there can be no assurance
that Agrotech will be able to supply the necessary packaging of Conserver 21[TM]
in order for the Company to properly market the Conserver 21[TM] packets in the
United States and Canada.
Competition. Many of the Company's competitors have substantially
greater financial, personnel and other resources than the Company as well as
more experience in the marketing and selling of post-harvest life extension
products. There can be no assurance that Conserver 21[TM] will gain commercial
acceptance or establish any meaningful market share. Furthermore,
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any such market share, if and when achieved, could be lost or reduced by
enhanced competition or the emergence of new and more effective preservation
technologies.
There are several methods used today to extend the post-harvest life of
fruits, vegetables and flowers. The most commonly used are ethylene "adsorbers,"
modified atmosphere packaging, controlled atmosphere systems and gamma
irradiation. In addition, ultraviolet lamps are sometimes used to control
bacteria and mold in refrigerated storage.
Ethylene adsorbers reduce the amount of ethylene in the atmosphere
surrounding produce, by adsorbing the ethylene being released by the produce.
These products adsorb or "scrub" ethylene until they reach their point of
saturation.
Modified atmosphere packaging involves changing the mixture of gases
(usually nitrogen and carbon dioxide) in the atmosphere in which fruits,
vegetables and flowers are stored or shipped to prevent the growth and spread of
mold. In a typical modified atmosphere system, gases are introduced to control
the enzyme systems that cause tissue respiration.
Controlled atmosphere systems maintain a pre-defined mixture of
poisonous gases in the atmosphere surrounding fruits or vegetables, by
constantly measuring and replenishing the component gases as needed.
Gamma irradiation in carefully controlled dosages can be effective in
controlling decay and insect infestations on such produce as papayas, mangos,
bananas, pineapples and grapefruits. Commercial application of gamma irradiation
is limited due to the cost and size of the equipment required for the treatment,
as well as public reluctance to purchase and consume irradiated foods.
Regulatory Requirements. The Company's intended utilization of
Conserver 21[TM] to adsorb gases in storage or transport containers filled with
fruits, vegetables and flowers will result in the natural production of carbon
dioxide, which will have the effect of retarding the growth of microorganisms
and fungi also present in such containers. The Company's believes that its
proposed use of Conserver 21[TM] does not currently subject it to any material
federal, state, or local regulatory approvals.
Based on its review of other applicable regulations, the Company
believes that Conserver 21[TM] is not subject to United States Department of
Transportation hazardous materials requirements which regulate the transport of
certain hazardous substances, nor is it subject to United States Food and Drug
Administration requirements. In addition, based upon written confirmation from
the United States Environmental Protection Agency that Conserver 21[TM]
is not deemed a "pesticide," the Company is not subject to the rules and
regulations of the EPA nor the provisions of the Federal Insecticide Fungicide
and Rodenticide Act.
There can be no assurance, however, that future regulatory approvals
will not be required in the United States, leading to unanticipated expenses and
delays inherent in the regulatory process.
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The Company has not undertaken any investigation as to the applicable
requirements that may be imposed by regulatory agencies in other jurisdictions
in which the Company plans to conduct business, including Canada, Japan and
Israel. There can be no guarantee that applicable regulatory requirements and
legal restrictions will not cause a delay in the Company's ability to
commercially exploit Conserver 21[TM] in such other jurisdictions.
Proposed New Line Of Business and New Business Opportunities
At a Special Meeting of Stockholders, which the Company anticipates to
be held during December 1997, the Company's stockholders will be asked to
consider and vote on a proposal which would result in the Company diversifying
beyond its Principal Line of Business and entering into the New Line of Business
in the hotel and casino industry, specifically involving the New Business
Opportunities to acquire an interest in, and to develop and manage, the Sakhalin
Project and to provide management services for other hotels.
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, which has been paid, (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. Upon completion of the Company's due diligence, should the Company
conclude for any reason that it does not wish to proceed with the Sakhalin
Project 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 (SGTI currently has 230,000 shares
outstanding). 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
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reasonable compensation for such services, which shall not exceed 5% of the
construction cost of the 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 15% of the share capital of SCC from certain
shareholders resulting in SGTI owning 65% of the share capital of SCC. In
consideration for this exchange, 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. Including this transaction, 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. Furthermore, it is the Company's understanding that the $3,000,000 cash
portion of the Purchase Price paid to SGTI 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 Sakhlain Project.
Development Services Agreement. On October 2, 1997, the Company has
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 a share of convertible preferred stock which would
convert, under certain specified conditions and circumstances, into 1,500,000
shares of Common Stock. 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 of the Sakhalin Project is currently estimated at US$100 million.
The shares of Common Stock 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 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. 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.
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 shares 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 the shares to any
affiliate, subject to the Company's consent, which consent shall not be
unreasonably withheld. Chiu also agreed that until three years from the issuance
date of such 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
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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 10 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 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. In connection with the transactions
contemplated by the Sakhalin Agreement, Brian J. Bryce (through the Jasmine
Trustee Ltd.), Jay M. Haft and James V. Stanton, directors of the Company, have
agreed to enter into a pledge agreement with the Company 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, the Company would transfer all of its rights and obligations under
the Sakhalin Agreement to such directors, subject to the directors reimbursing
the Company for certain costs and expenses incurred by the Company relating to
the Sakhalin Project, including the $500,000 initial payment under the Sakhalin
Agreement. These obligations would be secured by a specified amount of shares of
Common Stock of the Company owned, either directly or beneficially, by such
directors. This matter was approved by the Board of Directors at its meeting
held on September 10, 1997.
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 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
9
<PAGE>
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 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.
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 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 Conserver 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 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 Company, pursuant to the terms of an
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 will 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 will be used in turn to fund such expenses. Each operating agreement
would further provide that in the event Dorsett terminates the 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 the Agreement
mulitiplied by a factor which is (i) in the event the Company is terminated
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 at 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
10
<PAGE>
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 that 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 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. 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.
Funding New Line of Business and New Business Opportunities. In
addition to the direct issuance of shares of the Company's Common Stock in
connection with the foregoing 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 sale of
additional Common Stock and/or other securities of the Company in private
offerings.
Other. 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.
In connection with the Company entering into the New Line of Business
and the New Business Opportunities, 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 to the New
Business Opportunities.
Insurance
The Company currently maintains comprehensive general liability and
property insurance with coverage of $1,000,000 per occurrence and umbrella
insurance of $4,000,000 per occurrence. There can be no assurance that the
Company's coverage will be adequate to protect the Company from all potential
losses.
Employees
As of June 30, 1997, the Company had eight employees, including its
five executive officers.
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<PAGE>
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 its employees and consultants during the fiscal year ended June
30, 1998. Such possible increase in the number of employees and consultants
cannot be estimated at this time.
Item 2. Properties
Effective October 1, 1997, the Company moved its principal executive
offices to 3250 Mary Street, Suite 405, Coconut Grove, Florida 33133. This new
office space will occupy approximately 4,300 square feet, and is subject to a
5-year lease at a monthly rental of approximately $7,800. Effective September
30, 1997, the Company terminated its month-to-month lease for its 1,000 square
foot headquarters in an executive office suite in Coral Gables, Florida, at a
rental of approximately $6,000 per month.
The Company also maintains an office in New York City at a cost of
approximately $3,845 per month. In July 1997, the Company entered a 6-month
lease for additional office space in New York City at a monthly rental of $1,800
per month.
The Company believes its existing facilities are adequate to meet
current needs and it does not anticipate any difficulty in negotiating renewals
as leases expire or in finding other satisfactory space if existing facilities
become unavailable or if additional space is needed.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company,
its officers and directors, or its property are a party.
Item 4. Submission of Matters to a Vote of Securities Holders
The following actions were approved by a majority of shares of the
Company entitled to vote thereon by written consents in lieu of a special
meeting of shareholders, dated as of April 23, 1997:
1. Of the 4,210,404 shares entitled to vote, written consents
representing 2,130,000 shares were received approving and adopting the following
actions, with the balance of the shares entitled to vote thereon abstaining:
(i) an amendment to the Company's 1996 Stock Option Plan
increasing from 600,000 to 1,300,000 the aggregate number of shares
issuable upon exercise of options thereunder;
(ii) a classified Board of Directors divided into three
classes, consisting of two Class A directors, two Class B directors and
one Class C director, with the term of office of the Class A directors
expiring at the Company's annual meeting in 1998, with the term of
office for the Class B directors expiring at the Company's annual
meeting in
12
<PAGE>
1999 and with the term of office for the Class C director expiring at
the Company's annual meeting in 2000;
(iii) a reverse stock split at the rate of 1-for-2.269793
shares of Common Stock outstanding and
(iv) the form of Certificate of Amendment to the Company's
Certificate of Incorporation amending the Certificate of Incorporation
to adopt a classified Board of Directors and effect the reverse stock
split.
The following action was approved by a majority of shares of the
Company entitled to vote thereon by written consents in lieu of a special
meeting of shareholders, dated as of April 24, 1997:
1. Of the 4,210,404 shares entitled to vote, written consents
representing 2,340,000 shares were received (i) electing to the Board of
Directors Jay M. Haft, Michael Jay Scharf, Brian J. Bryce, James V. Stanton and
Charles H. Stein and (ii) ratifying the designation of Jay M. Haft and Michael
Jay Scharf as Class A directors, James V. Stanton and Brian J. Bryce as Class B
directors and Charles H. Stein as the Class C director. The balance of the
shares entitled to vote thereon abstained.
No other matters were submitted by the Company to a vote of
shareholders, through the solicitation of proxies or otherwise, during the three
months ended June 30, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Price Range of Common Stock. Since June 6, 1997, the date the Common
Stock shares first traded, the Common Stock has been quoted on the Nasdaq
SmallCap Market under the symbols "RIPE". Prior to June 6, 1997, there was no
market for the Company's Common Stock shares.
The following sets forth, for the period indicated, high and low per
share bid information for the Common Stock reported on the Nasdaq SmallCap
Market:
For the period beginning June 6, 1997
and ending June 30, 1997
----------------------------------------------------------------------
High Low
----------------------------------------------------------------------
$5.8125 $5.00
Dividend Information. The Company has not paid any cash dividends to
date and does not anticipate or contemplate paying dividends in the foreseeable
future. It is the present intention of management to utilize all available funds
and profits, if any, in the development of the Company's business.
13
<PAGE>
Approximate Number of Security Holders. As of September 15, 1997, the
Company had approximately 87 registered holders of record of its Common Stock.
Sale of Unregistered Securities; Uses of Proceeds from Registered
Securities. Information required by Item 701 of Regulation S-K was previously
reported in the Company's Report on Form 10-Q for the quarterly period ended May
31, 1997. Reference is also made to "Management's Discussion and Analysis of
Finanical Condition and Results of Operations - Liquidity and Capital Resources"
hereof which is incorporated herein by reference.
Item 6. Selected Financial Data
The following summary financial data have been derived from the
financial statements of the Company. The statement of operations data set forth
below with respect to the period from March 6, 1996 (date of incorporation) to
August 31, 1996, for the ten months ended June 30, 1997 and the period from
March 6, 1996 (date of incorporation) to June 30, 1997 and the balance sheet at
August 31, 1996 and June 30, 1997 are derived from, and are qualified by
reference to, the Financial Statements included herein. The following table
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," the Company's Financial
Statements and the Notes to Financial Statements included herein.
<TABLE>
<CAPTION>
March 6, 1996 March 6, 1996
(Date of (Date of
Incorporation Ten Months Incorporation
STATEMENT OF Through Ended Through
OPERATIONS DATA August 31, 1996 June 30, 1997(1) June 30, 1997
--------------- ---------------- -------------
<S> <C> <C> <C>
Revenues $ - $ - $ -
Operating expenses:
Marketing and sales - 115,576 115,576
Research and development - 52,247 52,247
Compensation charges in
connection with issuance of
stock options and warrants 907,201 4,995,106 5,902,307
General and administrative
expenses 458,611 1,687,172 2,145,783
Write down of inventory 355,800 355,800
Provision for bad debt 1,000,000 1,000,000
----------- ----------- -----------
Operating loss $(1,365,812) $(8,205,901) $(9,571,713)
Other expenses:
Interest expense, net of $8,741
and $51,180 of interest
income in August and June,
respectively 21,259 356,166 377,425
----------- ----------- -----------
Net Loss $(1,387,071) $(8,562,067) $(9,949,138)
----------- ----------- -----------
Net loss per share of common stock $(.32) $(1.58)
----------- -----------
Weighted average number of common
shares outstanding 4,390,767 5,409,990
----------- -----------
</TABLE>
- ----------------
(1) The Company was incorporated on March 6, 1996 and initially adopted a fiscal
year ending August 31. During the current calendar year, the Company elected
to change its fiscal year end to June 30.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 statements and related
notes.
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<PAGE>
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 exploiting Conserver
21[TM] and negotiating distribution and other arrangements.
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 and has yet to derive any revenues from operations. Its
accumulated deficit at June 30, 1997 was $9,949,138, which included $5,902,307
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 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
$1,450,000. Aggregate net proceeds to the Company from the Offering amounted to
$10,350,000. 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. As at June 30, 1997, approximately $2,130,000 of the proceeds from
the Offering were used for general business purposes, including $1,000,000
delivered under the Agrotech Loan and the repayment of the $1,000,000
convertible debenture held by the SES Family Trust, 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.
Subsequent to the Company's fiscal year end, the Company announced in
August 1997 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 securities of the Company in connection therewith)
are subject to receipt of requisite approval by the Company's stockholders. (See
"Subsequent Events" and "Liquidity and Capital Resources" in this section and
Note K to the Notes to Financial Statements.)
The Company holds the exclusive license to import, promote, distribute,
market, sell and otherwise commercially exploit Conserver 21[TM] in the United
States and Canada, and holds an option and right of first refusal to exercise
such rights throughout the world.
Conserver 21[TM] is a non-toxic product which can be used to retard
spoilage and decay in food and flowers. The Company does not own the patent to
Conserver 21[TM] but has been granted the exclusive right in the United States
and Canada and a right of first refusal and option in other countries to license
and market the product by Agrotech 2000 S.L., a Spanish company which holds the
patent for Conserver 21[TM] and manufacturers and packages the product. The
Company has no right to manufacture or package Conserver 21[TM]. Initial
geographic marketing efforts by the Company have focused primarily on the United
States and Canada.
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<PAGE>
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].
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 which 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 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].
Change in Fiscal Year
The Company initially adopted a fiscal year ending August 31 when it
was 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 addresses the Company's financial results for the period March 6,
1996 through August 31, 1996 and the ten months ended June 30, 1997.
16
<PAGE>
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 June 30, 1997, the Company's activities were primarily limited to
organizational 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. During such period the Company
had no revenues. Since July 1997, the Company has also been involved in the
development of its proposed New Line of Business and New Business Opportunities.
Results of Operations for the period March 6, 1996 (date of
incorporation) to August 31, 1996
Net Loss. Net loss for the period March 6, 1996 to August 31, 1996 was
$1,387,071, or $0.32 per share. Included in the net loss for this period were
(i) general and administrative expenses of $458,611 and (ii) non-cash
compensation charges of $907,201 in connection with the value attributed stock
options and warrants issued by the Company.
General and Administrative Expense. For the period March 6, 1996 to
August 31, 1996, general and administrative expenses were $458,611 and primarily
included expenditures of travel expenses, salaries and professional and
consulting fees. Of such expenses, $65,000 represented non-cash compensation
charges for services contributed by Mr. Charles H. Stein, the Company's
Chairman, President and Chief Executive Officer.
Compensation Charges. For the period March 6, 1996 to August 31, 1996,
non-cash compensation charges were $907,201 for the issuance of stock options to
purchase 100,000 shares of Common Stock and warrants to purchase 325,000 shares
of the Company's Common Stock.
Interest Expense. For the period March 6, 1996 to August 31, 1996,
interest expense was $21,259, net of interest income of $8,741.
Income Taxes. During the period March 6, 1996 to August 31, 1996, the
Company, for tax purposes, did not have any operations, or net operating losses.
The Company's expenses are preoperating and therefore, will be capitalized and
amortized when operations commence.
Results of Operations for the Ten Months Ended June 30, 1997
Net Loss. Net loss for the ten months ended June 30, 1997 was
$8,562,067, or $1.58 per share. Included in the net loss for the period were (i)
non-cash compensation charges of $4,995,106 recorded in connection with the
value attributed to stock options and warrants issued by the Company, (ii)
general and administrative expenses of $1,687,172, (iii) a $1,000,000 charge for
provision of bad debt, (iv) interest expense of $356,166 (net of interest
income), (v) a $355,800 writedown of Conserver 21[TM] inventory, (vi) marketing
and sales expenses of $115,576 and (vii) research and development costs of
$52,247.
17
<PAGE>
Compensation Charges. During the ten months ended June 30, 1997,
non-cash compensation charges were $4,995,106 for the issuance of stock options
to purchase 2,050,000 shares of Common Stock and warrants to purchase 550,000
shares of Common Stock.
General and Administrative Expense. For the ten months ended June 30,
1997, general and administrative expenses were $1,687,172 and included
expenditures consisting primarily of travel expenses, salaries and professional
and consulting fees. Of such expenses, $105,000 and $60,000 represented non-cash
compensation charges for services contributed by Mr. Stein and for certain legal
services provided without charge, respectively.
Marketing and Sales. During the ten months ended June 30, 1997, the
Company incurred $115,576 in marketing and sales expenses in connection with its
preliminary marketing and sales expenses for Conserver 21[TM].
Research and Development. During the ten months ended June 30, 1997,
the Company incurred $52,247 in research and development expenses for Conserver
21[TM] which consisted primarily of product testing for the Conserver 21[TM]
products.
Writedown of Inventory. Initial purchases of Conserver 21[TM] packets
by the Company have indicated certain manufacturing limitations in the packaging
process of the Conserver 21[TM] packets, which management of the Company
believes can be ultimately rectified. In light of these limitations and the
unmarketability of the inventory purchased, the Company wrote down $355,800 of
its Conserver 21[TM] inventory during the ten months ended June 30, 1997.
Provision for Bad Debt. Under the terms of the Distribution Agreement,
the Company advanced $1,000,000 to Agrotech as of June 30, 1997 which is
repayable over a three-year period as an offset against Conserver 21[TM]
purchases by the Company in excess of the purchase a minimum of $2,000,000 of
Conserver 21[TM] products by April 1998 (the "Initial Volume Commitment"). The
Company is currently renegotiating the Distribution Agreement with a view to
reduce the pricing arrangements regarding the Conserver 21[TM] packets and
modify the manufacturing arrangements so that all packaging is done in the
United States. Due to the current uncertainty as to the outcome of the
renegotiation of the Distribution Agreement, the Company's ability to exceed the
Initial Volume Commitment for Conserver 21[TM] products based on the current
pricing level and the anticipated renegotiated lower pricing level, and the
recent manufacturing difficulties, management of the Company believes that
achieving the Initial Volume Commitment necessary to offset the Company's
purchases from Agrotech against the Agrotech Loan is remote. Accordingly, for
the ten months ended June 30, 1997, the Company established a reserve equal to
the Agrotech Loan.
Interest Expense. For ten months ended June 30, 1997, interest expense
was $356,166, net interest income $51,180, resulting from interest accrued on
the Company's convertible debentures and non-cash charges related to the
amortization of $252,000 on debt discount recorded for the value of Common Stock
shares issued to convertible debentureholders.
Income Taxes. For the ten months ended June 30, 1997, the Company, for
tax purposes, did not have any operations, or net operating losses. The
Company's expenses are preoperating and therefore, will be capitalized and
amortized when operations commence.
18
<PAGE>
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. In connection with the organization of the Company, 1,666,667 shares
of Common Stock were subscribed to by Conserver Investments, S.A., an
unaffiliated third party. The Company, in a series of negotiated transactions in
September, October and November 1996 repurchased 1,366,667 shares of such common
stock for an aggregate sum of $1,800,000. The remaining 300,000 shares of Common
Stock were transferred in November 1996 to two unaffiliated individuals. (See
Note A to Notes to Financial Statements.)
In September, October and November of 1996 the Company completed a
private placement and issued 303,000 shares of Common Stock at $5.00 per share
for an aggregate at $1,515,000.
In May 1996, the Company issued a convertible debenture to the SES
Family Trading and Investment Partnership, L.P. ("SES") in the aggregate
principal amount of $1,000,000. Pursuant to the terms of such debenture, as
amended, interest accrued at the rate of 12% per annum, with principal and
interest paid from the net proceeds of the Offering. The Company and SES agreed
to amend the terms of the debenture to eliminate the conversion rights contained
therein which the Company estimates would have entitled such holder to receive
in excess of 2,000,000 shares of Common Stock upon conversion. Instead, SES and
its affiliate received warrants to purchase 550,000 shares of Common Stock at an
exercise price of $2.00 per share, exercisable for a period of six years
commencing one year from the date of issuance. The warrants were valued at
approximately $2,040,000 and were charged to expense at the completion of the
Offering. At the time the warrants were issued, 20,000 shares of previously
issued Common Stock were surrendered to the Company. (See Note E to Notes to
Financial Statements.)
In September and November 1996, the Company issued convertible
debentures in the aggregate principal amounts of $600,000 and $150,000,
respectively. Principal and accrued interest at a rate of 10% per annum, is
payable on the one year anniversary of the date of issuance. The holders of the
debentures may elect to convert, at any time, all unpaid principal and accrued
interest into shares of Common Stock at a rate of $5.00 per share. Subsequent to
the fiscal year ended June 30, 1997, the debentures aggregating $150,000 issued
in November 1996 were repaid in full from the proceeds of the Offering, and of
the debentures aggregating $600,000 issued in September 1996, $365,000 of such
debentures were converted into Common Stock at $5.00 per share and $235,000 were
repaid. (See Note D to Notes to Financial Statements.)
In connection with the sale of the debentures, the Company issued
62,504 shares of its Common Stock valued at $312,500 which is being accounted
for as debt discount to be charged to expense over the term of the note.
Amortization of the discount for the ten months ended June 30, 1997 was
approximately $252,172.
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In August 1996, the Company issued to non-employee directors and
consultants of the Company three-year warrants to purchase 325,000 shares of the
Company's Common Stock at $5.00 per share. The warrants were valued at $457,201
and were charged to operations for the period ended August 31, 1996.
In June 1997, the Company issued to consultants, warrants to purchase
350,000 shares of Common Stock at $5.75 per share. The warrants were valued at
approximately $705,000 and were charged to operations for the ten months ended
June 30, 1997.
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. As at June 30, 1997, options to purchase 1,055,000
shares of Common Stock had been granted under the Plan. Subsequent to the
Company's fiscal year end, the Company issued under the Plan to employees stock
options to purchase an aggregate of 40,000 shares of Common Stock and to
consultants stock options to purchase 137,500 shares of Common Stock. In
addition, the Company issued to a consultant 5,000 shares of Common Stock.
In August 1997, the Company made a $210,000 loan to D & M Investments,
Inc., 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.
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. Interest for the loan would be based on the one-year interest rate for
Spanish Pesetas published in the Financial Times on the nearest business day
following each anniversary date of the Distribution Agreement. 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. As of June 30, 1997, the Company advanced Agrotech
$1,000,000 under the terms of the Distribution Agreement. In May 1997, delivery
of the initial $500,000 of the Loan Amount was advanced on behalf of the Company
by Mr. James V. Stanton, a director and Vice-Chairman of the Company, at an
interest rate of 10% per annum. In June 1997, the Company repaid the $500,000
loan, together with accrued interest of $5,600, from the proceeds of the
Offering. During the ten months ended June 30, 1997, the Company established a
reserve equal to the Agrotech Loan. (See Notes A and I to Notes to Financial
Statements.)
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 ten months ended June 30, 1997, the Company incurred
$115,576 and $52,247 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 and to date, has relied
primarily on the tests performed or commissioned by Agrotech, its predecessor in
interest and entities with which it had contracted. 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 1998, the Company anticipates a significant
increase in marketing and sale costs and research and development costs
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for Conserver 21[TM], particularly if the Distribution Agreement is renegotiated
to the Company's satisfaction.
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.
As at June 30, 1997, approximately $2,130,000 of the proceeds from the
Offering were used for general business purposes, including the $1,000,000
delivered under the Agrotech Loan and the repayment of the $1,000,000
convertible debenture held by the SES Family Trust, 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. At June 30, 1997, the Company had available cash and cash equivalents
of $7,715,460.
The Company is in the development stage and its operations are subject
to all of the risks inherent in the establishment of a new business enterprise,
including the need to obtain financing, lack of revenues and the uncertainty of
market acceptance of its business. The Company has not as yet derived any
revenues from operations and has incurred losses since inception. Its
accumulated deficit at June 30, 1997 was $9,929,138. No 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 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]. There can be no assurance
regarding whether or when the Company will successfully implement its business
plan or operate profitably.
The Company anticipates, particularly if the Distribution Agreement is
renegotiated to its satisfaction, that during the 1998 fiscal year 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, leasing new office space, 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 increases until
such time the Company's Principal Line of Business and/or proposed New Line of
Business have the potential to generate sufficient revenues to offset such
costs.
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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. In addition, under such
agreements the Company would be required to issue, under certain circumstances
and subject to the completion of certain terms and obligations thereunder, up to
5,550,000 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.
Accounting Pronouncements
Pursuant to the choice afforded it in Financial Accounting Standard No.
123 "Accounting for Stock-Based Compensation," the Company has elected to report
under the basis of Accounting Principles Board Opinion No. 25. Disclosures
required by the Company's election may be found in Note E of the financial
statements for the Company's fiscal year ended June 30, 1997.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 established new standards for computing and presenting earnings
per share. SFAS 128 is effective for periods ending after December 15, 1997.
Once effective, per share data for all prior periods is required to be restated.
The Company has not yet qualified what effect, if any, the adoption of SFAS 128
will have on its net earnings per share of Common Stock.
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The Financial Accounting Standards Board has recently issued statements
of Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure," and No. 130, "Reporting Comprehensive Income." These two
pronouncements are not expected to significantly change the disclosure of
information presented in the Company's financial statements.
Subsequent Events
Subsequent to the Company's fiscal year end, the Company announced in
August 1997 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"). In connection with the New Line of Business, and subject to the
receipt of requisite approval by the Company's stockholders, the Company has (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 (collectively, the "New Business
Opportunities"). 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 sale of additional Common Stock and/or other
securities of the Company in private offerings. Both the proposed New Line of
Business and New Business Opportunities are subject to receipt of requisite
stockholder approval. (See "Item 1. Proposed New Line of Business and New
Business Opportunities".)
At a Special Meeting of Stockholders, which the Company anticipates to
be held during December 1997, the Company's stockholders will be asked to
consider and vote on a proposal which would result in the Company diversifying
beyond its Principal Line of Business and entering into a the New Line of
Business in the hotel and casino industry, specifically involving the New
Business Opportunities to acquire an interest in, and to develop and manage, the
Sakhalin Project and to provide management services for other hotels.
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
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<PAGE>
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, which has been paid, (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. Upon completion of the Company's due diligence, should the Company
conclude for any reason that it does not wish to proceed with the Sakhalin
Project 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 (SGTI currently has 230,000 shares
outstanding). 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
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 15% of the share capital of SCC from certain
shareholders resulting in SGTI owning 65% of the share capital of SCC. In
consideration for this exchange, 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. Including this transaction, 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. Furthermore, it is the Company's understanding that the $3,000,000 cash
portion of the Purchase Price paid to SGTI will be used by SGTI as a loan to SCC
(in which SGTI hold a 65% interest) for the initial development and costs for
the Sakhlain Project.
Development Services Agreement. On October 2, 1997, the Company has
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 a share of convertible preferred stock which would
convert, under specified conditions and certain circumstances, into 1,500,000
shares of Common Stock. 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 of the Sakhalin Project is currently estimated at $100 million. The
shares of Common Stock 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 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. 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
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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.
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 shares 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 the shares to any
affiliate, subject to the Company's consent, which consent shall not be
unreasonably withheld. Chiu also agreed that 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 such 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 10 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 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. In connection with the transactions
contemplated by the Sakhalin Agreement, Brian J. Bryce (through the Jasmine
Trustees Ltd.), Jay M. Haft and James V. Stanton, directors of the Company, have
agreed to enter into a pledge agreement with the Company that in the event the
proposal relating to the New Line of Business and New Business Opportunities
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is not approved by the stockholders of the Company at the Special Meeting of
Stockholders, the Company would transfer all of its rights and obligations under
the Sakhalin Agreement to such directors, subject to the directors reimbursing
the Company for certain costs and expenses incurred by the Company relating to
the Sakhalin Project, including the $500,000 initial payment under the Sakhalin
Agreement. These obligations would be secured by a specified amount of shares of
Common Stock of the Company owned, either directly or beneficially, by such
directors. This matter was approved by the Board of Directors at its meeting
held on September 10, 1997.
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 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 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 agreement
for "cause," which includes (i) material breach of the agreement, (ii)
unavailability of Hartley, (iii) material misconduct injurious to the Company by
the Consultant or Hartley or (iv) conviction of 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.
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 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 Conserver 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 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 Company, pursuant to the terms of an
operating agreement for each hotel managed, would be entitled to management fees
equal to
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three percent of gross revenues plus ten percent of gross operating profits. In
addition, the Company will 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
will be used in turn to fund such expenses. Each operating agreement would
further provide that in the event Dorset terminate's the 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 the Agreement
mulitiplied by a factor which is (i) if the Company is terminated 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 that 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 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 Conserver 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 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.
27
<PAGE>
Funding New Line of Business and New Business Opportunities. In
addition to the direct issuance of shares of the Company's Common Stock in
connection with the foregoing 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 sale
of its securities.
Other. 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.
In connection with the Company entering into the New Line of Business
and the New Business Opportunities, 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.
Factors That Could Affect Operating Results
This Annual Report on Form 10-K contains forward-looking statements.
Additional written and oral forward-looking statements may be made by the
Company from time to time in Securities and Exchange Commission ("SEC") filings
and otherwise. The Company cautions readers that results predicted by
forward-looking statements, including, without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements, due to the following factors, among
other risks and factors identified from time to time in the Company's filings
with the SEC:
o 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,
reliability of sources of supply and the uncertainty of market acceptance of its
business. The Company has not as yet derived any revenues from operations and
has incurred losses since inception.
o No operating revenues are anticipated until such time, if ever, as
the Company can demonstrate the commercial viability of Conserver 21[TM], and
until the Company's New Line of Business, if approved by its stockholders,
becomes a viable operation. There can be no assurance regarding whether or when
the Company will successfully implement its business plan or operate profitably.
o The Company is wholly dependant upon the Distribution Agreement with
Agrotech, a Spanish corporation which owns the rights to Conserver 21[TM] and
manufactures and distributes the product. If the Distribution Agreement were to
terminate for any reason, the Company may not be able to purchase or distribute
Conserver 21[TM] products.
o 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 improve the packaging of the
Conserver 21[TM] product. The Company is currently in discussions with Agrotech
with a view to reduce the pricing arrangements regarding the Conserver 21[TM]
product 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 which 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
28
<PAGE>
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].
o 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. As of June 30, 1997, the Company had advanced Agrotech $1,000,000.
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.
o Agrotech currently operates a manufacturing facility near Madrid.
Currently, the Company is dependent on Agrotech as the sole supplier of
Conserver 21[TM] for the manufacture, supply and quality of the Conserver 21[TM]
products. The Company experienced some limitations in the variety and quality of
the packaging available from Agrotech. If the Company is unable to renegotiate
the terms of the Distribution Agreement with Agrotech, there can be no assurance
that the Company will be able to properly market the Conserver 21[TM] packets.
o Should the Company fail to meet its obligations under the
Distribution Agreement, including the Initial Purchase Commitment or subsequent
purchase commitments, the Company could lose its exclusive right to sell
Conserver 21[TM] in the United States and Canada, which would materially
adversely impact the development of the Company's business. If the Distribution
Agreement were to terminate as a result of a material breach by either party to
the agreement, the Company would not be able to distribute Conserver 21[TM]
products, and accordingly, the Company could be without its current Principal
Line of Business involving Conserver 21[TM] and its results of operations could
be materially, adversely impacted.
o Any sustained impairment of the Company's ability to acquire or
market Conserver 21[TM] for any reason, including, without limitation, the
cancellation of the Distribution Agreement, manufacturing or packaging
difficulties, or a cessation of production by Agrotech may significantly delay
or seriously impair the Company's ability to commercialize Conserver 21[TM].
o The Company believes that its proposed use of Conserver 21[TM] does
not currently subject it to any material federal, state, or local regulatory
approvals. There can be no assurance, however, that future regulatory approvals
will not be required in the United States, leading to unanticipated expenses and
delays inherent in the regulatory process.
29
<PAGE>
o The Company has not undertaken any investigation as to the applicable
requirements that may be imposed by regulatory agencies outside the United
States. There can be no guaranty that such legal restrictions in jurisdictions
outside the United States will not result in a delay in the Company's ability to
commercially develop the Conserver 21[TM] in those jurisdictions.
o The Company currently has no orders for Conserver 21[TM] products,
and there can be no assurance that potential customers will be willing to incur
the costs of Conserver 21[TM], that the Conserver 21[TM] will be contracted for
by any supermarkets or other retailers, distributors or growers or, even if
accepted by any such entities, that it will prove profitable or attractive to
potential customers. In addition, there can be no assurance that other competing
products will not be more economical or attractive to the Company's potential
customers.
o The marketing and sale of Conserver 21[TM] currently is the Company's
sole line of business and will account for substantially all of the Company's
revenues, if any, for the foreseeable future and until the Company's New Line of
Business and New Business Opportunities, if approved by stockholders, result in
a viable operation. 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] and its success in competing against other products or
technologies aimed at the same market.
o Conserver 21[TM] has not been commercially used outside of Spain and
there can be no assurance that the Company can establish a market for the
Conserver 21[TM] in the United States, Canada or in other territories which it
may have distribution rights. If Conserver 21[TM] cannot be successfully
commercialized, or if Conserver 21[TM] cannot be marketed on a stand-alone
basis, it is likely there would be a material adverse effect on the Company's
business, financial condition and results of operations.
o As part of the Company's effort to exploit international markets, it
is currently developing strategic alliances primarily to market and distribute
Conserver 21[TM] in Canada, Israel and Japan. There can be no assurance that any
of the proposed transactions will result in definitive agreements for the
Company, or if such definitive agreements are effectuated, that the introduction
of Conserver 21[TM] into the geographic areas identified would be commercially
accepted or profitable. In addition, if such agreements are effectuated, the
Company's Conserver 21[TM] operations will be subject to risks inherent in
international operations.
o The Company has never utilized Conserver 21[TM] under the conditions
and in the volumes that will be required to make the Conserver 21[TM] profitable
and cannot predict all of the difficulties that may arise in connection
therewith. Although the Company has completed some initial testing of Conserver
21[TM], the Company has not completed all of its own comprehensive independent
tests and to date, has relied primarily on the tests performed or commissioned
by Agrotech, its predecessor in interest and entities with which it had
contracted. 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.
30
<PAGE>
o The Company's ability to operate its Conserver 21[TM] business
successfully will depend on a variety of factors, many of which are outside the
Company's control, including competition, cost and availability of the product
and changes in regulatory requirements.
o The Company's initial marketing activities will be performed by its
executive officers and advisors. To varying degrees, such persons have had prior
experience in the food industry and marketing food products and services.
However, none have had any experience with Conserver 21[TM] or in marketing the
product. 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. There can be no assurance that the Company will
be able to gain such expertise or that such marketing efforts will be
successful.
o There are several methods of food preservation commercially available
that compete directly or indirectly with the Company's Conserver 21[TM]
products. Many of the Company's competitors have substantially greater
financial, human and other resources than the Company as well as more experience
in the marketing and selling of post-harvest life extension products. There can
be no assurance that Conserver 21[TM] will gain commercial acceptance or
establish any meaningful market share. Furthermore, any such market share, if
and when achieved, could be lost or reduced by enhanced competition or the
emergence of new and more effective preservation technologies.
o The Company had formerly contracted for the exclusive rights to
distribute Conserver 21[TM] in the United States and Canada with Groupe
Conserver, the group of affiliated entities which, collectively, held the
exclusive worldwide rights to distribute and market Conserver 21[TM] from
Conserver XXI, S.A., Agrotech's predecessor in interest ("Conserver XXI"). Due
to the instigation of insolvency proceedings involving Conserver Investments
S.A., the controlling entity of the Groupe Conserver affiliates ("Conserver
Investments"), and other alleged breaches, including Groupe Conserver's loss of
its rights from Conserver XXI, the Company has terminated its former
distribution agreement with Groupe Conserver and has taken steps to preserve its
right to assert claims in the Conserver Investments insolvency proceedings.
There can be no assurance that the Company's claims will be successful or that
Groupe Conserver or anyone acting on its behalf will not attempt to enjoin the
Company from exercising its rights derived from Agrotech or otherwise make
claims against the Company and that such efforts will not successfully prevent
the commercialization of Conserver 21[TM] temporarily. The Company does not
believe, however, that there is any basis for such claims.
New Line of Business and New Business Opportunities
o 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 its 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.
31
<PAGE>
o The Company's current and future business plans with respect to the
New Line of Business and the New Business Opportunities are dependent, in large
part, on changes in conditions which may adversely impact investments in gaming
enterprises. These conditions and other factors beyond the Company's control
include: (i) ability of the Company to operate any hotels and casinos; (ii)
competition from other hospitality and entertainment properties; (iii) changes
in regional and local population and disposable income composition; (iv)
unanticipated increases in operating costs; (v) legal restrictions as to the use
of advertising typically utilized in marketing gaming operations; (vi)
restrictive changes in zoning and similar land use laws and regulations or in
health, safety and environmental laws, rules and regulations; (vii) the
inability to secure property and liability insurance to fully protect against
all losses, or to obtain such insurance at reasonable costs; (viii) the exercise
of the power of eminent domain; (ix) seasonality; and (x) changes in travel
patterns or preferences which may be affected by increases in gasoline prices,
changes in airline schedules and fare, strikes, weather patterns and/or
relocation or reconstruction of highways, among other factors. Given the rapid
developments and changes in the industry, it is impossible to accurately predict
future trends or changes in the gaming industry or their effect on the Company.
In particular, the success of the Company's proposed projects is largely
dependent on tourism from the active gaming populations of Japan, Korea and
China and the Russian Federation. Although the economic viability of any of the
Company's proposed projects is at least in part based upon tourist incentives
which would streamline the process of tourists entering the regions in which the
Company plans to operate for gambling in such regions, there can be no assurance
that restrictions will not be imposed on gambling generally in the regions in
which the Company plans to operate and/or on tourists entering such regions for
gambling, which may adversely impact the Company's results of operations.
o The collection of the casino receivables with respect to the projects
from international customers could be adversely affected by future business or
economic trends or significant events in the countries in which such customers
reside. There can be no assurance that operating cash flows and results of
operations will not be adversely impacted by any inability to collect
receivables from high-end players. In addition, gaming debts may not be legally
enforced in certain foreign jurisdictions or in certain jurisdictions within the
United States on grounds that they are against public policy. Such
unenforceability may have an adverse impact on the collectability of such
receivables.
o As a result of the Company's proposed expansion into the hospitality
and gaming industries internationally, the Company's operations with respect to
the proposed projects will be subject to greater risks inherent in international
operations such as the possibility of the loss of revenue, property or equipment
due to expropriation, nationalization, war, insurrection, terrorism or civil
disturbance, the instability of foreign economies, currency fluctuations and
devaluations, adverse tax policies and governmental activities that may limit or
disrupt markets, restrict payments or the movement of funds or result in the
deprivation of contract rights. The Company is subject to taxation in a number
of jurisdictions, and the final determination of its tax liabilities involves
the interpretation of the statutes and requirements of various domestic and
foreign taxing authorities. Foreign income tax returns of foreign subsidiaries,
unconsolidated affiliates and related entities are routinely examined by foreign
tax authorities.
32
<PAGE>
There can be no assurance that any of these risks will not have an adverse
effect on the Company's results of operations.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company are filed as part
of this Form 10-K are set forth on pages F-2 to F-22. The report of Richard A.
Eisner & Company, LLP, independent auditors, dated August 28, 1997 and September
24, 1994, respect to Notes D and K(8), October 2, 1997 with respect to Notes
K(2) and (6) and October 3, 1997 with respect to Note K(10) is set forth on page
F-1 of this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
Identification of Directors
Pursuant to an Amendment to the Company's Certificate of Incorporation,
the Board of Directors is divided into three classes, the terms of which expire
successively over a three-year period. At each annual meeting of stockholders,
successors to directors whose terms expire at that meeting shall be elected for
three-year terms. The term of office for each class of director expires as
follows: Class A, at the 1998 annual meeting of stockholders; Class B at the
1999 annual meeting of stockholders; and Class C at the 2000 annual meeting of
stockholders. The current directors of the Company are as follows:
Class A Directors
JAY M. HAFT, 61, has served as a director of the Company since October
1996. A practicing attorney for over 25 years, Mr. Haft also serves as Chairman
of Noise Cancellation Technologies, Inc., Extech, Inc., Jenna Lane, Inc. as well
as director of five other public companies whose respective securities are
traded on The Nasdaq Market. He is a Managing General Partner of Venture Capital
Associates, Ltd. and of Gen Am "1" Venture Fund, a domestic and an international
venture capital fund, respectively. From 1989 until 1994, he was a partner at
Parker Duryee Rosoff & Haft, counsel to the Company for its initial public
offering, in New York, New York. He is currently of counsel to such firm. He is
a member of the Florida State Commission for Government Accountability to the
People.
MICHAEL JAY SCHARF, 54, has been a director of the Company since
September 1996. Mr. Scharf has been Chairman, President and Chief Executive
Officer of Niagara Corporation (formerly International Metals Acquisition
Corporation), a publicly held specialty steel and metal Company, since 1993.
From 1989 until 1993, Mr. Scharf was a private investor. From 1983 until 1989,
he was Chairman and Chief Executive Officer of Edgecomb Corporation,
33
<PAGE>
a leading independent metals distribution Company which was sold in 1989 to the
Blackstone Group. Mr. Scharf is also a director of Financial Services
Acquisition Corp., a publicly held Company.
Class B Directors
JAMES V. STANTON, 65, has been Vice Chairman and a director of the
Company since its inception in March 1996. From 1981 to 1988 he served as
Executive Vice President of the Delaware North Company, one of the largest
privately held food companies in the Unites States. Mr. Stanton, has been an
attorney and a registered lobbyist in Washington, D.C. since 1988, and
represented the 20th Congressional District of Ohio in the United in the United
States House of Representatives from 1971 to 1977, where he served on the Select
Committee on Intelligence, the Government Operations Committee, and the Public
Works and Transportation Committee.
BRIAN J. BRYCE, 62, has been a director of the Company since July 1996.
Since 1988, Mr. Bryce has been the sole principal and a director of Bryce &
Company, Limited, a consulting firm engaged in project finance. Mr. Bryce was
employed by Hyatt International Corporation from 1969 until 1988, initially as a
Vice President and ultimately becoming Vice Chairman in 1981.
Class C Director
CHARLES H. STEIN, 65, has been Chairman, President and Chief Executive
Officer of the Company since its inception in March 1996. From June 1994 until
March 1996, Mr. Stein was a private investor and consultant. From October 1993
until June 1994, Mr. Stein was Chairman of HMI International Ltd., a Florida
based wholesaler and retailer of resale products. From 1985 to 1987, he was
President and Chief Executive Officer of Night Hawk Resources, Ltd. (Vancouver
Stock Exchange) which was engaged in oil and gas exploration in Texas and
Alaska. Prior thereto and from 1987, Mr. Stein was a private investor. Early in
his career, Mr. Stein pioneered the concept of packaging fresh orange juice in
"milk-type" cartons, which concept was sold to Kraft Foods, Inc. From December
1968 to October 1983, Mr. Stein was Chairman and Chief Executive Officer of
Hardwicke Companies Inc. (Nasdaq), which built, developed, or operated more than
50 restaurants (including Tavern on the Green, Maxwell's Plum, and Benihana),
health spas, theme parks in North America, Europe and Asia (including Great
Adventure in New Jersey), and duty-free shops. Prior to 1968, he was President
and Chief Executive Officer of Kitchens of Sara Lee, the world's largest bakery,
as well as a director, member of the Executive Committee, and a Vice President
of Consolidated Foods Corporation (NYSE), the parent Company of Sara Lee.
Identification of Executive Officers
In addition to Messrs. Stein and Stanton, who are listed above, the
following persons are executive officers of the Company:
JEFFREY H. BERG, PH.D., 53, was appointed Vice President of Research
and Development in January 1997. Dr. Berg, who has agreed to devote
approximately 50% of his
34
<PAGE>
working time to Company affairs, will also seek new business opportunities for
the Company that are compatible with its current or future business. Since 1987
Dr. Berg has worked in the financial community as an analyst covering the health
care industry, including as a part-time employee of M. H. Meyerson & Co., Inc.,
a financial services firm, since September 1995. From 1981 to 1987 Dr. Berg
worked at PA Technology, an international consulting agency where he counseled
clients in the food industry and the health care industry. From 1974 to 1981 he
led product development laboratories at Johnson & Johnson's Patient Care
Division, and subsequently for the Consumer Products Division of Ortho
Pharmaceutical Corporation. Dr. Berg received a Ph.D in organic chemistry from
New York University in 1969 and subsequently spent four years at General Foods
in research.
GERALD M. BRESLAUER, 60, has been Vice President -- Administration and
Secretary of the Company since its inception. From 1991 until he joined the
Company in March 1996, Mr. Breslauer was an agent of The Equitable Life
Assurance Society of the United States and the Equitable Variable Life Insurance
Company and was a registered representative of Equico Securities, Inc. Mr.
Breslauer is licensed to practice law in the State of New York.
MILES R. GREENBERG, 40, was appointed Vice President and Chief
Financial Officer of the Company in September 1996 and appointed Senior Vice
President on January 18, 1997. From 1994 until joining the Company, Mr.
Greenberg served as Vice President and Chief Financial Officer of F3 Software
Corporation ("F3"), a developer and marketer of electronic forms composition and
automation software. From 1992 until assuming his positions at F3, he served as
Controller of BLOC Development Corporation (former parent company of F3), a
publicly held entity primarily engaged in the development, publishing and direct
marketing of computer software and hardware products. From 1985 to 1992, Mr.
Greenberg served as Vice President and Chief Financial Officer of The Levenshon
Companies, Inc. and its affiliates, a diversified financial services company.
Mr. Greenberg is a Certified Public Accountant formerly with KPMG Peat Marwick.
DOUGLAS C. RICE, 53, was appointed Vice President -- Corporate
Development of the Company in May 1996 and appointed Executive Vice President
and Chief Operating Officer in April 1997. Prior to joining the Company and from
1986, Mr. Rice was an independent food technologies consultant, during which
time he provided advice and guidance for six years to the Charoen Pokphand
Group, one of Asia's largest food producers, on the operation, financing,
management and distribution aspects of businesses specializing in shrimp, fish,
and chicken products.
MICHAEL STANTON, 23, was appointed Vice President -- Special Projects
in April 1997. Mr. Stanton is the son of James Stanton, Vice Chairman and
Director of the Company and is a graduate of the College of the Holy Cross in
1996. Mr. Stanton shall serve the Company in identifying and developing new
business opportunities and special project applications for Conserver 21[TM].
35
<PAGE>
Compliance with Section 16(a)
of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10
percent of any registered class of the Company's equity securities, to file with
the Securities and Exchange Commission (the "SEC") and the Nasdaq Stock Market
reports of ownership of the Common Stock of the Company. Reporting persons are
required by SEC regulation to furnish the Company with copies of all such
reports that they file. To the best of the Company's knowledge, during the
period March 6, 1996 to August 31, 1996 and the ten months ended June 30, 1997,
the initial reports and any amendments thereto of each of the Company's
executive officers and directors were timely filed.
Item 11. Executive Compensation
The following table sets forth the compensation awarded or paid to, or
earned by, the Company's Chief Executive Officer during the period March 6, 1996
to August 31, 1996 and the ten months ended June 30, 1997. No other executive
officer of the Company serving as an executive officer received a total salary
and bonus of $100,000 for the periods specified. Accordingly, no information is
reported for such persons.
Summary Compensation Table
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
-----------------------------------------------------------------------------
Awards Payouts
--------------------------------
Other Securities
Annual Underlying All Other
Fiscal Compensation Options Compensation
Name and Principal Position Period(1) Salary($)(2) Bonus($)(2) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Charles H. Stein 3/6/96 - 8/31/96 0 0 0 0 0
Chairman, Chief Executive
Officer, President and 0 0 0 0 0
Director 9/1/96 - 6/30/97
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) The Company was incorporated on March 6, 1996 and initially adopted a fiscal
year ending August 31. During the current calendar year, the Company elected
to change its fiscal year end to June 30.
(2) For the period March 6, 1996 to June 30, 1997, Mr. Stein waived his right to
an annual salary and, as of the date of this report, has continued to waive
this right. The Board of Directors has accepted Mr. Stein's waiver, but has
reserved the right to award Mr. Stein, in its sole discretion, the amounts
so waived. During this period March 6, 1996 to August 31, 1996 and the ten
months ended June 30, 1997, the Company recorded non-cash compensation
charges of $65,000 and $105,000, respectively, for services contributed by
Mr. Stein.
Employment Agreement
Effective as of June 13, 1997 the Company entered into an employment
agreement with Charles H. Stein, President and Chief Executive Officer of the
Company. The agreement has a three-year term which renews for an additional year
on each anniversary of the agreement, and provides for an annual base
compensation of $125,000 together with such additional increases as the
Company's Board of Directors, in its sole discretion, from time to time
determines are appropriate. The agreement also provides for certain employee
benefits including medical
36
<PAGE>
insurance, vacation and a car allowance, and also contains a non-competition
provision covering the term of the agreement as well as for 36 months following
termination. For the period March 6, 1996 to August 30, 1996 and the ten months
ended June 30, 1997, Mr. Stein waived his right to an annual salary and the
Company recorded non-cash compensation charges of $65,000 and $105,000 for the
respective periods. As of the date of this report, Mr. Stein has continued to
waive this right. The Board of Directors has accepted Mr. Stein's waiver, but
has reserved the right to award Mr. Stein, in its sole discretion, the amounts
so waived.
The following table provides certain information regarding the stock
options granted during the period March 6, 1996 to August 31, 1996 and the ten
months ended June 30, 1997 to the only executive officer named in the Summary
Compensation Table.
Option Grants For the Period March 6, 1996 to August 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number of % of total
Securities Options Granted Exercise of
Underlying Options to Employees Base Price Expiration
Name Granted(#)(1) in Fiscal Period $/Share Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles H. Stein 0 0 -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) The Company was incorporated on March 6, 1996 and initially adopted a fiscal
year ending August 31. During the current calendar year, the Company elected
to change its fiscal year end to June 30.
Option Grants For the Ten Months Ended June 30, 1997(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Number of % of total
Securities Options Granted Exercise of
Underlying Options to Employees Base Price Expiration
Name Granted(#)(1) in Fiscal Period $/Share Date
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Charles H. Stein 0 0 -- --
- --------------------------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) The Company was incorporated on March 6, 1996 and initially adopted a fiscal
year ending August 31. During the current calendar year, the Company elected
to change its fiscal year end to June 30.
Directors Compensation
Non-employee directors receive $1,000 for each meeting a director
attends. Directors who are employees of the Company receive no additional
compensation for their services rendered as directors. All directors are
reimbursed for reasonable expenses incurred in connection with their services
rendered as directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, to the best of the
Company's knowledge, with respect to each person (including any "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) known to the Company to be the beneficial owner
(defined below) of more than 5% of the Company's Common Stock. The percentage of
shares outstanding is based on the Company's Common Stock shares outstanding as
of September 30, 1997.
37
<PAGE>
- --------------------------------------------------------------------------------
Number of Shares Percentage of
Beneficially Total Voting
Name and Address of Stockholder Owned Shares
- --------------------------------------------------------------------------------
Charles Stein Inter Vivos Trust(1)
c/o Conserver Corporation of America
3250 Mary Street, Suite 405
Coconut Grove, FL 33133 1,000,000 14.7%
- --------------------------------------------------------------------------------
James V. Stanton(2)
c/o Conserver Corporation of America
3250 Mary Street, Suite 405
Coconut Grove, FL 33133 653,644 8.9%
- --------------------------------------------------------------------------------
Jasmine Trustees Ltd.(3) 500,000 7.4%
P.O. Box 675
St. Helier, Jersey Channel Islands
- --------------------------------------------------------------------------------
The SES Family Investment Partnership, L.P.(4) 500,000 6.9%
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109
- --------------------------------------------------------------------------------
- ----------------
(1) Represents shares held by the Charles Stein Intervivos Trust for benefit of
Mr. Charles H. Stein's spouse and children. Mr. Stein, Chairman, President
and Chief Executive Officer of the Company, disclaims voting and investment
power with respect to the shares.
(2) Includes 20,000 shares of Common Stock which are held by Mr. Stanton, a
director of the Company, as joint tenant with his wife, Margaret M. Stanton,
currently exercisable warrants to purchase 150,000 shares of Common
Stock at a price equal to $5.00 per share and currently exercisable options
to purchase 400,000 shares and 23,644 shares of Common Stock at $5.00 and
$2.00 per share, respectively.
(3) Represents shares held by the Jasmine Trustees Ltd. for the benefit of Mr.
Brian J. Bryce, a director of the Company, and his children. Mr. Bryce does
not have voting or dispositive power with respect to such shares.
(4) Represents currently exercisable warrants to purchase 500,000 shares of
Common Stock at an exercise price of $2.00 per share and expiring in June
2003.
The following table sets forth information, to the best of the
Company's knowledge, with respect to the Company's Common Stock, (i) the
ownership of Common Stock by each current director and nominee, (ii) the
ownership of Common Stock by the Executive Officers named in the "Summary
Compensation Table," and (iii) the ownership of Common Stock by all current
directors and executive officers of the Company as a group. Except as otherwise
provided in the footnotes to the table, the beneficial owners (defined below)
have sole voting and investment power as to all securities. The percentage of
shares outstanding is based on the Company's Common Stock shares outstanding as
of September 30, 1997.
38
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Number of Shares Percentage of
Beneficially Total Voting
Name Owned Shares
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles H. Stein - Chairman, President and Chief Executive
Officer(1) 1,000,000 14.7%
- -------------------------------------------------------------------------------------------------------
James V. Stanton - Vice Chairman and Director(2) 653,644 8.9%
- -------------------------------------------------------------------------------------------------------
Douglas C. Rice - Executive Vice President and Chief
Operating Officer(3) 25,000 *
- -------------------------------------------------------------------------------------------------------
Miles R. Greenberg - Senior Vice President - Finance,
Treasurer and Chief Financial Officer(4) 30,000 *
- -------------------------------------------------------------------------------------------------------
Jeffrey H. Berg - Vice President - Research and Development -- --
- -------------------------------------------------------------------------------------------------------
Gerald M. Breslauer - Vice President - Administration and
Secretary 50,000 *
- -------------------------------------------------------------------------------------------------------
Michael J. Stanton - Vice President - Special Project(5) 50,155 *
- -------------------------------------------------------------------------------------------------------
Brian J. Bryce, Director(6) 500,000 7.4%
- -------------------------------------------------------------------------------------------------------
Jay M. Haft - Director(7) 350,000 4.9%
- -------------------------------------------------------------------------------------------------------
Michael Jay Scharf - Director(8) 200,000 2.9%
- -------------------------------------------------------------------------------------------------------
All executive officers and directors as a group (10 persons) 2,858,799 36.9%
- -------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Represents shares held by Charles Stein Inter Vivos Trust for benefit of Mr.
Stein's spouse and children. Mr. Stein disclaims voting and investment power
with respect to the shares.
(2) Includes 20,000 shares of Common Stock which are held as joint tenants with
Mr. Stanton's wife, Margaret M. Stanton, currently exercisable warrants
to purchase 150,000 shares of common stock at a price equal to $5.00 per
share, and currently exercisable options to purchase 400,000 shares and
23,644 shares of Common Stock at $5.00 and $2.00 per share, respectively.
Does not include 30,000 shares of Common Stock issued to Mr. Stanton's
adult children.
(3) Represents currently exercisable options to purchase 25,000 shares of Common
Stock at $.50 per share.
(4) Represents currently exercisable options to purchase 30,000 shares of Common
Stock at $5.00 per share.
39
<PAGE>
(5) Includes currently exercisable options to purchase 11,822 shares of Common
Stock at $2.00 per share and 23,333 shares at $5.00 per share.
(6) Represents shares held by Jasmine Trustees Ltd., a trust established for the
benefit of Mr. Bryce and his children. Mr. Bryce does not have voting or
dispositive power with respect to such shares.
(7) Includes warrants to purchase 150,000 shares of Common Stock at a price
equal to $5.00 per share and options to purchase 150,000 shares of Common
Stock at $5.00 per share.
(8) Represents 200,000 shares held by the Scharf Family 1989 Trust for the
benefit of Mr. Scharf and his family. Mr. Scharf does have voting or
dispositive power with respect to such shares.
As used in the tables above "beneficial ownership" means the sole or
shared power to vote or direct the voting or to dispose or direct the
disposition of any security. A person is deemed to have "beneficial ownership"
of any security that such person has a right to acquire within 60 days of the
date of this report. Any security that any person named above has the right to
acquire within 60 days is deemed to be outstanding for purposes of calculating
the ownership of such person but is not deemed to be outstanding for purposes of
calculating the ownership percentage of any other person. Unless otherwise
noted, each person listed has the sole power to vote, or direct the voting of,
and power to dispose, or direct the disposition of, all such shares.
Item 13. Certain Relationships and Related Transactions
Following the Company's incorporation in March 1996, the Company issued
an aggregate of 4,880,167 shares of Common Stock to 24 persons, including
Messrs. Stein (through the Charles Stein Inter Vivos Trust), Stanton, Bryce
(through the Jasmine Trustees Ltd.), Breslauer, Haft and Scharf (through the
Scharf Family 1989 Trust) and Conserver Investments, SA, at a price of $.001 per
share.
During the period from April 1996 through November 1996, the Company
issued an aggregate of 634,400 shares of Common Stock to 49 persons at a price
of $5.00 per share, including two persons who had previously acquired shares of
Common Stock at $.001 per share and 30,000 shares to two adult children of James
V. Stanton, a director of the Company. Subsequently in April 1997, options to
purchase 500,000 shares of Common Stock were granted to these 49 persons on a
pro rata basis at an exercise price of $2.00 per share.
In March 1996, options to purchase 75,000 shares of Common Stock at an
exercise price of $.50 per share were granted to Douglas Rice, Vice President --
Corporate Development. The Company recorded compensation charges of $337,500 in
connection with the issuance of such options. In August 1996 warrants to
purchase 150,000 shares of Common Stock at a purchase price of $5.00 per share
were granted to each of Messrs. Haft and Stanton. In April 1997, options to
purchase 150,000 shares of Common Stock at a purchase price of $5.00 per share
were granted to each of Messrs. Haft and Stanton and options to purchase a total
of 70,000 shares of Common Stock at an exercise price of $5.00 per share were
granted to Michael Stanton, Vice President of the Company and James Stanton's
son. In September 1996 and April
40
<PAGE>
1997, options to purchase a total of 90,000 shares of Common Stock at an
exercise price of $5.00 per share were granted to Miles R. Greenberg, Senior
Vice President and Chief Financial Officer.
In October and November 1996, the Company repurchased, for an aggregate
repurchase price of $1,800,000, 1,366,667 of the 1,666,667 shares of Common
Stock originally acquired by Conserver Investments, SA (an affiliate of Groupe
Conserver) ("CI") in March 1996 in connection with the Groupe Conserver
Distribution Agreement. The remaining 300,000 shares of Common Stock were
transferred in November to two persons designated by the Company, each of whom
are non-affiliates of both the Company and Groupe Conserver or any of their
directors, officers or employees.
Pursuant to a Stockholder Agreement dated March 7, 1996 by and among
Charles Stein, Bruce Denis Allet on behalf of CI and a non-affiliate
stockholder, Mr. Allet has served on the Board of Directors as a designee of CI.
This agreement terminated effective upon the disposition by CI of its remaining
shares of Common Stock in November 1996, and Mr. Allet subsequently resigned as
a director of the Company.
Since October 1996, the Company has paid rent of $3,845 per month plus
utilities to Charles H. Stein for the use of his Manhattan suite as office space
for the Company.
In April 1997, James Stanton advanced $500,000 to Agrotech on behalf of
the Company in fulfillment of a Company obligation under the distribution
agreement between the Company and Agrotech. In June 1997, the Company repaid Mr.
Stanton in full, together with $5,600 in accrued interest thereon from the
proceeds of the Offering. In consideration of his advance of $500,000 to
Agrotech in fulfillment of a Company obligation under the Distribution Agreement
between the Company and Agrotech, the Company issued to Mr. Stanton options to
purchase 250,000 shares of Common Stock at an exercise price of $5.50 per share.
Jay M. Haft, a director of the Company is Of Counsel to the law firm
Parker Duryee Rosoff & Haft. The Company incurred approximately $75,000 and
$149,000 in legal fees to a related party from March 6, 1996 (date of
incorporation) through August 31, 1996 and the ten months ended June 30, 1997,
respectively, including free legal services amounting to $60,000 in the ten
months ended June 30, 1997 which was recorded as additional paid-in capital.
On August 12, 1997, 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, such options to be effective upon shareholders' approval of
the proposal for the Company to enter into the New Line of Business and the
New Business Opportunities.
In connection with the transactions contemplated by the Sakhalin
Agreement, Brian J. Bryce (through the Jasmine Trustees Ltd.), Jay M. Haft and
James V. Stanton, directors of the Company, have agreed to enter into a pledge
agreement with the Company 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, the Company
would transfer all of its rights and obligations under the Sakhalin Agreement to
such directors, subject to the directors reimbursing the Company for certain
costs and expenses incurred by the Company relating to the Sakhalin Project,
including the $500,000 initial payment under the Sakhalin Agreement. These
obligations would be secured by a specified amount of shares of Common Stock of
the Company owned, either directly or beneficially, by such directors. This
matter was approved by the Board of Directors at its meeting held on September
10, 1997.
41
<PAGE>
Item 14. Exhibits, Financial Statement & Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
Document Page
- -------- ----
Report of Independent Auditors. F-2
Balance Sheet as at June 30, 1997. F-3
Statements of Operations for the period from March 6, 1996 (date of
incorporation) through August 31, 1996, for the ten months ended June
30, 1997 and for the period from March 6, 1996 (date of incorporation)
through June 30, 1997. F-4
Statements of Changes in Stockholders Equity for the period from March
6, 1996 (date of incorporation) through August 31, 1996 and for the
ten months ended June 30, 1997. F-5
Statements of Cash flows for the period from March 6, 1996 (date of
incorporation) through August 31, 1996, for the ten months ended June
30, 1997 and for the period from March 6, 1996 (date of incorporation)
through June 30, 1997. F-6
Notes to Financial Statements. F-7
(a)(2) Exhibits
Exhibit
Number Description of Exhibits
- ------ -----------------------
3.1 Certificate of Incorporation and amendments thereto (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571)).
3.2 Amendment to Company's Certificate of Incorporation (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571), Amendment No. 5).
3.3 By-laws of Company (incorporated herein by reference to the
Company's Registration Statement on Form S-1 (File No. 333-16571)).
4.2 Form of certificate evidencing shares of Common Stock (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571), Amendment No. 2).
4.3 Form of Underwriter's Warrant Agreement between Company and the
Underwriter (including form of Underwriter's arrant) (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571), Amendment No. 5).
42
<PAGE>
Exhibit
Number Description of Exhibits
- ------ -----------------------
4.5 Amendatory Agreement dated November 6, 1996 between the Company and
The SES Family Investment and Trading Partnership, L.P.
(incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 333-16571)).
4.6 Form of 10% Debenture dated September 1996 (incorporated herein by
reference to the Company's Registration Statement on Form S-1 (File
No. 333-16571)).
4.7 Form of 10% Convertible Debenture dated November 1996 (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571)).
10.1 1996 Stock Option Plan, as amended and restated (incorporated herein
by reference to the Company's Registration Statement on Form S-1
(File No. 333-16571)).
10.2 Form of Stock Option Agreement (incorporated herein by reference to
the Company's Registration Statement on Form S-1 (File No.
333-16571)).
10.3 Distribution Agreement dated October 9, 1996 between Company and
Agrotech 2000, S.L. (incorporated herein by reference to the
Company's Registration Statement on Form S-1 (File No. 333-16571),
Amendment No. 4).
10.4 Employment Agreement between Charles H. Stein and the Company,
effective as of June 13, 1997.
10.5 Form of $5.00 Warrant Agreement dated August 1996 (incorporated
herein by reference to the Company's Registration Statement on Form
S-1 (File No. 333-16571)).
10.6 Loan Agreement dated October 9, 1996 between Company and Conserver
Purchasing Corporation ("CPU"), as amended by Letter Agreement dated
December 31, 1996 between Company and CPC (incorporated herein by
reference to the Company's Registration Statement on Form S-1 (File
No. 333-16571), Amendment No. 2).
10.7 Form of Financial Consulting Agreement between Company and
Underwriter (incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 333-16571), Amendment
No. 5).
10.8 Agreement dated as of August 12, 1997 by and among the Company,
Sakhalin Trading and Investments Limited ("SGTI") and Sovereign
Gaming and Leisure Limited ("Sovereign").
10.9 Amendment dated September 9, 1997, to August 12, 1997 Agreement by
and among the Company, SGTI and Sovereign.
10.10 Development Services Agreement dated as of October 2, 1997 between
the Company and Dato' David Chiu.
10.11 Consulting Agreement effective as of August 14, 1997 between the
Company and Star Casino Limited.
10.12 Proposed form of Pledge Agreement by and among the Company, Brian J.
Bryce (through the Jasmine Trustees Ltd.), Jay M. Haft and James V.
Shelton.
10.13 Hotel Management Agreement dated as of October 2, 1997 between
the Company and Dorsett Hotels and Resorts International Ltd.
10.14 Memorandum of Understanding dated August 20, 1997 between the
Company and Arlene Streilitz.
10.15 Heads of Agreement dated October 3, 1997 between the Company and
Parbhoe's Handelmij N.V.
43
<PAGE>
Exhibit
Number Description of Exhibits
- ------ -----------------------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended June
30, 1997.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONSERVER CORPORATION OF AMERICA
Date: October 14, 1997 By: /s/ Charles H. Stein
--------------------------------------
Charles H. Stein
Chairman of the Board, Chief Executive
Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles H. Stein
- ---------------------------------- Chairman of the Board, Chief Executive October 14, 1997
Charles H. Stein Officer and President
(Principal Executive Officer)
/s/ Miles R. Greenberg
- ---------------------------------- Chief Financial Officer October 14, 1997
Miles R. Greenberg (Principal Financial Officer and Chief
Accounting Officer)
/s/ James V. Stanton
- ---------------------------------- Vice Chairman and Director October 14, 1997
James V. Stanton
/s/ Brian J. Bryce
- ---------------------------------- Director October 14, 1997
Brian J. Bryce
/s/ Jay M. Haft
- ---------------------------------- Director October 14, 1997
Jay M. Haft
- ---------------------------------- Director
Michael Jay Scharf
</TABLE>
45
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
-I N D E X-
Page
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEET AS AT JUNE 30, 1997 F-3
STATEMENTS OF OPERATIONS FOR THE PERIOD FROM MARCH 6, 1996
(DATE OF INCORPORATION) THROUGH AUGUST 31, 1996, FOR THE TEN
MONTHS ENDED JUNE 30, 1997 AND FOR THE PERIOD FROM MARCH 6,
1996 (DATE OF INCORPORATION) THROUGH JUNE 30, 1997 F-4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD
FROM MARCH 6, 1996 (DATE OF INCORPORATION) THROUGH AUGUST
31, 1996 AND FOR THE TEN MONTHS ENDED JUNE 30, 1997 F-5
STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM MARCH 6, 1996
(DATE OF INCORPORATION) THROUGH AUGUST 31, 1996, FOR THE TEN
MONTHS ENDED JUNE 30, 1997, AND FOR THE PERIOD FROM MARCH 6,
1996 (DATE OF INCORPORATION) THROUGH JUNE 30, 1997 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Conserver Corporation of America
Coral Gables, Florida
We have audited the accompanying balance sheet of Conserver Corporation of
America (a development stage company) as at June 30, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for the
period from March 6, 1996 (date of incorporation) through August 31, 1996, for
the ten months ended June 30, 1997 and for the period from March 6, 1996 (date
of incorporation) through June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Conserver Corporation of America at
June 30, 1997 and the results of its operations and its cash flows for the
period from March 6, 1996 (date of incorporation) through August 31, 1996, for
the ten months ended June 30, 1997 and for the period from March 6, 1996 (date
of incorporation) through June 30, 1997, in conformity with generally accepted
accounting principles.
As discussed in Notes I and J the Company is currently renegotiating the
Distribution Agreement with a view to reduce the pricing arrangements regarding
its cost of purchasing the Conserver 21(TM) packets and to modify the
manufacturing arrangements. Should a favorable outcome of such negotiation not
be achieved or the agreement were to terminate as a result of a material breach,
the Company could be without its current line of business of marketing Conserver
21 and its results of operations would be adversely affected.
New York, New York
August 28, 1997
With respect to Note D
September 24, 1997
With respect to Notes K[2] and [5]
October 2, 1997
With respect to Notes K[10]
October 3, 1997
F-2
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Balance Sheet
June 30, 1997
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,715,460
Loan receivable (Note A[4]) 1,000,000
Bad debt reserve (Note I) (1,000,000)
Advances to officers and employees 26,965
Inventory (Notes B[7] and J) 20,000
Prepaid expenses and other current assets 166,783
- --------------------------------------------------------------------------------
Total current assets 7,929,208
- --------------------------------------------------------------------------------
Fixed assets, net (Notes B[2] and C) 21,986
- --------------------------------------------------------------------------------
$ 7,951,194
- --------------------------------------------------------------------------------
LIABILITIES
Current liabilities:
Accounts payable $ 292,524
Accrued expenses 173,400
Due to officers and employees 10,678
Convertible debentures (net of $60,328 discount) (Note D) 689,672
Accrued interest 55,000
- --------------------------------------------------------------------------------
Total current liabilities 1,221,274
- --------------------------------------------------------------------------------
Commitments and other matters (Note G)
STOCKHOLDERS' EQUITY (Notes A, D and E):
Preferred stock, par value $.01, 5,000 shares authorized,
none issued Common stock, par value $.001, 30,000,000 shares
authorized, 6,385,404 shares issued and outstanding 6,386
Additional paid-in capital 16,672,672
Deficit accumulated during the development stage (9,949,138)
- --------------------------------------------------------------------------------
Total stockholders' equity 6,729,920
- --------------------------------------------------------------------------------
$ 7,951,194
- --------------------------------------------------------------------------------
See notes to financial statements F-3
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
March 6, 1996 March 6, 1996
(Date of (Date of
Incorporation) Ten Months Incorporation)
Through Ended Through
August 31, June 30, June 30,
1996 1997 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating expenses:
Marketing and sales $ 115,576 $ 115,576
Research and development 52,247 52,247
Compensation charges in connection with
issuance of options and warrants
(Notes E[1] and [2]) $ 907,201 4,995,106 5,902,307
General and administrative expenses 458,611 1,687,172 2,145,783
Write-down of inventory (Note J) 355,800 355,800
Provision for bad debt (Note I ) 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------
Operating loss (1,365,812) (8,205,901) (9,571,713)
Other expenses:
Interest expense, net of $8,741 and $51,180 of
interest income in August and June,
respectively 21,259 356,166 377,425
- ----------------------------------------------------------------------------------------------------------------
Net loss $(1,387,071) $(8,562,067) $(9,949,138)
- ----------------------------------------------------------------------------------------------------------------
Net loss per share of common stock (Note B[3]) $(.32) $(1.58)
- ----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 4,390,767 5,409,990
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements F-4
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Statements of Changes in Stockholders' Equity
(Note E)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
Par Value $.001 Subscriptions Paid-in Development
Shares Amount Receivable Capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash of $ 2,140 and
subscriptions in March 1996 4,880,167 $ 4,881 $(2,741) $ 2,140
Issuance of common stock for cash
from April through August 1996
($5.00 per share) 331,400 331 $ 1,656,679 1,657,010
Compensation charges in connection
with issuance of options
(Note E[1]) 450,000 450,000
Compensation charges in connection
with issuance of warrants
(Note E[2]) 457,201 457,201
Compensation charge in connection
with officer's salary 65,000 65,000
Net loss for the period from
March 6, 1996 (date of
incorporation) through
August 31, 1996 $(1,387,071) (1,387,071)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - August 31, 1996 5,211,567 5,212 (2,741) 2,628,880 (1,387,071) 1,244,280
Repurchase and cancellation of
shares originally issued (Note A[2]) (1,366,667) (1,367) 1,367 (1,800,000) (1,800,000)
Shares issued and treated as debt
discount 62,504 63 312,437 312,500
Sale of common stock ($5.00 per
share) from September 1, 1996
to November 7, 1996 303,000 303 1,514,697 1,515,000
Legal services provided by
stockholder without charge 60,000 60,000
Collection of subscriptions receivable 1,374 1,374
Compensation charges in connection
with issuance of options and
warrants 4,995,106 4,995,106
Compensation charges in connection
with officer's salary 105,000 105,000
Net proceeds from issuance of
common stock in initial public
offering 2,200,000 2,200 8,856,527 8,858,727
Common stock contributed to
treasury and cancelled including
an adjustment of 5,000 shares
(Note E[2]) (25,000) (25) 25
Net loss for the period from
September 1, 1996 through
June 30, 1997 (8,562,067) (8,562,067)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1997 6,385,404 $ 6,386 $16,672,672 $(9,949,138) $ 6,729,920
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements F-5
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
March 6, 1996 March 6, 1996
(Date of (Date of
Incorporation) Ten Months Incorporation)
Through Ended Through
August 31, June 30, June 30,
1996 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,387,071) $(8,562,067) $(9,949,138)
Adjustments:
Impairment of inventory 355,800 355,800
Provision for bad debt 1,000,000 1,000,000
Depreciation and amortization 487 253,849 254,336
Compensation expense relating to officer's salary 65,000 105,000 170,000
Compensation expense relating to stock options and warrants 907,201 4,995,106 5,902,307
Legal services provided by shareholder without charge 60,000 60,000
Changes in:
Advances to officers and employees (14,129) (2,158) (16,288)
Prepaid expenses and other current assets (17,502) (149,281) (166,783)
Accrued expenses and other liabilities 105,317 415,607 520,925
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (340,697) (1,528,144) (1,868,841)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition of fixed assets (4,865) (19,285) (24,150)
Notes receivable (1,375,800) (1,375,800)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,865) (1,395,085) (1,399,950)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Collection of subscriptions receivable 1,374 1,374
Repurchase of shares of common stock (1,800,000) (1,800,000)
Net proceeds from public offering 8,858,727 8,858,727
Proceeds from sale of common stock 1,659,150 1,515,000 3,174,150
Proceeds from notes payable 1,000,000 1,250,000 2,250,000
Repayments of notes payable (1,500,000) (1,500,000)
Return of subscription funds 90,000 (90,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,749,150 8,235,101 10,984,251
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 2,403,588 5,311,872 7,715,460
Cash and cash equivalents - beginning of period 2,403,588
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of period $ 2,403,588 $ 7,715,460 $ 7,715,460
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ - 0 - $ 129,864 $ 129,864
- -----------------------------------------------------------------------------------------------------------------------------------
Noncash transactions:
Issuance of common stock in connection with convertible debt $ 312,500 $ 312,500
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock contributed to treasury and cancelled
(includes a $5 adjustment) $ 25 $ 25
- -----------------------------------------------------------------------------------------------------------------------------------
Cancellation of loan receivable in exchange for inventory $ 375,800 $ 375,800
- -----------------------------------------------------------------------------------------------------------------------------------
Cancellation of subscription receivable in exchange for shares
of common stock $ 1,367 $ 1,367
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements F-6
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note A. The Company
[1] Conserver Corporation of America (the "Company") is a development stage
company that has the rights for the exclusive distribution of a product
which can be used to retard spoilage and decay in food and flowers for
commercial use in the United States and Canada. The Company was
incorporated in Delaware on March 6, 1996 and initially adopted a fiscal
year ending August 31. During the current year, the Company elected to
change the fiscal year end to June 30. As a development stage company, the
Company's activities since its inception have been primarily focused on
testing, developing and exploiting the Conserver 21(TM)product and
negotiating distribution and other arrangements, raising both debt and
equity financing (public and private), and recruiting management personnel
with respect to the Conserver 21(TM) product.
[2] In connection with the organization of the Company, 1,666,667 shares of
common stock were subscribed to by Conserver Investments, S.A., which
together with certain of its affiliates are referred to hereinafter as the
"Groupe Conserver".
The Company, in a series of negotiated transactions repurchased 1,366,667
shares of such common stock for an aggregate sum of $1,800,000. The
remaining 300,000 shares of common stock were transferred in November to
two persons designated by the Company, each of whom are nonaffiliates of
both the Company and Groupe Conserver or any of their directors, officers
or employees.
[3] In March 1996 the Company entered into a distribution agreement with
certain of the Groupe Conserver entities for the exclusive marketing and
distribution rights to Conserver 21(TM) products in the United States and
Canada. Conserver 21(TM) products are designed to preserve foodstuffs and
flowers. Groupe Conserver had obtained such rights from Conserver XXI (see
Note A[4] below) in May 1995. The agreement was amended in October 1996.
Upon learning of a dispute between Conserver XXI and Groupe Conserver,
which threatened the Company's supply of Conserver 21(TM), the Company
entered into an agreement with Conserver Purchasing Corporation
("Purchasing") an unaffiliated Delaware corporation, whereby the Company,
through Purchasing would have been able to acquire substantially identical
marketing and distribution rights from Conserver XXI in the event Groupe
Conserver XXI could not deliver the product. Pursuant to the agreement
between the Company and Purchasing dated October 9, 1996, and subsequently
amended on December 31, 1996, the Company lent Purchasing up to $375,000
for the purpose of enabling Purchasing to acquire an inventory of
Conserver 21(TM). These loans, which were payable on demand, bearing
interest at a rate of 8% per annum were collateralized by a lien on
Purchasing's inventory of Conserver 21(TM). In June of 1997 the Company
accepted inventory as full payment on the loans. Due to the establishment
of insolvency proceedings in Brussels regarding Conserver Investments,
S.A., the controlling entity of the Groupe Conserver affiliates and Groupe
Conserver's loss of its rights from Conserver XXI, the Company terminated
its distribution agreement with Groupe Conserver in March of 1997.
[4] In March 1997 the Company entered into the Distribution Agreement with
Agrotech 2000, S.L., ("Agrotech"), a company whose principal shareholder
controlled Conserver XXI, establishing the Company as the exclusive
licensee of the right to import, promote, distribute, market and otherwise
commercially exploit Conserver 21(TM) products in the United States and
Canada through March 2022, subject to extension. The Company also holds
the option and a right of first refusal to exercise such exclusive rights
throughout the world. Pursuant to the terms of 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, when established, Agrotech may sell
Conserver 21(TM) to other customers in the United States and Canada. Such
loss of exclusivity to sell Conserver 21(TM) products may negatively
impact the development of the Company business.
F-7
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note A. The Company (continued)
[4] (continued)
The Distribution Agreement automatically extends through March 2022 and is
renewable for subsequent annual periods. The Distribution Agreement may be
terminated by either party by written notice 90 days prior to the end of
any term. The Distribution Agreement (i) will be terminated automatically
in case of the insolvency or bankruptcy of one of the parties; or (ii) may
be terminated by either party for the substantial breach of any material
provision by the other party if the breaching party has not cured such
breach within 30 days of written notice thereof.
Pursuant to the Distribution Agreement, Agrotech has the right to borrow
up to $1,000,000 from the Company as of May 1, 1997 and up to an
additional $500,000 commencing ninety days after the initial public
offering. In connection with such rights, a director of the Company
advanced $500,000 to Agrotech on behalf of the Company in May of 1997. The
Company repaid the advance and interest thereon at 10%, out of the
proceeds from the public offering. An additional $500,000 was advanced
from the Company in June of 1997, resulting in a $1,000,000 loan balance
at June 30, 1997. The Company has provided a full reserve against the
receivable balance. 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 will be made or whether
any offsets will be available. Under the terms of the Distribution
Agreement, the first $1,000,000 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 over a three to
four year period. Should the Company fail to meet the Initial Purchase
Commitment or subsequent purchase commitments under the Distribution
Agreement, the Company could lose its exclusive right to sell Conserver
21(TM) in the United States and Canada, which would materially adversely
impact the development of the Company's business. If the Distribution
Agreement were to terminate as a result of a material breach, the Company
would not be able to distribute Conserver 21(TM) products, and
accordingly, the Company could be without its current line of business of
marketing Conserver 21.
[5] Initial marketing efforts of the Conserver 21(TM) packets in the United
States have indicated that the Company needs to renegotiate the terms of
the distribution agreement with Agrotech and to improve the packaging of
the Conserver 21 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 which specializes in
packaging products comparable to Conserver 21(TM), and has identified
other U.S.-based packaging plants capable of packaging Conserver 21.
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.
No assurance can be given, however, that the Company will be able to
successfully renegotiate the Distribution Agreement 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).
F-8
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note A. The Company (continued)
[6] In November 1996, the Board of Directors approved a 2.128874 for 1 stock
split. In December 1996, the Board of Directors approved a 1.066194 for 1
stock split. Subsequently in April 1997, the Board of Directors approved a
reverse stock split to cancel the effect of the aforementioned two stock
splits. All of the above splits have been retroactively reflected in the
financial statements.
Note B. Summary of Significant Accounting Policies
[1] Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[2] Fixed assets:
Office equipment is carried at cost. Depreciation is provided using the
straight-line method over 5 years, the useful lives of the assets.
[3] Loss per share of common stock:
Net loss per share of common stock is calculated by dividing net loss
applicable to common stock by the weighted average shares of common stock
outstanding during the period. Common shares issued and options and
warrants granted by the Company at prices less than the offering price
during the twelve months preceding the date of the initial public offering
have been included in the calculation of common shares outstanding as if
they were outstanding since inception using the treasury stock method and
the initial public offering price of $5.00 per share.
[4] Income taxes:
The Company, for tax purposes, does not have any operations, or net
operating loss, as its expenses are preoperating and accordingly will be
capitalized and amortized when operations commence.
[5] Stock based compensation:
The Company accounts for employee stock based compensation including stock
options pursuant to Accounting Principles Board ("APB") Opinion No. 25.
Disclosures required by Statement of Financial Accounting Standards No.
123 are to be found in Note E[1] to the financial statements.
[6] Fair value of financial instruments:
The carrying value of cash, and accounts and notes payable approximates
fair value because of the short-term maturity of those instruments.
[7] Inventory:
Inventory is stated at the lower of cost (determined on a first-in,
first-out basis) or market value.
F-9
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note B. Summary of Significant Accounting Policies (continued)
[8] Cash and cash equivalents:
The Company considers all money market accounts and investments with
original maturities of three months or less at the time of purchase to be
cash equivalents. At times, cash balances in the Company's accounts may
exceed federally insured limits.
[9] In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 established new standards for computing and
presenting earnings per share. SFAS 128 is effective for periods ending
after December 15, 1997. Once effective per share data for all prior
periods is required to be restated. The Company has not yet qualified what
effect, if any, the adoption of SFAS 128 will have on its net earnings per
share of common stock.
The Financial Accounting Standards Board has recently issued statements of
Financial Accounting Standards No. 129, "Disclosure of Information about
Capital Structure," and No. 130, "Reporting Comprehensive Income". These
two pronouncements are not expected to significantly change the disclosure
of information presented in the Company's financial statements.
Note C. Fixed Assets
Fixed assets as of June 30, 1997 are summarized as follows:
- ---------------------------------------------------------------------------
Office equipment $24,150
Less accumulated depreciation (2,164)
- ---------------------------------------------------------------------------
$21,986
- ---------------------------------------------------------------------------
Note D. Convertible Debentures
In September and November 1996, the Company issued one-year 10% convertible
subordinated debentures in the aggregate amount of $750,000. The debentures and
accrued interest are convertible into common shares at $5.00 per share.
Subsequent to year end the holders of $175,000 of debentures were repaid,
$210,000 of debentures were cancelled against a loan receivable (Note K[3]) and
holders of $365,000 of the remaining debentures elected to convert their notes
to shares of common stock.
In connection with the sale of the debentures, the Company issued 62,504 shares
of its common stock valued at $312,500 which is being accounted for as debt
discount to be charged to expense over the term of the note. Amortization of the
discount for the ten months ended June 30, 1997 was approximately $252,172.
Note E. Stockholders' Equity
[1] Stock options:
The Company applies APB Opinion 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.
F-10
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note E. Stockholders' Equity (continued)
[1] Stock options: (continued)
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. The
weighted average fair value at date of grant for options granted during
the period ended August 31, 1996 and June 30, 1997, is $3.75 and $1.30 per
option, respectively.
In estimating the value of options pursuant to the accounting provisions
of Financial Accounting Standards No. SFAS 123, the Company used the
following assumptions:
August 31, June 30,
1996 1997
- --------------------------------------------------------------------------------
Risk free interest rate 6% 7%
Expected life 3 years 4 - 6 years
Expected Volatility .3 .3
Dividend Yield 0.0 0.0
- --------------------------------------------------------------------------------
If compensation cost was measured using the fair value provisions of SFAS
123 then the Company's net loss and net loss per share would have been
$1,395,993 and $.32 respectively for the period ended August 31, 1996 and
$8,599,495 and $1.59, respectively for the ten months ended June 30, 1997.
In November, 1996 and as later amended in December 1996 and April 1997 the
Company adopted a stock option plan. Under the plan, which authorizes the
granting of incentive stock options or nonincentive stock options, the
maximum number of shares of common stock for which options may be granted
is 1,300,000 shares. As of June 30, 1997, 1,055,000 shares have been
granted under the stock option plan.
Stock option activity for both inside and outside the Plan for the period
from March 6, 1996 (date of incorporation) through August 31, 1996 and for
the ten months ended June 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Period Ended Period Ended
August 31, June 30,
1996 1997
----------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 135,000 $1.67
Granted 135,000 $1.67 1,835,000 $4.18
- ---------------------------------------------------------------------------------------------------------
Outstanding at end of year 135,000 $1.67 1,970,000 $4.02
- ---------------------------------------------------------------------------------------------------------
Options exercisable at year-end 1,408,333 $3.92
- ---------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note E. Stockholders' Equity (continued)
[1] Stock options: (continued)
The following table presents information relating to stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Life in Exercise
Exercise Price Shares Price Years Shares Price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.50 - $2.00 625,000 $1.70 3.65 533,333 $1.91
$5 - $5.50 1,345,000 $5.09 3.78 875,000 $5.14
- ----------------------------------------------------------------------------------------------------------
1,970,000 $4.02 3.74 1,408,333 $3.92
- ----------------------------------------------------------------------------------------------------------
</TABLE>
As of June 30, 1997, 245,000 options are available for future grant under
the Plan.
[2] Warrants:
a. In August 1996, the Company issued to Directors and consultants
three-year warrants to purchase 325,000 shares of the Company's
common stock at $5.00 per share. The warrants were valued at $457,201
and were charged to operations for the period ended August 31, 1996.
b. In connection with a $1,000,000 note which was subsequently repaid,
the Company issued warrants to the debt holder and an affiliate for
the purchase of 550,000 shares of common stock at $2 per share. The
warrants were valued at approximately $2,040,000 and were charged to
expense at the completion of the public offering. At the time the
warrants were issued, 20,000 shares of previously issued common stock
were surrendered to the Company.
c. In June 1997, the Company issued to consultants warrants to purchase
350,000 shares of common stock at $5.75 per share. The Warrants were
valued at approximately $705,000 and were charged to operations for
the ten months ended June 30 , 1997.
[3] Common stock:
The Company has reserved 3,565,000 shares of common stock for exercise of
options and warrants.
[4] Initial public offering:
In June 1997, the Company completed its initial public offering and issued
2,200,000 shares of common stock at a price of $5 per share. As a result
of the offering the Company received net proceeds of approximately
$8,859,000.
In July 1997, the Company realized proceeds of approximately $1,448,000
and issued 330,000 shares of common stock in connection with an
overallotment provision of its underwriting agreement.
In connection with the offering, the Company granted to the underwriter
warrants to purchase 220,000 shares of common stock exercisable over a
four year period at $8.25 per share.
[5] Private placement:
In September, October and November of 1996 the Company completed a private
placement and issued 303,000 shares of common stock at $5 per share for an
aggregate of $1,515,000.
F-12
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note F. Related Party Transactions
The Company incurred approximately $75,000 and $149,000 in legal fees to a
related party from March 6, 1996 (date of incorporation) through August 31, 1996
and the ten months ended June 30, 1997, respectively, including free legal
services amounting to $60,000 in the ten months ended June 30, 1997 which was
recorded as additional paid-in capital.
Note G. Commitments and Other Matters
[1] Employment contract:
The Company entered into a three-year employment contract with Charles H.
Stein, President and Chief Executive Officer of the Company which took
effect upon the consummation of the Company's public offering of
securities. Mr. Stein is also a member of the Board of Directors. The
contract provides for an annual salary of an amount not less than $125,000
and a three-year noncompete clause upon termination.
During the periods ended August 31, 1996 and June 30, 1997 Mr. Stein did
not receive a salary. Accordingly, the Company recorded compensation
charges in those periods for an amount based upon his employment agreement
of $125,000 per year, and as contribution to capital. Salary expense
recorded for the period from March 6, 1996 (date of incorporation) through
August 31, 1996 and for the ten months ended June 30, 1997, was $65,000
and $105,000 respectively.
As of the date of this filing the Chief Executive Officer has continued to
waive his right to take salary. The Board of Directors has accepted Mr.
Stein's waiver, but has reserved the right to award Mr. Stein, in its sole
discretion, the amounts so waived.
[2] Return of subscription funds:
Based on the Company's review of investors subscription documents prior to
the acceptance and issuance of shares to such investors, certain
individuals who had subscribed to shares of the Company's common stock
were found not to be "Qualified Investors" within the meaning of rules
promulgated under the Securities Act of 1933, as amended. Accordingly,
subsequent to August 31, 1996, the Company returned all $90,000 of such
subscription amounts.
Note H. Income Taxes
The Company, for tax purposes, does not have any operations or net operating
loss, as its expenses are pre-operating, and accordingly will be capitalized and
amortized when operations commence.
Note I. Agrotech Distribution Agreement
Pursuant to a Distribution Agreement with Agrotech (Note A[4]) the Company is
required to purchase a minimum of $2,000,000 of Conserver 21(TM) by April 1998
and pay royalties of 4% of net revenues generated from the commercial use of the
product. If the Company fails to meet the required minimum, the Company could
lose exclusivity to sell Conserver 21(TM) products.
F-13
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note I. Agrotech Distribution Agreement (continued)
The distribution agreement also requires the Company to make loans to Agrotech
up to $1,500,000. 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 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. In connectin with such rights,
a director on behalf of the Company advanced $500,000 to Agrotech in May of
1997. The Company repaid the Director and interest thereon at 10% out of the
proceeds from the public offering. An additional $500,000 was advanced by the
Company in June of 1997, resulting in a $1,000,000 loan balance due from
Agrotech at June 30, 1997. 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 will be made or whether any offsets will be
available. Should the Company fail to meet the Initial Purchase Commitment or
subsequent purchase commitments under the Distribution Agreement, the Company
could lose its exclusive right to sell Conserver 21(TM) in the United States and
Canada, which would materially adversely impact the development of the Company's
business. If the Distribution Agreement were to terminate as a result of a
material breach, the Company would not be able to distribute Conserver 21(TM)
products, and accordingly, the Company could be without its current line of
business of marketing Conserver 21.
Initial marketing efforts of the Conserver 21(TM) packets in the United States
have indicated that the Company needs to renegotiate the terms of the
distribution agreement with Agrotech and to improve the packaging of the
Conserver 21 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 which specializes in packaging products comparable to
Conserver 21(TM), and has identified other U.S.-based packaging plants capable
of packaging Conserver 21. 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.
As a result of the manufacturing difficulties and the status of the
renegotiations, management believes that exceeding the initial volume commitment
necessary to offset the Company's purchases from Agrotech against the Loan
Amount is remote. Accordingly, the Company has established a reserve equal to
the Loan Amount.
Note J. Writedown of Inventory
Initial purchases of Conserver 21(TM) by the Company have indicated certain
manufacturing limitations in the packaging process of the product. In light of
these limitations and the unmarketability of certain of the inventory purchased,
the Company wrotedown $355,000 of its Conserver 21(TM) inventory as of June 30,
1997.
F-14
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note K. Subsequent Events
Subsequent to June 30, 1997, the Company entered into the following
transactions:
[1] Office lease:
In August 1997, the Company entered into a five-year operating lease for
office space in Florida, which is expected to commence on October 1, 1997
upon move in.
Future minimum rental payments pursuant thereto are as follows:
Year Ending
June 30, Amount
--------------------------------------------------------------------
1998 $ 66,006
1999 88,007
2000 88,007
2001 88,007
2002 88,007
Thereafter 22,002
--------------------------------------------------------------------
$440,036
--------------------------------------------------------------------
Rent expense for the period from March 6, 1997 (Date of Incorporation)
through August 31, 1996 and for the ten months ended June 30, 1997, was
$9,552 and $127,574, respectively.
[2] New business opportunities:
In August 1997, the Company announced that it was considering diversifying
beyond its sole line of business of marketing 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"). In connection with the New Line of Business,
and subject to requisite stockholder approval, the Company has (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,
and (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 (collectively, the "New Business Opportunities"). The
agreements if approved by the Company's Stockholders 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
shares of common stock and options to purchase 600,000 shares of common
stock. The Company anticipates that initial capital required for the
proposed New Business Opportunities would be provided by proceeds from the
sale of additional common stock and/or other securities of the Company in
private offerings.
<PAGE>
At a Special Meeting of Stockholders which the Company anticipated to be
held in December 1997, the Company's stockholders will be asked to
consider and vote on a series of proposals which would result in the
Company diversifying beyond its sole line of business of promoting,
marketing, distributing, selling and otherwise exploiting Conserver 21(TM)
and entering into the New Line of Business and the New Business
Opportunities. The proposed New Line of Business and New Business
Opportunities are subject to requisite stockholder approval.
The Company has entered into an agreement dated August 12, 1997 (the
"Sakhalin Agreement"), and amended as of September 9, 1997, subject to
receipt of requisite approval by the Company's stockholders with Sakhalin
General Trading and Investments ("SGTI") and Sovereign Gaming and Leisure
Limited ("Sovereign"), each a limited liability company organized under
the laws of Cyprus pursuant to which the Company has right to 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").
F-15
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note K. Subsequent Events (continued)
[2] New business opportunities: (continued)
In consideration for the Shares and Rights, the Company is required to
deliver to SGTI and its stockholders an initial payment of $500,000, which
was paid, and additional payments of $1,000,000 by October 15, 1997 and
$1,500,000 by October 31, 1997 as well as 1,538,462 shares of the
Company's common stock issuable upon receipt of requisite stockholder
approval. Upon completion of the Company's due diligence, should the
Company conclude for any reason that it does not wish to proceed with the
Sakhalin Project 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 in SGTI at the
conversion rate of one ordinary share of SGTI for each $30 so delivered
(the Company currently has 230,000 shares outstanding). 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 would 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
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 15% of the share capital of SCC from
certain shareholders resulting in SGTI owning 65% of the share capital of
SCC. In consideration for this exchange, 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. Including this
transaction, 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. Furthermore, it is the
Company's understanding that the $3,000,000 cash portion of the Purchase
Price paid to SGTI 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.
On October 2, 1997, the Company has entered into an agreement (the
"Development Services Agreement") with Dat[omicron] 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 a share of convertible preferred stock which would
convert, under certain specified conditions and circumstances, into
1,500,000 shares of common stock. 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. The Sakhalin Project is currently
estimated at US$100 million. The shares of common stock 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
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. 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.
<PAGE>
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 shares 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 the shares to any affiliate, subject to the Company's consent,
which consent shall not be unreasonably withheld. Chiu also agreed that
until three years from the issuance date of such 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
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
F-16
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note K. Subsequent Events (continued)
[2] New business opportunities: (continued)
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 10
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 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.
Assuming consummation of each of the transactions contemplated above, the
Company and Chiu would own through their respective interests in SGTI, 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).
On October 2, 1997, the Company entered an agreement (the "Hotel
Management Agreement") with Dorsett Hotels and Resorts International, Ltd.
("Dorsett"), a company controlled 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 Conserver 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 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 Company, pursuant to the terms of an 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 will 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 all of which will be used in turn to fund such
expenses. Each operating agreement would further provide that in the event
Dorsett terminates the 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 the Agreement multiplied by a factor which
is: (i) in the event the Company is terminated 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 at
major international hotel chains in the operation and management of hotels
and leisure time activities worldwide.
F-17
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note K. Subsequent Events (continued)
[2] New business opportunities: (continued)
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 that until three years from the issuance date of the
shares, Dorsett agrees 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 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. 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 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.
In addition to the direct issuance of shares of the Company's common stock
in connection with the foregoing transactions, the Company anticipates
funding for the cash portion of the initial capital required for the
proposed new line of business and New Business Opportunities will be
provided by proceeds from the private sale of additional common stock
and/or other securities of the Company in private offerings.
_____________________.
[3] Loan to D & M Investments:
In August 1997, the Company made a $210,000 loan to D& M Investments, Inc.
due September 24, 1997 and bearing interest at 10% per annum. At June 30,
1997 D & M Investments was a $210,000 convertible debenture holder. In
connection with the loan, D & M pledged to Conserver the rights to the
convertible debt. On September 24, 1997, in lieu of demanding payment on
the loan, Conserver elected to deduct amounts due under the loan from the
amounts payable by Conserver under the debenture.
In connection with the above transaction, D & M Investments signed a
lockup agreement, with respect to any securities of Conserver that it
holds.
F-18
<PAGE>
CONSERVER CORPORATION OF AMERICA
(a development stage company)
Notes to Financial Statements
Note K. Subsequent Events (continued)
[4] Options granted:
In July 1997, the Company issued four year options in accordance with the
stock option plan to purchase 37,500 shares of its common stock at $5.50
per share. The options vest immediately.
In August 1997, the Company issued four year options to employees to
purchase 40,000 shares of common stock at $6.13 per share.
Also, in August 1997, the Company committed itself to issue four year
options to two directors to purchase an aggregate of 500,000 shares of
common stock at $6.13 per share, contingent upon approval by the
shareholders of the Company to enter into the New Line of Business and New
Business Opportunities.
[5] Consulting agreement:
On August 14, 1997 the Company entered into agreement with Star Casinos
Limited, to act as its casino consultant, commencing on the date the
stockholders approve the agreements with respect to the Sakhalin Project
("the Commencement Date"). From the period October 1, 1997 through the
Commencement Date, the consultant will be paid by the Company a fee of
$21,000 a month plus reimbursement of reasonable expenses. On the
Commencement Date, the consultant will be paid annual compensation of
$250,000 a year for two years and will be granted a three year option to
buy 100,000 shares of the Company's stock at $6.50 per share, vesting 50%
on each anniversary of the Commencement Date. The consultant will also be
paid a bonus of $250,000 at the end of its two year commitment.
[6] Private placement:
The officers of the Company have been authorized by the Board of Directors
to proceed with a private placement to raise up to $9,000,000 either
through the issuance of treasury shares or convertible debt. The final
terms of the private placement shall be approved by the Board.
[7] International marketing efforts:
The Company is engaged in negotiating various license and joint venture
agreements with companies in Israel, Japan and Canada in an effort to
market Conserver 21(TM) in territories outside of the continental United
States. The Company has signed a memorandum understanding with an Israeli
company. The foregoing represent agreements in principle and are not
binding.
[8] Stock issuance:
The Company issued 5,000 shares of its common stock in July 1997 to a
consultant for services in connection with providing business
introductions to prospective customers and general corporate advice.
[9] Warrants granted:
In August 1997, the Company issued four year warrants for the purchase of
100,000 shares of common stock at $6.50 per share. The options vest
immediately.
[10] Other:
As of October 3, 1997, the Company entered into an agreement in principle
with Parbhoe Handelmij NV, a Surinamese limited liability company, 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.
F-19
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
- --------------------------------------------------------------------------------
10.4 Employment Agreement Between Charles H. Stein and the Company,
effective as of June 13, 1997
10.8 Agreement dated as of August 12, 1997 by and among the Company,
Sakhalin Trading and Investments Limited ("SGTI") and Sovereign
Gaming and Leisure Limited ("Sovereign").
10.9 Amendment dated September 9, 1997, to August 12, 1997 Agreement
by and among the Company, SGTI and Sovereign.
10.10 Development Services Agreement dated as of October 2, 1997
between the Company and Dato' David Chiu.
10.11 Consulting Agreement effective as of August 14, 1997 between
the Company and Star Casino Limited.
10.12 Proposed form of Pledge Agreement by and among the Company, Brian
J. Bryce (through the Jasmine Trustees Ltd.), Jay M. Haft and James
V. Shelton.
10.13 Hotel Management Agreement effective as of October 2, 1997
between the Company and Dorsett Hotels and Resorts
International Ltd.
10.14 Memorandum of Understanding dated August 20, 1997 between the
Company and Arlene Streilitz.
10.15 Heads of Agreement dated October 3, 1997 between the Company and
Parbhoe's Handelmij N.V.
27.1 Financial Data Schedule
Exhibit 10.4
EMPLOYMENT AGREEMENT, dated as of June 13, 1997, by and between CONSERVER
CORPORATION OF AMERICA, a Delaware Corporation (the "Company"), and CHARLES H.
STEIN (the "Employee").
The parties hereto desire to provide for the Employee's employment
by the Company in accordance with the terms and provisions set forth below.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT; TERM.
The Company will employ the Employee in its business and the
Employee will work for the Company, as its President and Chief Executive
officer, for a term of three (3) years commencing on June 13, 1997 and ending on
June 12, 2000, unless sooner terminated in accordance with Section 9 hereof.
Such period, together with the period of any extension or renewal of such
employment, is referred to herein as the "Employment Period."
2. DUTIES.
During the Employment Period, the Employee shall serve as the
Company's President and Chief Executive Officer, and perform duties of an
executive character consisting of administrative and managerial responsibilities
on behalf of the Company and such further duties as shall, from time to time, be
reasonably delegated or assigned to the Employee by the Board of Directors of
the Company consistent with his abilities.
3. DEVOTION OF TIME.
During the Employment Period, the Employee shall: (i) expend
substantially all of his working time for the Company; (ii) devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests; and (iii) not take part in activities known by Employee to be
detrimental to the best interests of the Company.
<PAGE>
4. COMPENSATION.
4.1 In consideration for the services to be performed
by the Employee during the Employment Period hereunder, the Company shall
compensate the Employee at the minimum rate of $125,000 per annum, payable in
accordance with the Company's customary payroll practices.
4.2 Employee may also be entitled to such additional
increments and bonuses as may be determined from time to time by the Company's
Board of Directors in its sole and absolute discretion.
5. USE OF AUTOMOBILE; REIMBURSEMENT OF EXPENSES;
ADDITIONAL BENEFITS.
5.1 Employee shall receive an automobile allowance for
the use of an automobile owned or leased by him in accordance with the Company's
then prevalent practices for executive employees.
5.2 The Company shall pay directly, or reimburse the
Employee for, all other reasonable and necessary expenses and disbursements
incurred by him for and on behalf of the Company in the performance of his
duties under this Agreement. For such purposes, the Employee shall submit to the
Company itemized reports of such expenses in accordance with the Company's
policies.
5.3 Employee shall be entitled to paid vacations during
the Employment Period in accordance with the Company's then prevalent practices
for executive employees; provided, however, that Employee shall be entitled to
such paid vacations for not less than two (2) weeks per annum.
5.4 Employee shall be entitled to participate in, and
to receive benefits under, any such employee benefit plans of the Company
(including, without limitation, pension, profit sharing, bonus, group life
insurance and group medical insurance plans) as may exist from time to time for
its executive employees.
6. TRADE SECRETS.
6.1 Employee expressly agrees and understands that the
Company owns and/or controls numerous methods, products, processes, customer
lists, trade secrets and other information applicable to its business and that
it may from time to time acquire, improve or produce additional methods,
products, processes, customer lists, trade secrets and other information
(collectively, the "Confidential Information"). Employee hereby acknowledges
that each element of the Confidential Information constitutes a unique and
valuable asset of the Company, and that certain items of the Confidential
Information have
2
<PAGE>
been acquired from third parties upon the express condition that such items will
not be disclosed other than to the Company in the ordinary course of its
business.
6.2 Employee hereby acknowledges that disclosure of the
Confidential Information to and/or use by anyone other than in the Company's
ordinary course of business would result in irreparable and continuing damage to
the Company. Accordingly, the Employee agrees to hold the Confidential
Information in the strictest secrecy, and covenants that, during the Employment
Period or any time thereafter, he will not, without the prior written consent of
the Board of Directors, directly or indirectly, allow any element of the
Confidential Information to be disclosed, published or used, nor permit the
Confidential Information to be discussed, published or used, either by himself
or any third parties, except in effecting the Employee's duties on behalf of the
Company in the ordinary course of business. Notwithstanding anything to the
contrary herein contained, Employee's obligation to maintain the secrecy and
confidentiality of the Confidential Information under this Section 6 shall not
apply to any such Confidential Information which is disclosed through any means
other than as a result of any act by Employee constituting a breach of this
Agreement or which is required to be disclosed under applicable law.
7. EMPLOYEE KNOWLEDGE.
7.1 Employee hereby agrees to communicate and make
known to the Company all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented, patentable or
unpatentable, which relate to the business of the Company; whether acquired by
him before or during the Employment Period; provided, however, that nothing
herein shall be construed as requiring any such communication where the method,
development, invention and/or improvement is lawfully protected from disclosure
as the trade secret of a third party or by any other lawful bar to such
communications existing prior to the commencement of employment hereunder.
7.2 Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, which Employee may conceive of
or develop in connection with the Company's business (solely or jointly with
another or others), while in its employ, shall be and remain the exclusive
property of the Company. Employee further agrees on request to execute patent
applications, and any other records or memoranda requested by the Company, based
on such methods, developments, inventions and/or improvements, including
instruments deemed necessary by the Company for the prosecution of the patent
application or the acquisition of Letters of Patent of this and any foreign
country or otherwise.
7.3 Employee hereby agrees to keep all such records in
connection with the Employee's employment as the Company may from time to time
direct, and all such records shall be the sole and exclusive property of the
Company.
3
<PAGE>
8. RESTRICTIVE COVENANT.
8.1 The services of the Employee are unique,
extraordinary and essential to the business of the Company, particularly in view
of the Employee's access to the Confidential Information. Accordingly, the
Employee agrees that if his employment hereunder shall at any time be terminated
for any reason whatsoever, the Employee will not at any time within three (3)
years of such termination, without the prior written approval of the Board of
Directors, directly or indirectly, engage in any business activity competitive
with the business of the Company. Furthermore, the Employee agrees that, during
such three-year period, he shall not solicit, directly or indirectly, any
prospective account of the Company who at the time of such termination was then
actively being solicited by the Company and he shall not in any manner, directly
or indirectly, affect to the Company's detriment any relationship of the Company
with any customer, supplier or employee of the Company or cause any customer or
supplier to refrain from entrusting additional business to the Company. In the
event that any of the provisions of this Section 8.1 shall be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provision shall be deemed reformed in any such
jurisdiction to the maximum time, geographic or other limitations permitted by
applicable law.
8.2 As used in Sections 6, 7 and 8 hereof, the term
"Company" shall mean and include any and all corporations affiliated with
Conserver Corporation of America which either now exist or which may hereafter
be organized.
9. EARLIER TERMINATION.
9.1 Employee's employment hereunder shall automatically
be terminated upon the death of the Employee or Employee's voluntarily leaving
the employ of the Company and, in addition, may be terminated, at the sole
discretion of the Company, as follows:
(a) upon thirty (30) days' prior written
notice by the Company, in the event of the Employee's
disability as set forth in Section 9.2 below; or
(b) upon thirty (30) days' prior written
notice by the Company, in the event that the Company
terminates the Employee's employment hereunder for
cause as set forth in Section 9.3 below.
9.2 Employee shall be deemed disabled hereunder if, in
the opinion of the Board of Directors of the Company, as confirmed by competent
medical advice, he shall become physically or mentally unable to perform his
duties for the Company hereunder and such incapacity shall have continued for
any period of six (6) consecutive months.
9.3 For purposes hereof, "cause" shall include, but not
be limited to, the following: (a) Employee's willful malfeasance or gross
negligence; (b) any material
4
<PAGE>
misrepresentation or concealment of a material fact made by Employee in
connection with this Agreement; or (c) the material breach of any covenant made
by Employee hereunder.
9.4 In the event that this Agreement shall be
terminated due to the Employee's death or disability, then the Company shall pay
to the Employee or his personal representatives, as the case may be, severance
pay in a lump sum amount equal to his compensation for a period of six months as
set forth in Sections 4.1 and 4.2 hereof. If, however, this Agreement shall be
terminated for any other reason whatsoever, then the Company shall not be
obligated to make any severance payments whatsoever to the Employee hereunder,
except for the compensation set forth in Sections 4.1 and 4.2 hereof which shall
have accrued but be unpaid at the effective time of termination.
10. INJUNCTIVE RELIEF.
Employee hereby acknowledges and agrees that, in the
event he shall violate any provisions of Sections 6, 7 and 8 hereof, the Company
will be without an adequate remedy at law and, accordingly, will be entitled to
enforce such restrictions by temporary or permanent injunctive or mandatory
relief obtained in any action or proceeding instituted in any court of competent
jurisdiction without the necessity of proving damages and without prejudice to
any other remedies which it may have at law or in equity.
11. SERVICE AS DIRECTOR.
During the Employment Period, the Employee shall, if
elected or appointed, serve as a Director of the Company and/or any subsidiary
or affiliate of the Company upon such terms as shall be mutually agreed upon by
the Employee and the Company.
12. ASSIGNMENT.
This Agreement, as it relates to the employment of the
Employee, is a personal contract and the rights and interests of the Employee
hereunder may not be sold, transferred, assigned, pledged or hypothecated,
except as set forth in this Section 12 hereof. Except as otherwise herein
expressly provided, this Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns, including without limitation,
any corporation or other entity into which the Company is merged or which
acquires all of the outstanding shares of the Company's capital stock, or all or
substantially all of the assets of the Company.
13. RIGHT TO PAYMENTS.
Employee shall not under any circumstances have any
option or right to require payments hereunder otherwise than in accordance with
the terms hereof. To the extent permitted by law, the Employee shall not have
any power of anticipation, alienation or assignment of payments contemplated
hereunder, and all rights and benefits of the Employee
5
<PAGE>
shall be for the sole personal benefit of the Employee, and no other person
shall acquire any right, title or interest hereunder by reason of any sale,
assignment, transfer, claim or judgment or bankruptcy proceedings against the
Employee.
14. NOTICES.
Any notice required or permitted to be given pursuant
to this Agreement shall be deemed given three (3) business days after such
notice is mailed by certified mail, return receipt requested, addressed as
follows: (i) if to Employee, at 44 East 67th Street, New York, New York, 100__,;
and (ii) if to the Company, at 2655 Le Jeunne Road, Suite 535, Coral Gables,
Florida 33134, or at such other address as any such party shall designate by
written notice to the other party.
15. GOVERNING LAW.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, without giving
effect to principles of conflicts of law.
16. WAIVER.
The waiver by either party of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall attach only
to such provision and not in any way affect or render invalid or unenforceable
any other provisions of this Agreement, and this Agreement shall be carried out
as if such invalid or unenforceable provision were not embodied therein.
17. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between
the parties and there are no representations, warranties or commitments except
as set forth herein. This Agreement supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether written or
oral, of the parties hereto relating to the transactions contemplated by this
Agreement; provided, however, that it is the intention of the parties hereto
that this Agreement shall be interpreted and applied in conjunction with the
terms of any option, warrant or other right now in existence or hereinafter
granted to the Employee to acquire shares of capital stock of the Company. In
the event of any conflict, however, the terms of this Agreement shall govern and
prevail. This Agreement may be amended only in writing executed by the parties
hereto affected by such amendment.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year first above written.
6
<PAGE>
CONSERVER CORPORATION OF AMERICA
By: /s/
-----------------------------
Miles Greenberg, CFO
/s/
-----------------------------
CHARLES H. STEIN
7
Exhibit 10.8
AGREEMENT
THIS AGREEMENT is made on the 12th day of August 1997 by and between CONSERVER
CORPORATION OF AMERICA, a corporation organized and existing under the laws of
Delaware having a place of business at 2655 LeJeune Road, Coral Gables, Florida
33134 ("CCA"), SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED, a company
organized with limited liability under the laws of Cyprus whose legal office is
at Doma Building, 227 Archibiship Markarios III Street, Limassol, Cyprus
("SGTI"), and SOVEREIGN GAMING AND LEISURE LIMITED, a company organized with
limited liability under the laws of Cyprus whose legal office is at Doma
Building, 227 Archbishop Markarios III Street, Limassol, Cyprus ("Sovereign",
SGTI and Sovereign being sometimes collectively referred to herein as
"Grantors").
WHEREAS, SGTI owns fifty percent (50%) of the shares of Sakhalin City Centre
Limited, a closed joint stock company incorporated under the laws of the Russian
Federation whose legal and postal address is 32 Kommunistichesky Prospect,
Office 521, Yuzhno-Sakhalinsk, Sakhalin Oblast, Russian Federation ("SCC");
WHEREAS, SCC, SGTI and Sovereign have entered into various agreements with and
received certain undertakings from the Sakhalin Oblast and the City of
Yuzhno-Sakhalinsk (the "City") in the Russian Federation with respect to the
construction and operation of a hotel and casino in the City (the "Project");
WHEREAS, SGTI wishes to transfer the whole of its share capital (the "Shares")
and SGTI and Sovereign wish to transfer all rights and interest to or in the
Project for cash and other consideration;
WHEREAS, CCA wishes to acquire all of the Shares and all rights and interest to
or in the Project held directly or indirectly by SGTI or Sovereign on terms
which have been accepted and agreed; and
WHEREAS, the parties hereto wish to set forth the terms of that
agreement in writing;
NOW, THEREFORE, in consideration of the mutual understandings and agreements
contained herein, the parties hereto hereby agree as follows:
<PAGE>
1. GRANT OF SHARES AND RIGHTS
(a) Subject to the terms and conditions set forth herein, Grantors
hereby agree to transfer or cause to be transferred to CCA the
Shares and any and all rights and interest in or to the Project.
(b) The agreement to transfer rights, interest and the Shares set forth
in sub-paragraph (a) is conditioned upon
(i) CCA delivering to SGTI, by wire transfer or company
cheque, immediately after execution and delivery of this
Agreement, Five Hundred Thousand U.S. Dollars ($500,000);
(ii) CCA delivering to SGTI, by wire transfer or company
cheque, not later than 10th September 1997, One million U.S.
Dollars ($1,000,000), and not later than 15th October 1997,
One Million Five Hundred Thousand U.S. Dollars ($1,500,000);
(iii) CCA delivering to the shareholders of SGTI or their nominees
as soon as is practicable following the approval of its
shareholders one million five hundred thirty-eight thousand
four hundred sixty-two (1,538,462) shares of common stock of
CCA, being approximately Ten Million U.S. Dollars
($10,000,000) of such stock valued at Six U.S. Dollars and
Fifty Cents ($6.50) per share.
2. REPRESENTATIONS AND WARRANTIES OF GRANTOR
SGTI and Sovereign jointly and severally represent and warrant that:
(a) they have full authority to enter into this Agreement and
grant the rights and undertakings herein granted;
(b) the Shares are owned free and clear of any lien or
encumbrance and are freely transferable in accordance with the
terms of this Agreement;
(c) SCC is a closed joint stock company duly organized and
registered as a company with foreign investment under the laws
of the Russian Federation;
2
<PAGE>
(d) Sovereign has the right to assign or transfer all of its
rights and interest in the Project, including without limitation
the Operating Management Agreement ("OMA") and the Project
Management Agreement ("PMA");
(e) neither SCC or SGTI have any material liabilities, other
than normal trade creditors, which have not been disclosed to
CCA;
(f) all of the representations made to CCA by or on behalf of them or
either of them, including without limitation that (i) SCC has the
right to construct a hotel and casino complex with approximately
four hundred and ten bedrooms in the City, (ii) all necessary
governmental permissions, including without limitation zoning
permission, to construct, subject to detailed final design and
drawings, and operate such a complex have been granted or will be
granted subject only to the substantial completion of the
construction phase of the Project, (iii) SCC has the exclusive right
for a casino and gaming license in the City, such exclusivity
subject only to three existing casino or gaming licenses, which
shall not be amended, modified or supplemented so as to extend the
scope, size and area or other rights currently granted under such
existing licenses, (iv) no payment of any gaming tax, levy or fee
shall be imposed on the Project, (v) all of the foregoing rights
have been granted for a minimum of fifty-two (52) years, being for
three (3) years plus forty-nine (49) years, with options to renew
for an additional forty-nine (49) years on substantially similar
terms, (vi) the total number of shares of SGTI now outstanding is
approximately two hundred thirty thousand (230,000), and (vii)
nothing of value has been given to any government official in the
Russian Federation or any subdivision thereof to obtain any rights
with respect to the Project, are true and will be true as of the
date of the delivery of the payments and shares in accordance with
paragraph 1(b), and, as far as is known by either of them, will
continue to be true through the said minimum period during which the
said rights have been granted.
3
<PAGE>
3. UNDERTAKINGS OF SGTI AND SOVEREIGN
(a) After the delivery of the Shares and the assignment of the rights
and interest to CCA in accordance with paragraph 1(a), SGTI and
Sovereign jointly and severally agree to execute such documents and
generally to take such action as may be reasonably requested by CCA
to perfect the intended transfer of such rights, interest and
Shares.
(b) Upon request by CCA, Sovereign agrees to become project
manager during the construction phase of the Project, subject to
agreement on reasonable compensation for such services, which
shall not exceed five percent (5%) of the construction cost of
the Project or Five Million U.S. Dollars ($5,000,000), whichever
is less.
4. RIGHTS OF CCA
(a) If at the completion of its due diligence CCA should conclude for
any reason that it does not wish to proceed with the Project and the
transactions contemplated hereby, CCA shall have the right to
convert any cash sums delivered to SGTI in accordance with clauses
(i) or (ii) of paragraph 1(b), into shares in SGTI at the conversion
rate of one (1) ordinary share of SGTI for each Thirty U.S. Dollars
($30) so delivered.
(b) In the event of a material breach of any of the representations and
warranties set forth in paragraph 2 being notified to SGTI and
Sovereign by 10th September 1997, which is not readily curable, then
and only then CCA shall have the right to have any cash sums
delivered to SGTI in accordance with clause (i) of paragraph 1(b)
repaid by the Grantors upon demand.
5. GENERAL
(a) It is the express intent of the parties hereto that this Agreement
and the transactions contemplated hereby be governed by the law of
the State of New York, with the full force and effect as thought
this Agreement had been executed and fully performed in New York. In
4
<PAGE>
the event of any dispute hereunder, the parties expressly agree that
such dispute shall be resolved by arbitration conducted in London
under the Rules of Arbitration of the International Chamber of
Commerce.
(b) This Agreement may be modified, amended or revised only by a written
instrument, duly exeucted by the parties hereto.
(c) The title or headings of provisions herein are used for convenience
only and shall in no way be used to construe the meaning of the
provision hereof.
(d) This Agreement may be executed individually and by duly authorized
representatives of the respective parties hereto in any number of
counterparts, each of which shall be deemed the original.
[END OF PAGE]
5
<PAGE>
This Agreement shall be translated into any other language, and such
translation may be initialled, but only this Agreement in the
English language shall be deemed the original. If any conflict
exists between the English language and the translation, the English
language version shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement personally or by their duly authorized representatives as of the date
and year first above written.
CONSERVER CORPORATION OF AMERICA
BY: /s/
------------------------------------------------------
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
BY: /s/ Chairman 13/8/97
------------------------------------------------------
SOVEREIGN GAMING AND LEISURE LIMITED
BY: /s/
------------------------------------------------------
6
Exhibit 10.9
AMENDMENT
THIS AMENDMENT is made on the 9th day of September 1997 by and between CONSERVER
CORPORATION OF AMERICA, a corporation organized and existing under the laws of
Delaware having a business address at 2655 LeJeune Road, Coral Gables, Florida
33134 ("CCA"), SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED, a company
organized with limited liability under the laws of Cyprus whose legal office is
at Doma Building, 227 Archbishop Markarios III Street, Limassol, Cyprus
("SGTI"), and SOVEREIGN GAMING AND LEISURE LIMITED, a company organized with
limited liability under the laws of Cyprus whose legal office is at Doma
Building, 227 Archbishop Markarios III Street, Limassol, Cyprus ("Sovereign,"
SGTI and Sovereign being sometimes collectively referred to herein as
"Grantors").
WHEREAS, CCA and Grantors entered into an Agreement dated 12th August 1997 ("the
Agreement") with respect to the transfer of equity and other interests in and to
Sakhalin City Centre Limited, a closed joint stock company incorporated under
the laws of the Russian Federation, and the rights to construct and operate a
hotel and casino in the City of Yuzhno-Sakhalinsk from Grantors to CCA; and
WHEREAS, CCA and Grantors now wish to amend certain terms of the Agreement in
writing;
NOW, THEREFORE, in consideration of the mutual understandings and agreements
contained herein, the parties hereto hereby agree to amend the Agreement as
follows:
1. AMENDMENTS
CCA and the Grantors hereby agree that the date set in clause (ii) of
paragraph 1(b) of the Agreement for the payment of One Million U.S. Dollars
($1,000,000) by CCA is changed from 10th September 1997 to 15th October 1997,
and the date set in said clause for the payment of One Million Five Hundred
Thousand U.S. Dollars by CCA is changed from 15th October 1997 to 31st
October 1997.
2. AFFIRMATION AND INCORPORATION
The parties hereto hereby ratify and affirm the Agreement in all other
respects and hereby incorporate the provisions of this Amendment into the
Agreement and incorporate herein by reference the provisions of paragraph 5
of the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment by their duly authorized representatives as of the date and year first
above written.
CONSERVER CORPORATION OF AMERICA
BY: /s/
------------------------------------------------
SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED
BY: /s/
------------------------------------------------
SOVEREIGN GAMING AND LEISURE LIMITED
BY: /s/
------------------------------------------------
2
Exhibit 10.10
================================================================================
DATED THIS 2ND DAY OF OCTOBER 1997
AGREEMENT
Between
CONSERVER CORPORATION OF AMERICA
And
DATO' DAVID CHIU
Re
PROVISION OF DEVELOPMENT,
CONSULTING AND FINANCIAL SERVICES
KADIR, TAN & RAMLI
KUALA LUMPUR
ORRICK, HERRINGTON & SUTCLIFFE,
NEW YORK
================================================================================
<PAGE>
AN AGREEMENT made this 2nd day of October, 1997 between Conserver Corporation of
America, a company incorporated in Delaware with its principal office at 3250
Mary Street, Suite 405, Coconut Grove, Florida (USA) 33133 ("Conserver") and
Dato' David Chiu with his principal residence at Unit 11-1-1, Block 11, Tower 2,
Menara Hartamas, Jalan Sri Hartamas 3, Sri Hartamas, 50480 Kuala Lumpur,
Malaysia (the "Stockholder").
WHEREAS, Conserver has entered into or plans to enter into certain agreements
with Sakhalin General Trading and Investments Limited, a company organized with
limited liability under the laws of Cyprus ("SGT"), which agreements remain
subject to approval of a majority of Conserver stockholders, and other
conditions, pursuant to which Conserver has or will acquire rights to invest in
and develop a hotel and casino project in Sakhalin Island, the Russian
Federation (the "Sakhalin Project");
WHEREAS, in consideration of certain agreements of the Stockholder related to
certain project development services, including the financing of the
construction of the Sakhalin Project as more fully described herein, Conserver
has agreed, subject to stockholder approval, (i) to issue upon the execution of
the Agreement one share of Junior Convertible Preferred Stock of Conserver (the
"Preferred Stock") to the Stockholder, which Preferred Stock shall automatically
convert into an aggregate 1,500,000 shares (the "Agreed Shares") of Conserver
Common Stock, par value $.001, on the Issuance Date (as hereafter defined) and
(ii) to transfer to the Stockholder on the Issuance Date such number of shares
of SGTI (the "SGTI Shares") which shall represent a twenty-five percent (25%)
interest in the Sakhalin City Centre Limited, a closed joint stock company
organized under the laws of the Russian Federation ("SCC") and the entity which
is developing the Sakhalin Project; and
WHEREAS, the parties hereto desire to establish in this Agreement agreements
that will regulate certain of their rights and obligations in connection with
the Agreed Shares and certain other matters.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the parties
hereto have agreed and by execution of this Agreement hereby do agree to
<PAGE>
2
consummate the aforementioned transactions (the "Transactions") subject to the
terms, conditions, covenants, and agreements contained herein and, in the case
of Conserver, subject to approval of a majority of its stockholders.
1. SAKHALIN PROJECT; ISSUANCE OF
AGREED SHARES; TRANSFER OF INTEREST
1.1 [Issuance of Agreed Shares
In addition to providing project development and consulting services
with respect to the Sakhalin Project, the Stockholder agrees to use his
best efforts to secure or procure the necessary debt financing and
guarantees (on behalf of Conserver and its subsidiaries and affiliates)
for the complete turnkey construction of the Sakhalin Project, which
Financing to be on such terms as are mutually acceptable to Conserver,
the Stockholder, SGTI and SCC (the "Financing"). Upon the execution of
this Agreement, the Stockholder shall as soon as practicable and with
due diligence commence discussions with prospective contractors for the
purpose of (a) settling the detailed building plans of the Sakhalin
Project as soon as possible and (b) obtaining the Financing within four
(4) months from the date of this Agreement, or such later date as the
parties shall reasonably agree taking into account any delay which may
have been occasioned by causes beyond their mutual control. Conserver
shall render to the Stockholder the fullest assistance and co-operation
in all things which are required to enable Stockholder to secure the
Financing. In particular Conserver shall ensure that all requisite
approvals for the implementation of the Sakhalin Project shall be
obtained as expeditiously as possible. Both parties hereto agree that
time is of the essence for the actual implementation of the Sakhalin
Project. In consideration of the Stockholder's services hereunder,
Conserver has agreed, subject to stockholder approval, on the Issuance
Date (as hereinafter defined) to issue the Agreed Shares to the
Stockholder upon conversion of the Preferred Stock. "Issuance Date"
shall mean the date of mutual execution by Conserver or its nominated
affiliate of a legally enforceable and binding agreement from a lender,
the terms of which are acceptable to Conserver, SGTI and SCC, to
provide the Financing. The Preferred Stock shall become automatically
<PAGE>
3
convertible into the Agreed Shares no later than seven (7) business
days after the Issuance Date and shall have such other terms as more
fully set forth in the form of Certificate of Designation attached
hereto as Exhibit A hereto.
1.2 Representations of Conserver
Regarding the Agreed Shares
Conserver hereby represents and warrants to the Stockholder that
Conserver (i) has and will have the full legal right, power and
authority to enter into this Agreement and to issue the Preferred Stock
and the Agreed Shares to the Stockholder on the date hereof and the
Issuance Date, as applicable, as herein provided, free and clear of any
Encumbrances, (ii) upon consummation of the Transactions contemplated
by this Agreement and registration of the Preferred Stock and the
Agreed Shares in the name of the Stockholder in the stock records of
Conserver, the Stockholder will acquire good and valid title to the
Preferred Stock and the Agreed Shares, as applicable, free and clear of
all Encumbrances and (iii) as of the date hereof, has the
capitalization set forth on Schedule 1 hereto.
1.3 Transfer of the SGTI Shares
On the Issuance Date, subject to stockholder approval, in consideration
of the Stockholder's services hereunder, Conserver shall sell, assign,
transfer, convey, and deliver to the Stockholder all its right, title,
and interest in and to the SGTI Shares.
1.4 Representations of Conserver
Regarding the SGTI Shares
Conserver hereby represents and warrants to the Stockholder that
Conserver or its nominated affiliate on the Issuance Date (i) shall be
the sole owner of record and the sole beneficial owner of the SGTI
Shares which shall represent 38.46% of the shares of the capital stock
of SGTI, which in turn shall represent a 25% interest in the
outstanding capital stock of SCC, (ii) that it will have or have had at
all relevant times the full legal right, power and authority to enter
into this Agreement and to sell, assign, transfer and deliver the SGTI
Shares to the Stockholder on the Issuance Date as herein provided,
(iii) upon consummation of the Transactions contemplated by this
Agreement and registration of the SGTI Shares in the name of the
Stockholder in the stock records of SGTI, the Stockholder will acquire
good and valid title to the SGTI Shares, free and clear of all
<PAGE>
4
Encumbrances, except for any first priority lien or mortgage lien in
favor of the lender(s) providing and/or securing the Financing and (iv)
the SGTI Shares shall rank on a pari passu basis with the other
outstanding ordinary shares of SGTI.
1.5 Representations of Stockholder
Stockholder hereby represents and warrants to Conserver that it has the
full legal right, power and authority to enter into this Agreement and
neither the consummation of the actions contemplated hereby or thereby
on the part of Stockholder or any of its affiliates violates any law,
rule, regulation, or order, or conflicts with or will result in the
breach of any of the terms, conditions or provisions of, or constitute
a default under, any agreement, indenture, instrument or undertaking to
which Stockholder or any of his affiliates by which he, they or their
respective properties are bound.
2. CERTAIN MATTERS RELATING TO THE PREFERRED
STOCK, AGREED SHARES, AND THE SGTI SHARES
2.1 Investment Representations of the Stockholder
The Stockholder acknowledges that the acquisition of the Preferred
Stock, the Agreed Shares and the SGTI Shares is a highly speculative
investment. This Agreement is made in reliance upon the express
representations and warranties of the Stockholder that: (1) the
Stockholder is able, without impairing his financial condition, to hold
the Preferred Stock, the Agreed Shares and the SGTI Shares for an
indefinite period of time and to suffer a complete loss on his
investment; (2) the Stockholder has discussed Conserver and its plans,
operations and financial condition with its officers and he has
received all such information as he deems necessary and appropriate to
enable him to evaluate the financial risk inherent in making an
investment in the Preferred Stock, the Agreed Shares and the SGTI
Shares and has received and had access to satisfactory and complete
information concerning the business and financial condition of the
Stockholder in response to his inquiries in respect thereof; (3) the
Preferred Stock, the Agreed Shares and the SGTI Shares are being
acquired for such Stockholder's own account for investment and not with
a view to, or for sale in connection with, the distribution thereof,
nor with any present intention of distributing or selling the same; (4)
the Stockholder either (A) has a pre-existing business or personal
<PAGE>
5
relationship with Conserver or any of its officers, directors or
controlling persons or (B) could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in Conserver
and to protect Stockholder's own interests in connection with this
transaction by reason of Stockholder's business or financial experience
or the business or financial experience of Stockholder's professional
advisors who are unaffiliated with and who are not compensated by
Conserver or any affiliate or selling agent of Conserver, directly or
indirectly; (5) Stockholder's principal residence is located at the
address indicated at the beginning of this Agreement; and (6) the
Preferred Stock and the Agreed Shares may not be sold without
registration under the Securities Act of 1933, as amended (the "Act"),
or an exemption therefrom.
2.2 Legends on Certificates
Until such time as the Preferred Stock and the Agreed Shares shall
have been registered under the Act, or shall have been transferred in
accordance with an opinion of counsel satisfactory to Conserver that
such registration is not required, stop transfer instructions shall be
issued to Conserver's transfer agent, and so long as required under
the Act or the regulations promulgated thereunder, the certificate(s)
representing the Preferred Stock and the Agreed Shares shall bear
substantially the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"). These securities have not been acquired with a view to
distribution or resale, and may not be sold, exchanged,
mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such shares
under the Act, as amended, and any applicable state laws, or
an opinion of counsel satisfactory to Conserver Corporation of
America that registration is not required under such Act or
under applicable laws.
So long as this Agreement is in effect stop transfer instructions shall
be issued to Conserver's transfer agent, if any, or, if Conserver
transfers its own securities, a notation shall be made in the
appropriate records of Conserver with respect to the Preferred Stock
and the Agreed Shares, and so long as required, the certificate(s)
representing the Preferred Stock and the Agreed Shares shall bear
substantially the following legend:
<PAGE>
6
The securities represented by this certificate are subject to
restrictions on voting and 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 Agreement dated as of
October 2, 1997, a copy of which is on file at the principal
office of Conserver Corporation of America.
2.3 Restrictions on Transfer of the Preferred Stock,
the Agreed Shares and the SGTI Shares
The Stockholder shall not for a period of three years from the date of
issuance or transfer, as applicable, of the Preferred Stock, the Agreed
Shares or the SGTI Shares, 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 the Preferred
Stock, the Agreed Shares or the SGTI Shares, including any options and
warrants with respect to the Preferred Stock, the Agreed Shares or the
SGTI Shares received by way of dividend or upon an increase, reduction,
substitution or reclassification or combination of stock of Conserver
or SGTI, or upon any reorganization of Conserver or SGTI, as
applicable. Notwithstanding any of the foregoing, the Stockholder may
transfer the Preferred Stock, the Agreed Shares and the SGTI Shares to
any subsidiary or affiliate of the Stockholder, subject to Conserver's
consent, such consent which shall not be unreasonably withheld.
2.4 Covenant Regarding Issuance of Shares in SGTI
Conserver hereby agrees that so long as the Stockholder continues to
hold the SGTI Shares, Conserver will not cause SGTI to issue additional
ordinary shares without the prior approval of the Stockholder except
for issuances made in connection with the Financing or under
circumstances where the Stockholder is offered the option to invest in
SGTI on the same terms.
<PAGE>
7
2.5 Voting Agreement
The Stockholder and Conserver hereby agree that until three years from
the Issuance Date, the Stockholder agrees to give Conserver by
execution of this Agreement and in order to secure the rights set forth
above, an irrevocable proxy of Stockholder, with full power of
substitution, to vote on all matters as Conserver deems appropriate,
with respect to the Preferred Stock (to the extent the Preferred Stock
has any statutory voting rights) and the Agreed Shares at all meetings
of the stockholders of Conserver and by means of any written consent of
stockholders with respect to all matters. Conserver hereby designates
Charles H. Stein, the Chairman, President and Chief Executive Officer
of Conserver as the authorized person to exercise the aforementioned
voting rights on behalf of Conserver, and, unless Charles H. Stein
shall for whatever reason become incapacitated so to act, Conserver
shall not appoint another person to exercise such rights.
2.6 Repurchase of Agreed Shares
In the event that Stockholder wishes to sell all or any part of the
Agreed Shares after the period provided in Section 2.3, Conserver shall
have the first option to purchase all or any part of such Agreed Shares
from the Stockholder. Stockholder shall give Conserver written notice
thereof of its intent to sell any or all of the Agreed Shares.
Conserver shall have a right to purchase all or a portion of 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 Conserver or (ii) the price offered to the
Stockholder by an unaffiliated third party (not a competitor of
Conserver) in an irrevocable and unconditional bona fide written offer
(the "Bona Fide Offer"), as applicable. Conserver shall have the right
to purchase all or a portion of the Agreed Shares by giving the
Stockholder written notice no later than ten (10) business days after
written notice is provided to Conserver. In the event that Conserver
fails to exercise its option pursuant to this Section 2.6, Stockholder
shall have the right to sell the Agreed Shares or any of the Agreed
Shares to such third party at the price offered to Conserver without
any further obligations to sell the same to Conserver. If, however, any
<PAGE>
8
or all of the Agreed Shares are not sold pursuant to the Bona Fide
Offer within thirty (30) days from the receipt by Conserver of the
Stockholder's notice of intent to sell, the unsold Agreed Shares shall
remain subject to the terms of this Agreement.
2.7 Repurchase of the SGTI Shares
Notwithstanding the provisions of Section 2.3, in the event that
Stockholder wishes to sell all or any part of the SGTI Shares,
Conserver shall have the first option to purchase all or any part of
the SGTI Shares from the Stockholder. Stockholder shall give Conserver
written notice thereof of its intent to sell any or all of the SGTI
Shares. Conserver shall have a right to purchase all or a portion of
the SGTI Shares at a price equal to the (i) price which shall be
determined by an independent appraisal performed by a mutually
acceptable, internationally-recognized appraiser (an "Independent
Appraisal"), the cost of which shall be split between the parties (the
parties hereto agree that such appraisal shall be conclusively accepted
as the fair value of the SGTI Shares) or (ii) the price offered to the
Stockholder by an unaffiliated third party (not a competitor of
Conserver) in a Bona Fide Offer, as applicable. Conserver shall have
the right to purchase the SGTI Shares by giving the Stockholder written
notice no later than ten (10) business days after written notice is
provided to Conserver. In the event that Conserver fails to exercise
its option pursuant to this Section 2.7, Stockholder shall have the
right to sell the SGTI Shares to such third party at the price offered
to Conserver without any further obligations to sell the SGTI Shares to
Conserver. If, however, any or all of the SGTI Shares is not sold
pursuant to the Bona Fide Offer within thirty (30) days from the
receipt by Conserver of the Stockholder's notice of intent to sell, the
unsold Agreed Shares shall remain subject to the terms of this
Agreement.
3. NON-WAIVER
3.1 No failure or delay on the part of either party hereto in
exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right or
power preclude any other or further exercise thereof or the exercise of
any other right or power herein.
<PAGE>
9
4. CONSENTS AND APPROVALS
4.1 The parties hereto agree that as soon as possible after the execution
of this Agreement they will take all necessary steps to obtain any
necessary or appropriate governmental approvals or permits to
consummate the Transactions. The parties hereto acknowledge and agree
that if the structure of the Transactions requires amendment to, among
other things, achieve more favorable tax and accounting treatment for
Conserver, each party shall cooperate with the other to take all action
necessary (not to the material detriment of either party) to amend the
terms or structure of the Transactions, as appropriate, while
preserving the economic benefits to each party as provided herein.
5. TRADE SECRETS
5.1 Each of the parties hereto hereby agrees:
(a) that any technical, economic, commercial, financial and
other information which is secret or confidential and is
acquired from any party hereto or from any entity directly
or indirectly affiliated with such party or from Conserver
or the Stockholder shall be kept strictly secret and
confidential and shall not be used for its or his own
benefit or be disclosed to any third party and that all
reasonable steps shall be taken to prevent the disclosure
thereof to third parties by its or his employees or
others;
(b) that on the termination of this Agreement for any reason
all documents given by one party to the other party giving
it consider to be confidential shall be returned to such
party by the other;
(c) that the covenants and obligations of this Clause shall
survive expiration or termination of this Agreement and
the parties hereto shall continue to observe them
regardless of whether its rights hereunder shall be
terminated or it shall cease to be a party hereto or the
Stockholder holds shares on Conserver, except and until
either party can reasonably demonstrate to the other that
any specific information previously regarded as secret or
confidential has entered the public domain through no act
or default of such party.
<PAGE>
10
6. ARBITRATION
6.1 Each party hereto shall use all reasonable efforts to resolve amicably
any controversy or dispute arising out of or relating to this
Agreement, including reasonable efforts to resolve any controversy or
dispute by consultation between the chairmen of each party hereto in
the event that any controversy or dispute is not otherwise amicably
resolved. If any dispute or difference shall arise between the parties
hereto touching any clause, matter or thing herein contained or the
operation or construction thereof or any matter or thing in any way
connected with this Agreement or the rights, duties or liabilities of
either party under or in connection with this Agreement, then and in
every such case the dispute or difference shall be referred to a single
arbitrator in case the parties agree upon one and otherwise to two
arbitrators one to be appointed by each party and in either case in
accordance with and subject to the provisions of the International
Chamber of Commerce or any statutory modification or re-enactment
thereof for the time being in force and such arbitration shall be held
in the City of London, England or in such other place as the parties
shall mutually agree.
7. NOTICES
7.1 Any notices or communications required or permitted to be given
hereunder shall be in writing (including telegraphic, telecopy, telex
or cable communications) and mailed, telegraphed, telecopied,
telexed, cabled or personally delivered to the party at the address
specified at the beginning of this Agreement or at such other address
or number as the recipient shall previously have designated by
written notice to the other party in the manner specified herein.
Notice shall be deemed to have been given and delivered to any party
hereto on the date of the addressee's receipt thereof. All notices
and communications hereunder, and all documents or instruments
delivered in connection with this Agreement shall be in the English
language and in the event of any conflict, the English version of any
such documents or instruments shall govern in all circumstances.
<PAGE>
11
8. MISCELLANEOUS
8.1 Applicable Law
The validity, construction and performance of this Agreement shall be
governed by this Agreement shall be interpreted in accordance with the
laws of England and any arbitration initiated hereunder shall apply the
laws of such country.
8.2 Assignment
This Agreement and all rights and obligations hereunder are personal as
to the parties hereto and neither of the parties hereto shall assign or
attempt to assign any such rights or obligations without the prior
consent of the other duly given in writing.
8.3 No Partnership
Nothing in this Agreement shall be deemed to create a partnership
between the parties hereto.
8.4 Severability
Each Clause hereof shall be deemed to be independent and the invalidity
of any such Clause which may be unenforceable as contrary to the
principles of law of any country shall not affect the validity of any
other Clause of this Agreement.
8.5 Counterpart Signatures
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which shall
constitute one and the same agreement.
8.6 Mutual Intentions
The parties hereto recognize and accept that it is impracticable to
provide herein for every contingency that may arise in the course of
the performance of the terms and conditions contained in this Agreement
or in the operation of the Transactions contemplated hereby and
accordingly they hereby declare it to be their mutual intention that in
all cases they shall each of them use their best endeavors to ensure
that this Agreement shall operate as between themselves fairly and
equitably.
<PAGE>
12
IN WITNESS WHEREOF the parties hereto have hereunto set their hands the day and
year first above written.
SIGNED by Charles H. Stein )
) /s/
for and on behalf of Conserver )
in the presence of:- )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
- --------------------------
SIGNED by DATO' DAVID CHIU )
the Stockholder in the ) /s/
presence of:- )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
- --------------------------
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
Capitalization of Conserver Corporation of America
As of September _____________,1997
<S> <C>
Before Transactions
Shares of Common Stock
Par Value $.001 Issued and Outstanding 6,712,904
Shares of Preferred Stock
Par Value $.0l; 5,000 authorized;
zero issued and outstanding -
Warrants, Options and Notes Convertible or
Exercisable into Common Stock 3,612,500
------------
Total Shares of Common Stock Outstanding
on a Fully Diluted Basis 10,325,404
------------
After Transactions and Stockholder Approval
Shares of Common Stock
Par Value $.001 Issued and Outstanding 6,712,904
Shares of Preferred Stock par Value $.0l; 5,000,000 Authorized; One
Share of Junior Convertible Preferred Outstanding until
Conversion.
Shares of Common Stock Proposed to be Issued For:
Shares of SGTI 2,000,000
Hotel Management Contract 2,000,000
Sakhalin Construction Financing 1,500,000
------------
Proposed Private Placement of **
$9,000,000-$10,000,000 in shares of
Common Stock, based upon a discount to the market price at the
time of the placement
- ----------------
**Not available
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Assumed Total Shares of Common Stock 12,212,904
Outstanding
Existing or Proposed Warrants,
Options and Notes Convertible
or Exercisable into Common Stock* 4,212,500
------------
Total Shares of Common Stock Outstanding
on a Fully Diluted Basis 16,425,404
------------
</TABLE>
- ----------------
*Excludes shares of common stock issuable upon exercise of stock options
available for grant under Conserver's option plan.
<PAGE>
Exhibit A
CERTIFICATE OF DESIGNATION
of
JUNIOR CONVERTIBLE PREFERRED STOCK
for
CONSERVER CORPORATION OF AMERICA
Conserver Corporation of America, a Delaware corporation ("the
Corporation"), pursuant to the provisions of Section 11 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designation and does hereby state and certify that pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the Certificate
of Incorporation of the Corporation, the Board of Directors duly adopted the
following resolutions, which resolutions remain in full force and effect as of
the date hereof:
RESOLVED, that, pursuant to Article FOURTH of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Junior Convertible Preferred Stock
consisting of one (1) share, par value $0.01, to be designated "Junior
Convertible Preferred Stock" ("the Preferred Share").
RESOLVED, that the Preferred Share shall be subject to the following
terms and provisions:
1. Dividends. The holder of the Preferred Share shall be entitled to
receive out of any assets legally available therefor dividends at the annual
rate of ten cents ($.10) per Preferred Share, per annum payable on December 31
of each year, commencing December 31, 1997, when and as declared by the Board of
Directors, in preference and priority to any payment of any dividend on the
Common Stock (as defined below) or any other class or series of stock of the
Corporation.
2. Liquidation Preference. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holder of
<PAGE>
2
the Preferred Share shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of any other class
or series of shares, the amount of $1.00 per Preferred Share ("the Liquidation
Preference").
3. Issuance of Preferred Share. The Preferred Share shall be issued by
the Corporation pursuant to and in accordance with an agreement to be entered
into between the Corporation and Dato' David Chiu dated as of October 2, 1997
with respect to the financing of the construction of a hotel and casino project
in Sakhalin Island, the Russian Federation (the "Preferred Stock Agreement").
4. Conversion. The Preferred Share shall automatically convert on the
Issuance Date, as hereinafter defined, into one million five hundred thousand
(1,500,000) shares of common stock, par value $0.001 of the Corporation (the
"Common Stock"), free and clear of any liens, claims or encumbrances, on the
following terms and conditions. The "Issuance Date" shall have the meaning
ascribed to it in the Preferred Stock Agreement.
(a) Mechanics of Conversion. To convert the Preferred Share
into shares of Common Stock, the holder of the Preferred Share shall give
written notice ("Conversion Notice") to the Corporation in the form of Exhibit A
hereto (which Conversion Notice may be given by facsimile transmission) stating
that such holder elects to convert the same and shall state therein the name or
names in which such holder wishes the certificate or certificates for Common
Stock to be issued (the date of such Conversion Notice shall be referred to
herein as the "Conversion Date"). The Conversion Date may not occur before the
Issuance Date. Such holder shall surrender the certificate representing the
Preferred Share being converted duly endorsed, at the office of the Corporation
or of any transfer agent for such shares. The Corporation shall, upon receipt of
such Conversion Notice, issue and deliver to or upon the order of the holder,
against delivery of the certificate representing the Preferred Share which has
been converted, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled (with the number of and
denomination of such certificates designated by such holder). The conversion
<PAGE>
3
pursuant to this Section 4 shall be deemed to have been made immediately prior
to the close of business on the Conversion Date. The person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at the close of business on the Conversion Date.
(b) Distributions. In the event the Corporation shall at any
time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation or any of its direct
or indirect subsidiaries other than additional shares of Common Stock, then in
each such event, in addition to the number of shares of Common Stock receivable
upon conversion, provision shall be made so that the holder of the Preferred
Share shall receive, upon the conversion thereof, the securities of the
Corporation or such subsidiary which they would have received had they been the
owners on the date of such event of the number of shares of Common Stock
issuable to them upon conversion.
(c) Notice of Record Date. In the event of any taking by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional shares of Common Stock, or
any right to subscribe for purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Corporation shall deliver to the holder of the Preferred Share at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(d) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common, solely for the purpose of effecting the
conversion of the Preferred Share, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of the Preferred
Share, and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of the Preferred Share,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including without limitation engaging in best efforts to obtain the requisite
<PAGE>
4
shareholder approval. Without in any way limiting the foregoing, so long as the
Preferred Share remains outstanding the Corporation agrees to reserve and at all
times keep available solely for purposes of conversion of the Preferred Share
such number of authorized but unissued shares of Common Stock that is set forth
in the Preferred Stock Agreement.
(e) Reorganization or Merger; Going Private. In case of any
reorganization or any reclassification of the capital stock of the Corporation
or any consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale of all or substantially all of the assets
of the Corporation to any other person, then, as part of such reorganization,
consolidation, merger or sale, if the holders of shares of Common Stock receive
any publicly traded securities as part or all of the consideration for such
reorganization, consolidation, merger or sale, then provision shall be made such
that the Preferred Share shall thereafter be convertible into such new
securities at a conversion price which places the holder of the Preferred Share
in an economically equivalent position as it would have been if not for such
event. In addition to the foregoing, if the holders of shares of Common Stock
receive any non-publicly traded securities or other property or cash as part or
all of the consideration for such reorganization, consolidation, merger or sale,
then such distribution shall be treated as a distribution under Section 4(b)
above and such Section shall govern such distribution.
5. Voting Rights. The holder of the Preferred Share shall have no
voting rights.
6. Nontransferable. The Preferred Share is being issued to Dato' David
Chiu and is not transferable without the written consent of the Corporation
except in accordance with the terms of the Preferred Stock Agreement.
7. Redemption. The Preferred Share may be redeemed at the option of the
Corporation, at any time after 2nd October 1998 for cash in an amount per share
equal to the Liquidation Preference set forth in Section 2 hereof.
<PAGE>
5
IN WITNESS WHEREOF, Conserver Corporation of America has caused this
Certificate to be signed by its Chief Executive officer and attested by its
Secretary this ____________ day of _______________ 1997.
CONSERVER CORPORATION OF AMERICA
By: ______________________________________
Charles H. Stein
Chief Executive Officer
ATTEST:
- -----------------------
Gerald M. Breslauer
Secretary
<PAGE>
EXHIBIT A
(To be Executed by Holder
in order to Convert the Preferred Share)
CONVERSION NOTICE
FOR
JUNIOR CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of the Junior Convertible Preferred
Stock ("Preferred Shares") of Conserver Corporation of America ("the
Corporation"), hereby irrevocably elects to convert the Preferred Share for
shares of common stock, par value $0.001 per share ("the Common Stock"), of the
Corporation according to the terms and conditions of the Certificate of
Designation for the Preferred Share as of the date written below. The
undersigned hereby requests that share certificates for the Common Stock to be
issued to the undersigned pursuant to this Conversion Notice be issued in the
name of, and delivered to, the undersigned or its designed or its designee as
indicated below. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed thereto in the Certificate of Designations.
Conversion Date: _________________
Conversion Information: NAME OF HOLDER: ______________________________________
By: _________________________________________________
Print Name:
Print Title:
Print Address of Holder:
_________________________________________________
_________________________________________________
Issue Common Stock to: _________________________
at: ____________________________________________
_________________________________________________
_________________________________________________
if Common stock is to be Issued to a person other than Holder, Holder's
signature must be guaranteed below:
SIGNATURE GUARANTEED BY:
- -----------------------------
Exhibit 10.11
CONSULTING AGREEMENT
This AGREEMENT (hereinafter the "Agreement") dated as of August 14,
1997 by and between Conserver Corporation of America, a corporation organized
under the laws of the State of Delaware and any of its affiliated entities
(hereinafter the "Company") and Star Casinos Limited, a company organized with
limited liability under the laws of Cyprus (hereinafter the "Consultant").
WHEREAS, subject to stockholder approval, the Company is seeking to
enter into a new line of business in the hotel and casino industry; and
WHEREAS, the Company has entered or plans to enter into certain
agreements, which remain subject to stockholder approval and other conditions
(collectively, the Agreements") pursuant to which the Company has rights to
invest in and develop a hotel and casino project in Sakhalin Island, the Russian
Federation (the "Sakhalin Project"); and
WHEREAS, the Company desires to engage the Consultant to provide
consulting and technical services to the Company and its affiliated entities in
connection with advising the Company with respect to its involvement in the
planning, developing, equipping, pre-opening and other operational activities of
the Sakhalin Project and other casinos to be developed in the future by the
Company (each a "Project" and collectively, the "Projects"); and
WHEREAS, the Consultant is experienced in the planning, developing,
equipping, pre-opening and other operational activities of casino projects.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Advisory and Technical Services.
Upon the terms and conditions contained herein, Consultant agrees to
make available the services of David Hartley ("Hartley") to provide at
all times reasonably requested by the Company, advisory and technical
consulting services described herein to the Company with respect to the
Projects, including the Sakhalin Project and other casinos which have
been identified by the Company for possible future development by the
Company. The Consultant shall also make available the services of
Hartley to identify for the Company, other potential casino
opportunities which the Company may pursue, based upon the Company's
specific criteria.
2. The Engagement: Phases of Development and Operation.
Subject to the terms and conditions hereinafter set forth, the Company
does hereby engage and retain the Consultant and the Consultant does
hereby agree to be engaged and retained by the Company, to provide the
services hereinafter described.
<PAGE>
The services to be rendered by the Consultant to the Company with
respect to each Project shall involve two phases, which are defined
generally as:
2.1 The preliminary planning, developing, equipping, pre-opening
and other operational activities of the Project
("Phase I"); and
2.2 The operations phase for the Project ("Phase II").
3. Term of Agreement.
This Agreement shall become effective on the later of (i) October 1,
1997 and (ii) the date of receipt of stockholder approval for the
Agreements (the "Commencement Date") and shall terminate two years
thereafter, subject to extension based upon the mutual agreement of the
parties hereto.
4. Phase I - Pre-Opening of the Project.
During Phase I, which shall commence on the Commencement Date, the
Consultant shall perform the following consulting and technical
services for and on behalf of the Company:
4.1 The Consultant will review the architectural plans and
specifications for the Project and will advise and consult
with the Company with respect to the Project layout, public
space layouts, food and beverage concepts and facilities and
other space programs and requirements for the Project.
4.2 The Consultant will advise the Company in the selection,
retention and coordination of a project manager, architects,
interior designers, landscape designers and purchasing agents
during the construction period and will provide such
professionals with advice with respect to casino operations as
may be reasonably required. The Consultant will conduct such
inspections and reviews from time to time during the
construction period.
4.3 The Consultant will advise the Company of the preparation of
staffing requirements, employment time tables and hiring and
training guidelines, wages and benefit plans for employees and
other programs relating to staffing for the Project employees.
4.4 The Consultant will advise the Company in the preparation,
revision and updating from time to time of the pre-opening
operating budget and marketing plan for the Project and its
various departments.
4.5 At an appropriate time prior to the opening, the Consultant
will provide advice to the Company with respect to the hiring
and retaining of a general manager and such other department
heads as may be reasonably required in each case, and
thereafter, with the assistance of such department heads, the
Consultant
2
<PAGE>
will advise the Company on the engagement of a full staff of
employees for the Project.
4.6 The Consultant will advise the Company in the coordination of
the development of the Project operating concepts, the
selection and acquisition of gaming equipment and the
development of a credit policy and credit collection system.
4.7 The Consultant will advise the Company in the coordination of
securing all licenses necessary to open and operate the
Project, including gaming licenses, occupational licenses,
liquor licenses, sanitary licenses and the like.
4.8 The Consultant will advise the Company and the Company will
hire and retain sales personnel and establish a sales program
for the purpose of marketing the activities and other
facilities of the casino, prior to the opening of the Project.
4.9 The Consultant will advise the Company in the coordination of
establishing appropriate accounting, internal financial
controls, financial reporting systems, and such other systems
and methods of reporting (including those required by
applicable law) as may be necessary or appropriate for the
Project.
4.10 The Consultant will assist the Company in the preparation and
coordination of pre-opening advertising, public relations and
sales budgets and will assist the Company in hiring
advertising and public relations firms and coordinate their
activities so as to develop a cohesive and coordinated
pre-opening program for advertising, public relations and
sales of the Project, all subject to the Company's approval.
4.11 The Consultant shall advise the Company in coordination of the
development of operating concepts for the food and beverage
facilities, the entertainment lounge and other specialized
areas such as uniform and employee areas of the Project.
4.12 In general, the Consultant will assist the Company in all
activities necessary or reasonably required to open the
Project for business, to see that the Project is properly
staffed and equipped, and to see that there is in place, well
in advance of the opening day, a coordinated program for
marketing the gaming operations, facilities, and services of
the Project.
5. Phase II - Operation of the Project On and After Opening Date.
The following provisions shall govern certain of the duties and
obligations of the Company and the Consultant from and after the date
when the Project shall open for business to the public (the "Opening
Date"):
3
<PAGE>
5.1 General Duties of Consultant. The Consultant shall provide to
and for the benefit of the Company such consulting services as
are usually and customarily performed by a consultant for
casino operations, and, without limiting the generality of the
foregoing, the Consultant is hereby authorized to and shall
provide advice, recommendations and counsel to Company
regarding the following:
5.1.1 Marketing related facilities of the Project.
5.1.2 Employment, pay and benefits, supervision, and other
policies and procedures applicable to all employees
of the Project.
5.1.3 Utility services, telephone, security, fire
protection services necessary or reasonably required
for the operation of the Project.
5.1.4 Policies regarding the purchase of (a) food,
beverages, operating supplies, and other
merchandise; and (b) gaming equipment, reservation
systems, security systems, telex equipment, and
other mechanical and electronic equipment and
systems necessary for the proper operation of the
Project.
5.1.5 The establishment of necessary accounting systems
and internal controls as may be required by
applicable gaming laws and regulations and the
development of such periodic financial reports and
other reports with respect to operations of the
Project from time to time as may be specially
required hereunder, or consult with the firm of
Independent Auditors hired or retained for the
Project (the "Auditors") to prepare and file same,
and cooperate with and assist the Auditors in so
doing.
5.1.6 Advise concerning all policies and procedures
affecting overall operations of the Project in
accordance with first class standards in the
industry.
5.1.7 Assist the Company in evaluating marketing plans,
including the promotion of the Project facilities
and the hiring, building and retention of
entertainment appropriate for the Project.
5.1.8 Advise concerning such other things required to be
done in or about the Project as necessary to comply
with all statutes, ordinances, laws, rules,
regulations, orders and requirements of any
governmental body or agency and any appropriate
departments, commissions, boards and offices thereof
having jurisdiction in the matter respecting the use
or operation thereof.
4
<PAGE>
6. No Authority to Operate or Manage.
Consultant is engaged hereunder solely in a consulting and advisory
capacity. Nothing contained in this Agreement permits or authorizes,
nor shall anything be construed to permit or to authorize, Consultant,
without the prior written authorization of the Company, (i) to operate
or manage any Project or to establish the costs of operating or
administering the same; (ii) to hire, terminate or determine wages,
salaries or benefits for any employee or any other person employed to
work at or about any Project (iii) to establish policies or procedures
for the operation or management of any Project; (iv) to instruct,
direct or supervise employees or any other person employed to work at
or about any Project regarding the operation or management of any
Project; (v) to bind the Company or to act as an agent of the Company
with regard to the operation of any Project; or (vi) to take any other
action that could reasonably be construed as managing or operating any
Project or that would otherwise violate the purpose and intent of this
Agreement.
7. Confidentiality. It is understood that in the course of the
Consultant's performance under this Agreement with the Company, the
Consultant has become and will continue to become acquainted with
Confidential Information (as defined below). The Consultant recognizes
that Confidential Information has been developed by the Company at
great expense, is confidential and proprietary to the Company, and is
and shall remain the exclusive property of the Company. "Confidential
Information" shall mean all proprietary and other information
concerning any Project as well as the Company generally and all of its
lines of business, including but not limited to information concerning
the Company's customers, vendors and others with whom it transacts
business, its methods of operation and other trade secrets, its future
plans and strategies, and any financial information concerning the
Company or any Project. The Consultant agrees that all Confidential
Information is the exclusive property of the Company and that
Consultant will not, and shall not permit any of its officers,
directors, shareholders, partners, employees, or agents to, remove the
originals or make copies of any Confidential Information without the
Company's prior written consent. The Consultant shall not, and shall
not permit any of its officers, directors, shareholders, partners,
employees, or agents to, use Confidential Information for any purposes
other than to carry out such obligations under this Agreement and will
not divulge Confidential Information to any other person or entity
during or after the term of this Agreement without the Company's prior
written consent, unless required by law or judicial or other process.
The provisions of this Section 7 shall continue to apply to the parties
after this Agreement is terminated. Upon termination of this Agreement,
the Consultant shall promptly return to the Company originals or copies
of any and all materials, documents, notes, manuals or lists containing
or embodying Confidential Information, or relating directly or
indirectly to the business of the Company or with respect to any
Project, in the possession or control of Consultant. Consultant agrees
that the Company shall be entitled to equitable relief including
injunction, in the event of any breach of the provisions of this
Section 7 and Section 12 hereof in addition to any right at law to
damages. In addition, Consultant hereby acknowledges that it is aware,
that the United States securities laws prohibit any
5
<PAGE>
person who has material, non-public information concerning the matters
which are the subject of this Agreement and the business of the Company
from purchasing or selling securities of the Company from communicating
such information to any other person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell
such securities. Consultant consents that it shall not violate, and
shall not permit any of its officers, directors, shareholders,
partners, employees or agents to violate, any provision of the
aforementioned laws or the analogous laws of any State of the United
States.
8. Scope of Relationship.
Nothing contained in this Agreement creates nor shall anything be
construed to create, an agency relationship, a partnership, joint
venture or any other association between the Company and Consultant
with regard to the operation and management of any Project.
9. Compensation.
Consultant shall be compensated for services rendered under this
Agreement in accordance with the following fee schedule:
9.1. As of the Commencement Date, Consultant shall be paid a fee of
US$[21,000] per month for twenty-four months, or a pro-rata
portion thereof for any partial month in which services are
provided, which amount shall be due and payable the first day
of each month effective as of October 1, 1997. Consultant
shall be entitled to receive a bonus payment of US$250,000 on
the second anniversary of this Agreement assuming Consultant
is not in breach of any provision of this Agreement at such
time and this Agreement shall not have been terminated prior
thereto. Commencing on October 1, 1997 and until the
Commencement Date, Consultant shall be paid a fee equal to
US$[21,000] per month, or a pro-rata portion thereof for any
partial month in which services are provided.
9.2 In consideration for the services to be provided hereunder,
the Company hereby grants to the Consultant options to
purchase up to 100,000 shares of the Company's common stock
(the "Option"), subject to the terms set forth below. The
exercise price of the Option shall be $6.50 per share of the
Company's common stock. The Option may be exercised as
follows: (i) on or after the first year anniversary of the
Commencement Date, the option to purchase up to 50,000 shares
of the Company's common stock; and (ii) on or after the second
year anniversary of the Commencement Date, the option to
purchase up to an additional 50,000 shares of the Company's
common stock. The Option will expire on the third year
anniversary of the Commencement Date. The Option granted
hereunder is subject, in all respects, to the terms of the
Company's 1996 Stock Option Plan, as amended (the "Stock
Option Plan"). If for any reason, this Agreement is terminated
by either the Company
6
<PAGE>
or the Consultant, the Option shall immediately terminate;
provided, however that in the event that the Consultant has
exercised the option in accordance with the terms of this
Agreement, subject to the terms of the Stock Option Plan,
prior to any termination of the Agreement by the Company, the
Consultant shall be entitled to purchase such shares
thereunder.
9.3 In consideration for the compensation to be paid to Consultant
hereunder in Sections 9.1 and 9.2, Consultant agrees that
during the period of this Agreement, Consultant agrees to
perform the services described in this Agreement with respect
to any other casino to be developed by the Company, in
addition to the Sakhalin Project, subject to the prior written
approval by the Company.
10. Expenses.
In addition to the fees provided in Section 9, the Company shall
reimburse Consultant for all direct travel and related expenses
reasonably and necessarily incurred in the performance of the services
requested under this Agreement, subject to written documentation of
such expenses provided to the Company.
11. Termination.
The Company shall have the right to terminate this Agreement for cause.
For purposes of this Agreement, the term "cause" shall mean: (a) a
finding by the Company that Consultant or Hartley has willfully and
materially failed, refused or neglected to perform and discharge his
duties and responsibilities hereunder for at least 15 business days
after written notice from the Company setting forth the actions or
omissions, as the case may be, which constitute such failure, refusal
or neglect, (b) the Consultant's or Hartley's violation of scope and
intent of this Agreement, (c) a material breach of the Consultant's
obligations under this Agreement which results in a material detriment
to the Company or any Project, (d) the Consultant's or Hartley's
engagement in misconduct materially injurious to the Company or any
Project, (e) the Consultant's or Hartley's intentional misappropriation
of property or corporate opportunity of the Company or with respect to
any Project for use by the Consultant or third parties, (f) the
Consultant's or Hartley's commission of an act of fraud or
embezzlement, (g) the Consultant's or Hartley's conviction for a crime
(excluding minor traffic offenses) or (h) the termination of Hartley's
control of the Consultant or the unavailability of Hartley to provide
the services required of Consultant hereunder. Consultant shall have
the right to terminate this Agreement in the event that the Company
elects not to proceed with any Project.
12. Non-competition, Non-Solicitation.
12.1 During the term of this Agreement and for a period of two (2)
years after the termination of this Agreement, the Consultant
shall not (i) directly or indirectly, as an employee, agent,
manager, director, officer, controlling
7
<PAGE>
stockholder, partner or otherwise, engage or participate in
any business engaged in any activities competitive with any
activities in which the Company is engaged with respect to the
casino business within a ____ mile radius of the Sakhalin
Project or any other casino property owned or managed by the
Company or its affiliated entities during the term of this
Agreement, or (ii) solicit from any client or division,
department or subsidiary of any client of the Company, or any
individual employed by any of the foregoing, for whom the
Consultant performed services during the course of performance
under this Agreement, any business relating to services
similar to the services which were so performed by the
Consultant under this Agreement. In addition, the Consultant
shall not during such time request or cause any client of the
Company to cancel or terminate any business relationship with
the Company or any of its subsidiaries or with respect to any
Project or any other casino property owned or managed by the
Company or its affiliated entities, or directly or indirectly
solicit or otherwise cause any employee to terminate such
employee's relationship with the Company or with respect to
any Project or any other casino property owned or managed by
the Company or its affiliated entities.
12.2 If any portion of the restrictions set forth in this Section
12 should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or
enforceability of the remainder of such restrictions shall not
thereby be adversely affected.
12.3 The Consultant declares that the foregoing scope, territorial
and time limitations are reasonable and properly required for
the adequate protection of any Project or any other casino
property owned or managed by the Company or its affiliated
entities. In the event any such scope, territorial or time
limitation is deemed to be unreasonable by a court of
competent jurisdiction, the Consultant agrees to the reduction
of said scope, territorial or time limitation to such scope,
area or period which said court shall have deemed reasonable.
12.4 The existence of any claim or cause of action by the
Consultant against the Company other than under this Agreement
shall not constitute a defense to the enforcement by the
Company of the foregoing restrictive covenants, but such claim
or cause of action shall be litigated separately.
13. Avoidance of Conflicts.
Except to the extent consented to in writing by the Company, during the
term of this Agreement, Consultant agrees that neither it, nor any
entity in which it owns a controlling interest shall represent, manage
or consult with any entity, if such representation or consultation
would: (i) create a conflict of interest with the matters on which
Consultant consults with and advises the Company with respect to any
Project, (ii) prejudice, damage or be adverse to any interest of the
Company with
8
<PAGE>
respect to any Project, (iii) adversely affect Consultant's
professional judgement with respect to the Company as it relates to any
Project; or (iv) adversely affect Consultant's responsibility to the
Company with respect to any Project.
14. Binding Effect.
This Agreement and the rights and obligations arising hereunder shall
inure to the benefit of, be binding upon and enforceable by the Company
and Consultant and their respective successors, permitted assigns,
heirs and representatives, it is understood and agreed that neither
party shall be entitled to circumvent this Agreement (including,
limitation, the provisions hereof relating to avoidance of conflicts
and non- disclosure of confidential information) by acting, directly or
indirectly by or through one or more of such party's principals,
companies, employees, agents, affiliates.
subsidiaries supervision or control.
15. Assignments.
Neither party to this Agreement may assign this Agreement without the
prior written consent of the other, provided, however, that the Company
may assign all or a part of its rights and obligations hereunder to one
or more subsidiaries or affiliates of the Company.
16. Headings.
The headings of the paragraphs hereof are inserted for convenience only
and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof.
17. Interpretation.
In case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall
not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. If, moreover, any one or
more of the provisions contained in this Agreement shall for any reason
be held to be excessively broad as to duration, geographical scope,
activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable
law as it shall then appear.
18. Notices.
All notices under this Agreement shall be in writing and shall be
deemed to have been given at the time when delivered personally or by
facsimile transmission, sent by recognized overnight courier service,
or mailed by registered or certified mail, addressed to the address set
forth at the end of this Agreement, or to such changed
9
<PAGE>
address as such party may have fixed by notice; provided, however, that
any notice of change of address shall be effective only upon receipt.
To the Consultant:
Star Casinos Ltd.
59 Holland Park
London W113SJ
Tel.:441717273051
Fax:441712433170
To the Company:
Conserver Corporation of America
2655 LeJeune Road
Suite 535
Coral Gables, Fl 33134
Tel.:305-444-3888
Fax: 305-444-7550
19. Waivers.
If either party should waive any breach of any provision of this
Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of
this Agreement.
20. Complete Agreement; Amendments.
The foregoing is the entire agreement of the parties with respect to
the subject matter hereof and supersedes in its entirety any letter
agreements or other writings by and among the Consultant and the
Company. This Agreement may not be amended, supplemented, cancelled or
discharged except by written instrument executed by both parties
hereto.
21. Applicable Law.
The validity, construction and enforceability of, and the rights and
obligations of the parties under this Agreement shall be governed by
and construed and enforced in accordance with, the laws of the State of
New York without giving effect to conflict of laws principles. Each
party to this Agreement hereby irrevocably submits to the non-exclusive
jurisdiction of any New York State and Federal Court sitting in the
City of New York with respect to any suit, action or proceeding arising
out of or related to this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Company and Consultant have executed this
Agreement as of the day and year first above written.
STAR CASINOS LTD. CONSERVER CORPORATION OF AMERICA
By /s/ By /s/
------------------------ ---------------------------
David Hartley Charles H. Stein
President
11
Exhibit 10.12
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of August 12, 1997, made by each of Jay M.
Haft, James V. Stanton and Jasmine Trustees Ltd. (collectively the "Pledgors"),
in favor of CONSERVER CORPORATION OF AMERICA ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgee has been exploring opportunities with respect to
entering into the casino and hotel business (the "New Line of Business"); and
WHEREAS, Pledgee has entered into that certain agreement (the "Sakhalin
Agreement") dated August 12, 1997 by and between Pledgee, Sakhalin General
Trading and Investments Limited ("SGTI") and Sovereign Gaming and Leisure
Limited ("Sovereign") pursuant to which the Company may acquire certain rights
with respect to the investment in and development of a hotel and casino project
in Sakhalin Island, the Russian Federation (the "Sakhalin Project"); and
WHEREAS, consummation of the transactions relating to the Sakhalin
Project contemplated by the Sakhalin Agreement are subject to the approval of
the stockholders of the Company; and
WHEREAS, Pledgors has agreed that in the event the Company does not
consummate the transactions contemplated with respect to the Sakhalin Project or
the stockholders of the Company disapprove the Company entering into the New
Line of Business at a Special Meeting of Shareholders, the Pledgors agree to
reimburse the Company for certain costs and expenses incurred by the Company in
connection with the Sakhalin Project; and
WHEREAS, in order to secure Pledgors' obligations, Pledgors have agreed
to pledge their respective shares of common stock in the Company (the "Common
Stock") to Pledgee to secure certain obligations made to the Pledgee.
NOW, THEREFORE, in order to induce Pledgee to consummate the
transactions contemplated by the Sakhalin Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgors agrees as follows:
1. Pledge and Security Interest. Pledgors hereby grants to
Pledgee a security interest in the following property (collectively, the
"Pledged Collateral"):
(a) 50,000 shares of Common Stock of Jay M. Haft;
(b) 50,000 shares of Common Stock of James V. Stanton; and
(c) 50,000 shares of Common Stock of Jasmine Trustees Ltd.
(collectively, the "Pledged Shares");
So long as this Agreement is in effect stop transfer instructions
shall be issued to Pledgee's transfer agent, if any, or, if
Pledgee transfers its own securities, a notation shall be made in
the appropriate records of Pledgee with respect to the Pledged
Shares, and so long as required, each of the certificate(s)
representing the Pledged 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 Pledge Agreement dated as of ___________, 1997, a
copy of which is on file at the principal office of
Conserver Corporation of America."
<PAGE>
(d) all dividends, interest, cash, instruments, and other
property from time to time received, receivable, or otherwise distributed or
distributable in respect of or in exchange for the Pledged Collateral; and
(e) all proceeds of any of the foregoing, including without
limitation, all investment property or financial assets.
2. Security for Obligations. The security interest granted
by this Agreement secures the reimbursement for certain payments made by the
Pledgee in connection with the Sakhalin Project pursuant to the Sakhalin
Agreement dated August 12, 1997, as subsequently may be amended from time to
time (hereinafter the "Obligations") in the event that the Pledgee does not
receive approval from a majority of the shareholders of the Company
("Shareholder Approval") to enter into the New Line of Business at a Special
Meeting of Shareholders. The Pledgors shall take any and all necessary actions
to reimburse the Company for any and all amounts paid by the Company with
respect to the Sakhalin Project, including any payments made by the Company to
SGTI with respect to the Sakhalin Agreement and any and all expenses relating to
the Company's termination of its rights under the Sakhalin Agreement and the
transfer of any rights and obligations thereunder to the Pledgors. The security
interest granted herein shall continue in full force and effect until the
Shareholder Approval.
3. Delivery of Pledged Collateral.
(a) All certificates or instruments representing or
evidencing the Pledged Collateral shall be held by Pledgee and shall be duly
endorsed to Pledgee or shall be otherwise in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to
Pledgee. Upon the occurrence of an Event of Default, Pledgee shall have the
right to register in its name any or all of the Pledged Collateral.
(b) This Agreement shall terminate and all certificates or
instruments representing or evidencing the Pledged Collateral shall be promptly
delivered to Pledgors upon receipt of Shareholder Approval. Pledgee will
thereafter take all action reasonably requested by Pledgors to transfer the
certificates and instruments representing the Pledged Collateral to Pledgors, to
register the certificates and instruments in Pledgors=s name and any other
action necessary to effectuate this Section.
4. Further Assurances. Pledgors agrees that at any time and
from time to time, at the expense of Pledgors, Pledgors will promptly execute
and deliver all further instruments and documents, and take all further action
that Pledgee may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable Pledgee
to exercise and enforce the rights and remedies hereunder with respect to any of
the Pledged Collateral and to any property subsequently constituting Pledged
Collateral pursuant to the terms hereof.
2
<PAGE>
5. Representations and Warranties. Each of the Pledgors
represent and warrant to Pledgee with respect to his or its Pledged Collateral
that:
(a) Each Pledgor is the record and beneficial owner of his or
its respective shares of Pledged Stock, and has all right, title and interest in
and to the Pledged Stock, and each Pledgor will have all right, title and
interest in and to any property subsequently constituting Pledged Collateral
pursuant to the terms hereof, in each case free and clear of any liens, claims,
security interests, and other encumbrances and free and clear of any warrants,
options, and other rights of third parties; and
(b) the pledge, assignment and delivery of the respective
Pledged Stock of each Pledgor pursuant to this Agreement creates a valid first
lien on and a first perfected security interest in such Pledged Stock and the
proceeds thereof, subject to no prior lien or any agreement purporting to grant
to any third party a lien on the property or assets of Pledgors which would
include the Pledged Stock.
6. Voting Rights. So long as no Event of Default (as defined
below) shall have occurred and be continuing, each Pledgor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Pledged Stock which he or it owns or any part thereof for any purpose not
inconsistent with the terms of this Agreement; provided, however, that each
Pledgor shall give Pledgee at least fifteen (15) days prior written notice of
the manner in which he or it intends to exercise any such right, or the reasons
for refraining from exercising a right to vote on any matter on which each
Pledgor is entitled to vote with respect to such Pledged Collateral, in either
case if such exercise or refrain from exercising such right to vote would have a
material adverse effect on the value of the Pledged Collateral; and, provided
further that each Pledgor shall not exercise any such right or refrain from
exercising such right to vote if Pledgee advise Pledgors, in Pledgee' reasonable
judgment, such action would have a material adverse effect on the value of the
Pledged Collateral or any part thereof.
7. Covenants.
(a) Until Shareholder Approval, each Pledgor agrees that he
or it will not:
(i) sell, assign, transfer, grant any option with
respect to, or otherwise convey any interest in any of the Pledged
Collateral;
(ii) modify in any respect whatsoever any of the terms
of or rights relating to the Pledged Collateral, including
reclassification or recapitalization thereof, without the prior written
consent of Pledgee; or
(iii) create or permit to exist any lien, security
interest, or other charge or encumbrance upon or with respect to any of
the Pledged Collateral.
3
<PAGE>
8. Events of Default. Pledgors shall be in default under
this Agreement upon the occurrence of one or more of the following (each, an
AEvent of Default@):
(i) If any statement, representation or warranty made in this
Agreement or contained in any exhibit, statement, certificate or other document
executed or delivered pursuant to or in connection with this Agreement shall
have been incorrect in any material respect when made, unless Pledgee shall not
have been materially prejudiced thereby; provided, however, that Pledgee shall
have given three (3) days prior written notice to Pledgors of such incorrect
statement, representation or warranty; or
(ii) If Pledgors shall be in default of, or shall fail to
comply with, in any material respect, any of its covenants, agreements or
obligations contained in this Agreement and, if such default is of a nature that
it is susceptible of being cured, such default shall continue uncured for a
period of ten (10) days after receipt of written notice to Pledgors from Pledgee
stating the specific default or defaults; provided, however, that if Pledgee
determine that such default is not of a nature that it is susceptible of being
cured, then Pledgee shall have given Pledgors three (3) days prior written
notice of such determination.
(iii) Failure of Pledgee to receive Shareholder Approval by
December 31, 1997.
9. Remedies Upon Default. Upon the occurrence of an Event of
Default:
(i) Pledgee may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to them, all the rights and remedies of a secured party on
default under the Uniform Commercial Code as in effect in the State of New York
(the ACode@) or under the applicable laws of any other jurisdiction and
agreements and also may, without notice except as specified below, retire and
cancel the Pledged Collateral as treasury shares, or sell the Pledged
Collateral or any part thereof in one or more parcels at public or private sale.
Pledgors agrees that at least ten days= notice to Pledgors of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Pledgee shall not be obligated to make any
sale of Pledged Collateral regardless of notice of sale having been given.
Pledgee may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
(ii) Any and all cash proceeds received by Pledgee in respect
of any collection from, or other realization upon, all or any part of the
Pledged Collateral, in the discretion of Pledgee, may be held by Pledgee as
collateral for, and/or then or at any time thereafter applied (after payment of
any amounts payable to Pledgee pursuant to this Pledge Agreement hereof) in
whole or in part by Pledgee against, all or any part of the Obligations in such
order as Pledgee shall elect. Any surplus of such cash or cash proceeds held by
Pledgee and remaining after payment in full of all the Obligations shall be paid
over to Pledgors or to whomsoever may be lawfully entitled to receive such
surplus.
10. Private Sale. Pledgors acknowledge and recognize that
Pledgee may be unable to effect a public sale of all or a part of the Pledged
Collateral and may be compelled to resort to one or more private sales to a
restricted group of purchasers who will be obligated to agree, among other
4
<PAGE>
things, to acquire the Pledged Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. Pledgors acknowledge
that any such private sales may be at prices and on terms less favorable to
Pledgee than those of public sales, and agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that Pledgee
have no obligation to delay sale of any Pledged Collateral to permit the issuer
thereof to register it for public sale under the Securities Act of 1933, as from
time to time amended, even if the issuer is willing to do so.
11. Indemnity and Expenses. Pledgors, jointly and severally
agree to indemnify and hold Pledgee harmless from, against and in respect of any
and all loss, liability, damage, cost or expense (including reasonable
attorneys= fees and expenses) suffered or incurred by Pledgee under or by reason
of this Agreement (including, without limitation, enforcement of this
Agreement). Pledgors will, joint and severally, upon demand, pay to Pledgee the
amount of any and all expenses, including the reasonable fees and expenses of
counsel and of any experts and agents, which Pledgee may incur in connection
with (i) the enforcement of this Agreement, (ii) the custody or preservation of,
collection from, or other realization upon, any of the Pledged Collateral, (iii)
the exercise or enforcement of any of the rights of Pledgee hereunder, or (iv)
the failure by Pledgors to perform or observe any of the provisions hereof.
12. No Delay; Single or Partial Exercise Permitted. No delay
or omission on the part of Pledgee in exercising any rights or remedies
contained herein shall operate as a waiver of such right or remedy or of any
other right or remedy, and no single or partial exercise of any right or remedy
shall preclude any other or further exercise thereof, or the exercise of any
other right or remedy. No waiver of any rights and remedies hereunder shall be
deemed made by Pledgee unless in writing and duly executed. A waiver of any
right or remedy on any one occasion shall not be construed as a bar or waiver of
any right or remedy on future occasions, and no delay, omission, waiver or
single or partial exercise of any right or remedy shall be deemed to establish a
custom or course of dealing or performance between the parties hereto.
13. Rights Cumulative. All rights and remedies of Pledgee
pursuant to this Agreement shall be cumulative and non-exclusive, and may be
exercised singularly or concurrently.
14. Severability. In the event that any provision of this
Agreement is deemed to be invalid by reason of the operation of any law, or by
reason of the interpretation placed thereon by any court or any other
governmental body or regulatory authority, this Agreement shall be construed as
not containing such provision and the invalidity of such provision shall not
affect the validity of any other provisions hereof, and any and all other
provisions hereof which otherwise are lawful and valid shall remain in full
force and effect.
15. Notices. Any and all notices or other communications
required or permitted to be given under any of the provisions of this Agreement
5
<PAGE>
shall be in writing and shall be deemed to have been duly given when personally
delivered or mailed by first class registered mail, return receipt requested, or
by commercial courier or delivery service, addressed to the parties at the
addresses set forth below (or at such other address as any party may specify by
notice to all other parties given as aforesaid):
If to Pledgors, to:
Jay M. Haft
201 Biscayne Boulevard
Suite 300
Miami, Florida 33133
James V. Stanton
c/o Conserver Corporation of America
3250 Mary Street
Suite 405
Coconut Grove, Florida 33133
Jasmine Trustees Ltd.
P.O. Box 675
St. Helier, Jersey Channel Islands
If to Pledgee, to:
Conserver Corporation of America
3250 Mary Street
Suite 405
Coconut Grove, Florida 33133
16. Continuing Security Interest. This Agreement creates a
continuing security interest in the Pledged Collateral and shall (a) be binding
upon Pledgors and their successors and assigns, and (b) inure to the benefit of
Pledgee and their heirs, personal representatives, successors, transferees and
assigns. The execution and delivery of this Agreement shall in no manner impair
or affect any other security (by endorsement or otherwise) for the payment or
performance of the Obligations and no security taken hereafter as security for
payment or performance of the Obligations shall impair in any manner or affect
this Agreement or the security interest granted hereby, all such present and
future additional security to be considered as cumulative security. Any of the
Pledged Collateral may be released from this Agreement without altering,
varying, or diminishing in any way this Agreement or the security interest
granted hereby as to the Pledged Collateral not expressly released, and this
Agreement and such security interest shall continue in full force and effect as
to all of the Pledged Collateral not expressly released.
6
<PAGE>
17. Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof, supersedes
any previous agreements or understandings among the parties with respect to such
subject matter, and may not be modified, amended or terminated except by a
written agreement specifically referring to this Agreement signed by all of the
parties hereto.
18. Captions. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
19. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which, when taken together, shall be one and the same instrument.
20. Survival of Agreement. All covenants, agreements,
representations and warranties made herein shall continue in full force and
effect until the Obligations are paid and performed in full.
21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely therein, without regard to conflicts
of law rules or principles.
22. Jurisdiction and Venue. Each party hereby irrevocably
consents to the sole and exclusive jurisdiction and venue of the courts of the
State of New York located in New York County and of any Federal court located in
New York County in connection with any action or proceeding arising out of or
relating to this Agreement, or the breach thereof. Each party hereby irrevocably
waives any objection to the laying of venue in New York County or based on the
grounds of forum non conveniens, which such party may now or hereafter have to
the bringing of any action or proceeding in such jurisdiction in respect of this
Agreement.
23. Waiver of Right to Jury Trial. Pledgee and Pledgors each
acknowledge and agree that any controversy which may arise under this Agreement
would be based upon difficult and complex issues and therefore, Pledgee and
Pledgors each agree that any court proceeding arising out of any such
controversy will be tried in a court of competent jurisdiction by a judge
sitting without a jury.
24. No Construction Against Drafting Party. This Agreement
shall be construed and enforced without the aid of any canon or rule of law
requiring construction against the party drawing or causing this Agreement to be
drawn.
7
<PAGE>
IN WITNESS WHEREOF, Pledgors, intending to be legally bound, has
executed this Agreement as of the date first above written.
JASMINE TRUSTEES LTD.
By: /s/
-----------------------------
/s/
---------------------------------
Jay M. Haft
/s/
---------------------------------
James V. Stanton
CONSERVER CORPORATION OF AMERICA
By: /s/
----------------------------
Charles H. Stein
President
8
Exhibit 10.13
================================================================================
DATED THIS 2ND DAY OF OCTOBER, 1997
AGREEMENT
Between
CONSERVER CORPORATION OF AMERICA
And
DORSETT HOTELS & RESORTS INTERNATIONAL LTD
FOR
APPOINTMENT
OF
EXCLUSIVE OPERATOR AND MANAGER
OF
CERTAIN HOTELS
KADIR, TAN & RAMLI
KUALA LUMPUR
ORRICK, HERRINGTON & SUTCLIFF
NEW YORK
================================================================================
<PAGE>
AN AGREEMENT made this 2nd day of October, 1997 between Conserver
Corporation of America, a company incorporated in Delaware with its principal
office at 3250, Mary Street, Suite 405, Coconut Grove, Florida (USA) 33133
("Conserver") and Dorsett Hotels & Resorts International Ltd, a company
incorporated under the laws of the British Virgin Islands with its principal
office at P 0 Box 71, Craigmuir Chambers, Road Town, Tortola, British Virgin
Islands (the "Company").
WHEREAS, the Company is authorized and empowered by the Owners of the
existing and future hotels described in Schedule 1 hereto (the "Hotels") to
engage Conserver (the "Exclusive Engagement") to act, upon the terms and subject
to the conditions contained herein, as the exclusive Operator and manager of
each of the Hotels in accordance with the terms and conditions of an Operating
Agreement substantially in the form annexed hereto as Exhibit A. The Company so
desires to appoint Conserver and subject to stockholder approval, Conserver
desires to be so engaged;
WHEREAS, for the privilege of being granted the Exclusive Engagement
and in consideration of the favourable terms contained in the Operating
Agreements, Conserver agrees effective the Effective Date (as hereinafter
defined) (i) to pay to the Company or its designees, US$3,000,000 and (ii) to
2
<PAGE>
grant to the Company or its designees the right to receive an aggregate
2,000,000 shares (the "Shares") of Common Stock, $.001 per value, of Conserver,
subject to the terms hereinafter described; and
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the parties
hereto have agreed and by execution of this Agreement hereby do agree to
consummate the aforementioned transactions (the "Transactions") subject to the
terms, conditions, covenants and agreements contained herein.
ARTICLE I
EXCLUSIVE ENGAGEMENT, ISSUANCE OF SHARES
1. EXCLUSIVE ENGAGEMENT, ISSUANCE OF SHARES
----------------------------------------
1.1 Issuance of Shares
------------------
Subject to the terms and conditions hereof, upon execution and delivery
by the parties hereto of the first three Operating Agreements identified
on Schedule 1 hereto, Conserver agrees (i) to pay to the Company or it
designees, US$3,000,000 (which payment to be made within two weeks
following the Effective Date) and (ii) to grant to the Company, the
right to receive (i) fifty percent (50%) of the Shares on the Effective
Date and (ii) the remaining fifty percent (50%) of the Shares in the
form of a direct issuance, options to acquire Shares, an escrow
arrangement or otherwise as mutually agreed between Conserver and the
3
<PAGE>
Company, in each case such arrangement taking into consideration in part
upon the number of hotels under management and the completion of new
hotels to be managed by Conserver. The Shares which shall rank on a pari
passu basis with all other shares of Common Stock of Conserver.
"Effective Date" shall mean the date Conserver receives approval from a
majority of its stockholders to enter into the Transactions.
1.2 Representations of Conserver Regarding the Shares
-------------------------------------------------
Conserver hereby represents and warrants to the Company that (i)
Conserver will have the full right, power and authority to enter into
this Agreement and to issue the Shares to the Company on the Effective
Date as herein provided, free and clear of any lien, encumbrance,
security interest, or pledge created by Conserver (collectively referred
to as "Encumbrances"), (ii) upon consummation of the Transactions
contemplated by this Agreement and registration of the Shares in the
name of the Company in the stock records of Conserver, the Company will
acquire good and valid title to the Shares, free and clear of all
Encumbrances, subject to the Escrow, if any, and (ii) as of the date
hereof Conserver has the capitalisation set forth on Schedule 3 hereto.
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<PAGE>
2. CERTAIN MATTERS RELATING TO
THE SHARES AND THE INTEREST
---------------------------
2.1 Investment Representations of the Company
-----------------------------------------
The Company acknowledges, that the acquisition of the Shares is a highly
speculative investment. This Agreement is made in reliance upon the
express representations and warranties of the Company that -
(1) the Company is able, without impairing its financial condition, to hold
the Shares for an indefinite period of time and to suffer a complete
loss on his, her or its investment;
(2) the Company has discussed Conserver and its plans, operations and
financial condition with its officers and he has received all such
information as he, she or it deems necessary and appropriate to enable
him to evaluate the financial risk inherent in making an investment in
the Shares, and has received and had access to satisfactory and complete
information concerning the business and financial condition of the
Company in response to his inquiries in respect thereof;
(3) the Shares are being acquired for such Company's own account for
investment and not with a view to, or for sale in connection with, the
5
<PAGE>
distribution thereof, nor with any present intention of distributing or
selling the Shares;
(4) the Company either (A) has a pre-existing business or personal
relationship with Conserver or any of its officers, directors or
controlling persons or (B) could be reasonably assumed to have the
capacity to evaluate the merits and risks of an investment in Conserver
and to protect the Company's own interests in connection with this
transaction by reason of the Company's business or financial experience
or the business or financial experience of the Company's professional
advisors who are unaffiliated with and who are not compensated by
Conserver or any affiliate or selling agent of Conserver, directly or
indirectly;
(5) the Company's principal office is located at the address indicated at
the beginning of this Agreement; and
(6) the Shares may not be sole without registration under the Securities Act
of 1933, as amended (the "Act"), or an exemption therefrom.
2.2 Representation of the Company
Regarding the Hotels
-----------------------------
The Company represents that the information provided to Conserver with
respect to the historical and projected operations of the Hotels and
6
<PAGE>
planned improvements to be made thereto is accurate and complete in all
material respects.
2.3 Legends of Certificates
-----------------------
Until such time as the Shares, shall have been registered under the Act,
or shall have been transferred in accordance with an opinion of counsel
satisfactory to Conserver that such registration is not required, stop
transfer instructions shall be issued to Conserver's transfer agent, and
so long as required under the Act or the regulations promulgated
thereunder, the certificate(s) representing the Shares, shall bear
substantially the following legend:-
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act").
These securities have not been acquired with a view to distribution or
resale, and may not be sold, exchanged, mortgaged, pledged,
hypothecated or otherwise transferred without an effective
registration statement for such shares under the Act, as amended, and
any applicable state laws, or an opinion of counsel satisfactory to
Conserver Corporation of America that registration is not required
under such Act or under applicable laws."
So long as this Agreement is in effect, stop transfer instructions shall
be issued to Conserver's transfer agent, if any, or if Conserver
transfers its own securities, a notation shall be made in the
appropriate records of Conserver with respect to the Shares, and so long
7
<PAGE>
as required, the certificate(s) representing the Shares shall bear
substantially the following legend:-
"The securities represented by this certificate are subject to
restrictions on voting and 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
terms and conditions of a certain Agreement dated as of October 2,
1997, a copy of which is on file at the principal office of Conserver
Corporation of America."
2.4 Restrictions on Transfer of Shares
----------------------------------
The Company shall not for a period of three years from the date of
issuance or transfer, as applicable, of the Shares, 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 the Shares, including any options and warrants with respect to the
Shares, received by way of dividend or upon an increase, reduction,
substitution or reclassification or combination of stock of Conserver or
upon any reorganisation of Conserver, as applicable. Notwithstanding any
8
<PAGE>
of the foregoing, the Company may transfer the Shares to any subsidiary
or affiliate of the Company, subject to Conserver's consent, which
consent shall not be unreasonably withheld.
2.5 Voting Agreement
----------------
The Company and Conserver hereby agree that during the period that until
the later of (i) the date all Shares are issued to the Company pursuant
to the terms hereof, or (ii) three years from the Effective Date, the
Company agrees to give Conserver by execution of this Agreement and in
order to secure the rights set forth above, an irrevocable proxy of the
Company to vote on all matters as Conserver deems appropriate, with
respect to the Shares at all meetings of the stockholders of Conserver
and by means of any written consent of stockholders with respect to all
matters. Conserver hereby designates Charles H Stein, the Chairman,
President and Chief Executive Officer of Conserver as the authorised
person to exercise the aforementioned voting rights on behalf of
Conserver, and, unless Charles H Stein shall for whatever reason become
incapacitated so to act, Conserver shall not appoint another person to
exercise such rights.
2.6 Repurchase of the Shares
------------------------
In the event that the Company wishes to sell all or any part of the
Shares after the period provided in Section 2.3, Conserver shall have
the first option to purchase all
9
<PAGE>
or any part of the Shares from the Company. The Company shall give
Conserver written notice thereof of its intention to sell any or all of
the Shares. Conserver shall have 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 Conserver or (ii) the price offered to the Company by an
unaffiliated third party (not a competitor of Conserver) in an
irrevocable and unconditional bona fide written offer (the "Bona Fide
Offer"), as applicable. Conserver shall have the right to purchase all
or a portion of the Shares by giving the Company written notice no later
than 10 business days after written notice is provided to Conserver. In
the event that Conserver fails to exercise its option pursuant to this
Section 2.5, the Company shall have the right to sell the Shares (which
have been released from Escrow, if applicable) to such third party at
the price offered to Conserver without any further obligations to sell
the Shares to Conserver. If, however, any or all the Shares are not sold
pursuant to the Bona Fide Offer within 30 days from the receipt by
Conserver of the Company's notice of intent to sell, the unsold Shares
shall remain subject to the terms of this Agreement.
10
<PAGE>
3. NON-WAIVER
----------
3.1 No failure or delay on the part of either party hereto in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of such right or power preclude any other
or further exercise thereof or the exercise of any other right or power
herein.
4. CONSENT AND APPROVALS
---------------------
4.1 The parties hereto agree that as soon as possible after the execution of
this Agreement they will take all necessary steps to obtain any
necessary or appropriate governmental approvals or permits to consummate
the Transactions. The parties hereto acknowledge and agree that if the
structure of the Transactions requires amendment to, among other things,
achieve more favourable tax and accounting treatment for Conserver,
and/or the Company, each party shall co-operate with the other to take
all action necessary (not to the material detriment of either party) to
amend the terms or structure of the Transactions, as appropriate, while
preserving the economic benefits to each party as provided herein.
5. TRADE SECRETS
-------------
5.1 Each of the parties hereto hereby agrees -
(a) that any technical, economic, commercial, financial and other
information which is secret or confidential and is acquired from any
11
<PAGE>
party hereto or from any entity directly or indirectly affiliated with
such party or from Conserver or the Company shall be kept strictly
secret and confidential and shall not be used for its own benefit or be
disclosed to any third party and that all reasonable steps shall be
taken to prevent the disclosure thereof to third parties by its
employees or others;
(b) that on the termination of this Agreement for any reason all documents
given by one party to the other party considered to be confidential
shall be returned to such party by the other;
(c) that the covenants and obligations of this Clause shall survive
Expiration or termination of this Agreement and the parties hereto shall
continue to observe them regardless of whether its rights hereunder
shall be terminated or it shall cease to be a party hereto or the
Company holds shares in Conserver, except and until either party can
reasonably demonstrate to the other that any specific information
previously regarded as secret or confidential has entered the public
domain through no act or default of such party.
12
<PAGE>
6. ARBITRATION
-----------
6.1 Each party hereto shall use all reasonable efforts to resolve amicably
any controversy or dispute arising out of or relating to this Agreement,
including reasonable efforts to resolve any controversy or dispute by
consultation between the chairman of each party hereto in the event that
any controversy or dispute is not otherwise amicably resolved. If any
dispute or difference shall arise between the parties hereto touching
any clause, matter or thing herein contained or the operation or
construction thereof or any matter or thing in any way connected with
this Agreement, then and in every such case the dispute or difference
shall be referred to a single arbitrator in case the parties agree upon
one and otherwise to two arbitrators one to be appointed by each party
and in either case in accordance with and subject to the provisions of
the International Chamber of Commerce or any statutory modification or
re-enactment thereof for the time being in force and such arbitration
shall be held in the City of London, England or in such other place as
the parties shall mutually agree.
7. NOTICES
-------
7.1 Any notices or communications required or permitted to be given
hereunder shall be in writing (including telegraphic, telecopy, telex or
cable communications) and mailed, telegraphed, telecopied, telexed,
13
<PAGE>
cabled or personally delivered to the party at the address specified at
the beginning of this Agreement or at such other address or number as
the recipient shall previously have designated by written notice to the
other party in the manner specified herein. Notice shall be deemed to
have been given and delivered to any party hereto on the date of the
addressee's receipt thereof. All notices and communications hereunder,
and all documents or instruments delivered, in connection with this
Agreement shall be in the English language and in the event of any
conflict, the English version of any such documents or instruments shall
govern in all circumstances.
8. MISCELLANEOUS
-------------
8.1 Substitution
------------
Notwithstanding the specific hotels listed in Schedule 1 hereto, where
it is to the mutual benefits of the parties hereto, the Company may,
with the agreement of Conserver, substitute any of the Hotels with
another hotel in the same or a different location.
8.2 Applicable Law
--------------
The validity, construction and performance of this Agreement shall be
governed by this Agreement shall be interpreted in accordance with the
14
<PAGE>
laws of England and any arbitration initiated hereunder shall apply the
laws of such country.
8.3 Assignment
----------
This Agreement and all rights and obligations hereunder are personal as
to the parties hereto and neither of the parties hereto shall assign or
attempt to assign any such rights or obligations without the prior
consent of the other given in writing.
8.4 No Partnership
--------------
Nothing in this Agreement shall be deemed to create a partnership
between the parties hereto.
8.5 Severability
------------
Each Clause hereof shall be deemed to be independent and the invalidity
of any such Clause which may be unenforceable as contrary to the
principles of law of any country shall not affect the validity of any
other Clause of this Agreement.
8.6 Counterpart Signatures
----------------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which shall
constitute one and the same agreement.
15
<PAGE>
8.7 Mutual Intentions
-----------------
The parties hereto recognize and accept that it is impracticable to
provide herein for every contingency that may arise in course of the
performance of the terms and conditions contained in this Agreement or
in the operation of the Transactions contemplated hereby and accordingly
they hereby declare it to be their mutual intention that in all cases
they shall each of them use their best endeavours to ensure that this
Agreement shall operate as between themselves fairly and equitably.
16
<PAGE>
IN WITNESS WHEREOF the parties hereto have hereunto set their hands the
day and year first above written.
SIGNED by )
)
for and on behalf of ) /s/
Conserver in the presence )
of - )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
SIGNED by )
)
for and on behalf of the ) /s/
Company in the presence )
of - )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
17
<PAGE>
Schedule 1
----------
List of Hotels Currently Operating
Dallas Grand Hotel, Dallas, Texas
Dorsett Regency Bali, Indonesia
Rockman's Regency Melbourne, Australia
List of Additional Planned Hotels Which
Conserver Will Have Option To Operate
Dorsett Regency, Kuala Lumpur, Malaysia
Dorsett Seremban Resort, Seremban, Malaysia
Radisson Plaza, Edmonton, Canada
Dorsett Court, Angkor Wat, Siem Riep, Cambodia
Dorsett Hotel, Phuket, Thailand
Dorsett Regency Hotel and Casino, Sakhalin Island, Russian
Federation
18
<PAGE>
Schedule 2
----------
Schedule of Release of the Shares
<TABLE>
<CAPTION>
Date of
Number of Shares Execution of Related
To be Released Hotel Name and Location Operating Agreement
- ---------------- ----------------------- ---------------------
<S> <C> <C>
{ Dallas Grand Hotel, Dallas, Texas Effective Date
1,000,000 Dorsett Regency Bali, Indonesia Effective Date
{ Rockman's Regency, Melbourne, Austrailia Effective Date
200,000 Dorsett Regency, Kuala Lumpur, Malaysia *
200,000 Dorsett Seremban Resourt, Seremban, Malaysia *
200,000 Radisson Plaza, Edmonton, Canada *
200,000 Dorsett Court, Angkor Wat, Siem Riep, Cambodia *
200,000 Dorsett, Phuket, Thailand *
</TABLE>
* Agreement to be executed and effective no later than
opening date of hotel.
19
<PAGE>
Schedule 3
----------
The Company's Capitalisation
As of September [ ] 1997
Before Transactions
- -------------------
Shares of Common Stock
Par Value $.001 Issued and outstanding 6,712,904
Shares of Preferred Stock
Par Value $.01; 5,000 authorised;
zero issued and outstanding
Warrants, Options and Notes Convertible or
Exercisable into Common Stock 3,612,500
----------
Total Shares of Common Stock Outstanding
on a Fully Diluted Basis 10,325,404
----------
After Transactions and Stockholder Approval
- -------------------------------------------
Shares of Common Stock
Par Value $.001 Issued and Outstanding 6,712,904
Shares of Preferred Stock
Par Value $.01; 5,000,000 Authorised;
One Share of Junior Convertible
Preferred Outstanding until Conversion
Shares of Common Stock Proposed to be Issued For:
Shares of SGTI 2,000,000
Hotel Management Contract 2,000,000
Sakhalin Construction Financing 1,500,000
----------
Proposed Private Placement of **
$9,000,000 - $10,000,000 in shares of
Common Stock, based upon a discount
to the market price at the time of
the placement
Assumed Total Shares of Common Stock 12,212,904
----------
Outstanding
Existing or Proposed Warrants,
Options and Notes Convertible
or Exercisable into Common Stock 4,212,500
----------
1
<PAGE>
Total Shares of Common Stock Outstanding
on a Fully Diluted Basis 16,425,404
-----------
** Not available
2
<PAGE>
EXHIBIT A
---------
HOTEL MANAGEMENT AGREEMENT
THIS HOTEL MANAGEMENT AGREEMENT is made as of the [________] day of
[__________], 1997 by and between CONSERVER CORPORATION OF AMERICA (or its
designated affiliate) ("Operator"), a [____________] organised and existing
under the laws of [______________], and [__________] ("Owner"), a [____________]
organised and existing under the laws of [
WHEREAS, Owner is the Owner of the Hotel; and
WHEREAS, Operator is in the business of operating hotel properties
comparable to the Hotel; and
WHEREAS, Owner and Operator have agreed that Owner shall retain Operator
to operate the Hotel, and that Operator shall operate and manage the Hotel, all
in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing of the mutual promises
contained herein and of Ten Dollars (US$10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Owner and Operator covenant and agree as follows.
1
<PAGE>
ARTICLE I
DEFINITIONS, TERMS AND REFERENCES
1.1 Definitions
-----------
In this Agreement and any exhibits, addenda or riders hereto, the
following terms shall have the following meanings -
"Affiliate" shall mean any entity owned or controlled by a party, any
entity, directly or indirectly, owing or controlling a party, or any
entity under common Ownership and control with a party Entities shall be
deemed under common Ownership when one entity owns fifty-one percent
(51%) or more of the beneficial or voting interests of another.
"Agency Account" shall mean a special account or accounts, bearing the
name of the Hotel, established by Operator in a bank or trust company
selected by Owner and Approved by Operator.
"Agreement" shall mean this Hotel Management Agreement, as may be
amended, modified, restated or supplemented from time to time.
"Annual Operating Projection" shall mean schedules containing the annual
operating projection for the Hotel and certain other matters prepared
2
<PAGE>
and submitted by Operator to Owner pursuant to Section 4.1. "Approval"
or "Approved" shall mean prior written approval.
"Base Fee" shall mean an amount equal to three percent (3%) of Gross
Revenues.
"Building and Appurtenances" shall mean the Hotel containing
[_____________] guest rooms and as further described in Exhibit B.
"Chain Standards" shall mean the standard of construction, furnishing
and equipping applicable to other hotels operating under the Tradename.
"Commencement Date" shall mean [_____________] 199[____], but in no
event earlier than the date that Conserver Corporation of America
("Conserver") receives shareholder approval to consummate certain
transactions contemplated by the Agreement between Dorsett Hotels &
Resorts International Ltd and Conserver dated October 2, 1997.
"Event of Default" shall mean any of the events described in Article
XII.
"Fees" shall mean Operator's fee and any other sums due to Operator with
respect to the Hotel in connection with the operation of the Hotel under
the Tradename.
3
<PAGE>
"Fiscal Year" shall mean a year which ends on December 31 of each year.
The first Fiscal Year shall be the period commencing on the Commencement
Date and ending on December 31 of the year in which the Commencement
Date occurs. The words "full Fiscal Year" shall mean any Fiscal Year
containing not fewer than 365 days. A partial Fiscal Year after the end
of the last full Fiscal Year and ending with the expiration or earlier
termination of the Operating Term shall constitute a separate Fiscal
Year.
"Fixed Asset Supplies" shall mean supply items which constitute "Fixed
Assets" under the Uniform System, including chain, glassware,
silverware, miscellaneous serving equipment, linen, towels, uniforms and
similar items.
"Furniture and Equipment" shall mean all furniture, furnishings, wall
coverings, fixtures and hotel equipment and systems located at, or used
in connection with the Hotel, together with all replacements therefor
and additions thereto, including, without limitation, (i) all equipment
and systems required for the operation of kitchens, bars, laundry and
dry cleaning facilities, (ii) office equipment, (iii) dining room
wagons, materials
4
<PAGE>
handling equipment, cleaning and engineering equipment, (iv) telephone
and computerised accounting systems and (v) vehicles.
"Gross Operating Expenses" shall mean all costs and expenses of any kind
incurred in connection with the operation of the Hotel, including but
not limited to salaries and employee expense and taxes (including
salaries, wages, bonuses and other compensation of all employees of the
Hotel and their employee benefits which shall include, but not be
limited to, life,. medical and disability insurance and retirement
benefits), expenditures described in Section 7.1.5, operational
supplies, utilities, insurance to be provided by Operator under the
terms of this Agreement, governmental fees and assessments, food,
beverages, laundry service expense, lease payments for office equipment
small items such as copiers, typewriters, personal computers (but
specifically excluding major items such as vehicles, television,
telephones and computers which shall be the responsibility of Owner),
the cost of Inventories and Fixed Asset Supplies, license fees,
advertising, marketing, reservation systems and any and all other
operating expenses as are reasonably necessary for the
5
<PAGE>
proper and efficient operation of the Hotel incurred by Operator in
accordance with the provisions hereof (excluding, however, (i) federal,
state and municipal excise, sales and use taxes collected directly from
patrons and guests or as a part of the sales price of any goods,
services or displays, such as gross, admissions, cabaret or similar or
equivalent taxes paid over to federal, state or municipal governments,
(ii) amounts paid into the Reserve, (iii) Operator's Fee, (iv) taxes to
be paid by Owner under Section 10.1, (v) the cost of insurance to be
provided by Owner under Section 9.1, (vi) rentals paid for Furniture and
Equipment unless their inclusion is Approved by Operator, (vii) payments
on any Mortgage or other mortgage or security instrument on the Hotel,
and (viii) expenses of the Owner not reasonably related to the operation
of the Hotel or the renovation of the Hotel; all determined in
accordance with generally accepted accounting principles and the Uniform
System). No part of Operator's central office overhead or general or
administrative expense (as opposed to that of the Hotel) shall be deemed
to be a part of Gross Operating Expenses, except as herein provided.
Out-of-pocket expenses of Operator incurred
6
<PAGE>
for the account of or in connection with the Hotel operations, including
reasonable travel expenses (reasonable travel expenses shall mean first
class air travel for the senior corporate executives of Operator and
economy class air travel for all other employees, if available) of
employees, officers and other representatives and consultants of
Operator and its Affiliates shall be deemed to be a part of Gross
Operating Expenses and such persons shall be afforded reasonable
accommodations, food, beverages, laundry, valet and other such services
by and at the Hotel without charge to such persons or Operator. "Gross
Operating Profit" shall mean the excess of Gross Revenues over the sum
of (i) Gross Operating Expenses plus (ii) Base Fee.
"Gross Revenues" shall mean all revenues, receipts and income of any
kind derived directly or indirectly by Operator from or in connection
with the Hotel (including rentals or other payments from tenants,
lessees, licensees or concessionaires but not including their gross
receipts), whether on a cash basis or credit, paid or collected,
determined in accordance with generally accepted accounting principles
and the Uniform System, excluding, however:
7
<PAGE>
(i) funds furnished by Owner, (ii) investment income including interest
accrued on amounts in the Reserve and the Agency Account, (iii) federal,
state and municipal excise, sales and use taxes collected directly from
patrons and guests or as part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal
governments, (iv) gratuities, (v) proceeds of insurance and
condemnation.
"Hotel" shall mean the Buildings and Appurtenances, and as further
described in Exhibit B, all Furniture and Equipment, Fixed Asset
Supplies and Inventories.
"Incentive Fee" shall mean an amount equal to ten percent (10%) of Gross
Operating Profit for each Fiscal Year during the Operating Term.
"Inventories" shall mean "Inventories of Merchandise" and "Inventories
of Supplies" as defined in the Uniform System, such as soap, toilet
paper, stationery, writing pens, food and beverage inventories, paper
products, menus, expendable office and kitchen supplies, fuel, expensed
supplied and similar items.
8
<PAGE>
"Legal Requirements" shall mean all applicable law, statutes,
ordinances, rules, regulations and orders of any governmental authority
having authority over Owner or Operator, as the case may be, and the
Hotel (including, without limitation, building codes, fire regulations,
environmental rules and regulations, and the directions of any public
officer).
"Marketing Fee" shall mean an amount equal to four percent (4%) of Gross
Revenues for each Fiscal Year during the Operating Term.
"Marks" shall mean the Tradename and any other name, service marks,
trademarks, slogans and the like (including all improvements and
additions whenever made to or associated with any of the foregoing by
the parties or anyone else) now or hereafter used by Operator in
connection with the Tradename or any other future name or name of
Manager's hotel chain.
"Mortgage" shall mean any mortgage or deed of trust encumbering the
Hotel and, if required by Section 13.3 Approved by Operator as provided
in Section 13.3. As used in this Agreement, Mortgage shall not include
any transaction, however characterized or labelled, that is intended to
transfer, or has the effect of transferring, Ownership of the Hotel to
the
9
<PAGE>
"mortgagee", whether concurrently with the execution of the agreement or
at a future time; provided, however, that a transfer of the Hotel to the
mortgagee under a bona fide Mortgage as a result of a default thereunder
by the mortgagor shall not result in the Mortgage being recharacterized
as any other form of agreement.
"Operator" shall mean Conserver or its permitted successors or assignees
under this Agreement.
"Operator's Fee" shall mean the Base Fee, the Incentive Fee, the
Marketing Fee, the Training Fee and all other amounts to be paid to
Operator for operating and managing the Hotel pursuant to this
Agreement.
"Operating Term" shall mean the term of this Agreement as established
under Section 3.1, together with any extensions thereto as established
under Section 3.2, as reduced by any termination of this Agreement
established under Section 3.3.
"Owner" shall mean [___________________], together with any successor as
Owner of the Premises.
"Ownership Transfer" shall mean any sale, assignment, conveyance or
transfer of all or any part of the Hotel or any interest therein or of
Owner's rights hereunder (including any lease with a term of five (5)
years or
10
<PAGE>
more), or the voluntary or involuntary sale, assignment, transfer or
other disposition, or transfer by operation of law (other than by will
or the laws of intestate succession or to an inter vivos or living trust
so long as the settlor is the trustee of such trust during his/her
lifetime) of a controlling interest in Owner (i.e. the possession
directly or indirectly of the power to direct or cause the direction of
management and policies of Owner, whether through the Ownership of
voting securities, partnership interest or by contract or otherwise),
except in connection with the incurring of a debt secured by a Mortgage,
or to an Affiliate provided such Affiliate meets the requirements set
forth in Section 13.1.
"Premises" shall mean that certain real property more particularly
described in Exhibit 8 attached hereto, on which the Hotel is located.
"Reserve" shall mean an account established by Operator in a bank or
trust company selected by Owner and Approved by Operator for the
purposes set forth in Article VII.
"Statement of Profit and Loss" shall mean Exhibit C.
11
<PAGE>
"Technical Services" shall mean those items set forth on Exhibit A
attached hereto and made a part hereof.
"Tradename" shall mean [INSERT TRADENAME], or such other name under
which Operator shall elect to operate the Hotel in accordance with the
terms of this Agreement.
"Training Fee" shall mean an amount equal to one-half of one percent
(1/2%) of Gross Revenues for each Fiscal year during the Operating Term.
"Uniform System" shall mean the Uniform System of Accounts for Hotels
(8th Revised Edition, 1986) as published by the Hotel Association of New
York City, Inc., as same may hereafter be revised.
"Working Capital" shall mean funds reasonably necessary for the
day-to-day operation of the Hotel's business, including, without
limitation, amounts sufficient for the maintenance of change and petty
cash funds, operating bank accounts, payrolls, accounts payable, accrued
current liabilities, and funds required to maintain Inventories.
1.2 Terminology
-----------
All personal pronouns used in this Agreement, whether used in the
masculine, feminine or neuter gender, shall include all genders; the
singular shall include
12
<PAGE>
the plural and the plural shall include the singular. The Table of
Contents, and titles of Articles, Sections, Subsections and Paragraphs
in this Agreement are for convenience only and neither limit nor amplify
the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, Subsections, paragraphs, clauses, subclauses,
exhibits, addenda or riders shall refer to the corresponding Article,
Section, Subsection, paragraphs, clause or subclause of, or exhibit,
addendum or rider attached to this Agreement, unless specific reference
is made to the articles, sections, or other subdivisions of, or
exhibits, addenda or riders to, another document or instrument.
1.3 Exhibits, Addenda And Riders
----------------------------
All exhibits, addenda and riders attached hereto are by reference made a
part hereof.
ARTICLE II
ENGAGEMENT OF OPERATOR
2.1 Operation of Hotel
------------------
Owner hereby grants to Operator the sole and exclusive right to
possession of the Hotel during the Operating Term, and Owner authorises
and engages Operator to act as the sole and exclusive manager and
13
<PAGE>
Operator of the Hotel during the Operating Term, in accordance with the
standards of the Tradename, with exclusive responsibility and complete
and full control and discretion in the operation, direction, management
and supervision of the Hotel, subject only to the limitations expressed
herein, and Operator hereby accepts such engagement subject to the terms
and conditions expressed in this Agreement. Such authority of Operator
shall include, without limitation, the use of the Hotel for all
customary purposes, and without limiting the generality of the
foregoing. Operator is hereby authorised and directed to (subject to
compliance with the then effective Annual Operating Projection) -
(a) Undertake all Technical Services as more fully described in Exhibit
A, where required;
(b) Determine all terms for admittance and charges for rooms, commercial
space and other amenities and services provided at or with respect
to the Hotel;
(c) Determine all credit policies with respect to the operation of the
Hotel, including entering into policies and agreements with credit
card organizations;
14
<PAGE>
(d) Establish entertainment and amusement policies (including pricing)
with respect to the Hotel consistent with the requirements of the
License Agreement;
(e) Establish food beverage policies (including pricing) with respect to
the Hotel including the right to conduct catering operations outside
of the Hotel;
(f) Determine all labour policies, including wage and salary rates and
terms, fringe benefits, pension, retirement, bonus and employee
benefits plans, collective bargaining agreements and the hiring or
discharge and training of all employees, with respect to the Hotel.
All pension, retirement and employee benefit plans and collective
bargaining agreements shall be subject to the Approval of Owner;
(g) Arrange in Owner's or Operator's name for utility, telephone,
extermination, detective agency protection, trash removal and other
services for the operation of the Hotel, subject to the agreements
covering such services (excluding utilities, telephones and cable
television) providing for termination on thirty (30) days notice;
15
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(h) Establish all advertising, public relations and promotional policies
with respect to the Hotel, including the exclusive control over all
paid advertising, press releases and conferences and complimentary
policies (including complimentarily to Operator's employee) with
such complimentary policies to be subject to Owner's Approval (not
to be withheld if Operator's complimentary policy is in accordance
with industry standards for comparable hotel properties in the
location of the Hotel);
(i) Purchase on the credit of Owner all Inventories and all necessary or
desirable additions to and replacements of Fixed Asset Supplies,
Furniture and Equipment and such other services and merchandise as
are necessary for the proper operation of the Hotel in accordance
with this Agreement, and as are included in an Annual Operating
Projection Approved by Owner;
(j) Enter into such leases, licenses, concession
agreements and other undertakings in the name of Owner and/or
16
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Operator as Operator shall from time to time consider appropriate
for the operation of the Hotel, [including leasing of commercial
space at the Hotel];
(k) Hire such persons or organizations as Operator may deem necessary to
provide advice and assistance with respect to Operator's performance
hereunder, including attorneys, accountants and other professionals
and specialists;
(l) Cause all needed repairs and maintenance to be made to the Hotel and
cause all such other things to be done in or about the Hotel as
shall be necessary to comply with all requirements of governmental
authority, boards of fire underwriters and other bodies exercising
similar functions; and
(m) Institute and defend proceedings in law or in equity against
Operator and third parties, which are directly related to the
operation of the Hotel, utilizing counsel selected by Operator. The
institution of any litigation involving the Hotel, and the defense
of any litigation against Owner, shall be subject to Owner's
approval.
17
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2.2 Contracts
---------
In its management of the Hotel, Operator may purchase goods, supplies,
insurance and services from or through any of its affiliates so long as
the prices and terms thereof are competitive with the prices and terms
of goods, supplies and services of equal quality available from third
parties. In addition, Operator may retain itself or any of its
affiliates as a consultant and to perform Technical Services in
connection with the maintenance and enhancement of computer software for
the hotel operations management system and any substantial remodelling,
repairs, construction or other capital improvement to the Hotel and
Operator or its affiliate shall be reasonably compensated for its
services. Operator shall have the rights to utilize the Hotel and its
facilities to train employees of other hotels operated by Operator and
its affiliates. The Hotel shall be reimbursed for any additional
expenses that may be caused as a result of such training, unless such
expenses shall be offset by benefits accruing to the Hotel arising out
of services performed by such trainees.
18
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2.3 Operator's Right to Reimbursement
---------------------------------
2.3.1 During the terms of this Agreement, Operator may elect to
advance or to cause any of its affiliates to advance its own
funds in payment of any costs and expenses incurred for the
benefit of the Hotel operation that Operator shall have the
right or the obligation to incur or cause to be incurred in
accordance with the provisions of this Agreement -
(1) whether incurred -
(a) separately and distinctly from costs and expenses incurred on
behalf of other hotels of Operator or its affiliates
(hereinafter collectively called "Operator Group"), or
(b) in conjunction therewith (including, without limitations,
insurance premiums, advertising, business promotion, training
and internal auditing programs, social benefits of Operator
Group for which employees of the Hotel may be eligible,
attendance of such employees at meetings and seminars conducted
by members of Operator Group and Operator Group Services
provided in accordance with Section 4.5 below), and
19
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(2) irrespective whether such funds shall be paid to any third party or
to any member of Operator Group or any other hotels operated by any
member of Operator Group. If any member of Operator Group or any
hotel operated by any member of Operator Group shall advance its own
funds as aforesaid, it shall be entitled to prompt reimbursement
therefore by the Hotel.
2.3.2 Any amount required to be reimbursed to Operator or any of its
affiliates in accordance with the provisions of this Agreement
shall be payable in United States dollars without reduction for
income, withholding, value added or any other charges, at the
principal office of Operator or its affiliates or such other
place as Operator may, from time to time, designate. In the
event that the Country in which the Operator is operating in
shall impose any income, withholding, value added or other tax
upon such reimbursements of costs and expenses, or deem such
reimbursements to be income taxable to Operator and/or its
affiliates,
20
<PAGE>
such taxes shall be for the account of and shall be borne by Owner, which
shall promptly pay any such taxes in order that Operator and/or its
affiliates shall receive full and timely reimbursement for all of its
advances hereunder. Operator shall have the rights to withdraw the amount
of such reimbursement from the operating bank accounts of the Hotel,
utilizing such United States dollars or other currency freely convertible
into United States dollars that may be available in such bank accounts
and/or convert such amount from the currency of the Country to United
States dollars. If exchange control regulations of the Country delay the
conversion of such amounts into United States dollars, Operator or its
affiliates may elect to receive and retain such amounts in the currency of
the country during the period of such delay, but such election shall not
constitute a waiver of the right of Operator, or its affiliates to receive
payment thereof in United States dollars.
2.4 Employees of the Hotel
----------------------
Each employee of the Hotel, including the general manager, shall be the
employee of Owner and not of Operator and Operator shall not be liable to
such employees for their wages or compensation, and every person
performing services in connection with this Agreement, including any agent
or employee of Operator or any of its affiliates or any agent or employee
21
<PAGE>
of Owner hired by Operator, shall be acting as the agent of Owner. The
aforesaid notwithstanding, Operator may elect to assign employees of
Operator or any of its affiliates or of other hotels of Operator
temporarily or permanently as full-time members of the executive staff of
the Hotel and pay the compensation, including social benefits of such
employees. In such event Owner shall reimburse Operator monthly for the
total aggregate compensation, including social benefits paid or payable to
or with respect to such employees. To the extent that Operator deems
advisable and in Owner's best interest, Operator may require Owner to
delegate to the general manager of the Hotel the authority to employ, pay,
supervise and discharge employees of the Hotel.
2.5 The General Manager
-------------------
The parties understand that Operator shall fulfill its obligations to
operate and manage the Hotel under this Agreement and shall exercise its
control and discretion in such operation by designating the general
manager to be employed by Owner, which general manager shall -
(a) be familiar with Operator's method of hotel operation;
22
<PAGE>
(b) be furnished with Operator's policies and systems and procedures
manuals from time to time in effect; and
(c) whose major activities shall be reviewed and supervised by Operator
while he shall retain full autonomy to make day-to-day decisions with
respect to such operations. To such purpose, Owner shall grant such
power of attorney to said general manager as shall be required.
2.6 0perator's Management Modules
-----------------------------
The parties understand further that all of Operator's management modules
including, but not limited to Operator, policies and procedures,
operations, accounting and training, which are furnished by Operator in
connection with its management of the Hotel are and shall be at all times,
without further act or action, the exclusive property of Operator and
Operator shall have the right to remove such management modules from the
Hotel upon the expiration or sooner termination of this Agreement.
2.7 Legal Requirements of Owner as an Employer
-------------------------------------------
Owner will comply with all Legal Requirements applicable to the
recruitment, hiring and employment of employees working at the Hotel.
23
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2.8 Limitations on Authority
------------------------
Operator shall not, without Owner's Approval -
(a) Institute or defend legal proceedings of an unusual nature or
involving monetary claims in excess of US$[_________________] not
covered by insurance or as to which an insurer denies coverage or
"reserves rights" without Approval by Owner of the proceedings and
counsel; or
(b) Enter into any lease, license or concession agreement for [stores,
office space or tenant or lobby space] [EDIT AS APPROPRIATE FOR SITE]
at the Hotel unless the term is one (1) year or less and the net
income from same is anticipated to be less than US$[____________] per
year, and further provided the total of the space covered by such
agreements does not exceed [_________________] square feet; or
(c) Purchase goods, supplies and services from itself or an Affiliate
unless the prices and terms thereof are competitive with those
obtainable from unrelated vendors or are the subject of competitive
bidding.
24
<PAGE>
2.9 Title to Hotel
--------------
Owner represents and covenants that it holds and will continue throughout
the Operating Term to hold title to the Premises and the Building, and
full Ownership of the Furniture and Equipment, subject in each case only
to any Mortgage then of record. So long as Operator is not in default of
any material term herein beyond applicable cure periods, Owner covenants
that Operator shall and may peaceably and quietly operate the Hotel during
the Operating Term in accordance with this Agreement. Owner represents to
Operator that the Hotel has obtained all licenses and permits pertaining
to the Hotels.
2.10 Operation at Owner's Expense
----------------------------
In performing its duties hereunder Operator shall act solely for the
account of Owner and, except as otherwise expressly provided herein, all
expenses incurred by Operator in such performance shall be borne
exclusively by Owner. To the extent the funds necessary therefor are not
generated by the operation of the Hotel, they shall be supplied by Owner
to Operator. Operator shall in no event be required to advance any of its
25
<PAGE>
own funds for the operation of the Hotel, nor to incur any liability in
connection therewith unless Owner shall have furnished Operator with funds
necessary for the discharge thereof. If Operator shall at any time advance
any funds in payment of Gross Operating Expenses or any other amount
payable with respect to the Hotel, which Operator shall have the right but
not the obligation to do, Owner shall repay Operator thirty (30) days
after demand all or any part thereof, with interest at the reference rate
of interest in effect from time to time as announced by [DESIGNATED BANK]
or any successor thereto or other major national bank designated by
Operator if such bank ceases to announce a prime rate. Any amounts thus
advanced and expended by Operator shall be Gross Operating Expenses, but
the amounts paid by Owner in reimbursement to Operator shall not. All
debts and liabilities to third persons incurred by Operator in the proper
course of its operation and management of the Hotel shall be the debts and
liabilities of Owner only, and Operator shall not be liable for any such
obligations by reason of its management, supervision, direction and
operation of the Hotel for Owner or for any other reason whatsoever;
26
<PAGE>
Operator may so inform third parties with whom it deals on behalf of Owner
and may take any other steps to carry out the intent of this provision.
Expenditures by Operator which are outside of the authority granted to the
Operator pursuant to the terms of this Agreement, or for penalties
incurred by the Hotel for failure to timely file governmental reports
arising from the negligence of Operator shall be the responsibility of
Operator and not the Owner.
2.11 Owner's and Operator's Representatives
--------------------------------------
Owner and Operator shall each designate a full time employee to act as
their respective representatives during the Operating Term. Such
representatives shall be designated and replaced by written notice to the
other. Operator's initial representative shall be [________________], and
Owner's initial representative shall be [_______________]. Except for
written notices and other forms of communications which are provided for
in Section 14.21, other communication between Owner and Operator
concerning this Agreement and the Hotel shall be through the designated
representatives of each party unless Owner and Operator otherwise agree.
27
<PAGE>
2.12 Operating Standards
-------------------
Operator agrees to use diligent efforts to operate a [specify type] hotel
with the goal of maximizing value to Owner and producing reasonable cash
flows to Owner.
2.13 Not a Franchise
---------------
Owner and Operator agree that this Agreement provides for management in
respect of the Hotel. Owner and Operator do not intend, nor does this
Agreement grant or create, a "franchise" within the meaning of the Federal
Trade Commission Act, any rule or regulation promulgated thereunder, or
any other applicable law, rule, regulation or judicial decision.
ARTICLE III
OPERATING TERM, EXTENSION, TERMINATION
3.1 Operating Term
--------------
The initial Operating Term shall commence on the Commencement Date and
shall continue thereafter for a period of twenty (20) years, subject to
extension as provided in Section 3.2 below or early termination as
provided in Section 3.3 hereof (such term being herein referred to as "the
Operating Term").
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<PAGE>
3.2 Extension
---------
Upon the expiration of the initial Operating Term, the Operating Term
shall be extended for [(______________)] additional [(_________________)]
year periods if, not more than [one (1) year] and not less than [six (6)
months] prior to the expiration of the initial Operating Term or any
previously extended Operating Term, as the case may be, Operator has given
written notice to Owner of Operator's election to so extend. Any such
extension shall be automatically effective without any amendment hereto,
but Owner and Operator shall execute and deliver any supplements to this
Agreement which either shall reasonably request to evidence any such
extension. Operator may not extend the Operating Term at anytime an
Operator Event of Default has occurred under any material term of this
Agreement, or there has occurred an event which, but for the passage of
time or giving of notice, would constitute a material Event of Default by
the Operator under this Agreement.
3.3 Termination
-----------
This Agreement may be terminated prior to the expiration of the then
effective Operating Term upon the occurrence of one or more of the
following events:-
29
<PAGE>
(a) Upon any Event of Default, at the option of the non-defaulting party
exercised by written notice to the defaulting party prior to the cure
of such Event of Default.
(b) At the option of Operator or Owner exercised by written notice to the
other in the event of any suspension for a period in excess of ninety
(90) days or withdrawal or revocation of any material governmental
license or permit required for Operator's performance under this
Agreement or the operation of the Hotel in accordance with the terms
hereof, but such option may be exercised by Operator only if such
suspension, withdrawal or revocation is due to circumstances beyond
Operator reasonable control. Neither Owner nor Operator shall have any
rights of termination pursuant to this Paragraph (b) until ninety (90)
days after receipt of written notice from the other party of such
suspension, withdrawal or revocation, with each party hereby agreeing
to notify the other within three (3) business days of their receipt of
any such suspension, revocation or withdrawal.
30
<PAGE>
(c) Upon any transfer not permitted by the terms of Article XIII, unless
consented to in writing by the non-transferring party, at the option
of the non-transferring party exercised by written notice to the other
party given within ninety (90) days after the non-transferring party
learns of such transfer.
(d) Upon any damage to or destruction of all or any part of the Hotel by
fire, casualty or other cause or condemnation or other taking of all
or any part of the Hotel which is not required to be repaired or
restored by Owner pursuant to Article XI, at the option of either
Owner or Operator by written notice to the other given within sixty
(60) days of the date of such damage or destruction or condemnation or
other taking; provided, however, (i) that no termination by Owner
shall be effective (and if previously given, may be nullified at the
election of Operator) if Owner, at any time within [one (1)] year
after such damage or destruction or condemnation or other taking has
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<PAGE>
commenced to restore or repair the Hotel for use as a [specify type]
hotel, even if substantial changes are made to the physical structure
of the Hotel and (ii) no termination by Operator shall be effective
(and if previously given may be nullified at the election of Owner) if
Owner, at any time within [one (1)] year after such damage or
destruction or condemnation or other taking commences to restore or
repair the Hotel for use as a [specify type] hotel. It is understood
that the failure of Owner to repair or restore when required to do so
under Article XI may become an Event of Default, also allowing for the
termination hereof.
3.4 Transition Procedures
---------------------
Upon the expiration or termination of the operating Term, for whatever
reason, Owner and Operator shall do the following (and the provisions of
this Section 3.4 shall survive the expiration or termination of this
Agreement until they have been fully performed).
3.4.1 Licenses
--------
Operator shall execute all documents and instruments reasonably necessary
to transfer (if transferable) to Owner or its nominee all governmental
permits and licenses held by Operator necessary to operate the Hotel. In
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<PAGE>
the event such permits and licenses are not transferable, Operator will
use commercially reasonably efforts to help Owner to obtain new licenses
and permits necessary for Owner to operate the Hotel.
3.4.2 Leases and Concessions
----------------------
Operator shall assign to Owner or its nominee, and Owner and its nominee,
if any, shall assume, all leases and concession agreements in effect with
respect to the Hotel then in Operators, rather than Owner's, name, except
for blanket concessions affecting other hotels operated by Operator or its
Affiliates.
3.4.3 Books and Records
-----------------
All books and records for the Hotel kept by Operator pursuant to Section
4.3 shall be turned over to Owner so as to insure the orderly continuance
of the operation of the Hotel, but such books and records shall thereafter
be available to Operator at all reasonable times for inspection, audit,
examination and transcription for a period of seven (7) years and Operator
may retain any copies and computer records thereof which it desires.
33
<PAGE>
3.4.4 Tradename and Marks
-------------------
Owner acknowledges that it has no right, title or interest in the
Tradename and/or the Marks and Owner agrees that no right or remedy of
Operator, nor any other provision of this Agreement, shall confer on Owner
or any transferee, assignee, sublicensee or successor of Owner, or any
person, firm or corporation claiming through or by Owner, the right to use
the Tradename and/or the Marks whether before or after the expiration or
termination of this Agreement.
3.4.5 Remittances
-----------
Operator shall remit to Owner from the Agency Account and the Reserve all
funds remaining, if any, after payment of all accrued Gross Operating
Expenses, Fees and other amounts due Operator.
3.4.6 Termination Payments to Operator
--------------------------------
In the event the Operator is terminated pursuant to Article III, other
than for a material breach by Operator under Article XII hereof, which has
not been remedied by Operator within [ ] days after notice of such breach
is given in writing to Operator, or in the event of a termination by the
Operator pursuant to Article XII hereof, Owner shall be required to pay
Operator a termination fee with respect to each year remaining under this
34
<PAGE>
Agreement. The termination fee shall be calculated based on the formula
(Remaining number of years under the Agreement) multiplied by a factor
which shall be as follows -
(i) in the event of a termination during the first five (5) years, the
factor shall be the sum of the actual fees paid or payable to
Operator pursuant to this Agreement and based on revenues generated
to date plus fees payable to Operator in accordance with the
provisions of this Agreement based on the projected revenues for the
rest of the year;
(ii) in the event of a termination after the first five (5) years, the
factor shall be the average of the fees paid or payable to Operator
hereunder for the preceding two (2) years;
(iii) in the event of a termination after the first ten (10) years, the
factor shall be the average of the fees paid or payable to Operator
hereunder for the preceding three (3) years.
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<PAGE>
ARTICLE IV
HOTEL BUDGETARY AND ACCOUNTING PROCESSES
4.1 Annual Operating Projection
---------------------------
Not later than ninety (90) days prior to the commencement of each Fiscal
Year, Operator shall submit the Annual Operating Projection to Owner for
Owner's Approval. The Annual Operating Projection shall contain the
following -
(a) Operator's reasonable estimate of Gross Revenues and Gross Operating
Expenses for the forthcoming Fiscal Year. These shall be itemized in
detailed departmental and sub-departmental schedules and also
represented in summary form. These shall be zero based detailing
completely each and every operating revenue and expense. Assumptions
shall be presented, in narrative form, detailing the basis of such
schedules in a presentation to Owner.
(b) A separate estimate of the Fees to be paid for the forthcoming Fiscal
Year.
(c) A detailed estimate of the amounts to be dedicated to the Reserve and
all anticipated expenditures to be made from the Reserve during the
forthcoming Fiscal Year. Such estimate shall include each item
requested, the number of units to be replaced, unit costs, and costs
36
<PAGE>
in aggregate, together with such additional information as Owner shall
reasonably request during the Fiscal Year relating to the anticipated
expenditures. Where color or type of style of an item is changed from
the previous item, the new item shall be presented for Owner Approval.
(d) An estimate of any amounts, and the timing thereof, that Owner will be
required to provide as Working Capital or to expend to meet Owner's
financial obligations under Article VII hereof.
(e) The program for advertising and marketing the Hotel for the
forthcoming Fiscal Year containing a detailed budget itemization of
the proposed expenditures by each and every category and the detailed
assumptions, in narrative form, forming the basis of such budget
itemization. The program for advertising and marketing shall include
but not be limited to items such as; positioning statements, the rate
schedule, discounting policies, staffing, incentive compensation
plans, detailed advertising commitments (schedules, medium, estimated
costs), promotions, sales trips/blitz schedule, and target market mix.
37
<PAGE>
(f) Detailed Staffing Plan, with a description of each position, the
number of employees at each position, together with estimated cost
thereof and reasons for proposed additions from previously Approved
Annual Operating Projections.
4.2 Approval
--------
Owner and Operator shall negotiate in good faith during the ninety (90)
days period prior to the commencement of such Fiscal Year to Approve an
Annual Operating Projection for such Fiscal Year. Owner shall have the
right to approve or reject the budget in its entirety or on a line by line
basis. If Owner and Operator are unable to agree on the budget or any
portion of the budget, until an agreement is reached, the Hotel shall be
operated on the basis of the last Approved Annual Operating Projection, or
relevant part of such, with the following modifications -
4.2.1 Expenses
--------
Any items rejected (other than for items normally paid for from the
Reserve) may be increased, at Operator's option, by up to [ ] percent ( %)
since the Fiscal Year of the last Approved Annual Operating Projection,
except for non-discretionary items as defined in Section 5.3.2 which shall
not be so increased but which will be resolved pursuant to Section 5.3.2.
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<PAGE>
4.2.2 Reserve
-------
Operator shall have the right to expend from the Reserve the entire amount
to be dedicated thereto during such ensuing Fiscal Year so long as the
fundamental character of the Hotel's structure or Furniture and Equipment
is not altered. Owner shall have the right to approve any changes in
decor.
4.3 Books and Records
-----------------
Operator shall keep full and adequate books of account and other records
reflecting the results of operation of the Hotel on an accrual basis, all
in accordance with the Uniform System and generally accepted accounting
principles. The books of account and all other records relating to or
reflecting the operation of the Hotel shall be kept either at the Hotel or
at Operator's offices in [_______________] and shall be available to Owner
and its representatives and its auditors or accountants, at all reasonable
times for examination, audit, inspection and transcription. All of such
books and records pertaining to the Hotel including, without limitation,
books
39
<PAGE>
of account, guest records and front office records, at all times shall be
the property of Owner and shall not be removed from the Hotel or
Operator's offices by Operator without Owner's Approval.
4.4 Accounting
----------
Operator shall deliver to Owner within [thirty (30)] days after the end of
each calendar month an interim accounting showing the results of the
operation of the Hotel for such month, for the Fiscal Year to date and a
computation of Gross Revenues and Gross Operating Expenses. Such interim
accounting and the annual accounting referred to below shall - (i) be in
form Approved by Owner; (ii) be taken from the books and records
maintained by Operator for the Hotel in the manner hereinabove specified;
(iii) follow the general form set forth in the Uniform System, allowing
for deviations which are necessary in order to comply with this Agreement;
(iv) separately state the amount of Fees and any other amounts payable or
expenses reimbursable to Operator or its Affiliates and (v) be accompanied
by a certificate of Operator's chief accounting officer certifying that
such statement was prepared under such officer's direction and in such
officer, opinion is true and correct. Within [one hundred twenty (120)]
40
<PAGE>
days after the end of each Fiscal Year, Operator shall deliver to Owner an
annual accounting, audited and certified by a nationally recognized firm
of certified public accountants having hotel accounting experience
selected by Owner and Approved by Operator, showing the results of
Revenues and Gross Operating Expense, and any other information necessary
to make the computations required hereby or which may be requested by
Owner, all for such Fiscal Year. If Owner does not present objections to
the certified statements within three (3) years following receipt by
Owner, such certified statements shall be deemed correct and conclusive
for all purposes excluding fraud or manifest errors. The annual accounting
for any Fiscal Year shall be controlling over the interim accountings for
such Fiscal Year.
4.5. Group Services
--------------
4.5.1 Operator shall, in the operation of the Hotel and for the benefit of its
guests, provide or cause its affiliates or associated companies to
provide, outside the Country, inter-hotel reservation, convention,
business and sales promotion service (including the maintenance and
staffing of Operator's sales force and regional sales offices in various
parts of the world), publicity, public relations, and all other group
41
<PAGE>
benefits, services and facilities including institutional advertising
programs (which exclude advertising in which one or more other Operator
hotels participates by mutual agreement and shares the cost thereof), to
the extent appropriate furnished to other hotels operated by Operator and
its affiliates (herein called "Group Services").
4.5.2 Neither Operator nor any affiliates of Operator shall receive any profit
for the rendition of Group Services. Operator shall, however, be entitled
to be reimbursed by the Owner for the Hotel's share (herein called "Group
Allocation") of all costs incurred by Operator and its affiliates,
including salaries of officers or employees, in the rendition of said
services. If the Group Services are performed on behalf of the Hotel and
other hotels operated by Operator and its affiliates, and in the case of
computerized telephone reservation, billing and credit services, the
charges therefore shall be made on the same basis as to the other hotels
operated by Operator.
42
<PAGE>
ARTICLE V
REVENUES AND EXPENSES
5.1 Agency Account
--------------
Gross Revenues and additional funds supplied by Owner for Working Capital
or other purposes, exclusive of funds deposited in the Reserve, shall be
deposited in the Agency Account. The Agency Account shall be opened and
maintained at all times solely by Operator and checks or other documents
of withdrawal therefrom shall be signed only by representatives of
Operator approved by Owner and with any checks in excess of US$
[_________________] requiring two signatories. All risk of loss with
respect to funds in the Agency Account shall be borne by Owner, unless
such loss results from the gross negligence or willful misconduct of
Operator in which case the risk of loss shall be borne by Operator.
5.2 Operator's Fees
---------------
In consideration of Operator's performance hereunder, Owner shall pay to
Operator the Fees. The Fees shall be calculated on a Fiscal Year basis,
but shall be payable monthly, on or before the [tenth (10th)] day of each
calendar month for the preceding calendar month, based upon Operator's
reasonable estimate of the amount due as contained in the monthly reports
43
<PAGE>
to Owner. Operator is authorized to disburse to itself from the Agency
Account the amounts owing as Fees, but, if insufficient funds are
available to do so, Owner shall pay same to Operator in the manner
described in Section 5.3.2.
5.3 Working Capital
---------------
5.3.1 Agency Account
--------------
Operator shall be entitled to use all funds in the Agency Account for the
payment of Gross Operating Expenses. In addition, Operator shall be
entitled to retain in the Agency Account such amount of Working Capital as
shall be necessary to service the cash needs of the operation of the
Hotel. If, however, at any time Operator anticipates insufficient funds in
the Agency Account to pay such Operating Expenses, Owner shall fund in
accordance with Section 5.3.2.
5.3.2 Funding of Working Capital
--------------------------
Working Capital shall be funded based on the ninety (90) days cash flow
forecast provided by Operator. Owner shall fund ten (10) days prior to the
upcoming month the amount required for the upcoming month based on the
Approved ninety (90) days cash flow forecast. Operator shall submit ninety
(90) days cash flow forecast to Owner each month for Approval. If the 90
days cash flow forecast is consistent with the Approval Annual Operating
44
<PAGE>
Projection, or requires lower Working Capital funding than the amount
Approved, then approval shall not be withheld. If the Working Capital
requirement is greater than the amount of upcoming month in the Approved
Annual Operating Projection then Owner may approve or reject such
variances subject to the following limitations. Variances shall be
subdivided into two categories: discretionary and non-discretionary.
Non-discretionary items shall be payments for the Reserve, Fees and other
items such as utilities, phone, payroll for employees necessary for the
operation of the Hotel in accordance with the standards set forth herein,
and other critical operating expense necessary to maintain the Hotel's
operating status for that upcoming month. Discretionary expenses shall be
those which are not needed in the upcoming month to maintain the Hotel's
operating status. Owner shall have the right to approve or reject
discretionary expenses, but shall have no such right for non-discretionary
items.
5.3.3 Reserve
-------
On or before the tenth (l0th) day of each calendar month, Operator shall
transfer into the Reserve the percentage of Gross Revenue for the previous
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<PAGE>
month provided for in the Fee and Reserve Addendum for the then current
Fiscal Year (or such greater amount as has been approved in the Annual
Operating Projection for such Fiscal Year). The proceeds from the sale of
Furniture and Equipment no longer needed for the operation of the Hotel
shall also be deposited in the Reserve and credited against the amount
required to be deposited thereto. At the end of each Fiscal Year, any
amounts remaining in the Reserve shall be carried forward to the next
Fiscal Year and shall be in addition to the amount to be reserved in the
next Fiscal Year. In the event at any time there are insufficient funds in
the Reserve for any Fiscal Year, then Owner shall fund in accordance with
5.3.2 in such amounts as are provided in the Annual Operating Projection.
The Reserve shall be opened and maintained at all times solely by Operator
and checks or other documents of withdrawal therefrom shall be signed only
by representatives of Operator. All risk of loss with respect to funds in
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the Reserve shall be borne by Owner unless such loss results from the
negligence or willful misconduct of Operator in which case the risk of
loss shall be borne by Operator. Owner shall have the right not to fund
and to withdraw funds from the Reserve but Owner hereby agrees to fund to
the Operator all amounts, which would have been in the Reserve had Owner
funded or not made such withdrawals, at such times as needed by Operator
pursuant to the Approved Annual Operating Projection Owner shall deliver
to Operator at the time Owner does not fund or at the time of making any
such withdrawals evidence satisfactory to Operator of Owner's ability to
timely refund such withdrawals.
5.4 Remittance to Owner
-------------------
After payment of Gross Operating Expenses, Fees and the transfer to the
Reserve, Operator shall remit to Owner on or before the twentieth (20th)
day of each calendar month any balance in the Agency Account, less needed
Working Capital.
5.5 Annual Adjustments
------------------
At the end of each Fiscal Year following the rendition of the annual
certified statement of operations, Owner and Operator shall promptly (and
in all events within thirty (30) days after rendition of such statement)
make such adjustments as necessary to insure that the proper amounts have
been paid as Fees and deposited in the Reserve.
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5.6 Investments
-----------
Operator shall temporarily invest funds in the Agency Account and the
Reserve, with due regard for the cash needs of the Hotel. Amounts earned
as investments from the Agency Account and the Reserve shall not
constitute Gross Revenues. Operator may periodically (or in connection
with Approval of the Annual Operating Projection) request Approval from
Owner of permitted investment mediums for this purpose; except as to
investment mediums specifically disapproved in writing by Owner within
fifteen (15) days after Operator's request for Approval, all risk of loss
from such investments shall be borne by Owner. Owner hereby approves the
following investments: Treasury Bills issued by the United States
Government; Certificates of Deposits in amounts of US$100,000 or less
insured by the Federal Deposit Insurance Corporation or comparable
insuring Organization and Money Market accounts by major financial
institutions.
ARTICLE VI
TRADENAME, MARKETING AND CENTRALIZED SERVICES
6.1 Use of Tradename
----------------
From and after the Commencement Date and during the Operating Term, the
Hotel shall at all times be known and designated as a hotel operating
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under the Tradename. Operator shall satisfy all applicable Legal
Requirements in order that the Hotel may lawfully be operated under the
Tradename. Owner acknowledges that the Tradename is a [registered service
mark] of Operator, and that the Tradename is and shall continue to be the
sole property of Operator.
6.2 Change of Tradename
-------------------
It is acknowledged that in the future Operator may determine to change the
name of the chain from the Tradename to another name, and in connection
with such change, Operator may determine to convert the name of the hotels
in the chain, including the Hotel, from the Tradename to another
designation. Operator shall seek the approval of Owner for any such change
of name which approval shall not be unreasonably withheld. If Operator
elects to change the name of the chain or of the Hotel, any costs of Owner
in connection therewith shall be agreed upon in advance by Operator and
Owner within thirty (30) days of Owner's demand therefor. Upon any
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termination or expiration of this Agreement, Owner shall not thereafter
use any name for the Hotel, or any aspect of the operation of the Hotel,
containing or similar to the Trademark, any Mark, or the name of Operator.
6.3 Centralized Services
--------------------
Operator will cause to be furnished to the Hotel certain services which
are furnished generally on a central or region basis to other hotels
operated by Operator ("Centralized Services"). Operator may pay the costs
of Centralized Services out of the Agency Account together with other
operating costs of the Hotel.
ARTICLE VII
USE OF RESERVE
7.1. Reserve
-------
The funds in the Reserve shall be utilized by Operator for purposes
approved in the Annual Operating Projection from time to time and for the
following purposes.
7.1.1 Replacement of Furniture and Equipment
--------------------------------------
Operator shall make such expenditures from the Reserve and substitutions
of and replacements or additions to Furniture Equipment as it may deem
necessary; provided, however, that Operator shall not make (except in
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event of an emergency due to casualty or act of God under circumstances in
which it would be unreasonable to seek to obtain prior approval any
expenditure over [US$_______________] for any single non- budgeted item or
[US$_____________] in any Fiscal Year for all non-budgeted items without
the Approval of Owner.
7.1.2 Replacements of and additions
To Furnishings and Equipment
-----------------------------
7.1.2.1 In the first operating year an amount equal to one percent (1%) in
the second operating year an amount equal to two percent (2%), in the
third operating year an amount equal to three percent (3%) and for every
operating year thereafter an amount equal to four percent (4%) of Revenue
as a provision for replacements and additions to Furnishings and Equipment
and all proceeds from the sale of Furnishings and Equipment, which, for
the purposes of this Section only, shall include telephone and switchboard
equipment, otherwise included as building installation or systems, no
longer needed for the operation of the Hotel shall be credited to a
reserve for replacements and addition to Furnishings and Equipment (the
"Replacement Reserve") and shall be deposited monthly by Operator in a
bank account under the exclusive control of Operator (the "Replacement
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Fund") bearing interest, which interest shall be credited to the
Replacement Reserve and accumulated in the Replacement Fund or, if the
parties so mutually agree, otherwise invested. Operator shall be entitled
to withdraw from the Replacement Fund and shall charge against the
Replacement Reserve any amounts required to make all replacements of and
additions to Furnishings and Equipment deemed by it to be necessary
(except as provided under Section 6.4 of this Article) or desirable, which
Furnishings and Equipment shall be and become, forthwith upon acquisition
and installation and without further act or action, the property of Owner.
7.1.2.2 Replacements of and additions to Furnishings and Equipment deemed
by Operator to be necessary or desirable, the cost of which shall exceed
the balance in the Replacement Reserve, shall be subject to the approval
of Owner, and such excess shall be paid for by Owner.
7.1.2.3 Any amounts remaining in the Replacement Fund at the termination
or expiration of the operating Term shall be credited to Gross Operating
Profit in the last Fiscal Year of the Operating Term.
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7.1.3 Certain Non-Routine Repair and Maintenance
------------------------------------------
Operator shall have the right to make expenditures from the Reserve for
certain non-routine repairs and maintenance to the Hotel which are
normally capitalized under generally accepted accounting principles such
as exterior and interior repainting, resurfacing building walls, floors,
roofs and parking areas, and replacing folding walls or the like, but
which are not major repairs, alterations, improvements, renewals or
replacements to the Hotel building's structure or to its mechanical,
electrical, heating, ventilating, air conditioning, plumbing or vertical
transportation systems.
7.1.4 Alterations, Additions and Improvements
---------------------------------------
Operator shall have the right to make expenditures from the Reserve for
such alterations, additions or improvements in or to the Hotel as are
required to be made in order to maintain the Hotel as a [to specify type]
class hotel [in accordance with the Chain Standards].
7.1.5 Minor Structural Repairs and Improvements
-----------------------------------------
Operator shall have the right to make expenditures from the Reserve for
structure repairs and minor capital improvements to the Hotel (exclusive
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of Furniture and Equipment) having an estimated cost not in excess of
[US$50,000] aggregate in any Fiscal Year in order to maintain the Hotel as
a [to specify type] class hotel [in accordance with the Chain Standards].
7.1.6 Ordinary and Non-Structural
Repairs and Maintenance
---------------------------
Operator shall, from time to time, make such expenditures from Gross
Revenues or from the Reserve for ordinary and non-structural repairs and
maintenance as required by the Mortgage or applicable laws and regulations
or as it reasonable deems necessary to maintain the Hotel in good
operating condition [in compliance with the Chain Standards]. If any such
repairs or maintenance shall be made necessary by any condition against
the occurrence of which Owner has received the guaranty or warranty of the
building of the Hotel or of any supplier of labor or materials for the
construction of the Hotel, then Operator shall invoke said guarantees or
warranties in Owner's or Operator's name and Owner will cooperate with
Operator in the enforcement thereof.
7.1.7 Essential Repairs, Changes and Replacements
-------------------------------------------
If at any time during the Operating Term, repairs to the buildings),
installations or building systems, changes in the Hotel, or replacements -
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(1) shall be required by reason of any laws, ordinances or regulations, or
by any order of governmental authority; or
(2) shall be essential to the functioning or safety of the Hotel,
including its structural integrity, or its continued operation under
standards comparable to those prevailing in Operator hotels, such
repairs or replacements shall be made promptly by Owner, shall be paid
by Owner, at its expense and not as a charge against operations, and
shall be made promptly and with as little hindrance to the operation
of the Hotel as possible.
7.1.8 Other Charges, Replacements and Additions
-----------------------------------------
Any changes, replacements, additions or improvements not otherwise
provided for in this Agreement shall, if mutually agreed upon, be made
promptly by Owner (or, if Operator agrees, by Operator, upon receipt from
Owner of sufficient funds therefore) and strictly in accordance with
plans, specifications and designs subject to the prior approval of
Operator, and shall be paid for by Owner, at its expense and not as a
charge against operations.
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ARTICLE VIII
REFURBISHMENT
8.1 Owner's Capital Obligations
---------------------------
Owner shall continue to maintain the Hotel as a [to specify type] class
hotel [and in compliance with the Chain Standards] and otherwise in
compliance with any Mortgage or applicable Legal Requirements, provided,
however, that the cost thereof shall be paid from the Reserve or, if
necessary, shall be funded by Owner, to the extent the balance in the
Reserve is at any time inadequate to comply with the requirements of any
Mortgage or applicable Legal Requirements and except as otherwise provided
for casualty or condemnation in Article XI. All alterations, additions,
improvements, repairs and replacements in or to the Hotel shall be made
with as little hindrance to the operation of the Hotel as possible, and
Owner shall use its best efforts to present any liens from being filed
against the Hotel which are arise from any such work and, if any such
liens are filed, shall promptly obtain the release thereof.
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ARTICLE IX
INSURANCE
9.1 Owner's Insurance
-----------------
Throughout the Operating Term, Owner shall insure the Buildings and
Appurtenances, each of their component parts and all Furniture and
Equipment and Fixed Asset Supplies against damage from risks of all nature
(including, without limitation, earthquake, flood, boiler and machinery
insurance, but excluding, at Owner's discretion, damage resulting from
war, nuclear energy, and wear, tear and inherent vice) in aggregate
amounts which shall be not less than 100% of replacement cost thereof
(exclusive of foundations and footings). Owner shall carry such other or
additional insurance in such buildings, facilities and contents of the
Hotel in such amounts as are customary in the industry in order to
preserve the Hotel's operations.
9.2 Operator's Insurance
--------------------
Operator shall throughout the Operating Term provide and maintain, with
the cost to be charged to Owner as a part of Gross Operating Expenses -
(a) Comprehensive general public liability insurance in amounts
satisfactory to Owner, but in any event not less than a combined
single limit of not less than US$[__________________] for each
occurrence, for personal injury and death, and property damage, which
shall among other risks, include coverage against liability arising
out of the Ownership or
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operation of motor vehicles, as well as coverage in such amount
against all claims brought anywhere in the world arising out of
alleged (i) bodily injury, (ii) death, (iii) property damage, (iv)
assault or battery, (v) false arrest, detention or imprisonment or
malicious prosecution, (vi) libel, slander, defamation or violation of
the right of privacy, (vii) wrongful entry or eviction or (viii)
liquor law or dram shop liability;
(b) worker's compensation insurance or insurance required by similar
employee benefit acts as well as insurance having a minimum per
occurrence limit as Operator may reasonably deem advisable against all
claims which may be brought for personal injury or death of Hotel
employees, but in no event less amounts prescribed by applicable law;
(c) Fidelity bonds, with reasonable limits and deductibility to be
determined by Operator, covering Operator's employees in job
classifications normally bonded in other hotels it manages in the
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United States or otherwise required by law, and comprehensive crime
insurance to the extent that Operator reasonably deem such to be
necessary for the Hotel;
(d) Business interruption insurance covering loss of income to both Owner
and Operator for a minimum period of [six (6)] months resulting from
interruption of business caused by the occurrence of any of the risks
insured against under the property damage insurance referred to in
Section 9.1; and
(e) Such other insurance coverage as are customarily maintained by
Operators of hotels comparable to the Hotel in the location of the
Hotel, with such limits and deductibility as Operator may reasonably
determined.
9.3 Increase In Insurance Limits
----------------------------
Owner may require Operator to increase the limits of the above insurance
coverage and may require Operator to carry other or additional insurance,
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but all premiums therefor shall be paid by Owner directly in advance and
shall not be included in Gross Operating Expenses.
9.4 Form of Policies
----------------
All insurance required by Sections 9.1 and 9.2 shall be in such form and
with such companies as shall be reasonably satisfactory to Owner and
Operator and as shall comply with terms of Mortgages. And insurance may be
provided under blanket policies of insurance. All property damage
insurance maintained by Owner pursuant to Section 9.1 shall, so long as
the Hotel is mortgaged pursuant to a Mortgage, be subject to a standard
mortgagee clause in favor of the holder of the Mortgage and shall name
Operator as an additional insured. All other insurance shall be in the
name of Owner and Operator. All policies of insurance shall provide if
available at reasonable costs, that (i) the insurance company will have no
right of subrogation against the holder of the Mortgage, Owner, Operator
or any of their respective Affiliates or the agents or employees thereof
and (ii) that the proceeds thereof in the event of loss or damage shall,
to the extent payable to any holder of a Mortgage, be payable
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notwithstanding any act of negligence or breach of warranty by Owner or
Operator which might otherwise result in the forfeiture or non-payment of
such insurance proceeds.
9.5 Insurance Proceeds
------------------
Owner and Operator agree that, if Owner shall be required to repair or
restore the Hotel after an insurable casualty, subject to the terms of the
Mortgages, all proceeds of property damage insurance required to be
maintained by Owner under Section 9.1 when and if collected shall be
deposited in a trust account in a bank or trust company Approved by
Operator and Owner and such insurance proceeds shall be used to the extent
necessary for the restoration or reconstruction of the Hotel and any other
improvement or improvements on the Premises, together with replacing any
Furniture and Equipment and Fixed Asset Supplies required in the operation
of the Hotel, all such proceeds being pledged and dedicated by the parties
for the purpose.
9.6 Certificates
------------
Certificates of all policies shall be delivered to the party hereunder who
is not required to purchase the insurance prior to the Commencement Date
and thereafter certificates of renewal shall be delivered not less than
thirty (30) days prior to the expiration date of such policies. All such
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certificates shall specify that the policies to which they relate cannot
be cancelled or modification less than thirty (30) days' prior written
notice to such other party.
ARTICLE X
TAXES, UTILITIES, AND MORTGAGE PAYMENTS
10.1 Taxes
-----
Owner shall pay, prior to delinquency all real estate taxes, all person
property taxes and all betterment assessments levied against the Hotel or
any of its component parts. Operator shall promptly deliver to Owner all
notices of assessments, valuations and similar documents to be filed by
Operator or Owner or which are received from taxing authorities by
Operator. Notwithstanding the foregoing obligations of Owner, Owner may,
at its sole expense, contest the validity or the amount of any such tax or
assessment, provided that such contest does not materially jeopardize
Operator's rights under this Agreement. Operator agrees to cooperate with
Owner and execute any documents or pleadings required for such purpose,
but Owner shall reimburse Operator for any out-of- pocket costs incurred
by Operator in so doing.
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10.2 Utilities, Etc
--------------
Operator shall promptly pay all fuel, gas, light, power, water, sewage,
garbage disposal, telephone and other utility bills currently as they are
incurred in connection with the Hotel from Gross Revenues on Working
Capital.
10.3 Mortgage Payments
-----------------
Owner shall be solely responsible for paying, when due, all principal
and/or interest payments and other charges payable under any Mortgage.
ARTICLE XI
DAMAGE OR DESTRUCTION; CONDEMNATION
11.1 Damage or Destruction
---------------------
If the Hotel or any portion thereof shall be damaged or destroyed at any
time or times during the Operating Term by fire, casualty or any other
cause, Owner will, at its own cost and expense and with due diligence,
repair, rebuild or replace the same so that after such repairing,
rebuilding or replacing, the Hotel shall be substantially the same as
prior to such damage or destruction. Owner shall undertake such work
within ninety (90) days after the proceeds of any insurance becomes
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available to Owner for such repairing, rebuilding or replacing, and shall
complete the same diligently. Notwithstanding the foregoing: (i) if the
Hotel is damaged or destroyed to such an extent that the cost of repairs
or restoration as reasonably estimated by Owner exceeds one-third of the
cost to Owner of the Hotel; (ii) the insurance proceeds for such loss are
less than eighty percent (8%) of the replacement cost of the Hotel; (iii)
the mortgagee under the Mortgage does not release the insurance proceeds
for restoration; or (iv) the damage is sustained within the last three
years of the operating Term; then upon the occurrence of any of such
events, Owner shall have no obligation to repair, rebuild or replace the
Hotel.
11.2 Condemnation
------------
If only a part of the Hotel shall be taken or condemned in any eminent
domain, condemnation, compulsory acquisition or like proceeding by any
competent authority, and in the reasonable opinion of Owner the Hotel can
be altered, restored or repaired so as to make it a satisfactory
architectural unit as a hotel of similar type and class as prior to the
taking or condemnation, Owner shall so alter, restore and replace if the
proceeds of such condemnation will be sufficient to pay or the costs of
same, Owner and Operator agreeing to pledge so much of their awards as is
necessary for such purpose. Such work shall be commenced within ninety
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(90) days after such proceeds become available and shall be diligently
pursued to completion. Owner and Operator agree to request separate awards
in the event of any taking or condemnation. Notwithstanding the foregoing:
(i) if the condemnation proceeds from such taking are less than eighty
percent (80%) of the replacement cost of the Hotel; (ii) the mortgagee
under the Mortgage does not release the condemnation proceeds for
restoration or (iii) the condemnation is sustained within the last three
years of the Operating Term then upon the occurrence of any of such
events. Owner shall have no obligation to repair, rebuild or replace the
Hotel
ARTICLE XII
EVENTS OF DEFAULT; REMEDIES
12.1 Non-Payment
-----------
The failure of either party to pay any sum of money to the other party
when due and payable, if such failure is not cured within ten (10) days
after written notice specifying such failure is received by the defaulting
party from the non-defaulting party.
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12.2 Other Covenants
---------------
The failure of either party to perform, keep or fulfill any of the other
covenants, undertakings or obligations set forth in this Agreement, if
such failure has or could have a material adverse effect on the operation
of the Hotel or the rights and duties of either party hereto and such
failure is not cured within thirty (30) days after written notice
specifying such failure is received by the defaulting party from the
non-defaulting party; provided, however, that if such failure is incapable
of cure within such period, and the defaulting party commences to cure
such default during such period and thereafter prosecutes such cure to
completion with all due diligence, then no Event of Default shall exist
unless such failure remains uncured after one hundred twenty (120) days
after repair of such notice.
12.3 Breach of Warranty
------------------
Any warranty or representation made herein or in any document executed in
connection therewith is breached in and material respect.
12.4 Bankruptcy
----------
The filing by Owner or Operator of a voluntary petition in bankruptcy, or
the filing by Owner or Operator of any petition or answer seeking or
acquiescing in any reorganization, arrangement, composition, readjustment,
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liquidation, dissolution or similar relief for itself under any present or
future federal, state or other applicable law or regulation relating to
bankruptcy insolvent or other relief for debtors, or Owner's or Operator's
seeking or consenting to or acquiescing in the appointment of any
custodian, trustee, receiver, conservator or liquidator of Owner or of all
or any substantial part of the Hotel or of any of all of the rents,
issues, profits, revenues or royalties thereof, or the making by Owner or
Operator of any general assignment for the benefit of creditors, or
Owner's or Operator's failure generally to pay its debts as such debts
become due, or Owner's or Operator's giving of notice to any governmental
body of insolvency or pending insolvency or suspension of operations; or
the entry by a court of competent jurisdiction of an order, judgment or
decree approving a petition filed against Owner or Operator seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal, state
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or other law or regulation relating to bankruptcy, insolvency or other
relief for debtors, which order, judgment or decree remains unvacated and
unstayed for an aggregate of sixty (60) days (whether or not consecutive)
from the date of entry thereof, or the appointment of any custodian
trustee, receiver, conservator or Owner of all or any substantial part of
the Premises or of any or all of the rents, issues, profits, revenues or
royalties thereof without the consent or acquiescence of Owner, which
appointment shall remain unvacated and unstayed for an aggregate of sixty
(60) days (whether or not consecutive).
12.5 Remedies
--------
Upon the occurrence of an Event of Default (in which case the
non-defaulting party may also terminate this Agreement as provided in
Section 3.3), the non- defaulting party may pursue any and all remedies
available that at law or in equity. In addition, in the event of a failure
by a party to perform, keep or fulfill any covenant, undertaking or
obligation which would have been an Event of Default but for the lack of
materiality (as such concept is stated in Section 12.2) of such default,
the non-defaulting party shall have all remedies available at law or in
equity except the termination hereof.
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ARTICLE XIII
TRANSFER RESTRICTION
13.1 Ownership Transfer
------------------
Owner shall not, without Operator's Approval which may be given or
withheld in Operator's sole discretion, consummate any Ownership Transfer
with a transferee which includes one or more of the following: (a) a
person, entity or group engaged, directly or indirectly, in the Ownership,
operation, management of hotels competitive to Operator (excluding
recognized banking, financial institutions, life insurance companies and
pension funds); (b) a non-profit (other than pension funds) or
governmental organization or entity; or (c) any person or entity which own
or operates a distillery, winery or brewery or a distributorship of
alcoholic beverages if such Ownership or operation might reasonably impair
the ability of Operator or its Affiliates to obtain or retain liquor
licenses for any hotel, motel, restaurant, bar or lounge (including, but
not limited to the Hotel), now or hereafter operated or owned by Operator
or its Affiliates and any Affiliate of such a person or entity.
Notwithstanding the above, Owner shall have the right to assign its rights
and obligations under this Agreement to an Affiliate of Owner which meets
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the criteria set forth above. Notwithstanding anything to the contrary
contained herein, any Ownership Transfer hereunder shall (A) require as a
condition precedent thereof (i) a demonstration to the reasonable
satisfaction of Operator that the transferee is financially and otherwise
able to satisfy the terms and obligations of Owner hereunder and (ii) a
prior written and legally enforceable undertaking from Owner that it shall
guarantee to the reasonable satisfaction of Operator the obligations of
the transferee as Owner hereunder following an Ownership Transfer, and (B)
not be permitted without the prior written consent of Operator prior to
the expiration of the later to occur of (i) expiration of the three years
period described in Section 2.3 of the Other Agreement and (ii) the
execution and delivery of Opening Agreements to Operator for each of the
Hotels listed on Schedule 1 to the Other Agreement in accordance with the
terms of the Other Agreement. Owner shall from time to time, upon the
written request of Operator, furnish Operator with a list of the names and
addresses of the Owner of the capital stock, partnership interests or
other proprietary interests in Owner. Upon the effectiveness of any
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Ownership Transfer permitted hereunder, the definition of Owner shall for
all purposes of this Agreement for acts occurring after the effective date
of such transfer, automatically be amended to refer to the person who is
the transferee, rather than to the person who is the transferor, in
respect of such Ownership Transfer.
13.2 Assignment by Operator
----------------------
Operator shall have the right to assign its rights and obligations under
this Agreement without the consent of Owner to any Affiliate or to any
other assignee who also acquires all, or substantially all of the assets
of Operator.
ARTICLE XIV
MISCELLANEOUS
14.1 Further Assurance
-----------------
Owner and Operator shall execute and deliver all other appropriate
supplemental agreements and other instruments, shall take any other action
necessary to make this Agreement fully and legally effective binding and
enforceable as between them and as against third parties.
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14.2 Waiver
------
The waiver on any of the terms and conditions of this Agreement on any
occasion or occasions shall not be deemed a waiver of such terms and
conditions on any future occasion.
14.3 Successors and Assigns
----------------------
This Agreement shall be binding upon and inure to the benefit of Owner,
its successors and permitted assigns, also shall be binding upon and inure
to the benefit of Operator, its successors and permitted assigns.
14.4 Governing Law
-------------
This Agreement shall be governed by the laws of England.
14.5 Compliance with Mortgage
------------------------
In carrying out its duties and obligations under the terms of this
Agreement, Owner shall take no action that will constitute a default under
any Mortgage. In carrying out its duties and obligations under the terms
of this Agreement, Operator shall take not action permitted by this
Agreement which would constitute a default under any Mortgage a copy of
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which has been delivered to Operator unless, in Operator's reasonable
judgment, Operator's failure to take such action would adversely impact
Operator's rights hereunder.
14.6 Amendments
----------
This Agreement may not be modified amended, surrendered or change, except
by a written instrument executed by Owner and Operator.
14.7 Estoppel Certificates
---------------------
Owner and Operator agree, at any time and from time to time, as requested
by the other party upon not less than ten (10) days prior written notice,
to execute and deliver to the other a statement certifying that this
Agreement is unmodified and in full force and effect (or if there have
been modifications, that this Agreement is in full force and effect as
modified and stating the modifications), certifying the dates to which
required payments have been paid and stating whether or not to the best
knowledge of the signer, the other party is in default in performance of
any of its obligations under this Agreement, and if so, specifying each
such default of which the signer may have knowledge and anything else
reasonably requested it being intended that any such statement delivered
pursuant hereto may be relied upon by others with whom the party
requesting such certificate may be dealing.
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14.8 Inspection Rights
-----------------
Owner shall have the right to inspect the Hotel and examine the books and
records of Operator pertaining to the Hotel at all reasonable times during
the Operating Term upon reasonable notice to Operator and Owner and the
holder of any Mortgage, and any prospective mortgagee or purchaser shall
have access to the Hotel and the books and records pertaining thereto at
all times during the Operating Term to the extent necessary to comply with
the terms of such Mortgage to the extent consistent with applicable law
and regulations and the rights of guests, tenants and concessionaires of
the Hotel.
14.9 Subordination
-------------
This Agreement and any execution hereof shall be subordinate to the
Mortgage and any other mortgage or similar security instrument hereafter
affecting the Hotel or the Premises and all renewals, modifications,
consolidations, replacements and extensions thereof, provided that the
Owner and holder of such Mortgage or other mortgage instrument enters into
an agreement in form and substance reasonably satisfactory to Operator,
providing that the rights of Operator under this Agreement shall not be
affected by any foreclosure of or enforcement proceedings under the
Mortgage or such other mortgage or instrument. Operator agrees that in the
event the interest of Owner in the Hotel or the Premises which is subject
to the lien of any Mortgage shall be transferred by reason of foreclosure,
sale under a power granted under any Mortgage, or other proceedings or for
any other reason (including, without limitations, by delivery of a deed in
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lieu of foreclosure). Operator shall be bound to the transferee of said
interest of Owner under all of the terms, covenants and conditions of this
Agreement for the balance of the Operating Term remaining and any
extensions hereof with the same force and effect as if the transferee were
Owner under this Agreement, provided, however, that Operator shall not be
bound by this Agreement if the transferee does not comply with all of the
terms, covenants and conditions of this Agreement and any transferee shall
be liable for the termination payments due to Operator pursuant to Section
3.4.6 of this Agreement.
14.10 Effect of Approval of
Plans and Specifications
------------------------
Owner and Operator agree that in each instance in this Agreement or
elsewhere therein Operator is required to give its Approval of plans,
specifications, budgets
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and/or financing, no such Approval shall imply or be deemed to constitute
an opinion of Operator, nor impose upon Operator any responsibility for
the design or construction of the Hotel, including, but not limited to
compliance with Legal Requirements or as to structural integrity or
life/safety requirements or adequacy of budgets and/or financing.
14.11 Indemnity By Operator
---------------------
Operator shall indemnify and hold harmless Owner against any losses,
liabilities, damages or claims against Owner arising out of (i) any
negligence of Operator, its agents, contractors, subcontractor and
employees; (ii) any malfeasance or misfeasance on the part of personnel
hired by Operator for the management of the Hotel and (iii) any breach of
any representation or warranty of Operator herein contained.
14.12 Indemnity by Owner
------------------
Owner shall indemnify and hold harmless Operator against any losses,
liabilities, damages or claims against Operator arising out of (i) any
negligence of Owner, its agents, contractors, subcontractors and employees
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and (ii) any breach of any representation or warranty of Owner herein
contained.
14.13 Partial Invalidity
------------------
In the event that any one or more of the phrases, sentences, clauses or
paragraphs contained in this Agreement shall be declared invalid by the
final and unappealable order, decree or judgment of any court, this
Agreement shall be construed as if such phrases, sentences, clauses or
paragraphs had not been inserted, unless such construction would
substantially destroy the benefit of the bargain of this Agreement to
either of the parties hereto.
14.14 No Representations
------------------
In entering into this Agreement, Operator and Owner acknowledge that
neither Owner nor Operator have made and representation to the other
regarding projected earnings, the possibility of future success or any
other similar matter respecting the Hotel, and that Operator and Owner
understand that no guarantee is made to the other as to any specific
amount of income to be received by Operator or Owner or as to the future
financial success of the Hotel.
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14.15 Relationship
------------
In the performance of this Agreement, Operator shall act solely as an
independent contractor neither this Agreement nor any agreements,
instruments, documents or transactions contemplated hereby shall in any
respect be interpreted, deemed or construed as making Operator a partner
or joint ventures with Owner or as creating any similar relationship
entity, and Owner agrees that it will not make any contrary assertion,
contention, claim or counterclaim in any action, suit or other legal
proceedings involving Operator and Owner.
14-16 Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties
relating to the subject matter hereof, superceding all prior agreements or
undertakings, oral or written.
14.17 Time of Essence, Force Majeure
------------------------------
Time is of the essence of this Agreement; provided, however, that time
limitations set forth in this Agreement, except with respect to monetary
obligations, shall be extended for the period of any delay due to causes
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beyond the delayed party's control or which cannot be reasonably foreseen
or provided against, including, without limitations, strikes,
governmental, regulations or orders, or events of force majeure.
14.18 Interpretation
--------------
No provisions of this Agreement shall be construed against or interpreted
to the disadvantage of any party hereto by any part or other governmental
or judicial authority by reason of such party having or being to have
structured or dictated such provision.
14.19 Counterparts
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and need not be signed by more
than one of the parties hereto and all of which shall constitute one and
the same agreement.
14.20 Consent and Approval
--------------------
Except as herein otherwise provided, whenever in this Agreement the
Approval of Operator and Owner is required, such Approval shall not be
unreasonably withheld or delayed.
14.21 Notices
-------
Any notice statement or demand required to be given under this Agreement
shall be in writing and be and at the option of the party giving notice,
(i) personally delivered, or (ii) transmitted by a nationally recognized
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overnight delivery courier, charges prepaid and addressed, if to Owner to
[ ], and to Operator [ ], Attention [ ];; with a copy to the
general manager of the Hotel, or to such other addresses as Operator or
Owner shall designate in the manner herein provided. Any such notice shall
be deemed to have been given (x) the date of receipt if delivered and to
Operator to Attention [personally, (y) two (2) business days after
delivery to the overnight courier service as aforesaid, but the time
period for any response thereto or action in connection therewith shall
not commence to run until actual receipt or rejection or inability to
deliver such notice. Owner and Operator each agree that upon giving of any
notice, it shall use its best efforts to advise the other by telephone
that a notice has been sent hereunder. Such telephonic advice shall not,
however, be a condition to the effectiveness of notice hereunder.
14.22 Confidentiality
---------------
The terms and provisions of this Agreement shall be confidential between
Owner and Operator and shall be released to third parties only in
connection with carrying out their respective duties and obligations
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described herein, in connection with any order of court to comply with
governmental rules and regulations, and as requested by any proposed
purchaser or mortgagee of all or any portion of Owner's or Operator's
interests in the Hotel and this Agreement.
14.23 Dispute Resolution
------------------
Owner and Operator recognize and acknowledge that protracted disputes
between the parties relating to the terms and conditions of this Agreement
are not in the best interest of the successful operation of the Hotel.
Owner and Operator agree to attempt to resolve any disagreements by
discussion between them before resorting to self help, litigation or
arbitration.
14.24 Cooperation With Owner's Lender
-------------------------------
Operator agrees to cooperate in good faith with any reasonable requested
by Owner or its lenders for information relating of the Hotel
14.25 Arbitration
-----------
14.25.1 If any dispute arises out of this Agreement the parties shall in
the first instance attempt to resolve such dispute by mutual
consultation, and any party may at any time serve a notice on the
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other party requesting such consultation and stating the nature of
the dispute.
14.25.2 If within three (3) months of service of such a notice the dispute
has not been settled, then without prejudice to any rights of
cancellation or termination under this Agreement, and irrespective
of whether this Agreement has been terminated at the election of
either party, such dispute shall be submitted to arbitration in
conformity with the rules of the International Chamber of Commerce
for the time being in force and such arbitration shall be held in
the City of London, England or in such other place as the parties
shall mutually agree.
14.26 Further Instruments
-------------------
Owner shall register this Agreement, execute and deliver all other
appropriate supplemental agreements and other instruments, and take any
other action, including obtaining any governmental approval, necessary to
make this Agreement fully and legally effective, binding and enforceable
as between the parties and against third parties. Any fees or expenses
incurred in connection therewith shall be borne by Owner.
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14.27 Governing Law
-------------
This Agreement shall be construed, interpreted and applied in accordance
with, and shall be governed by the law of England.
ARTICLE XV
REPRESENTATIONS AND WARRANTIES
15.1 Representations and Warranties of Owner
---------------------------------------
In order to induce Operator to enter into this Agreement, Owner does
hereby make the following representations and warranties -
(a) the execution of this Agreement is permitted by the Articles of
Incorporation and By-Laws (or other applicable organic documents) of
Owner and this Agreement has been duly authorized, executed and
delivered and constitutes the legal, valid and binding obligation of
Owner enforceable in accordance with the terms hereof;
(b) there is no claim, litigation, proceedings or governmental
investigation pending, or as far as is known to Owner, threatened,
against relating to Owner, the properties or business of Owner on the
transactions contemplated by this Agreement which does, or may
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reasonably be expected to materially and adversely affect the ability
of Owner to enter into this Agreement or to carry out its obligations
hereunder, and there is no basis for any such claim, litigation,
proceedings or governmental investigation to the best of Owner's
knowledge, except as full disclosed in writing to Operator; and
(c) neither the consummation of the actions contemplated by this Agreement
on the part of Owner to be performed, nor the fulfillment of the
terms, conditions and provisions of this Agreement, conflicts with or
will. result in the breach of any of the terms, conditions or
provisions of, or constitute a default under any agreement, indenture,
instrument or undertaking to which Owner is a party or by which it is
bound.
15.2.1 Representations and Warranties of Operator
------------------------------------------
In order to induce Owner to enter into this Agreement, Operator does
hereby make the following representations and warranties -
(a) the execution of this Agreement is permitted by the Articles of
Incorporation and By-Laws of Operator (or other organic documents) and
this Agreement has been duly authorized, executed and delivered and
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constitutes legal, valid and binding obligations of Operator
enforceable in accordance with the terms hereof;
(b) there is no claim, litigation, proceedings or governmental
investigation pending, or as far as is known to Operator, threatened,
against relating to Operator, a properties or business of Operator or
the transactions contemplated by this Agreement which does, or may
reasonably be expected to materially and adversely affect the ability
of Operator to enter into this Agreement to carry out its obligations
hereunder, and there is no basis for any such claim, litigation,
proceedings or governmental investigation to the best of Operator's
knowledge, except as has been fully disclosed in writing to Owner; and
(c) neither the consummation of the actions contemplated by this
Agreement- on the- part of Operator to be performed o@ the fulfillment
of the terms, conditions and provisions of this Agreement, conflict
with or will result in the breach of any of the terms, conditions or
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provisions of, or constitute a default under any agreement, indenture,
instrument or undertaking to which Operator is a party or by which it
is bound.
ARTICLE XVI
MANAGEMENT FEES AND OWNER'S PROFIT DISTRIBUTION
16.1 Operator's Fees
---------------
During the Operating Term Operator shall be entitled to receive -
(1) Monthly, as its basic management fee an amount equal to
[_____________] percent (%) of the Revenue of the Hotel, as defined in
Article V, and
(2) Monthly, as its incentive fee percent 'i) of the Gross Operating
Profit, as defined in Article V.
16.2 Payment of Fees
---------------
Operator's basic management and incentive fees shall be determined in the
currency of the Country and shall be payable in United States dollars at
the official rate of exchange prevailing on such dates as such fees shall
be determined. Operator shall have the right to withdraw the amount of its
fees from the Agency Account of the Hotel and, after deducting such income
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or withholding taxes of the Country as shall be applicable such fees,
utilize such United States dollars or other currency freely convertible
into United States dollars that may be available in such bank accounts
and/or convert such net amount from the currency of the Country to the
United States dollars and remits such dollars or other foreign currency to
its principal office or such other place as Operator may, from time to
time, designate. If exchange control regulations of the Country delay the
conversion of its fees into United States dollars, Operator may elect to
receive and retain such fees in the currency of the Country during the
period of such delay, but such election shall not constitute a waiver of
Operator's right to receive payment thereof in United States dollars at
the rate of exchange as aforesaid. In the event that such fees shall be
subject to any value added tax on turnover imposed by the Country, such
fees shall be increased by the amount of such value added tax and Operator
hereby authorizes Owner and Owner hereby accepts to be Operator's
accredited representative responsible for Operator's conformance with the
applicable regulations of the Country, including the declaration and
payment of such value added tax.
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ARTICLE XVII
SPECIAL CONDITIONS
17.1 Operator shall have the right, which may be exercised notwithstanding any
claim of force majeure by Owner, to terminate this Agreement if -
(1) Owner shall not, within a reasonable time not exceeding [word
(figure)] months from the date of this Agreement, have obtained a
financial commitment which in Operator's opinion is satisfactory and
will assure the fulfillment of Owner's obligations under this
Agreement; or
(2) Owner shall not have obtained, within a reasonable time, all necessary
government approvals decrees, acts, orders, consents, licenses and
permits to enable Owner to construct and Operator to operate the Hotel
in accordance with the terms of this Agreement; or
(3) Owner shall not, within a period of [word (figure)] months from the
date of this Agreement, have commenced the construction of the Hotel;
or
(4) Owner shall not, within a period of forty- two months from the date of
this Agreement, have substantially completed the constructions,
equipping, furnishing and decorating of the Hotel; or
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(5) Operator shall not have obtained, with the cooperation and assistance
of Owner, prior to acceptance of the Hotel and throughout the
Operating Term, appropriate assurance from the proper authorities as
to the right;
(a) of key personnel needed to establish and operate the Hotel to
enter and work in the Country and to be reasonably compensated in
currency readily convertible into United States dollars and to
repatriate said compensation; and
(b) of Operator to receive in United States dollars its fees and
reimbursements for expenditures in currency other than legal
tender of the Country, with the right to remit the same.
IN WITNESS WHEREOF Operator and Owner act by and through their proper
and duly authorized officers or representatives have each duly executed this
Agreement under seal as of the date set forth above.
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Signed for and on behalf of )
CONSERVER CORPORATION OF ) /s/
AMERICA by Charles H. Stein )
in the presence of )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
Signed for and on behalf of )
Dorsett Hotels & Resorts International ) /s/
Ltd. by Dato David Chu )
in the presence of )
/s/
LOW YONG SUAN
ADVOCATE & SOLICITOR
KUALA LUMPUR
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EXHIBIT A
---------
TECHNICAL SERVICES TO BE PROVIDED BY OPERATOR
(I) EVALUATION, RESEARCH AND ANALYSIS
---------------------------------
Operator evaluation, research and analysis services consist of making
available to Owner and its consultants, Operator's expertise and
experience in market analysis, and food and beverage and personnel
planning as set forth below.
A. Site visit by Marketing Personnel, Evaluation of Independent Feasibility
Study, Market Survey, and Hotel Facilities Analysis.
1. Familiarization with site and local market conditions by Operator
Marketing personnel.
2. Preparation of a market survey.
3. Evaluation of the marketing study conducted, including comments
upon such study's findings with respect to -
a. Airline access and potential for additional services
b. Economic review of local competition
c. Demand for the Hotel
d. Projected average occupancy rates
e. Projected average room rates.
B. Site visit by Food and Beverage Personnel and Food and Beverage
Facilities Recommendations.
1. Site visit by Operator Food and Beverage personnel to survey and
evaluate -
a. The availability of products
b. Local food and beverage competition
C. Local preferences and trends respecting food, beverages and
ambience
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d. Entertainment needs.
2. Recommendation to Owner respecting the number and style of food
and beverage outlets.
C. Site visit by Human Resources Personnel.
1. Site visit by Operator Human Resources personnel to evaluate -
a. The staffing needs of the Hotel
b. The availability of local personnel and the extent to which
training programs must be implemented
c. The need for staff housing
d. Preparation of an outline staffing guide.
(II) TECHNICAL SERVICES
------------------
Operator's Technical Services consist of making available to Owner, and
to its architects, contractors, engineers, interior designers and other
consultants with the exception of the civil and structural consultants,
Operator's expertise and experience in the design, planning and
renovation of hotels as set forth below.
Operator shall not review, comment upon, approve or assume any
responsibility or liability for the civil or structural design,
documentation, integrity and execution of any structural component,
matter or issue relating to the Hotel.
A. Owner's Consultants
Recommendation and/or review of the qualifications of various
consultants to be appointed by Owner for the design and renovation
program of the Hotel.
1. Land surveyor
2. Design architect
3. Working drawing architect (contract documents)
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4.* Landscape architect (including hardscape and waterfall
engineering)
5.* Interior designer
6. Structural engineer
7. Seismic consultant
8. Wind tunnel consultant
9. Mechanical design engineer
10. Electrical design engineer.
11. Plumbing design engineer/project manager
12. Quantity surveyor
13. Security and life safety design consultant
14. Vertical transportation design consultant
15. Traffic design consultant
16.* Lighting design consultant
17. Acoustic design consultant
18. Communications consultant
19. Computer/building automation design consultant
20. Audio/Visual design consultant
21.* Entertainment center consultant/Operator
22.* Kitchen & Laundry consultant
23.* Graphic & Signage design consultant
24.* Uniform design consultant.
*Note: Consultants of these disciplines must be approved
by Operator.
B. Architect
1. Preparation of project description/design statement and space
utilization program of the Hotel.
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2. Preparation of Operator's Design Standards and Criteria.
3. Review and approval of schematic drawings.
4. Review and approval of design development.
5. Review of the final architectural plans and final specifications.
6. On-site inspections as required during construction and at the
completion of the renovation of the Hotel.
C. Interior Design
1. Preparation of project description/design statement and space
utilization program for the Hotel.
2. Preparation of Operator's Design Standards and Criteria.
3. Assistance to Owner's interior designers with design brief and
suggestions on functional layout of guest rooms, public areas,
restaurants, bars and ballrooms.
4. Review of preliminary layouts and suggestions by Owner's interior
designers.
5. Review and approval of the preliminary presentation for interiors,
including layout plans, elevations, color schemes and renderings.
6. Advice on specifications for carpeting, wall coverings, fabrics,
etc.
7. Review and approval of final working drawings for interiors and
purchase specifications for furniture and furnishings.
8. Selective review of detailed shop drawings.
9. On-site inspections as required of the work in progress and after
completion of the renovation program of the Hotel.
D. Landscape
1. Assistance to Owner's landscape architect in developing site plans
with suggestions on concepts, themes, treatments, pedestrian flow
and functional layouts.
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2. Review of preliminary landscape concept preparation by Owner's
landscape architect.
3. Review and approval of preliminary landscape presentation
including site plans, sections, elevations, individual area
layouts and color renderings.
4. Review and approval of final working drawings and planting
schedules for landscape, softscape, waterscape and hardscape.
5. On-site inspections as required of work in progress and at the
completion of the renovation work at the Hotel.
E. Mechanical, Electrical, Plumbing and Vertical Transportation Criteria.
1. Review with Owner's appointed engineering consultants of initial
infrastructure survey.
2. Review consultants recommended manufacturers and suppliers of
equipment.
3. Review commissioning test and final inspection reports by
engineering consultants.
4. on-site inspections as required during the construction and
installations of the various systems.
F. Lighting
1. Review information on guest room and public area lighting
requirements submitted by Owner's electrical engineering and
lighting consultants.
2. Assistance to Owner's architects, interior designers and lighting
consultants in preparation of preliminary lighting schemes for
guest rooms, restaurants, ballrooms, private dining rooms, lobby,
facade, outdoor landscaped areas, etc.
3. Review of final lighting layouts for such areas including specific
fixture selection in catalogue reference or design form.
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4. Review of electrical lighting plans and dimmer specifications as
prepared by Owner's lighting consultant.
5. On-site inspections as required of layouts and review of selected
fixtures.
G. Kitchen and Laundry Criteria
1. Preparation of Operator's Design Standards and Criteria.
2. Review and approval of schematic drawings.
3. Review and approval design development.
4. Review of the final plans and final specifications.
5. Recommendation of experienced suppliers and manufacturers.
6. Review analysis of bids with respect to specification and
comparative costs, quality and features.
7. On-site inspections as required during installation of
equipment and commissioning of systems recommendations of
acceptance of installations.
H. Graphic, Signage and Uniform
1. Preparation of project description, scope of work and design
brief for graphics, signage and uniforms.
2. Preparation of Operator's Design Standards and Criteria.
3. Review and comment on designs and specifications for folders,
brochures, food and beverage menus, guest supplies, administration
forms and pre-opening supplies as per schedule.
4. Review and comment on designs for crest and symbol of the Hotel
and food and beverage facilities and other facilities.
5. Assistance to uniform consultant on designs material selection,
sample presentation and design development of uniforms.
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I. Hotel Equipment
1. Issue equipment specifications and assistance in the selection
for -
a. Operating equipment -
(i) Silverware
(ii) Chinaware
(iii) Glassware
(iv) Linens
(v) Uniforms
b. Special hotel equipment
(i) Hotel management systems
(ii) Office equipment
(iii) Art and print shop equipment
(iv) Material handling trucks
(v) Cleaning equipment
(vi) Dining room wagons
(vii) Shelving and lockers
(viii) Motor vehicles
(ix) Banquet equipment
(x) Recreational equipment
(xi) Miscellaneous guestroom equipment
c. Ancillary Hotel Equipment
(i) Kitchen utensils
(ii) Dining room accessories
(iii) Engineering tools and equipment
(iv) Housekeeping utensils
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(v) Miscellaneous.
2. Review of FF&E budget.
3. Submission of specifications and/or catalogue data; recommendation
on quantity and quality to be purchased; assistance to Owner in
obtaining discount prices that are available to Operator
world-wide.
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EXHIBIT B
---------
(For Operating Hotel)
Hotel Description
1.1 The Site
--------
The Hotel has been constructed upon lands (hereinafter called the "Site")
and has been acquired by Owner at its expense. The Ownership of the Site
shall be documented within a reasonable time after the date of this
Agreement and Owner shall deliver, within thirty days after execution of
this Agreement, an appropriate instrument supplemental hereto containing a
full and correct description of the boundaries thereof.
1.2 Construction, Furnishings and Equipment of the Hotel
----------------------------------------------------
On the Site, Owner has, at its expense, with all reasonable diligence
built, equipped, furnished and decorated a Hotel, as defined in Section
1.3 of this Article.
1.3 The Hotel
---------
The Hotel consists of -
(A) The Site;
(B) A Hotel building or buildings with -
(1) areas and facilities including -
(a) approximately ______ guest rooms and suites,
(b) restaurants, bars and banquet, meeting and other public
rooms,
(c) commercial space for sale of merchandise, goods or
services,
(d) garage or other parking space for guests and employees,
(e) storage and service support areas,
(f) offices for employees,
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(g) health (fitness) and business centers, and
(h) recreational facilities and areas;
(2) all installations and building systems necessary for the
operation of the building(s) for hotel purposes (including,
without limitation, elevator, heating, ventilating, air
conditioning, electrical including lighting, plumbing
including sanitary, refrigerating, telephone and
communications, safety and security, laundry and kitchen
installations and systems);
(3) all furniture and furnishings, which includes guest rooms,
office, public area and other furniture, carpeting,
draperies, lamps and other items;
(4) kitchen and laundry equipment;
(5) special hotel equipment and adequate spare parts therefore,
which include -
(a) all equipment required for the operation of -
(i) guest rooms, including televisions, mini-bars
and safes,
(ii) banquet rooms,
(iii) a print shop,
(iv) employee locker rooms and
(v) a health and fitness club
(b) office equipment, including computer hardware and
software as required by Operator,
(c) dining room wagons,
(d) material handling equipment,
(e) cleaning and engineering equipment, and
(f) motor vehicles as required for guest and employee
transportation;
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(6) dining room accessories, kitchen utensils, engineering tools
and equipment, housekeeping utensils and miscellaneous
equipment and accessories (hereinafter called "Ancillary
Hotel Equipment"); and
(7) uniforms, china, glassware, linens and silverware and the
like (hereinafter called "Operating Equipment");
(C) public grounds, gardens and other landscaping features and
facilities;
(D) employee housing, if unavailable convenient to the Hotel; and
(E) other facilities and appurtenances; as necessary or desirable
for the operation of the Hotel under standards comparable to
those prevailing in Operator hotels.
The items to be supplied by Owner under Items (3), (4) and with the
exception of spare parts, (5) of subsection (B) above are hereinafter
collectively referred to "Furnishing and Equipment".
1.4 Refurbishment of Hotel
----------------------
1.4.1 Owner shall refurbish the Hotel according to the Renovation
Schedule and scope of work further detailed in Appendix C to this
agreement, and in accordance with the construction schedule
contained therein. All renovation work performed on the Site must
have prior approval of Operator to ensure proper co-ordination with
ongoing hotel operations.
1.4.2 Owner shall engage and retain its own expense the design
consultants encumbered in Appendix A to this agreement and
contracts and other specialists and consultants as shall be
necessary and appropriate to complete the renovations, each of whom
shall be subject to prior approval by Operator.
1.4.3 Owner and Operator shall cause all such firms and persons to
prepare full and adequate plans, layouts, specifications, drawings
and designs, both interior and exterior, as provided in Section 1.5
of this Article and, colored renderings and material boards of
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quality suitable for advertising and promotion, with respect to the
Hotel except to the extent they are to be provided by Operator as
part of its Technical Services. The contracts with all such firms
and persons shall require that where appropriate such firms or
persons shall provide, at Owner's expense, adequate training in the
use and maintenance of the building(s) and all systems and
installations therein and shall furnish to Owner and Operator, at
the conclusion of the project, a full set of plans and
specifications as executed, and catalogue cut sheets, operating
manuals and instructions.
1.5 Plans, Specifications and Designs
---------------------------------
All plans, specifications and designs for the Hotel must be in
conformity with Operator's design standards and criteria for hotels
and shall be prepared in accordance with Operator's area program,
design statement and supporting design criteria documents to be
furnished by Operator to Owner as part of Operator's Technical
Services as described in Appendix A to this agreement.
1.6 Approval of Plans
-----------------
The contracts with the aforesaid consultants and contractors shall
provide that all plans, designs, specifications, drawings, layouts,
etc. and any changes in or departures therefrom subsequently made
or authorized shall be submitted for approval to Owner and Operator
prior to implementation. Wherever in this agreement or elsewhere
that Operator is required to give its approval of plans,
specifications, budgets and/or financing, no such approval shall
imply or be deemed to constitute an opinion by Operator on, nor
impose upon Operator any responsibility for, the design or
construction of building elements, including but not limited to
structural integrity of life/safety requirements or adequacy of
budgets and/or financing. The scope of Operator's review and
approval of plans and specifications is limited solely to the
adequacy and relationship of spaces and aesthetics of the buildings
for use as a hotel. All reviews and approvals by Operator under the
terms of this agreement are for the sole and exclusive benefit of
Operator and no other person or party shall have the right to rely
on any such reviews or approvals by Operator. Operator shall have
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the absolute right, in its sole discretion, to waive any such
reviews or approvals as a condition to its performance under this
agreement.
1.7 Technical Services
------------------
1.7.1 Operator shall provide to Owner or shall cause one of its
affiliates experienced in rendering technical services for hotels
to provide, from the principal place of business of Operator or
such affiliate, the Technical Services described in Appendix A to
this agreement, and Owner shall in consideration thereof pay
Operator or such affiliate the amount of United States dollars
_____________ (US$________). This amount shall be paid in three (3)
equal installments, and the first installment shall be due upon
signing of this agreement with the balance of the two (2) remaining
equal installments to be paid upon each of the first quarterly
anniversary dates of this Agreement.
1.7.2. In addition to the aforesaid fee, Owner shall, promptly following
receipt of properly documented invoices, reimburse Operator or
Operator's affiliate for the out-of-pocket expenses incurred by
Operator or its affiliate in rendering such Technical Services,
including, inter-alia, transportation, food and logging and other
travel expenses, courier services, reproductions of plans and
designs.
1.7.3 The fees for Technical Services and reimbursement for out-of-pocket
expenses incurred in rendering such services shall be payable in
United States dollars or in currency freely convertible into United
States dollars without reduction for income, withholding, value
added or any other taxes imposed by the Country, or bank charges or
any other charges, at Operator's or its affiliate's principal
office, or to such other place as Operator or its affiliate may,
from time to time, designate. In the event that the Country shall
impose any income, withholding or other tax upon such Technical
Services fees, or deem the reimbursement of such out-of-pocket
expenses to be income taxable to Operator or its affiliate, such
taxes shall be for the account of and shall be borne by Owner which
shall promptly pay any such taxes in order that Operator or its
affiliate shall receive full and timely payment of its fees and
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reimbursements for out-of-pocket expenses. In the event that such
fees shall be subject to any value added tax on turnover imposed by
the Country, such fees shall be increased by the amount of such
value tax and Operator hereby authorizes Owner and Owner hereby
accepts to be Operator's accredited representative responsible for
Operator's conformance with the applicable regulations of the
Country, including the declaration and payment of such value added
tax.
1.7.4 Operator or its affiliate shall not be required to render Technical
Services for a period in excess of twelve (12) months from the date
of commencement of the rendition thereof but, if at the end of such
twelve (12) months period -
(1) this agreement shall be in full force and effect;
(2) the formal re-opening of the Hotel, as defined in Section
1.10 of this Article, shall not have taken place; and
(3) Operator or its affiliate shall elect to continue such
services, then, upon notice by Operator or its affiliate to
Owner of the intention to continue said services, the fee for
said services shall be increased by an amount to be agreed
upon by both parties, but Operator or its affiliates shall at
all times following such notice retain the right to notify
Owner at any time of its intention to terminate such
services.
1.7.5 In the event that this agreement shall be terminated at any time
for any reason, any amount then owing by Owner to Operation or its
affiliate for Technical Services shall be due and payable upon such
termination.
1.8 Title to the Hotel
------------------
1.8.1 Owner warrants that it has, and throughout the Operating Term as
hereinafter defined, will maintain full Ownership of the Hotel (or
if Owner's right and interest in the Hotel is derived through a
lease, concession or other agreement, Owner shall keep and maintain
said lease, concession or other agreement in full force and effect
throughout said term) free and clear of any liens, encumbrances,
covenants, charges burdens or claims, except -
6
<PAGE>
(1) such that do not, materially and adversely affect the
operation of the Hotel by Operator and
(2) mortgages or other encumbrances that provide that this
agreement shall not be subject to forfeiture or termination
except only in accordance with the provisions of this
agreement, notwithstanding a default under such mortgage or
other encumbrance.
Owner further warrants that Operator, on distributing the profits
to Owner in accordance with this agreement and fulfilling its other
obligations thereunder, shall and may peaceably and quietly manage
and operate the Hotel during the entire Operating Term.
1.8.2 Owner shall pay and discharge any ground rents, or other rental
payments, concession charges and any other charges payable by Owner
in respect of the Hotel and, at its expense, undertake and
prosecute all appropriate actions, judicial or otherwise, required
to assure such quiet and peaceable management to Operator. Owner
shall further pay all real estate taxes and assessments that may
become a lien on the Hotel and that may be due and payable during
the Operating Term, unless payment thereof is in good faith being
contested by Owner and enforcement thereof is stayed. Owner shall
not later than twenty (20) days following written request by
Operator furnish to Operator copies of official tax bills and
assessments and tax receipts showing the payment of such taxes and
assessments.
1.9 Fund for Training, Re-Opening and Operating expenses
----------------------------------------------------
1.9.1 Owner shall make available an amount to be determined in accordance
with a budget to be prepared by Operator and submitted to Owner
within 3 months from the date of this agreement, to provide a fund
for the costs and expenses of -
(1) recruiting, relocating, training and compensating Hotel
employees (including temporary subsistence for relocated
employees until they have procured permanent accommodations
within or outside the Hotel in accordance with Operator's
personnel policies);
7
<PAGE>
(2) organizing Hotel operations;
(3) re-opening advertising, promotion and literature;
(4) obtaining all necessary licenses and permits (including the
fees of attorneys and other consultants incident thereto);
(5) telephone, facsimile, e-mail, internet and other
communications;
(6) travel and business entertainment (including re-opening
celebrations and ceremonies), and
(7) other re-opening activities incurred prior to or concurrently
with the formal re-opening of the Hotel.
Operator and its affiliates and other hotels operated by Operator
and its affiliates shall be reimbursed for all costs incurred by
them in connection with re- opening activities of the Hotel,
including inter-alia,
(1) for a period of one year prior to the formal re-opening of
the Hotel, Group Services as defined in Section 7.2 of
Article VII;
(2) the salaries, transportation and subsistence outside the
Hotel of personnel of Operator, its affiliates or other
Operator hotels assigned temporarily to the Hotel to assist
in re-opening activities; and
(3) such expenses, excluding salaries, of such personnel making
occasional visits to the Hotel in connection with such
re-opening activities, which Operator may undertake upon
receipt by Operator of notice from Owner that construction of
the Hotel has commenced, which notice shall be given in
writing within fifteen (15) days thereof.
8
<PAGE>
1.9.2 The re-opening budget shall be revised as necessary from time to
time prior to the formal re-opening of the Hotel. The amounts
allocated for various expenses classifications within said budget
may be increased or decreased by Operator provided that the total
amount disbursed, with the exception of the additional amounts
required, as provided below in this Section, as the result of
postponement of the formal re-opening of the Hotel, shall not
exceed the total of said budget without the prior approval of
Owner.
1.9.3 For the purpose hereof, Operator shall utilize the currency of the
Country to the fullest extent possible and the balance of the funds
required hereunder shall be made available in United States dollars
or in currency freely convertible into United States dollars,
without reduction for income, withholding, value added or any other
taxes imposed by the Country, or bank charges or any other charges.
In the event that the Country shall impose any income, withholding,
value added or other tax upon the funds made available to Operator
for re-opening expenses, such taxes shall be for the account of and
shall be borne by Owner and shall be promptly paid by Owner in
order that such funds shall be available to Operator on a full and
timely basis to enable Operator to perform its obligation in
accordance with this Section.
1.9.4 If Operator shall not receive timely payment from Owner of
re-opening funds in accordance with the aforesaid budget, Operator
shall have the right, but not the obligation, to advance its own
funds for such purposes and to be reimbursed therefore, all in
accordance with the provisions of Article XI of this agreement.
1.9.5 In the event of the postponement of the formal re- opening of the
Hotel beyond the date scheduled upon the arrival of the general
manager assigned to the Hotel, at which time such scheduled date
shall be set forth in a memorandum to be signed by both parties,
Owner shall make additional monthly payments as required by
Operator until the formal re-opening of the Hotel. With the consent
of Owner, Operator may prior to said formal re-opening conduct
partial operations of the Hotel, the expenses and revenues of said
partial operations to increase or reduce the re-opening
expenditures budgeted in accordance with the provisions of this
Section, and Operator shall be entitled to receive monthly basic
management and incentive fees, at the rates provided for in Section
4.1 of Article IV and upon the terms set forth in Section 4.2 of
Article IV, based upon Revenue and Gross Operating Profit, as
defined in Article V, resulting from such partial operations.
9
<PAGE>
1.9.6 Operator shall within one hundred and twenty (120) days after the
formal re-opening of the Hotel, account to Owner for all
expenditures made under this Section and pay over to Owner any
excess of the funds advanced by Owner over the total of such
expenditures.
1.10 Formal Re-opening of the Hotel under the Dorsett Brand
------------------------------------------------------
The formal re-opening of the Hotel shall occur on a date to be specified
by Operator upon notice reasonably in advance to Owner, but in any event
only after -
(1) Operator deems -
(i) the Hotel to be substantially renovated and completed and
(ii) the Furnishings and Equipment, Ancillary Hotel Equipment and
Operating Equipment to have been substantially installed
therein, all in accordance with the provisions of Section 1.2
of this Article,;
(2) the architect has issued his certificate of completion;
(3) all licenses and permits required for the operation of the Hotel
(including liquor and restaurant licenses and police, fire and
health department permits) have been obtained;
(4) adequate working capital has been furnished by Owner in accordance
with Section 7.1 of Article VII, and
(5) the Hotel has been accepted by Operator and is ready to render
first-class service to guests on a fully operational basis.
10
<PAGE>
Notwithstanding the formal re-opening of the Hotel, Owner shall
proceed diligently thereafter to fulfill all of its obligations
hereunder regarding the construction, furnishing, equipping and
decorating of the Hotel to cure all defects or deficiencies as to
which notice shall be given by Operator to Owner as soon as
practicable after said formal re-opening.
2.1 Operating Term
--------------
The term of this agreement shall commence upon the date hereof and
the initial operating term hereunder shall commence at the formal
re-opening of the Hotel and expire at midnight on December 31 of
the tenth (10th) full calendar year following said formal re-
opening "Operating Term" shall mean and include initial operating
term as aforesaid and any extension thereof.
11
<PAGE>
EXHIBIT B
---------
(For Hotel Under Construction)
Selection of Site and Design, Construction, Equipping
and Furnishing of the Hotel
1. The Site
--------
The Hotel constructed upon lands (hereinafter called the "Site") to be
determined by mutual agreement of the parties that shall acquired by
Owner at its expense. The determination and acquisition of the Site
shall be made within a reasonable time after the date of this agreement
within a reasonable time after the date of this Agreement and Owner
shall execute and deliver, within thirty days after execution of this
Agreement, an appropriate instrument supplemental hereto containing a
full and correct description of the boundaries thereof.
1.2 Construction, Furnishing and Equipment of the Hotel
---------------------------------------------------
On the Site, Owner shall, at its expense under a plan of financing
subject to approval of Manager, and strictly in accordance with the
plans, specifications and designs to be developed as provided in Section
1.5 of this Article, with all reasonable diligence build, equipped,
furnished and decorate a Hotel, as defined in Section 1.3 of this
Article.
1.3 The Hotel
---------
The Hotel shall consist of:
(A) The Site;
(B) A Hotel building or buildings with
(1) areas and facilities including
(a) approximately....... guest rooms and suites,
(b) restaurants, bars and banquet, meeting and
other public rooms,
(c) commercial space for sale of merchandise,
goods or services,
1
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(d) garage or other parking space for guests and
employees,
(e) storage and service support areas,
(f) offices for employees,
(g) health (fitness) and business centers, and
(h) recreational facilities and areas;
(2) all installations and building systems necessary for the
operation of the buildings) for hotel purposes
(including, without limitation, elevator, heating,
ventilating, air conditioning, electrical including
lighting, plumbing including sanitary, refrigerating,
telephone and communications, safety and security,
laundry and kitchen installations and systems);
(3) all furniture and furnishings, which include guest room,
office, public area and other furniture, carpeting,
draperies, lamps and other items;
(4) kitchen and laundry equipment;
(5) special hotel equipment and adequate spare parts
therefore, which include:
(a) all equipment required for the operation of
(i) guest rooms, including television,
mini-bars and safes,
(ii) banquet rooms,
(iii) a print shop,
(iv) employee locker rooms and
(v) a health and fitness club
(b) office equipment, including computer hardware and
software as required by Operator,
(c) dining room wagons,
2
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(d) material handling equipment,
(e) cleaning and engineering equipment, and
(f) (f) motor vehicles as required for guest
and employee transportation;
(6) dining room accessories, kitchen utensils, engineering
tools and equipment, housekeeping utensils and
miscellaneous equipment and accessories (hereinafter
called "Ancillary Hotel Equipment"); and
(7) uniforms, china, glassware, linens and silverware and
the like (hereinafter called "Operating Equipment");
(C) public grounds, gardens and other landscaping features
and facilities;
(D) employee housing, if unavailable convenient to the
Hotel; and
(E) other facilities and appurtenances; as necessary or desirable
for the operation of the Hotel under standards comparable to
those prevailing in Manager hotels.
The items to be supplied by Owner under Items (3), (4) and with the
exception of spare parts, (5) of subsection B above are hereinafter
collectively referred to as "Furnishing and Equipment".
1.4 Consultants
-----------
1.4.1 Owner shall refurbish the Hotel according to the Renovation
Schedule and scope of work further detailed in Appendix C to this
agreement, and in accordance with the construction schedule
contained therein. All renovation work performed on the Site must
have prior approval of Operator to ensure proper co-ordination with
ongoing hotel operations.
1.4.2 Owner shall engage and retain its own expense the design
consultants encumbered in Appendix A to this agreement and
contracts and other specialists and consultants as shall be
necessary and appropriate to complete the renovations, each of whom
shall be subject to prior approval by Manager.
3
<PAGE>
1.4.3 Owner and Operator shall cause all such firms and persons to
prepare full and adequate plans, layouts, specifications, drawings
and designs, both interior and exterior, as provided in Section 1.5
of this Article and, colored renderings and material boards of
quality suitable for advertising and promotion, with respect to the
Hotel except to the extent they are to be provided by Manager as
part of its Technical Services. The contracts with all such firms
and persons shall require that where appropriate such firms or
persons shall provide, at Owner's expense, adequate training in the
use and maintenance of the building(s) and all systems and
installations therein and shall furnish to Owner and Operator, at
the conclusion of the project, a full set of plans and
specifications as executed, and catalogue cut sheets, operating
manuals and instructions.
1.5 Plans, Specifications and Designs
---------------------------------
All plans, specifications and designs for the Hotel must be in
conformity with Manager's design standards and criteria for
newly-constructed hotels and shall be prepared in accordance with
Manager's area program, design statement and supporting design
criteria documents to be furnished by Manager to Owner as part of
Operator's Technical Services as described in Appendix A to this
agreement.
1.6 Approval of Plans
-----------------
The contracts with the aforesaid consultants and contractors shall
provide that all plans, designs, specifications, drawings, layouts,
etc. and any changes in or departures therefrom subsequently made
or authorized shall be submitted for approval to Owner and Manager
prior to implementation. Wherever in this agreement or elsewhere
that Manager is required to give its approval of plans,
specifications, budgets and/or financing, no such approval shall
imply or be deemed to constitute an opinion by Manager on, nor
impose upon Manager any responsibility for, the design or
construction of building elements, including but not limited to
structural integrity of life/safety requirements or adequacy of
budgets and/or financing. The scope of Manager's review and
approval of plans and specifications is limited solely to the
adequacy and relationship of spaces and aesthetics of the buildings
for use as a hotel. All reviews and approvals by Manager under the
terms of this agreement are for the sole and exclusive benefit of
Manager and no other person or party shall have the right to rely
on any such reviews or approvals by Manager. Manager shall have the
absolute right, in its sole discretion, to waive any such reviews
or approvals as a condition to its performance under this
agreement.
4
<PAGE>
1.7 Technical Services
------------------
1.7.1 Manager shall provide to Owner or shall cause one of its affiliates
experienced in rendering technical services for hotels to provide,
from the principal place of business of Manager or such affiliate,
the Technical Services described in Appendix A to this agreement,
and Owner shall in consideration thereof pay Manager or such
affiliate the amount of United States dollars................ (US$
This amount shall be paid in four (4) equal installments, and the
first installments shall be due upon signing of this agreement with
the balance of the two (2) remaining equal installments to be paid
upon each of the first quarterly anniversary dates of this
Agreement.
1.7.2. In addition to the aforesaid fee, Owner shall, promptly following
receipt of properly documented invoices, reimburse Manager or
Manager's affiliate for the out-of-pocket expenses incurred by
Manager or its affiliate in rendering such Technical Services,
including, inter-alia, transportation, food and logging and other
travel expenses, courier services, reproductions of plans and
designs.
1.7.3 The fees for Technical Services and reimbursement for out-of-pocket
expenses incurred in rendering such services shall be payable in
United States dollars or in currency freely convertible into United
States dollars without reduction for income, withholding, value
added or any other taxes imposed by the Country, or bank charges or
any other charges, at Manager's or its affiliate's principal
office, or to such other place as Manager or its affiliate may,
from time to time, designate. In the event that the Country shall
impose any income, withholding or other tax upon such Technical
Services fees, or deem the reimbursement of such out-of-pocket
expenses to be income taxable to Manager or its affiliate, such
taxes shall be for the account of and shall be borne by Owner which
shall promptly pay any such taxes in order that Manager or its
affiliate shall receive full and timely payment of its fees and
reimbursements for out-of-pocket expenses. In the event that such
fees shall be subject to any value added tax on turnover imposed by
the Country, such fees shall be increased by the amount of such
value tax and Manager hereby authorizes Owner and Owner hereby
accepts to be Manager's accredited representative responsible for
Manager's conformance with the applicable regulations of the
Country, including the declaration and payment of such value added
tax.
5
<PAGE>
1.7.4 Manager or its affiliate shall not be required to render Technical
Services for a period in excess of thirty (30) months from the date
of commencement of the rendition thereof but, if at the end of such
thirty (30) months period:
(1) this agreement shall be in full force and effect;
(2) the formal reopening of the Hotel, as defined in
Section 1.10 of this Article, shall not have taken place;
and
(3) Manager or its affiliate shall elect to continue such
services, then, upon notice by Manager or its affiliate to
Owner of the intention to continue said services, the fee
for said services shall be increased by an amount to be
agreed upon by both parties, but Manager or its affiliates
shall at all times following such notice retain the right
to notify Owner at any time of its intention to terminate
such services.
1.7.5 In the event that this agreement shall be terminated at any
time for any reason, any amount then owing by Owner to
Operation or its affiliate for Technical Services shall be
due and payable upon such termination.
1.8 Title to the Hotel
------------------
1.8.1 Owner warrants that it has, and throughout the Operating Term as
hereinafter defined, will maintain full Ownership of the Hotel (or
if Owner's right and interest in the Hotel is derived through a
lease, concession or other agreement, Owner shall keep and maintain
said lease, concession or other agreement in full force and effect
throughout said term) free and clear of any liens, encumbrances,
covenants, charges burdens or claims, except -
6
<PAGE>
(1) such that do no -,materially and adversely affect
the operation of the Hotel by Manager and
(2) mortgages or other encumbrances that provide that
this agreement shall not be subject to forfeiture
or termination except only in accordance with the
provisions of this agreement, notwithstanding a
default under such mortgage or other encumbrance.
Owner further warrants that Manager, on distributing the profits to
Owner in accordance with this agreement and fulfilling its other
obligations thereunder, shall and may peaceably and quietly manage
and operate the Hotel during the entire Operating Term.
1.8.2 Owner shall pay and discharge any ground rents, or other rental
payments, concession charges and any other charges payable by Owner
in respect of the Hotel and, at its expense, undertake and
prosecute all appropriate actions, judicial or otherwise, required
to assure such quiet and peaceable management to Manager. Owner
shall further pay all real estate taxes and assessments that may
become a lien on the Hotel and that may be due and payable during
the Operating Term, unless payment thereof is in good faith being
contested by Owner and enforcement thereof is stayed. Owner shall
not later than twenty (20) days following written request by
Manager furnish to Manager copies of official tax bills and
assessments and tax receipts showing the payment of such taxes and
assessments.
1.9 Fund for Training, Re-Opening and Operating expenses
----------------------------------------------------
1.9.1 Owner shall make available an amount to be determined in accordance
with a budget to be prepared by Manager and submitted to Owner
within 12 months from the date of this agreement, to provide a fund
for the costs and expenses of:
(1) recruiting, relocating, training and compensating
Hotel employees (including temporary subsistence
for relocated employees until they have procured
permanent accommodations within or outside the
Hotel in accordance with Manager's personnel
policies);
7
<PAGE>
(2) organizing Hotel operations;
(3) re-opening advertising, promotion and literature;
(4) obtaining all necessary licenses and permits
(including the fees of attorneys and other
consultants incident thereto);
(5) interim office space outside the Hotel;
(6) telephone, facsimile, e-mail, internet and other
communications;
(7) travel and business entertainment (including re-
opening celebrations and ceremonies) and
(8) other reopening activities incurred prior to or
concurrently with the formal opening of the
Hotel.
Manager and its affiliates and other hotels operated by Manager and
its affiliates shall be reimbursed for all costs incurred by them
in connection with opening activities of the Hotel including
inter-alia,
(1) for a period of one year prior to the formal re-
opening of the Hotel, Group Services as defined
in Section 7.2 of Article VII;
(2) the salaries, transportation and subsistence
outside the Hotel of personnel of Manager, its
affiliates or other Manager hotels assigned
temporarily to the Hotel to assist in re-opening
activities; and
(3) such expenses, excluding salaries, of such
personnel making occasional visits to the Hotel
in connection with such re-opening activities,
which Manager may undertake upon receipt by
Manager of notice from Owner that construction of
the Hotel has commenced, which notice shall be
given in writing within fifteen (15) days
thereof.
8
<PAGE>
1.9.2 The re-opening budget shall be revised as necessary from time to
time prior to the formal opening of the Hotel. The amounts
allocated for various expenses classifications within said budget
may be increased or decreased by Manager provided that the total
amount disbursed, with the exception of the additional amounts
required, as provided below in this Section, as the result of
postponement of the formal opening of the Hotel, shall not exceed
the total of said budget without the prior approval of Owner.
1.9.3 For the purpose hereof, Manager shall utilize the currency of the
Country to the fullest extent possible and the balance of the funds
required hereunder shall be made available in United States dollars
or in currency freely convertible into United States dollars,
without reduction for income, withholding, value added or any other
taxes imposed by the Country, or bank charges or any other charges.
In the event that the Country shall impose any income, withholding,
value added or other tax upon the funds made available to Manager
for re-opening expenses, such taxes shall be for the account of and
shall be borne by Owner and shall be promptly paid by Owner in
order that such funds shall be available to Manager on a full and
timely basis to enable Manager to perform its obligation in
accordance with this Section.
1.9.4 If Manager shall not receive timely payment from Owner of
re-opening funds in accordance with the aforesaid budget, Manager
shall have the right, but not the obligation, to advance its own
funds for such purposes and to be reimbursed therefore, all in
accordance with the provisions of Article XI of this agreement.
1.9.5 In the event of the postponement of the formal opening of the Hotel
beyond the date scheduled upon the arrival of the general manager
assigned to the Hotel, at which time such scheduled date shall be
set forth in a memorandum to be signed by both parties, Owner shall
make additional monthly payments as required by Manager until the
formal re-opening of the Hotel. With the consent of Owner, Manager
may prior to said formal opening conduct partial operations of the
Hotel, the expenses and revenues of said partial operations to
increase or reduce the opening expenditures budgeted in accordance
with the provisions of this Section, and Manager shall be entitled
to receive monthly basic management and incentive fees, at the
rates provided for in Section 4.1 of Article IV and upon the terms
set forth in Section 4.2 of Article IV, based upon Revenue and
Gross Operating Profit, as defined in Article V, resulting from
such partial operations.
9
<PAGE>
1.9.6 Manager shall within one hundred and twenty (120) days after the
formal re-opening of the Hotel, account to Owner for all
expenditures made under this Section and pay over to Owner any
excess of the funds advanced by Owner over the total of such
expenditures.
1.10 Formal opening of the Hotel under the Dourest Brand
---------------------------------------------------
The formal opening of the Hotel shall occur on a date to be
specified by Manager upon notice reasonably in advance to
Owner, but in any event only after -
(1) Manager deems:
(i) the Hotel to be substantially completed and
(ii) the Furnishings and Equipment, Ancillary Hotel Equipment
and Operating Equipment to have been substantially
installed therein, all in accordance with the provisions
of Section 1.2 of this Article;
(2) the architect has issued his certificate of completion;
(3) all licenses and permits required for the operation of the Hotel
(including liquor and restaurant licenses and police, fire and
health department permits) have been obtained;
(4) adequate working capital has been furnished by Owner in
accordance with Section 7.1 of Article VII, and
(5) the Hotel has been accepted by Manager and is ready to render
first-class service to guests on a fully operational basis.
Notwithstanding the formal opening of the Hotel, Owner shall proceed
diligently thereafter to fulfill all of its obligations hereunder
regarding the construction, furnishing, equipping and decorating of the
Hotel to cure all defects or deficiencies as to which notice shall be
given by Operation, to Owner as soon as practicable after said formal
opening.
10
<PAGE>
EXHIBIT C
---------
STATEMENT OF PROFIT AND LOSS
Total of Available Rooms
Total Number of Occupied Rooms
Percentage of Occupancy
Percentage of Double Occupancy
Average Rate Per Occupied Room
Average Rate per Available Room
Revenue
Rooms
Food and Beverage
Telephone & Telegraph
Other Operated Departments
Other Income & Rental
--------------
TOTAL REVENUE --------------
Cost of Sales
Food and Beverage
Telephone & Telegraph
Other Operated Departments
--------------
TOTAL COST OF SALES --------------
Payroll & Related Expenses
Rooms
Food and Beverage
Telephone & Telegraph
Other Operated Departments
--------------
TOTAL PAYROLL & RELATED EXPENSES --------------
Provision for operating Equipment
Rooms
Food and Beverage
Telephone & Telegraph
Other Operated Departments
--------------
TOTAL PROVISION FOR OPERATING EQUIPMENT --------------
Other Expenses
Rooms
1
<PAGE>
Food and Beverage
Telephone & Telegraph
Other Operated Departments
--------------
TOTAL OTHER EXPENSES --------------
TOTAL DEPT COST & EXPENSES --------------
Department Income
Rooms
Food and Beverage
Telephone & Telegraph
Other Operated Departments
Other Income & Rental
--------------
TOTAL DEPARTMENT INCOME --------------
OVERHEAD DEPARTMENTS --------------
Payroll & Related Expenses
Administrative & General
Human Resources
Marketing
Guest Entertainment
Maintenance & Energy
--------------
TOTAL PAYROLL & RELATED EXPENSES --------------
Other Expenses
Administrative & General
Human Resources
Marketing
Guest Entertainment
Maintenance & Energy
--------------
TOTAL OTHER EXPENSES --------------
TOTAL OVERHEAD DEPARTMENT --------------
GROSS OPERATING PROFIT --------------
Less:
Basic Management Fee
Provision for FF&E
Incentive Fees
--------------
OWNERIS SHARE OF PROFIT --------------
2
Exhibit 10.14
MEMORANDUM OF UNDERSTANDING
This memorandum of understanding (the "MOU") shall confirm that Conserver
Corporation of America ("CCA") having an address of 2655 LeJeune Road, Suite,
535, Coral Gables, Florida 33134, as one party, and Arlene Streilitz, having an
address of 167 East 61st Street, Apt. 33-B, New York, New York, on her own
behalf or on behalf of an entity to be formed by her (collectively referred to
as "Streco"), as the other party, have entered into a preliminary agreement
concerning the formation of a joint venture for the procurement, use and
distribution of the CCA food preservation products (the "Products") in the State
of Israel. The terms of this MOU are set forth below:
1. Joint Venture. (a) Streco and CCA, jointly, shall form
either a Delaware Corporation or a Delaware Limited Liability Company ("Newco"),
as determined by the mutual agreement of the parties, which shall enter into an
exclusive contract with CCA for the rights to: (i) the exclusive use of all CCA
patents and trademarks issued in connection with the Products in the State of
Israel; and (ii) purchase from CCA the Products for the use and distribution by
Newco in the State of Israel.
(b) The membership interests or shares of stock, as the case may be, in
Newco shall be owned 50% by CCA and 50% by Streco. Profits of Newco shall be
distributed to the parties on a 50/50 basis. Newco shall have an initial Board
of Members/Directors comprised of five (5) Members/Directors, two (2) appointed
by CCA and Streco respectively and one (1) appointed by the mutual agreement of
the parties.
(c) Streco and CCA shall enter into a Shareholders/Operating Agreement
governing the internal operation, management and control of Newco. This
Shareholders/Operating Agreement shall include, among other things: (i) that
Streco shall have control of the business operations in the State of Israel
(including exports); (ii) that provided Streco operates the business in
accordance with the business judgment rule Newco shall be free from interference
of any kind by CCA in the Israeli operations; (iii) that CCA shall, however, be
entitled to exercise a unilateral veto right granted pursuant to an irrevocable
limited power of attorney over any activities of Newco which have or could have
a direct negative impact on the CCA name, business activities or reputation in
the World and (iv) that notwithstanding the grant of voting authority in
subsection (iii), above, the exercise of any rights by CCA to protect or
preserve the reputation of CCA, its patents, trademarks or the Products shall
require: (x) only a vote of 50% of the Newco membership interests/stock; and (y)
the affirmative action of two (2) members of the Board of Directors/Members (the
provision shall be added to the by-laws as well).
(d) CCA shall provide to Newco all technical expertise, developments and
support concerning the use and distribution of the Products. This expertise may
include "loaning" Newco certain necessary personnel to commence business
operations in Israel using the Products. CCA shall sell the Products to Newco
the lessor of: (i) at its cost of manufacture; or (ii) the price at which CCA
sells the product to any other party in the World.
<PAGE>
(e) Streco shall be responsible for all activities and costs involved in
commencing business operations in the State of Israel including but not limited
to hiring personnel, obtaining warehouse facilities, procuring any governmental
permits or authorizations and establishing distribution channels.
2. Exclusive. (a) Streco shall have the exclusive right
for the sale and use of the Products in the State of Israel set forth in this
MOU. Upon the formation of Newco, Streco shall assign all of its rights
hereunder to Newco. Neither CCA nor Streco, each on their respective behalf,
shall directly or indirectly solicit, undertake or enter into any negotiations
to commence business activities contemplated by this MOU except as between each
other. CCA shall take all affirmative actions necessary to ensure that no other
party with whom CCA contracts for the Products undertakes any activities which
violate the transaction contemplated by this Memorandum or the exclusive rights
granted to Newco.
(b) Newco shall be granted a right of first refusal for the: (i) the
exclusive use of all CCA patents and trademarks issued in connection with the
Products; and (ii) purchase from CCA the Products for the use and distribution
by Newco in: Jordan, Egypt, the United Arab Emirates, Morocco, Greece, and
Cyprus.
3. Information. (a) In connection with this MOU Streco
shall from time to time be provided with certain non-public information
concerning CCA. This information may include but not be limited to financial and
related business activities and prospects of CCA. In connection with this MOU
CCA shall from time to time be provided with certain confidential information
concerning Streco, its business activities in the State of Israel and the
activities of Streco under this MOU.
(b) Each party, on their respective behalf, agrees that they will hold
all information delivered or obtained pursuant to Section 3(a) strictly
confidential and in no event shall either use any such information for any
purpose other than in connection with this MOU or in any manner detrimental to
the party providing the information.
4. Term. Unless sooner terminated, for cause, by either
party, upon delivery of five (5) days advance written notice, this MOU shall
expire at 12:00 midnight (New York City time) on December 31, 1997.
5. Indemnification. Each of the parties, on their
respective behalf, agrees to indemnify and hold harmless the other party from
and against any loss, liability, claim or cause of action, including attorney's
fees and other costs of litigation incurred in connection with such claim, which
the other party may incur or be subject by reason of the breach or alleged
breach of the provisions of this MOU by this indemnifying party or by any of
such party's affiliates, associates, officers, employees or agents.
6. Time is of the Essence. Time is of the essence with
respect to performance and the undertakings contemplated by this MOU. Each party
further covenants and agrees to use good faith in the discharge of the
undertakings contemplated by this MOU.
2
<PAGE>
7. Independence. It is expressly agreed and acknowledged by
the parties that neither party is an agent or affiliate of the other and,
accordingly, neither party has any authority (actual or apparent) to bind the
other to any third party contracts or agreements.
8. Assignment. The parties acknowledge that the skills,
business relationships and Products to be supplied under the MOU are unique.
Accordingly neither party may assign any of its rights or obligations hereunder.
Notwithstanding the foregoing Streco may assign its rights hereunder to an
entity owned or controlled by Arlene Streilitz.
9. Survival. The provisions of Paragraphs 3, 5 and 7 shall survive the
expiration or termination of this MOU.
It is expressly agreed that the foregoing MOU articulates the general terms
outlining the parties proposed business venture and that any final arrangement
will require negotiation, drafting and execution of documents prepared in
accordance with this MOU. Further, the parties acknowledge that these documents
will include but not be limited to articles of incorporation, by-laws,
shareholders agreement and an exclusive distribution agreement each of which
must be prepared and agreed to by the parties in the exercise of their
respective discretion.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
If the foregoing correctly restates the terms and conditions discussed and
agreed to on Wednesday August 20, 1997 please countersign in the space provided
below.
ATTEST CONSERVER CORPORATION OF AMERICA
/s/ Charles Stein
- ------------------------------- ----------------------------------
By: ___________________________ By: Charles Stein
Its: Secretary Its: Chairman
Date __________________________
WITNESS
/s/ /s/ Arlene Streilitz
- ------------------------------- ----------------------------------[SEAL]
ARLENE STREILITZ
Date 9/4/97
--------------------------
Exhibit 10.15
Heads of agreement
Casino project, Paramaribo, Suriname.
The Parties to the agreement ("the Parties"):
Conserver Corporation of America--A company listed on the NASDAQ exchange, or
its nominee, ("Conserver"), and
Parbhoe's Handelmij N.V.--A Surinamese privately owned Limited Liability Company
based in la Paramaribo, ("Parbhoe")
It is agreed, subject to final board approval, that:
Whereas Parbhoe own and operate the Plaza building in Paramaribo, and are in
possession of a valid casino license for that building signed by the President
of Suriname, and
Whereas, Conserver has the wherewithal to fund the construction of an
international standard casino in the Plaza building, and possesses the ability
to operate the casino to international standards, the Parties agree that:
1. A 50/50 joint venture (JV) between the Parties will be established in a tax
efficient way, which reflects due attention to accounting situations.
2. The 15-year casino license will be transferred to the JV.
3. Parbhoe will grant to the JV a lease of the ground and first floors of the
Plaza building, at a rent of US$200,000 per annum. The lease to run
concurrently with the licensing period and to escalate at the normal local
index. The lease to be renewed on the same terms during subsequent casino
license extension periods.
4. Parbhoe will undertake to fund the cost of installation of the air-handling
equipment within the leased space.
5. Conserver undertakes to fund and supervise the fit-out of the casino space,
currently estimated at US$2.8 million.
6. Conserver to provide all equipment necessary to operate the casino,
including, but not restricted to, gaming, security and computing equipment.
Cost for data equipment to be estimated as follows:
Slot machines (180 @ $10,000 each) US$1,800,000
20 Gaming tables & equipment 400,000
Security equipment 400,000
Total: US$2,600,000
7. The JV to contract with Conserver to operate the casino at a management fee
of 3% of Gross Operating Revenue plus an incentive fee of 10% of Gross
Operating Profit. The management contract to run for 15 years and to be
renewed, on the same terms, for a period equal to any extension periods
granted for the current casino license.
8. Conserver to fund the costs of all pre-opening expenses, currently
estimated at US$250,000.
9. Conserver to provide the initial casino float, currently estimated at
US$250,000.
10. It is further agreed between the Parties that all available operating
cashflow generated by the casino will be set against the initial capital
cost of the project. No distributions will be made to shareholders, prior
to the repayment of the initial investment by Conserver.
<PAGE>
The Parties agree to negotiate exclusively together for a period of 90 days from
the date of this agreement. Both Parties will endeavor to complete all necessary
documentation within this period.
Signed on behalf of Conserver Corporation /s/
of America: -------------------------------
Position: -------------------------------
2nd October, 1997
Dated: -------------------------------
/s/
Signed on behalf of Parhoe's Handelmij N.V. -------------------------------
Position: -------------------------------
3rd October, 1997
Dated: -------------------------------
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<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,715,460
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,000
<CURRENT-ASSETS> 7,929,208
<PP&E> 24,150
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<BONDS> 0
0
0
<COMMON> 6,386
<OTHER-SE> 6,723,534
<TOTAL-LIABILITY-AND-EQUITY> 7,951,194
<SALES> 0
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<TOTAL-COSTS> 8,205,901
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 356,166
<INCOME-PRETAX> (8,562,067)
<INCOME-TAX> 0
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