SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14A-11(c) or Rule 14a-12
CONSERVER CORPORATION OF AMERICA
..............................................................................
(Name of Registrant as Specified In Its Charter)
..............................................................................
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
..................................................................
2) Aggregate number of securities to which transaction applies:
.................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.
(set forth the amount on which the filing fee is calculated and
state how it was determined):
...................................................................
4) Proposed maximum aggregate value of transaction:
.................................................................
5) Total fee paid:
.................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
..................................................................
2) Form, Schedule or Registration Statement no.:
..................................................................
3) Filing Party:
..................................................................
4) Date Filed:
..................................................................
<PAGE>
CONSERVER CORPORATION OF AMERICA
November 21, 1997
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
of Conserver Corporation of America on December 2, 1997 at 11:00 a.m. local
time, at the Grand Bay Hotel, 2669 South Bayshore Drive, Coconut Grove, Florida
33133.
At this meeting, you will be asked to consider a proposal permitting
the Company to enter a new line of business in the hotel and casino industry and
related new business opportunities, including the issuance of up to 5,500,000
shares of common stock of the Company and options to purchase 600,000 shares of
Common Stock in connection with the new business opportunities. The proposal is
described in the attached proxy statement, which I invite you to review
carefully. In addition, you will also be requested to approve amendments to the
Company's Certificate of Incorporation to change the name of the Company to "CCA
Companies Incorporated", to authorize an increase in the Company's authorized
common stock and preferred stock and to approve an amendment to the Company's
1996 Stock Option Plan.
THE AFOREMENTIONED PROPOSALS HAVE BEEN CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY AS BEING IN THE
BEST INTEREST OF THE STOCKHOLDERS AND THE COMPANY.
It is very important that your shares are represented and voted at the
meeting, whether or not you plan to attend. Accordingly, please sign, date and
return your proxy in the enclosed envelope at your earliest convenience.
Your interest and participation in the affairs of the Company are
greatly appreciated. Thank you for your continued support.
Sincerely,
Charles H. Stein
Chairman of the Board
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION........................................................ 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................ 3
COMPANY BACKGROUND AND COMPANY'S PRINCIPAL LINE OF
BUSINESS.......................................................... 7
MATTERS SUBMITTED TO STOCKHOLDERS.......................................... 10
PROPOSAL ONE............................................................... 10
INTRODUCTION TO THE NEW BUSINESS OPPORTUNITIES............................. 11
THE NEW BUSINESS OPPORTUNITIES............................................. 12
HOTEL MANAGEMENT SERVICES.................................................. 18
OTHER RELATED PROJECTS..................................................... 20
FINANCING THE NEW BUSINESS OPPORTUNITIES; THE ISSUANCE OF
5,500,000 SHARES OF COMMON STOCK.................................. 19
CONSIDERATION AND RECOMMENDATION OF THE BOARD OF
DIRECTORS......................................................... 22
RISK FACTORS............................................................... 25
RECOMMENDATIONS BY THE BOARD OF DIRECTORS.................................. 31
RECOMMENDATION OF THE BOARD................................................ 31
PROPOSAL TWO............................................................... 33
PROPOSAL THREE............................................................. 35
PROPOSAL FOUR.............................................................. 38
UNDERTAKINGS OF THE COMPANY................................................ 41
ADDITIONAL INFORMATION..................................................... 41
EXHIBIT INDEX.............................................................. 42
PROXY SOLICITED BY THE BOARD OF DIRECTORS.................................. 43
EXHIBIT A-1................................................................ 45
<PAGE>
CONSERVER CORPORATION OF AMERICA
3250 Mary Street
Suite 405
Coconut Grove, Florida 33133
NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 2, 1997
To the Holders of the Common Stock of CONSERVER CORPORATION OF AMERICA:
PLEASE TAKE NOTICE that a Special Meeting of Stockholders of Conserver
Corporation of America (the "Company") will be held at 11:00 a.m. (local time),
on December 2, 1997, at the Grand Bay Hotel, 2669 South Bayshore Drive, Coconut
Grove, Florida 33133 for the following purposes:
1. To approve a proposal permitting the Company to enter into a
new line of business in the hotel and casino industry,
including certain new business opportunities and to authorize
the issuance of up to 5,500,000 shares of the Company's common
stock $.001 par value (the "Common Stock") and options to purchase
600,000 shares of Common Stock in connection with the proposal;
2. To approve an amendment to the Company's Certificate of
Incorporation to change the Company's name from "Conserver
Corporation of America" to "CCA Companies Incorporated";
3. To approve an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of
Common Stock of the Company from thirty million shares to fifty
million shares and preferred stock, par value $.01, of the Company
from five thousand to five million shares;
4. To approve and adopt an amendment to the Company's 1996 Stock
Option Plan to increase the number of authorized shares of Common
Stock to be issued thereunder from 1.3 million shares to five
million shares; and
5. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of the Common Stock at the close of business on November
10, 1997 will be entitled to notice of and to vote at this meeting and any
adjournment or postponement thereof.
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE VOTES CAST BY THE HOLDERS OF
SHARES OF COMMON STOCK ENTITLED TO VOTE THEREON IS REQUIRED TO APPROVE THE
PROPOSALS NUMBERED 1 THROUGH 4.
You are cordially invited to attend the meeting.
By Order of the Board of Directors,
November 21, 1997 Gerald M. Breslauer,
Secretary
<PAGE>
CONSERVER CORPORATION OF AMERICA
3250 Mary Street, Suite 405
Coconut Grove, Florida 33133
(305) 444-3888
--------------------
Proxy Statement
for
Special Meeting of Stockholders
December 2, 1997
This Proxy Statement and the accompanying form of proxy are furnished in
connection with the solicitation of proxies by the Board of Directors of
Conserver Corporation of America, a Delaware corporation (the "Company" or
"Conserver") to be voted at a Special Meeting of Stockholders which will be held
at 11:00 a.m. (local time), on December 2, 1997 at the Grand Bay Hotel, 2669
South Bayshore Drive, Coconut Grove, Florida 33133, and at any postponements or
adjournments thereof (the "Meeting").
At the Meeting, the Company's stockholders will be requested to: (i)
approve a proposal permitting the Company to enter into a new line of business
in the hotel and casino industry, including certain new business opportunities,
as described in this Proxy Statement and to authorize the issuance of up to
5,500,000 shares of the Company's common stock $.001 par value (the "Common
Stock") and options to purchase 600,000 shares of Common Stock in connection
with the proposal; (ii) approve an amendment to the Company's Certificate of
Incorporation to change the Company's name from "Conserver Corporation of
America" to "CCA Companies Incorporated"; (iii) approve an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of the Company's Common Stock and preferred stock, $.01 par
value (the "Preferred Stock"); (iv) approve an amendment to the Company's 1996
Stock Option Plan; and (v) take such other action as may properly come before
the Meeting or any adjournments thereof.
<PAGE>
GENERAL INFORMATION
Solicitation and Voting of Proxies; Revocation; Record Date
Shares represented by each properly executed and returned proxy card
will be voted (unless earlier revoked) in accordance with the instructions
indicated. If no instructions are indicated on the proxy card, all shares
represented by valid proxies received pursuant to this solicitation (and not
revoked before they are voted) will be voted "FOR" the Company entering into a
new line of business, including certain new business opportunities and the
issuance of 5,500,000 shares of Common Stock, "FOR" the change in the Company's
name from "Conserver Corporation of America" to "CCA Companies Incorporated",
"FOR" the increase in the Company's number of authorized shares of Common Stock
and Preferred Stock and "FOR" the approval of the amendment to the Company's
1996 Stock Option Plan.
This Proxy Statement and the accompanying form of proxy, together with
the Company's Annual Report on Form 10-K for the year ended June 30, 1997 (the
"1996-1997 Annual Report") and the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 (the "First Quarter Report") are being mailed to
stockholders on or about November 24, 1997.
A stockholder may revoke a proxy at any time before it is exercised by
filing with the Secretary of the Company a written revocation or a duly executed
proxy bearing a later date or by voting in person at the meeting. Any written
notice revoking the proxy should be sent to the attention of Gerald M.
Breslauer, Secretary, Conserver Corporation of America, 3250 Mary Street, Suite
405, Coconut Grove, Florida 33133, telephone number (305) 444-3888 and facsimile
number (305) 444-7550.
Proxies may be solicited by mail, and may also be made by personal
interview, telephone and facsimile transmission, and by directors, officers and
employees of the Company (without special compensation). The expenses for the
preparation of proxy materials and the solicitation of proxies for the Meeting
will be paid by the Company. The Company has retained D.F. King & Co., Inc. to
assist in the solicitation for a fee estimated to be $4,500, plus reasonable
expenses. The Company will reimburse, upon request, banks, brokers and other
institutions, nominees and fiduciaries for their expenses incurred in sending
proxies and proxy materials to the beneficial owners of the Company's Common
Stock.
Only holders of record of the Company's Common Stock, at the close of
business on November 10, 1997 (the "Record Date") are entitled to notice of and
to vote at the Meeting. As of the Record Date, there were outstanding 6,793,404
shares of Common Stock. Each share is entitled to one vote. In order to conduct
business at the Meeting, a quorum must be present, that is a majority of the
total number of shares of Common Stock outstanding as of the Record Date must be
represented, either in person or by proxy.
2
<PAGE>
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.
- -------------------------------------------------------------------------------
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)
P.O. Box 675
St. Helier, Jersey Channel Islands 500,000 7.4%
- -------------------------------------------------------------------------------
The SES Family Investment Partnership, L.P.(4)
2859 Queens Courtyard Drive
Las Vegas, Nevada 89109 500,000 6.9%
- -------------------------------------------------------------------------------
- ----------------
(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
3
<PAGE>
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, (ii) the ownership of Common Stock by
each executive officer of the Company, 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.
- -------------------------------------------------------------------------------
Number of Shares Percentage of
Beneficially Total Voting
Name Owned Shares
- -------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------
4
<PAGE>
Michael Jay Scharf - Director(8) 200,000 2.9%
- -------------------------------------------------------------------------------
All executive officers and directors as a
group (10 persons) 2,858,799 36.9%
- -------------------------------------------------------------------------------
- -----------------------
* 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.
(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.
5
<PAGE>
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.
6
<PAGE>
COMPANY BACKGROUND AND COMPANY'S PRINCIPAL LINE OF BUSINESS
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's principal line of business is to promote, import,
distribute, market, sell and otherwise commercially exploit Conserver 21TM, a
non-toxic product which can be used to retard spoilage and decay in food and
flowers, principally in the United States and Canada.
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 21TM and negotiating distribution and other arrangements.
Since the first quarter of fiscal 1998, the management of the Company has also
been engaged in exploring new business opportunities for the Company.
From March 1996 through November 1996, the Company raised capital
necessary for its business development through debt and equity private
placements. In June and July 1997, the Company raised additional capital through
an initial public offering for aggregate net proceeds to the Company of
$10,448,000 of which $3,891,000 had been utilized for working capital purposes
as at September 30, 1997. The Company has incurred losses since the date of its
incorporation.
In August 1997, the Company announced that it was considered
diversifying beyond its sole line of business of marketing, distributing and
otherwise commercially exploiting Conserver 21TM (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").
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.
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.
7
<PAGE>
Initial marketing efforts of the Conserver 21(TM) packets in the United
States have indicated that the Company needs to renegotiate the terms of its
Distribution Agreement (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 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.
8
<PAGE>
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. The Company has advanced Agrotech $1,000,000 (the "Agrotech
Loan") under the terms of the Distribution Agreement.
Due to the current uncertainty as to the outcome of the renegotiation
of the Distribution Agreement with Agrotech and recent limitations with
Agrotech's current packaging of the Conserver 21(TM) product, management of the
Company believes that exceeding the Initial Volume Commitment necessary to
offset the Company's purchases from Agrotech against the Agrotech Loan is
remote. Accordingly, the Company has established a reserve equal to the Agrotech
Loan. Under the terms of the Distribution Agreement, the Company may be
obligated to extend an additional loan of $500,000 to Agrotech. Due to the
current renegotiations, the Company cannot determine at the present time whether
any additional loans, under the terms of the Distribution Agreement, will be
made or whether any offsets under the Distribution Agreement will be available.
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.
9
<PAGE>
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 arrangements 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.
MATTERS SUBMITTED TO STOCKHOLDERS
PROPOSAL ONE
THE PROPOSAL RELATING TO THE COMPANY ENTERING INTO THE NEW LINE
OF BUSINESS INCLUDING THE NEW BUSINESS OPPORTUNITIES AND THE
ISSUANCE OF UP TO 5,500,000 SHARES OF COMMON STOCK
(Item 1 on Proxy Card)
10
<PAGE>
INTRODUCTION TO THE NEW BUSINESS OPPORTUNITIES
In early July, 1997 Mr. Brian Bryce, a director of the Company and a
former Vice Chairman of Hyatt International Corporation, was personally
approached by representatives of Sakhalin General Trading and Investments
Limited ("SGTI") and was presented with an opportunity to participate in a
project in the hotel and casino business. Mr. Bryce then discussed this
opportunity with Mr. James Stanton and Mr. Jay Haft, both directors of the
Company. They each agreed that, as directors of the Company, this opportunity
should first be offered to the Company and met with Mr. Charles H. Stein, the
President of the Company and began to discuss and consider the development of
diversified lines of business in order to better position the Company's long
term growth potential. On or about July 25, 1997, Messrs. Bryce, Haft and
Stanton presented to Mr. Stein a proposal regarding a hotel and casino project
on Sakhalin Island, the Russian Federation, which is located 20 minutes by air
from Saporro (the "Sakhalin Project").
In late July, 1997 Messrs. Bryce, Stanton and Stein met with
representatives of SGTI, the enterprise which secured certain rights to such
opportunity and explored further aspects of the hotel/casino project. After
these meetings, Messrs. Stanton, Haft, Bryce and Stein unanimously concluded
that the Sakhalin Project offered opportunities and that the project may be of
interest to the Company and should be further pursued. The remaining members of
the Board of Directors were then immediately contacted to discuss entering into
this new line of business. The Board thereupon began analyzing the feasibility
and advisability of entering into the Sakhalin Project, as part of establishing
a new line of business in the hotel and casino industry in addition to
continuing to develop the Company's principal line of business involving the
Conserver 21(TM)product. During this process, the Company's Board considered a
variety of factors, including but not limited to: the potential long term
benefits to the Company; the potential increased return to the stockholders of
the Company; the potential risks and costs involved in establishing this new
line of business, including the effects upon the principal business of the
Company and the absence of a management team experienced in the hotel and casino
business; the potential business risks associated with operations outside the
United States in developing countries; the potential volatility in the price of
the Company's Common Stock given the possible diversification into a new line of
business different than its principal line of business; the risk factors
inherent in conducting operations in developing countries and entering into the
hotel and casino industry, as well as various other business, legal, accounting
and tax issues relating to the creation, implementation and operation of a new
line of business. The Board of Directors concluded that the potential benefits
of this new line of business outweighed the potential risks and that it was in
the best interest of the Company and the Company's stockholders to enter into
the New Line of Business and to pursue certain specific projects as more fully
described herein, subject to stockholder approval. In early August, each of the
Board members unanimously approved the proposal relating to the Company entering
into this new line of business and to pursue the Sakhalin Project and shortly
thereafter, the Company took the necessary steps to more fully explore the
Sakhalin Project as more fully described herein. On August 12, 1997, the Company
thereafter entered into an agreement with SGTI to secure certain rights with
respect to the Sakhalin Project.
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THE NEW BUSINESS OPPORTUNITIES
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, including the Surinam Project, as hereinafter
defined (collectively, the "New Business Opportunities"). The foregoing
agreements (other than the agreement relating to the Surinam Project), if
approved by the Company's stockholders, would obligate the Company to pay $6.75
million and provide for the issuance by the Company, under certain circumstances
and subject to the completion of certain terms and obligations thereunder, of up
to 5,500,000 million shares of Common Stock and options to purchase 600,000
shares of Common Stock. In connection with the Company seeking New Business
Opportunities, the Company entered into an agreement in principle, as of October
3, 1997, with Parbhoe Handelmij NV, a Surinamese limited liability company, to
create a joint venture company to develop a casino project (the "Surinam
Project") in Paramaribo, the capital city of Surinam (the former Dutch Guyana).
Pursuant to the agreement, the joint venture company will also enter into an
operating agreement with the Company to manage the casino. If the Surinam
Project is developed as contemplated, the Company, subject to stockholder
approval, is expected to provide the joint venture company with approximately
$3,000,000 in initial capital.
In addition to the direct issuance of shares of the Company's Common
Stock in connection with the proposed transactions, the Company anticipates
funding the cash portion of the initial capital required for the proposed New
Line of Business and New Business Opportunities with the proceeds from the 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.
Sakhalin Project
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").
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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, (ii) $1,000,000 payable by
October 15, 1997, (iii) $1,500,000 payable by October 31, 1997 and (iv) an
aggregate of 1,538,462 shares of the Company's Common Stock (valued for the
purpose of the Sakhalin Agreement at an aggregate of $10,000,000 or $6.50 per
share) (collectively, the "Purchase Price"). The Company's Common Stock was
trading at $6.125 per share on the date of execution of the Sakhalin Agreement.
In connection with the $1,000,000 payment due October 15, 1997 and the
$1,500,000 payment due October 31, 1997, the Company delivered an additional
$250,000 due under the Sakhalin Agreement on October 16, 1997. As of the date
hereof, the Company, has paid to SGTI $750,000 with respect to its obligations
under the Sakhalin Agreement. As to the $2,225,000 balance due by the Company
under the Sakhalin Agreement, the Company, SGTI and Messrs. William Stephan
Cairns and John Byrne Horgan, as directors of SGTI, agreed pursuant to the terms
of a Stock Purchase Agreement, dated as of October 24, 1997, that
the Company would pay the $2,500,000 balance of the Purchase Price due under the
Sakhalin Agreement, on or about October 31, 1997, or as soon as practicable
thereafter.
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 (including the failure of the stockholders of the Company to approve the
New Line of Business) 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
Sakhalin Project or $5,000,000, whichever is less.
In connection with the execution of the Sakhalin Agreement and with the
Company's approval, SGTI acquired an additional 15% of the share capital of SCC
from certain shareholders resulting in SGTI owning 65% of the share capital of
SCC. As a result of the acquisition of the additional 15% of the share capital
of SCC, the Purchase Price payable by the Company for the shares of SGTI under
the Sakhalin Agreement will increase by 461,538 shares of the Company's Common
Stock. With respect to the Sakhalin Agreement the 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 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.
As noted above, the Company, SGTI, and William Stephen Cairns and John
Byrne Horgan, as directors of SGTI, have agreed pursuant to a Stock Purchase
Agreement dated as of October 24, 1997 (the "Stock Purchase Agreement"), to pay
to SGTI the remaining $2,500,000 of the Purchase Price under the Sakhalin
Agreement, on or about October 31, 1997, or as soon as practicable thereafter,
and, subject to approval of a majority of the Company's stockholders, to
transfer all of the capital stock of SGTI and SGTI's rights in the Sakhalin
Project to the Company and to issue 2,000,000 shares of Common Stock of the
Company to certain stockholders of SGTI and certain entities having an interest
in SGTI. Pursuant to the terms of the Stock Purchase Agreement, the Company's
obligation to purchase all of the shares of SGTI is subject to certain
conditions including, obtaining the requisite approval of the Company's
stockholders, customary representations and warranties with respect to SGTI and
SCC being true and correct on the date of the purchase of the shares of SGTI,
the valid assignment to the Company of all of Sovereign's rights under each of
the Project Mangement Agreement and Operational Management Agreement (as
hereinafter defined), and the receipt of all required consents and approvals.
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Terms of Sakhalin Project
On June 3, 1996, SCC entered into a lease agreement (the "Lease") with
the city of Yuzhno-Sakhalinsk (the "City") pursuant to which SCC acquired the
rights to lease for the Sakhalin Project, land comprising of approximately
39,418 square meters in the center of the City (the "Site") for an effective
three year term, with an automatic right to have a further lease for another
term of 49 years at a rental rate equal to zero, with an additional automatic
right for another 49 year term, or such longer period as may at that time be
permitted under the laws of the Russian Federation. Pursuant to the terms of the
Lease, SCC was granted free right of way for access to and egress from the Site
over all roads and ways over land owned by the City and right to free use of
pipes, wires, cables, conduits, watercourses, drains, sewers and any other
apparatus or means of passing or conducting sewage, water, gas, electricity,
telecommunications and data processing. SCC was further granted a right to enter
onto any adjoining lands of the City to install, construct and erect any
requisite infrastructure including roads, pipes and sewers. The Lease further
provides that SCC shall have the right to acquire the freehold of the Site at
any time during the term of the Lease, if permitted under the then applicable
laws of the Russian Federation. SCC is obligated to pay all applicable rates,
taxes, duties, charges and assessments and pay all charges for the supply to and
consumption at the Site of water, gas, electric and all charges for
telecommunications. The Lease also has a termination provision which states that
if the Lease is terminated prior to expiration, such termination shall not take
effect until the City has paid to SCC a sum equivalent to the then value of
SCC's investment arising through its obligations under the Lease (including the
value of all structures, buildings and immovable objects erected or placed in,
on or under the Site) and all economic loss suffered or anticipated by SCC
arising out of the termination, including the loss of opportunity and
anticipated profits for the remainder of the Lease term.
On March 12, 1996, the City of Yuzhno-Sakhalinsk provided SCC with a
written guarantee that a long-term gaming license would be granted for a
three-year period, subject to extension periods coterminous with the lease
agreement between SCC and the City. On March 19, 1997, the Mayor of the City
confirmed the guarantee and approval of the granting of the long-term gaming
license for three years, plus 49 years plus a further 49 years. In addition, the
City has agreed (i) not to permit any third person to operate a casino within
the City's jurisdiction, except those existing in December 1994, (ii) not to
permit the three existing casinos to expand and extend the range of their
operations without the written approval of SCC, and (iii) to close down any
casino that expands or extends its operations without SCC's approval.
On March 25, 1996, a decree from the Mayor of the City provided for
certain tax relief to enterprises in the gambling business, provided that such
enterprises invest at least US$75 million in fixed assets. This decree was
further confirmed on September 25, 1997 by the First City Duma of
Yuzhno-Sakhalinsk. Without the tax relief, gaming enterprises are subject to a
gaming tax equal to 90% of revenues from gaming operations. Notwithstanding that
the Sakhalin Project may qualify for an exemption from the gaming tax, it will
still be subject to corporate income taxes (currently equal to 32% of net income
as defined under Russian tax law), social security taxes (currently equal to 38%
of gross wages paid) and value added taxes (VAT, currently levied at the rate of
20% of the selling price of goods or services), and other minor taxes.
On August 30, 1996, the Governor of the Sakhalin Oblast granted to SCC
the approval and authorization for the erection by SCC of a tourist terminal at
the Sakhalin Airport for its sole use. A further authorization for the tourist
terminal was confirmed by the Mayor of the City.
On August 30, 1996, the Governor of the Sakhalin Oblast confirmed the
full government support of SCC's application proposal for the issuance of
short-term visas for visitors and tourists to the Sakhalin Project. A further
confirmation for the full support of SCC's application proposal for the issuance
of short-term visas was confirmed by the Mayor of the City.
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The hotel/casino would be permitted to accept US dollars with no
foreign exchange controls imposed with respect to foreign currency. A ski
facility, located 1,000 feet from the Site, which was previously used by the
Russian Olympic Ski Team, may be made available for future private development.
Clearance of the Sakhalin Project site commenced in October 1997, and it is
anticipated that construction of the Sakhalin Project will commence in March
1998,S with the complex scheduled to open in late 1998.
On December 18, 1994, SCC and Sovereign entered into an agreement (the
"Project Management Agreement") pursuant to which Sovereign is to act as project
manager to manage and coordinate the development and construction of the
Sakhalin Project. Pursuant to the agreement, SCC shall pay to Sovereign a fee
equal to 5% of the estimated costs of the development and construction of the
Sakhalin Project as compensation for general office and overhead (the "Overhead
Fee"). In addition, Sovereign shall receive 5% of the sum of the aggregate costs
of the development and construction of the Sakhalin Project and the amount of
compensation for overhead (the "Management Supervisory Fee"). The Management
supervisory fee shall be payable monthly commencing on the commencing on the day
on which the timetable for constructing the Sakhalin Project commences. In the
event the Agreement is terminated for any reason, SCC shall be required to pay
to Sovereign the Overhead Fee. In addition, upon termination of the Agreement,
SCC shall be obligated to pay Sovereign an amount equal to one-half of the
unpaid balance of the Management Supervising Fee. The parties further agreed
that Sovereign will be paid on similar terms for any project management services
provided for SCC with respect to future development projects relating to the
Sakhalin Project. Subject to the approval of the Company's stockholders of the
proposal for the Company entering the New Line of Business, Sovereign has
agreed, under the Sakhalin Agreement, to assign all of its rights and interests
under the Project Management Agreement to the Company.
On December 18, 1994, SCC and Sovereign entered into an agreement (the
"Operation Management Agreement") pursuant to which Sovereign is to act as the
operator and manager of the Sakhalin Project for a period of 15 years from the
date of the opening of the Sakhalin Project, with a further 15 year extension in
the sole discretion of Sovereign upon the same terms and conditions described
herein. In accordance with the terms of the Operation Management Agreement,
Sovereign shall be entitled to a fee equal to $250,000 in connection with
providing
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technical assistance services during the period prior to the opening of the
Sakhalin Project. In addition, Sovereign shall be entitled to annual management
fees equal to 2% of Gross Revenues (the "Minimum Management Fee") plus 5% of
Gross Income (less the Minimum Management Fee and other fixed costs). Subject to
the approval of the Company's stockholders of the proposal for the Company
entering the New Line of Business, Sovereign has agreed, under the Sakhalin
Agreement, to assign all of its rights and interests under the Operation
Management Agreement to the Company.
Development Services Agreement
On October 2, 1997, the Company entered into an agreement (the
"Development Services Agreement") with Dato David Chiu ("Chiu"), pursuant to
which the Company, subject to approval by its stockholders and subject to the
Company acquiring all of the shares of SGTI (which would result in the Company
owning 65% of the share capital of SCC), would, as described below transfer, to
Chiu 38.46% of the share capital of SGTI and would issue to Chiu one share of
convertible junior preferred stock (the "Convertible Preferred Stock Share")
which would convert, under specified conditions and certain circumstances, into
1,500,000 shares of Common Stock of the Company. The Development Services
Agreement provides that Chiu will provide certain development services to the
Company in connection with the Sakhalin Project, including using his best
efforts to procure or secure the necessary debt financing and guarantees (on
behalf of the Company and its subsidiaries and affiliates) for the complete
turnkey construction of the Sakhalin Project which financing is to be on
mutually acceptable terms. Construction of the Sakhalin Project is currently
estimated at US$100 million. The shares of Common Stock underlying the
Convertible Preferred Stock Share and the shares of SGTI to be issued to Chiu in
consideration for his services will be issued on the date of mutual execution by
the Company or its nominated affiliate of a legally enforceable and binding
agreement from a lender, the terms of which are acceptable to the Company, SGTI
and SCC, to provide the financing. In the event Chiu is unable to procure or
secure the necessary financing and guarantees acceptable to the Company in
accordance with the Development Services Agreement, the Convertible Preferred
Stock Share issued to Mr. Chiu would not convert into 1,500,000 shares of Common
Stock of the Company. If the financing is not realized as contemplated pursuant
to the Development Services Agreement, the Company and the other investors in
the Sakhalin Project would be required to obtain additional financing on behalf
of SCC from a variety of sources, including borrowings under bank credit
facilities, sales of securities and placement of term debt, to construct the
hotel and casino. There can be no assurance that such additional financing would
be available on terms satisfactory to the Company.
Chiu has also agreed that he shall not for a period of three years from
the date of issuance or transfer, as applicable, of the Convertible Preferred
Stock Share (and the underlying Common Stock) received under the Development
Services Agreement, voluntarily or involuntarily, directly or indirectly, sell,
contract to sell, grant a right to purchase, exchange, mortgage, pledge,
hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any
other way whatsoever dispose of (hereinafter collectively called "transfer") any
of such shares, including
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any options and warrants with respect to such shares, received by way
of dividend or upon an increase, reduction, substitution or reclassification or
combination of stock of the Company or upon any reorganization of the Company,
as applicable.
Notwithstanding any of the foregoing, Chiu may transfer such shares to
any affiliate, subject to the Company's consent, which consent shall not be
unreasonably withheld. Chiu also agreed, until three years from the issuance
date of the shares to give the Company an irrevocable proxy, with full power of
substitution, to vote on all matters as the Company deems appropriate, with
respect to the shares at all meetings of the stockholders of the Company and by
means of any written consent of stockholders with respect to all matters. The
Company has designated Charles H. Stein, the Chairman, President and Chief
Executive Officer of the Company as the authorized person to exercise the
aforementioned voting rights on behalf of the Company, until such time as the
Mr. Stein is incapacitated to act.
Furthermore, the Development Services Agreement provides that, in the
event that Chiu wishes to sell all or any part of the shares after the three
year period described above, the Company shall have the first option to purchase
all or any part of the shares from Chiu. Chiu agreed to give the Company written
notice thereof of its intent to sell any or all of the shares. The Company has a
right to purchase said shares at a price equal to the (i) closing price per
share as reported on the Nasdaq (as reported in The Wall Street Journal) on the
date written notice is given to the Company or (ii) the price offered to Chiu by
an unaffiliated third party (not a competitor of the Company) in an irrevocable
and unconditional bona fide written offer (the "Bona Fide Offer"), as
applicable. The Company has the right to purchase all or a portion of the shares
by giving Chiu written notice no later than 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.
In addition, there can be no assurance that the Company will not be
required to issue additional securities of the Company in connection with the
financing of the construction of the Sahkalin Project.
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).
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Proposed Pledge Agreement
Brian J. Bryce, Jay M. Haft and James V. Stanton, directors of the
Company and Jasmine Trustees Ltd., a trust for the benefit of Mr. Bryce and his
children, have agreed to enter into a pledge agreement (the "Proposed Pledge
Agreement") with the Company in connection with the transactions contemplated by
the Sakhalin Agreement. This matter was approved by the Board of Directors at
its meeting held on September 10, 1997. In November 1997, it was agreed that the
Proposed Pledge Agreement will provide that in the event the proposal relating
to the New Line of Business is not approved by the stockholders of the Company
at the Meeting, Messrs. Bryce, Haft and Stanton would collectively reimburse the
Company for up to $750,000 in costs and expenses incurred by the Company
relating to the Sakhalin Project. As presently contemplated, these obligations
would be secured by an aggregate of 150,000 shares of Common Stock of the
Company owned, either directly or beneficially, by such directors.
Sakhalin Casino Consulting Agreement
Effective as of August 14, 1997, the Company entered into an agreement
(the "Casino Consulting Agreement"), subject to the receipt of the requisite
approval from the Company's stockholders (the date of such approval being the
"Commencement Date"), with Star Casinos Limited, a limited liability company
organized under the laws of Cyprus (the "Consultant"), whereby the Consultant
has agreed to provide consulting and technical services to the Company and any
affiliated entities for a period of two years from the Commencement Date with
respect to the development and ongoing operations of the Sakhalin Project
casino. Under the terms of the Casino Consulting Agreement, the Consultant has
agreed to make available the services of David Hartley ("Hartley"). As of the
Commencement Date, the Consultant will receive (i) a fee of $21,000 per month
plus reimbursement of reasonable expenses for the term of the agreement,
adjusted pro rata for any partial month of service and (ii) options to purchase
100,000 shares of the Company's Common Stock, at $6.50 per share, with 50% of
the options becoming exercisable on each of the first and second anniversary
dates of the Commencement Date and expiring on the third anniversary date. At
the end of the term of the agreement, provided that the Consultant is not in
breach of the Casino Consulting Agreement, the Consultant will also be entitled
to receive a $250,000 bonus. From the period between October 1, 1997 through the
Commencement Date, the Consultant will be paid by the Company a fee of $21,000 a
month, adjusted pro rata for any partial month of service, plus reimbursement of
reasonable expenses. The Company may terminate the Casino Consulting Agreement
for "cause," which includes (i) a material breach of the agreement, (ii) the
unavailability of Hartley, (iii) material misconduct injurious to the Company by
the Consultant or Hartley or (iv) the conviction of an act of fraud or
conviction of a crime by the Consultant or Hartley. The agreement also binds the
Consultant and Hartley to a two year non-compete, non-solicitation provision.
HOTEL MANAGEMENT SERVICES
On October 2, 1997, the Company entered an agreement (the "Hotel Management
Agreement") with Dorsett Hotels and Resorts International, Ltd. ("Dorsett"), a
company controlled 100% by Dato David 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
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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 (which have not yet been executed) with
respect to the management of the Dallas Grand Hotel, Dallas, Texas, Dorsett
Regency Bali, Indonesia, and Rockman's Regency Melbourne, Australia, as well as
operating agreements on substantially similar terms for five other hotels
scheduled to open within the next two years.
The 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 operating agreement for any reason other than
for a material breach by the Company, the Company would be entitled to a
termination fee. The termination fee shall be calculated based on the formula
which is the remaining number of years under the Agreement multiplied by a
factor which is: (i) in the event of a termination during the first five years
of the Agreement, the factor shall be the sum of the actual fees paid or payable
to the Company based on revenues generated to date plus fees payable to the
Company based on projected revenues for the rest of the year, (ii) in the event
of a termination after the first five years, the factor shall be the average of
the fees paid or payable to the Company for the preceding two years, or (iii) in
the event of a termination after the first ten years, the factor shall be the
average of the fees paid or payable to the Company for the preceding three
years. If the Hotel Management Agreement is consummated, subject to requisite
stockholder approval, the Company plans to add a management team with experience
with major international hotel chains in the operation and management of hotels
and leisure time activities worldwide.
Dorsett agreed that it shall not for a period of three years from the
date of issuance or transfer, as applicable, of the shares received under the
Hotel Management Agreement, voluntarily or involuntarily, directly or
indirectly, sell, contract to sell, grant a right to purchase, exchange,
mortgage, pledge, hypothecate, give, bequeath, transfer, assign, encumber,
alienate or in any other way whatsoever dispose of (hereinafter collectively
called "transfer") any of such shares, including any options and warrants with
respect to such shares, received by way of dividend or upon an increase,
reduction, substitution or reclassification or combination of stock of the
Company or upon any reorganization of the Company, as applicable.
Notwithstanding any of the foregoing, Dorsett may transfer the shares to any
subsidiary or affiliate of Dorsett, subject to the Company's consent, which
consent shall not be unreasonably withheld. Dorsett also agreed, until three
years from the issuance date of the shares, to give the Company an irrevocable
proxy, with full power of substitution, to vote on all matters as the Company
deems appropriate, with respect to the shares at all meetings of the
stockholders of the Company and by means of 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
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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.
Other. In connection with the Company entering into the New Line of
Business, the Board of Directors has adopted resolutions to issue to Brian J.
Bryce and Jay M. Haft, respectively, options to purchase 300,000 and 200,000
shares of Common Stock at an exercise price equal to $6.125 per share. The
issuance of the options to Messrs. Bryce and Haft, who are directors of the
Company, is subject to receipt of requisite shareholders' approval for the
Company to enter into the New Line of Business and the New Business
Opportunities.
OTHER RELATED PROJECTS
Surinam Casino Project
As of October 3, 1997, the Company entered into an agreement in
principle with Parbhoe Handelmij NV, a Surinamese limited liability, to create a
joint venture company to develop a casino project (the "Surinam Project") in
Paramaribo, the capital city of Surinam (the former Dutch Guyana). Pursuant to
the agreement, the joint venture company will also enter into an operating
agreement with the Company to manage the casino. There can be no assurance that
the casino in Paramaribo will be developed or, if developed, will be profitable
for the Company. If the Surinam Project is developed as contemplated, the
Company, subject to stockholder approval, is expected to provide the joint
venture company with approximately $3,000,000 in initial capital.
GENERAL
The transactions contemplated under the Sakhalin Agreement, the
Development Services Agreement, the Hotel Management Agreement, the Casino
Consulting Agreement and the Stock Purchase Agreement are subject to several
conditions precedent, including but not limited to, satisfactory results from
the Company's due diligence investigation, obtaining certain local governmental
concessions and incentives for the Sakhalin Project. There can be no assurance
that all of these conditions precedent will be met and that any of the
aforementioned transactions will be consummated by the Company or, if
consummated, be profitable.
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.
FINANCING THE NEW BUSINESS OPPORTUNITIES; THE ISSUANCE OF 5,500,000
SHARES OF COMMON STOCK
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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 5,500,000 shares of Common Stock
and options to purchase 600,000 shares of Common Stock. The Company's
stockholders will experience significant dilution in their percentage ownership
interest in the Company upon the issuance of the shares of Common Stock as
contemplated under the agreements related to the New Line of Business and the
New Business opportunities. See "RISK FACTORS" - Immediate Substantial Dilution.
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
which will be used for its Principal Line of Business. In addition to the
direct issuance of shares of the Company's Common Stock in connection with the
proposal relating to the New Line of Business, the Company intends to fund 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 issues 5,500,000 shares of Common Stock of the
Company in connection with the New Business Opportunities, Dato David Chiu will
own directly 1,500,000 shares of Common Stock pursuant to the terms of the
Development Services Agreement and indirectly through its ownership interest in
Dorsett, 2,000,000 shares of Common Stock pursuant to the terms of the
Management Agreement, or an aggregate of 3,500,000 shares of Common Stock of the
Company. If the shareholders approve the proposal with respect to the Company
entering into the New Line of Business, assuming shares outstanding as of the
Record Date and no further issuances of Common Stock or the exercise of existing
options or warrants to purchase shares of Common Stock of the Company or options
to be granted in connection with the New Line of Business, Chiu will own
directly or indirectly, 28.5% of the Common Stock of the Company.
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.
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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.
In connection with the Company entering into the New Line of Business
and the New Business Opportunities the Company has provided for the issuance of
options to purchase 600,000 shares of Common Stock. 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. Additionally, pursuant to the terms of
the Casino Consulting Agreement, Star Casinos Limited will receive, subject to
receipt of requisite approval from the Company's stockholders, options to
purchase 100,000 shares of the Company's Common Stock, at $6.50 per share.
In connection with the transactions contemplated by the Sakhalin
Agreement, Brian J. Bryce, Jay M. Haft and James V. Stanton, directors of the
Company, and Jasmine Trustees Ltd., a trust for the benefit of Mr. Bryce and his
family have agreed to enter into a pledge agreement with the Company that in the
event Proposal One relating to the New Line of Business and New Business
Opportunities is not approved by the stockholders of the Company at the Meeting,
Messrs. Bryce, Haft and Stanton would collectively reimburse the Company for up
to $750,000 in costs and expenses incurred by the Company relating to the
Sakhalin Project. As presently contemplated, these obligations would be secured
by an aggregate of 150,000 shares of Common Stock of the Company owned, either
directly or beneficially, by such directors. This matter was approved by the
Board of Directors at its meeting held on September 10, 1997.
CONSIDERATION AND RECOMMENDATION OF THE BOARD OF DIRECTORS
At the meeting of the Board of Directors held on September 10, 1997,
the Board determined that, based upon its deliberations, that diversifying
beyond the Company's Principal Line of Business and entering into the New Line
of Business and the New Business Opportunities is in the best interests of
Company and its stockholders. The Board unanimously approved the New Line of
Business and New Business Opportunities and called for the submission of this
matter for approval by the stockholders of Company at a special meeting called
for such purpose. The Board as part of its deliberations and approval of the
proposal relating to Company entering into the New Line of Business and the New
Business Opportunities, considered the following advantages to the Company and
the Company's stockholders, subject to certain risk factors more fully discussed
below.
The Board considered certain key factors in its deliberations,
including the economic benefits of the project to the Company and its
shareholders, the current prospects of the casino and hotel industry the Russian
government's support of the Sakhalin Project, the geographical location of the
Sakhalin Project in relation to other
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casinos in the region, the overall economic viability of Sakhalin Island and the
proposed management team for the Sakhalin Project.
A key factor to the success of the Sakhalin Project is the Russian
government's overall commitment to Sakhalin Project. Evidence of this commitment
includes the favorable terms negotiated with respect to the lease of the Site,
the relief granted from the gaming tax and the favorable requirements with
respect to the development, construction and use of the Site. If completed, the
Sakhalin Project would benefit from the various concessions and other exemptions
from the applicable governmental bodies of the Russian Federation described
herein above. Additionally, the City has commenced construction of an
international airport and has agreed with SCC to allow SCC to establish its own
terminal, which will facilitate the anticipated charter flights to Sakhalin. A
ski facility located 1,000 feet from the site (previously used by the Russian
Olympic Ski Team) may be made available for future private development.
The Sakhalin Project is geographically well positioned to attract
customers from several markets throughout Asia. More specifically, the site is
geographically accessible to the virtually untapped target markets of Japan
(with a population of over 150 million and which does not presently permit
gambling), North China and Korea (which does not permit its own citizens to
gamble).
In addition, Sakhalin Island is the subject of over US$34 billion in
recent investments by major oil companies for exploration and development adding
to the economic viability to the region as a whole.
The Sakhalin Project is expected to have a seasoned staff in every
phase of development and operations. Pursuant to the terms of the Sakhalin
Casino Consulting Agreement, the Company has engaged Mr. David Hartley of Star
Casinos Limited, as consultant for the Company's casino projects and operations.
Mr. Hartley has spent the past 20 years in the casino gaming industry, gaining
experience with the casino industry in the emerging markets. Additional senior
level executives are expected to be added to the staff of the Company who will
be involved in the overall strategic development of the New Line of Business as
well as the day to day management of the hotel properties, specifically the
Sakhalin Project.
The Board of Directors believes that the New Line of Business and the
New Business Opportunities represent new business opportunities that have the
potential to increase diversification of the Company's business and assets,
accelerate asset growth, and generate additional returns to stockholders.
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There can be no assurance, however, that the Company will be successful in
implementing its business strategy with respect to the New Line of Business or
if the New Business Opportunities are implemented and become operational, there
can be no assurance that they will be profitable.
The Board of Directors also recognized that the proposal relating to
the Company entering into the New Line of Business and the New Business
Opportunities bears significant risk for the Company and its stockholders.
Specifically, the Board of Directors considered the numerous risks attendant to
the venture, including but not limited to, the following risk factors.
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RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROXY STATEMENT, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE HOLDERS OF SHARES OF THE COMPANY'S
COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE PROPOSAL RELATING TO THE
COMPANY ENTERING INTO THE NEW LINE OF BUSINESS, INCLUDING THE NEW BUSINESS
OPPORTUNITIES. THIS PROXY STATEMENT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
OR STATEMENTS WHICH MAY BE DEEMED OR CONSTRUED TO BE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996 WITH
RESPECT TO THE FINANCIAL CONDITION AND BUSINESS OF THE COMPANY. THE WORDS
"ANTICIPATE," "ESTIMATE," "PLAN," "INTEND," "EXPECT," AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS INVOLVE AND ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE
(FINANCIAL OR OPERATING) OR ACHIEVEMENTS TO DIFFER FROM THE FUTURE RESULTS,
PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY
SUCH FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS
TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE
DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ANY FORWARD
LOOKING STATEMENTS CONTAINED IN THIS PROXY STATEMENT ARE SUBJECT TO AMONG OTHER
THINGS, THE FOLLOWING FACTORS.
Development Stage Company; No Operating Profits; Accumulated Deficit. The
Company is in the development stage and its operations are subject to all of the
risks inherent in the establishment of a new business enterprise, including the
need to obtain financing, lack of revenues, 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. 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. 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
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$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.
Immediate Substantial Dilution. At September 30, 1997, the per share net
tangible book value of the Common Stock was $1.11. In the event the Company
proceeds with its New Line of Business, 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 5,500,000 shares of Common Stock
and options to purchase 600,000 shares of Common Stock. The Company's
stockholders will experience further 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. After
giving effect to the issuance of 5,500,000 shares of Common Stock in connection
with the New Line of Business and the New Business Opportunities, assuming a per
share price of $6.50, the per share net tangible book value of the Common Stock
will be $3.52. As a result of the issuance of the additional 5,500,000 shares of
Common Stock, investors receiving such shares will incur immediate and
substantial dilution of $2.98 per share. Additional dilution to future net
tangible book value per share may occur upon the issuance of additional Common
Stock and/or other securities of the Company in private offerings, the exercise
of currently outstanding options and warrants, and options to be issued under
the Company's 1996 Stock Option Plan.
Risks Associated with Geographic Expansion and New Lines of Business. The
Company, subject to the requisite stockholders approvals, intends to actively
pursue a second line of business in the hospitality and gaming industries. The
Company has no history of operating in the New Line of Business. The Company's
operation of any of the Company's proposed projects is subject to the risks
inherent in an emerging business enterprise. These include, but are not limited
to, greater than normal expenses due to complications and delays frequently
encountered in new businesses. The Company, either directly or through a
subsidiary, plans to invest in and actively manage hotel and casino
establishments and commence offering management services with respect to hotel
and casino properties. This will require additional capital expenditures.
Certain of the Company's management have experience in operating hotels and
casinos and providing management services. However, additional senior management
personnel will be required for the Company's New Line of Business. In addition,
it will be required to hire and retain skilled management, marketing, customer
services and other personnel; and successfully manage growth, including
monitoring operations, controlling costs and maintaining effective quality and
service controls. There can be no assurance that the Company will be able to do
so effectively which may adversely impact the Company's existing line of
business and the Company's result of operations as a whole.
Risks Inherent in International Operations. 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
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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. There can be no assurance that any of these risks will not have
an adverse effect on the Company's results of operations.
Risks Relating to the Sakhalin Project; Lack of Gaming License. Sakhalin Island,
a part of the Russian Federation is subject to significant risks as compared to
more developed countries, including significant legal and political risks.
Fundamental political and economic changes currently occurring in the Russian
Federation will continue to create instability and uncertainty in the future.
There can be no assurance that changes in the political, economic, social, or
other developments in the neighboring regions will not have a material adverse
effect on the Sakhalin Project, including the ability to secure adequate
financing or to timely develop the Sakhalin Project, establish and operate a
successful operation, realize an adequate return on investment and repatriate
profits, if any. Although the city of Yuzhno-Sakhalinsk and the Sakhalin Oblast
have in the aggregate a 35% interest in SCC, no gaming license with respect to
the Sakhalin Project has been granted to date and there can be no assurance that
such gaming license will be granted.
Political and Economic Factors. The economies of certain of the regions in which
the Company plans to operate, including the Russian Federation and Surinam, have
been subject to many destabilizing factors, including military conflicts and
tensions, civil unrest, large government deficits, low foreign exchange reserves
and fluctuations in world commodity prices. In attempting to respond to these
problems, many of these countries have intervened in local economies, employing
among other things, fiscal, monetary and trade policies, import duties, foreign
currency restrictions and controls of wages, prices and exchange rates.
Moreover, many of these countries have frequently changed their policies in all
these areas. There can be no assurance that the Company's planned operations
will not be delayed or adversely affected by changes in such political and
economic factors.
Risks of Foreign Legal System. Many foreign legal systems in countries where the
Company's proposed projects will be located have legal systems which differ from
the United States' legal system and may provide substantially less protection
for foreign investors. The current terms of the several of the Company's
proposed projects, including the Sakhalin Project, include a number of key
business incentives with respect to the proposed projects by the local
governments of the countries in which such projects will be located. The
sophisticated legal and regulatory frameworks necessary to specifically address
the issues in complicated transactions, such as the Sakhalin Project, have yet
to be developed in certain of these countries, such that present legislation
governing commercial relationships, ownership of property and taxation is
subject to amendment and a higher degree of judicial interpretation than in more
developed countries. Since there is little or no precedent with respect to the
enforcement of
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legal rights in these developing markets, there can be no assurance that any
business incentives granted with respect to any of the Company's proposed
projects, including the Sakhalin Project and the Surinam Project, may continue
to be available or may not be eliminated or significantly reduced based upon
changes in applicable local laws and regulations, which may have an adverse
effect on the proposed projects and therefore on the Company's proposed
operations and its results of operations.
Business Infrastructure Issues. Many businesses in the regions in which the
Company plans to operate are facing considerable changes and adjustments in work
practices, after being undercapitalized for years, including lack of management
with experience of operating in a market economy, lack of new technology and a
sufficient capital base to develop its operations. As such, notwithstanding the
Company's ability to import management, technology and the like, it is unclear
what will be the overall effect on any of the Company's proposed projects.
Potential Conflicts With Other Stockholders in Project. The holders of the other
interests in the Sakhalin Project are foreign enterprises and local Russian
governmental entities. Similarly, the proposed joint venture partner in the
Surinam Project is a foreign enterprise. There can be no assurance that the
other stockholders will have similar objectives with respect to the development,
growth and management of the Sakhalin Project and the Surinam Project.
Furthermore, there can be no assurance that the other stockholders will not
transfer their interests and that a new stockholder may have dissimilar
objectives to the Company.
Restrictions and Controls on Foreign Investments and Acquisitions of Majority
Interests. Foreign investment by the Company in local joint ventures or business
acquisitions will be restricted or controlled to varying degrees. These
restrictions or controls have or may in the future limit or preclude foreign
investment in certain proposed joint ventures or business acquisitions or
increase the costs and expenses of the Company in seeking to effectuate any of
the Company's proposed projects. Governmental approvals will be required prior
to investments by foreign persons and limit the extent of any such investment.
Although with respect to the Sakhalin Project, Sakhalin Island presently allows
for the free repatriation of capital and income by foreign investors, applicable
governmental approvals may or in the future may be required for the repatriation
of capital and income by foreign investors in certain countries where the
Company's proposed projects may be located (including Surinam). There can be no
assurance that such approvals will be forthcoming. There can be no assurance
that additional or different restrictions or adverse policies applicable to the
Company will not be imposed in the future or, if imposed, to the duration or
impact of any such restrictions or policies. Any material restrictions on trade,
or a downturn in the economies where the Company currently plans to operate
could have a material adverse effect on the Company as a whole. Political
differences may lead to the imposition of trade barriers and/or economic
sanctions. The occurrence of such barriers or sanctions could have a material
adverse effect on the Company's results of operations.
Government Regulation. The Company's planned operations will require various
licenses, permits and approvals. More specifically, the Sakhalin Project will
require a gaming license to operate. The loss or revocation of any existing
licenses, permits or approvals or the failure to
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obtain any necessary licenses, permits or approvals, including the failure to
obtain the gaming license with respect to the Sakhalin Project, would have an
adverse effect on the ability of the Company to consummate any of its proposed
projects and conduct its business in that particular jurisdiction. Authorization
to commence operations will be required. No assurance can be given that such
authorization, licenses or necessary approvals in a particular jurisdiction will
be obtained, including the gaming license with respect to the Sakhalin Project.
In addition, the countries in which the Company's proposed projects will be
located may have regulatory systems that impose other impediments on the
proposed projects and therefore the Company's operations in that particular
jurisdiction. There can be no assurance that the Company, as a whole, will be
able to profitably operate in light of these restrictions.
Construction Risks. Construction projects of any hotels and casinos, entail
significant risks, including shortages of materials or skilled labor, unforeseen
engineering, environmental and/or geological problems, work stoppages, weather
interference and unanticipated cost increases. The anticipated costs and
schedule for completion are based on budgets, conceptual design documents and
construction schedule estimates prepared with respect to the proposed projects
in consultation with its architects and contractors. However, the existing
construction plans for the Sakhalin Project are subject to change, and the scope
and cost of the project may vary significantly from that which is currently
anticipated. Firm contracts for the construction of any hotels or casinos,
including the Sakhalin Project, have not been entered into by the Company.
Discussions have not commenced with contractors, and such contractors have
indicated a willingness to enter into contracts on terms acceptable to the
Company based on construction drawings and specifications which are
substantially complete. There can be no assurance, however, that such contracts
or other contracts will be finalized or signed on terms acceptable to the
Company and its respective partners in each of the projects described herein,
including the Sakhalin Project and the Surinam Project. Existing funds will be
insufficient to complete construction and the ability of the project developer,
including the Company, to provide sufficient funds to complete the proposed
projects will depend on future operating results of the Company and its
respective partners and the Company's ability to obtain funds from other
sources. No assurance can be given that the budgeted start-up costs will not be
exceeded.
There can be no assurance that any of the proposed hotels or casinos
will be opened, or if opened will not be delayed in opening, or that the budgets
for any of the proposed projects, including the Sakhalin Project and the Surinam
Project, will not be exceeded. Each project's construction budget is based upon
estimates of projected costs provided by the project developer. Because of these
estimates construction is subject to cost overruns from presently unforeseen
difficulties or as the result of delays or material cost increases. In the event
of cost overruns, and in the event that sufficient additional funds are not
available when needed, any planned projects may not be completed and the Company
would not realize the anticipated gross revenue to be derived from its
operations. Moreover, there can be no assurance that, upon completion, any
project will conform to all applicable governmental requirements, such as
building codes. Such a failure to conform to governmental requirements could
result in a loss of revenues from any project until compliance is achieved.
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Nature of the Hospitality and Gaming Industry; Dependence on Successful Hotel
and Gaming Operations. The Company's current and future business plans with
respect to the New Line of Business is 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) seasonability; 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 and, in the case of the Surinam Project, Surinam. 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.
Collectability of Casino Receivables. 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.
Effects of Inflation; Currency Fluctuations. Exchange rates for some local
currencies fluctuate in relation to the U.S. dollar and such fluctuations may
have an adverse effect on the Company's earnings or assets when translating
local currencies into U.S. dollars. Any weakening of the value of a local
currency against the U.S. dollar could result in lower revenues and earnings for
the Company when translated into U.S. dollars. Therefore, there can be no
assurance that currency exchange rates will not have a material adverse effect
on the Company.
Competition. The Company faces competition from three local casinos. The
Company's ability to compete effectively depends principally upon the local
government's guarantee to limit
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issuing any additional gaming licenses and to limit the granting of any
expansion of the scope of activity of all current licenses. Although rights of
first refusal have been granted by local and regional governmental bodies on the
development of future casinos with limitations on the local government
increasing operations at the three existing casinos on Sakhalin Island, there
can be no assurance that these incentives will continue to exist during the
period of the investment in any of the Company's proposed projects by the
Company and there can be no assurance that incentives will not be given to any
of the Company's proposed projects' competitors which may have an adverse impact
on any of the Company's proposed projects. There can be no assurance that the
Company will be able to expand as rapidly as, or compete effectively against,
its competitors.
Reliance on Advances and Dividends From Subsidiaries. The Company's proposed
operations will be conducted through subsidiaries, joint ventures and
contractual sponsorship arrangements. Consequently, the Company will rely
principally on dividends or advances from its subsidiaries (including ones that
are not wholly-owned) joint ventures and contractual sponsorship arrangements.
The ability of such subsidiaries to pay dividends and the ability of the Company
to realize on its investment in other entities is subject to applicable local
law and certain other restrictions.
Dependence of Personnel Associated with Developing the Sakhalin Project. The
Sakhalin Project is highly dependent upon the personal efforts and abilities of
certain individuals who are involved in the development of the Sakhalin Project.
The Sakhalin Project is also highly dependent on Valery P. Mozolevsky, who is
the executive director of SCC. Mr. Mozolevsky has served as the Vice-Governor of
Sakhalin and as Deputy of Yuzhno-Sakhalinsk City Council of People's Deputies
and was appointed President of the Corporation of Economic Development of
Sakhalin. The Company has not yet entered into agreements for the employ or
engagement of such individuals and there can be no assurance that the services
of these individuals will continue to be available to the Company in the future.
RECOMMENDATIONS BY THE BOARD OF DIRECTORS
In its deliberations, the Board did not undertake a separate analysis
of each of the above risk factors nor did the Board reach a separate conclusion
with respect to each such factor in its determination to recommend for
submission to the vote of the Company's stockholders this proposal relating to
the Company entering into the New Line of Business and the New Business
Opportunities. The consideration of such factors resulted from the information
obtained with respect to such factors being added to the collective business
knowledge, experience and understanding of the Board so as to enable the Board
to apply such information to its deliberative processes. In view of the above,
and the variety of factors considered by the Board in reaching its conclusion to
recommend the proposal relating to Company entering into the New Line of
Business and the New Business Opportunities, the Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination as to the fairness
of the terms of the proposal relating to Company entering into the New Line of
Business and the New Business Opportunities.
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The Board evaluated the foregoing potential benefits that may result
from the proposal relating to the Company entering into the New Line of Business
and the New Business Opportunities in relation to the foregoing risk factors
that the Board also recognized might result from the proposal relating to the
Company entering into the New Line of Business, including the New Business
Opportunities, and concluded that, upon balance, the potential benefits
outweighed the risk factors based upon the foregoing, the Board considered the
proposal relating to the Company entering into the New Line of Business,
including the New Business Opportunities to be in the best interests of the
stockholders of Company.
RECOMMENDATION OF THE BOARD
The Board of Directors recommends that stockholders vote FOR the
proposal permitting the Company to enter into the New Line of Business in the
hotel and casino industry and the New Business Opportunities, and to authorize
the issuance of up to 5,500,000 shares of the Company's Common Stock and options
to purchase 600,000 shares of Common Stock.
Unless a contrary choice is specified, proxies solicited by the Board
of Directors will be voted for approval of the New Line of Business and the New
Business Opportunities.
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PROPOSAL TWO
APPROVAL TO AMEND THE COMPANY'S
CERTIFICATE OF INCORPORATION TO CHANGE
THE COMPANY'S NAME TO
"CCA COMPANIES INCORPORATED"
Proposed Amendment to the Certificate of Incorporation
On November 10, 1997, the Board of Directors unanimously adopted a
resolution that the Company's Amended Certificate of Incorporation be amended to
change the Company's name from "Conserver Corporation of America" to "CCA
Companies Incorporated" (the "Corporate Name Amendment"). The Corporate Name
Amendment is conditioned upon the approval of the New Line of Business and New
Business Opportunities by the stockholders of the Company.
A copy of the proposed Certificate of Amendment to the Company's
Certificate of Incorporation (the "Certificate of Amendment") is attached as
Exhibit A-1 to this Proxy Statement and is incorporated herein by reference.
This summary is qualified in its entirety by the Certificate of Amendment.
Purpose and Effect of the Proposed Amendment
Subject to stockholder approval of Proposal One hereof at the Special
Meeting, the Company will diversify its operations beyond its Principal Line of
Business and enter into the New Line of Business in the hotel and casino
industry, specifically involving the New Business Opportunities.
The Board of Directors believes that it is in the best interests of the
Company to change its corporate name which will result in a more distinct and
recognizable corporate identity, better reflecting the Company's future plans,
for diversification. The Board also believes that the name change will enhance
future strategic plans and marketing capabilities and will reflect the
multi-faceted nature of the Company's services and products.
If approved by the stockholders at this Meeting, the new name will
become effective upon the Company's filing the Certificate of Amendment with the
Secretary of State of the State of Delaware, Division of Corporations. The
change of corporate name will be accomplished by amending the first paragraph of
the Company's Certificate of Incorporation to read as follows:
"FIRST: The name of the corporation is CCA Companies Incorporated."
The change in corporate name will not affect the validity or
transferability of the stock
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certificates presently outstanding, and the Company's stockholders will not be
required to exchange any certificates presently held by stockholders.
Stockholders should keep the certificates they now hold, which will continue to
be valid, and should not send them to the Company or its transfer agent.
The following resolution will be offered by the Board of Directors at
the Meeting:
RESOLVED, that the proposal to amend Paragraph FIRST of the Company's
Certificate of Incorporation so as to change the name of the Company to
"CCA Companies Incorporated" is hereby approved, authorized and
adopted.
Vote Necessary to Approve the Amendment
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the outstanding shares of the Company's Common Stock is
necessary for approval of the Corporate Name Amendment. Therefore, abstentions
and broker non-votes (which may occur if a beneficial owner of stock where
shares are held in a brokerage or bank account fails to provide the broker on
the bank voting instructions as to such shares) effectively count as votes
against the Corporate Name Amendment.
Approval of Proposal Two is conditioned on approval of Proposal One.
Recommendation of the Board of Directors
The Board of Directors recommends that stockholders vote FOR the
proposal to amend the Company's Certificate of Incorporation to change the name
of the Company to "CCA Companies Incorporated."
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PROPOSAL THREE
APPROVAL TO AMEND TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON AND PREFERRED STOCK
(Item 3 on Proxy Card)
Introduction
The Company's Certificate of Incorporation currently authorizes the
issuances of thirty million (30,000,000) shares of Common Stock, $.001 par value
per share and five thousand (5,000) shares of Preferred Stock, $.01 par value
per share. The Board of Directors has recommended increasing the authorized
number of shares of Common Stock to fifty million (50,000,000) and to increase
the number of shares of Preferred Stock to five million (5,000,000), subject to
stockholder approval of the amendment.
Proposed Amendments to Certificate of Incorporation
On November 10, 1997 the Board of Directors has adopted resolutions
setting forth (i) the proposed amendment to Article Fourth of the Company's
Certificate of Incorporation (the "Charter Amendment"), as set forth below, (ii)
the advisability of the Charter Amendment; and (iii) a call for submission of
the Amendment for approval by the Company's stockholders at the Meeting.
If approved by the stockholders at this Meeting, the increase in
authorized shares of the Company will become effective upon the Company's filing
the Certificate of Amendment with the Secretary of State of the State of
Delaware, Division of Corporations. The change in authorized shares of the
Company will be accomplished by amending the first sentence of the fourth
paragraph of the Company's Certificate of Incorporation to read as follows:
"a) Authorized Shares. The total number of shares of stock which the
Corporation shall have authority to issue is fifty-five million
(55,000,000) which shall consist of 50,000,000 shares, $.001 par value,
designated as Common Stock, and 5,000,000 shares, $.01 par value,
designated as Preferred Stock."
A copy of the proposed Certificate of Amendment to the Company's
Certificate of Incorporation (the "Certificate of Amendment") is attached as
Exhibit A-1 to this Proxy Statement and is incorporated herein by reference.
This summary is qualified in its entirety by the Certificate of Amendment.
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Purpose and Effect of the Proposed Charter Amendment
The Board of Directors recommends to increase the number of authorized
shares of Common Stock and Preferred Stock so that a sufficient number of
additional shares of Common Stock and Preferred Stock will be available after
giving effect to the transactions contemplated by the New Line of Business,
including the New Business Opportunities, for the issuance from time to time in
connection with possible future financing programs, acquisitions, stock option
or other employee benefit plans and other general corporate purposes. Having
such additional authorized shares of Common Stock and Preferred Stock available
for issuance in the future will give the Company greater flexibility and allow
additional shares of Common Stock and Preferred Stock, in excess of the number
of shares presently authorized, to be issued without the expense and delay of a
special meeting of the stockholders, unless required by applicable law or the
rules of any stock exchange or national securities association trading system on
which the Common Stock is then listed or quoted. The Company reserves the right
to seek a further increase in authorized shares from time to time in the future
as considered appropriate by the Board of Directors.
Under the Company's Certificate of Incorporation, the Company's
stockholders do not have preemptive rights with respect to Common Stock or
Preferred Stock. Thus, should the Board of Directors elect to issue additional
shares of Common Stock or Preferred Stock, existing stockholders would not have
any preferential rights to purchase such shares. In addition, if the Board of
Directors elects to issue additional shares of Common Stock or Preferred Stock,
such issuance could have a dilutive effect on the earnings per share, voting
power, and share holdings of current stockholders.
The proposed Charter Amendment to increase the authorized number of
shares of Common Stock and Preferred Stock could, under certain circumstances,
have an anti-takeover effect, although this is not the intention of this
proposal. For example, in the event of a hostile attempt to take over control of
the Company, it may be possible for the Company to endeavor to impede the
attempt by issuing shares of the Common Stock and/or Preferred Stock, thereby
diluting the voting power of the other outstanding shares and increasing the
potential cost to acquire control of the Company. The Charter Amendment
therefore may have the effect of discouraging unsolicited takeover attempts. By
potentially discouraging initiation of any such unsolicited takeover attempt,
the proposed Charter Amendment may limit the opportunity for the Company's
stockholders to dispose of their shares at the higher price generally available
in takeover attempts or that may be available under a merger proposal. The
proposed Charter Amendment may have the effect of permitting the Company's
current management, including the current Board of Directors, to retain its
position, and place it in a better position to resist changes that stockholders
may wish to make if they are dissatisfied with the conduct of the Company's
business. However, the Board of Directors is not aware of any attempt to take
control of the Company and the Board of Directors has not presented this
proposal with the intent that it be utilized as a type of anti-takeover device.
The change in the authorized shares of the Company will not affect the
validity or transferability of the stock certificates presently outstanding, and
the Company's stockholders will not be required to exchange any certificates
presently held by stockholders. Stockholders should keep the certificates they
now hold, which will continue to be valid, and should not send them to the
Company or its transfer agent.
The following resolution will be offered by the Board of Directors at
the Meeting:
RESOLVED, that the proposal to amend Paragraph Fourth of the Company's
Certificate of Incorporation so as to increase the number of authorized
shares of Common Stock of the Company from thirty million shares to fifty
million shares and to increase the number of authorized Preferred Stock
shares of the Company from five thousand shares to five million shares is
hereby approved, authorized and adopted.
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Vote Necessary to Approve the Charter Amendment
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the outstanding shares of the Company's Common Stock is
necessary for approval of the Amendment. Therefore, abstentions and broker
non-votes (which may occur if a beneficial owner of stock where shares are held
in a brokerage or bank account fails to provide the broker or the bank voting
instructions as to such shares) effectively count as votes against the
Amendment.
Recommendation of the Board
The Board of Directors recommends that stockholders vote FOR the
proposal to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock from thirty million (30,000,000) to
fifty million (50,000,000) and increase the number of authorized shares of
Preferred Stock from five thousand (5,000) to five million (5,000,000).
Unless a contrary choice is specified, proxies solicited by the Board
of Directors will be voted for approval of the Charter Amendment.
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PROPOSAL FOUR
APPROVAL OF AMENDMENT TO THE COMPANY'S
1996 STOCK OPTION PLAN
(Item 4 on Proxy Card)
Introduction
The Board of Directors on September 10, 1997 adopted a resolution
proposing that the number of shares of Common Stock available for grant under
the 1996 Plan increase from 1,300,000 shares to 5,000,000 shares (the "Plan
Amendment").
In connection with the Company entering into the New Line of Business,
the Board of Directors has adopted resolutions to issue to Brian J. Bryce and
Jay M. Haft, respectively, options to purchase 300,000 and 200,000 shares of
Common Stock at an exercise price equal to $6.125 per share. The issuance of the
options to Messrs. Bryce and Haft, who are directors of the Company, is subject
to receipt of requisite shareholders' approval for Proposal One.
Shares Subject to the 1996 Plan
The Company's 1996 Stock Option Plan (the "1996 Plan") was adopted and
approved by the Company's Stockholders on November 6, 1996. The Company's Board
of Directors amended the 1996 Plan to increase the number of shares available
for issuance under the plan from 900,000 shares to 1,300,000 shares and the
stockholders of the Company approved the amendment on January 7, 1997.
Upon approval of the Plan Amendment by the stockholders of the Company,
there will be a total of 5,000,000 shares of Common Stock authorized under the
1996 Plan. The authorized shares issuable in connection with the 1996 Plan are
subject to adjustment in the event of stock splits, stock dividends and other
situations.
As of November 12, 1997, the Company had options outstanding under the
1996 Plan to purchase an aggregate of 1,157,500 shares of Common Stock, at
exercise prices ranging from $5.00 to $6.13, or a weighted average exercise
price per share of $5.21. If any option granted under the 1996 Plan shall expire
or terminate for any reason without having have been exercised in full or shall
cease for any reason to be exercisable in whole or in part, the shares of Common
Stock subject to such option shall again be available for grants of options
under the 1996 Plan. As of November 12, 1997, a total of 137,500 shares of
Common Stock were available for future issuance under the 1996 Plan. All the
amounts and benefits that will be received or allocated by current executive
officers, current directors who are not executive officers and current employees
and consultants of the Company, under the 1996 Plan, cannot be determined. For
fiscal 1997, option awards to purchase 1,055,000 shares of Common Stock of the
Company were issued, including option awards to the
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Executive Officers and all employees and consultants.
Administration
The 1996 Plan is administered by the Stock Option Committee. The Stock
Option Committee consists of three directors appointed by the Board of Directors
and has the power and authority to grant options to participants in the 1996
Plan. The Stock Option Committee may delegate certain of its responsibilities to
other persons; provided, however, the Stock Option Committee may not delegate
matters relating to the Company's Section 16 officers. Two of the members of the
Stock Option Committee are non-employee directors as defined in Rule 16b-3. The
Stock Option Committee is composed of Messrs. Stein, Bryce and Haft. The Board
of Directors may fill vacancies on the Stock Option Committee and may from time
tot time remove or add members, and may also administer the 1996 Plan.
The Stock Option Committee may periodically adopt rules and regulations
for carrying out the 1996 Plan. The Board of Directors may amend the 1996 Plan,
as desired, without further action by the Company's stockholders except as
required by applicable law.
Participants and Terms of Awards
Employees of the Company (the "Participants") are eligible to receive
"incentive stock options" ("ISOs") under Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). Employees, officers, directors and
consultants are eligible to receive options which do not qualify as ISOs
("Non-Qualified Options or "NSOs")
The purchase price under each option is established by the Stock Option
Committee but in no event can the option prices for ISOs and non-employee
director options be less than one hundred percent (100%) of the fair market
value of the stock on the date of grant. The last sale price per share of the
Company's Common Stock as reported on the Nasdaq SmallCap Market on November 21,
1997 was $6.875. The option price must be paid in full at the time of
exercise. The price may be paid in cash or, if permitted by the Stock Option
Agreement, by delivery of an irrevocable direction to a securities broker to
sell shares and to deliver part of the sale proceeds to the Company, by the
surrender of shares of the Company owned by the participant exercising the
option and having a fair market value on the date of exercise equal to the
option price, or by any combination of the foregoing.
Options have such terms and are exercisable in such manner and at such
times as the Stock Option Committee may determine. Each option must expire
within a period of not more than ten (10) years from the grant date.
Unless the Option Agreement otherwise provides, each option is
transferable only by will or the law of descent and distribution and shall only
be exercisable by the participant during his or her lifetime.
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The Stock Option Committee may modify, extend or renew outstanding
options or may accept the cancellation of outstanding options in return for the
grant of new options at the same or a different price, except the optionee must
consent to any modification, extension or renewal which impairs his or her
rights or increases his or her obligations under such option.
An employee is not taxed on the grant of an NSO. On exercise, however,
the optionee recognizes ordinary income equal to the difference between the
option price and the fair market value of the shares on the date of exercise.
The Company is entitled to an income tax deduction in the year of exercise in
the amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long-term capital gain if the shares are held for
at least one (1) year following exercise. The Company does not receive a
deduction for this gain.
New Plan Benefits
With respect to all future grants, the Stock Option Committee has full
discretion to determine the number and amount of options to be granted to
employees under the 1996 Plan, subject to an annual limitation on the total
number of options that may be granted to any employee. Therefore, other than as
described in this paragraph, the benefits and amounts that will be received by
each of the officers named in the Security Ownership of Certain Beneficial
Owners and Management table set forth herein above, the directors of the Company
(other than Messrs. Bryce and Haft, the executive officers as a group and all
other employees under the 1996 Plan are not presently determinable.
Should Proposal One be approved, Mr. Bryce would receive options to
purchase 300,000 shares of Common Stock at an exercise price of $6.125 per
share, and Mr. Haft would receive options to purchase 200,000 shares of Common
Stock at an exercise price of $6.125. On November 21, 1997, the Company's
Common Stock closed at $6.875 per share. Assuming the closing price on that
date, upon exercise of the options, Mr. Bryce's shares would have an aggregate
market value of $2,062,500 at an aggregate exercise price of $1,837,500 and Mr.
Hafts shares would have an aggregate market value of $1,375,000 at an
aggregate exercise price of $1,225,000.
Vote Necessary to Approve the Amendment to the 1996 Plan
Assuming the presence of a quorum, the affirmative vote of the holders
of a majority of the outstanding shares of the Company's Common Stock is
necessary for approval of the amendment to the 1996 Plan to increase the number
of shares available for grant from 1,300,000 to 5,000,000. Therefore,
abstentions and broker non-votes (which may occur if a beneficial owner of stock
where shares are held in a brokerage or bank-account fails to provide the broker
or bank voting instructions as to such shares) effectively counts as votes
against the amendment to the 1996 Plan.
Recommendation of the Board
The Board of Directors recommends that stockholders vote FOR the
proposal to amend the 1996 Plan to increase the number of shares available for
grant from 1,300,000 shares to 5,000,000 shares.
Unless a contrary choice is specified, proxies solicited by the Board
of Directors will be voted FOR the approval of the Amendment to the 1996 Plan.
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UNDERTAKINGS OF COMPANY
The Company undertakes to deliver to each beneficial owner of the
Company's Common Stock, upon written or oral request, without charge, a copy of
any and all documents referred to in this Proxy Statement that have been
incorporated by reference. Delivery of such documents shall be made by first
class mail or other equally prompt means within one business day of receipt of
such request. All requests shall be directed to the attention of Gerald M.
Breslauer, Conserver Corporation of America, 3250 Mary Street, Suite 405,
Coconut Grove, Florida 33133, telephone number 305-444-3888, facsimile number
305-444-7550.
ADDITIONAL INFORMATION
The Company is subject to certain informational requirements of the Act
and in accordance therewith filed reports and other information with the SEC.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the Regional Offices of the SEC at 210 South
Dearborn Street, Room 1204, Chicago, Illinois 60604; and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549 or at the Internet web site maintained by
the SEC at http://www.sec.gov.
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EXHIBIT INDEX
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------
A-1 Amendment to Company's Certificate of Incorporation
A-2 Stock Purchase Agreement dated as of October 24, 1997 among the
Company, SGTI, William Stephen Cairns and John Byrne Horgan
(incorporated herein by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarterly period ended September 30,
1997)
- - 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") (incorporated herein by
reference to Exhibit 10.8 to the Company's Form 10-K for the fiscal
year ended June 30, 1997)
- - Amendment dated as of August 12, 1997 by and among the Company,
SGTI and Sovereign (incorporated herein by reference to Exhibit
10.9 to the Company's Form 10-K for the fiscal year ended June 30,
1997)
- - Development Services Agreement dated as of October 2, 1997 between
the Company and Dato David Chiu (incorporated herein by reference
to Exhibit 10.10 to the Company's Form 10-K for the fiscal year
ended June 30, 1997)
- - Consulting Agreement effective as of August 14, 1997 between the
Company and Star Casino Limited (incorporated herein by reference
to Exhibit 10.11 to the Company's Form 10-K for the fiscal year
ended June 30, 1997)
- - Proposed form Pledge Agreement by and among the Company, Brian J.
Bryce, Jasmine Trustees, Ltd., Jay M. Haft and James V. Stanton
(incorporated herein by reference to Exhibit 10.12 to the Company's
Form 10-K for the fiscal year ended June 30, 1997)
- - Hotel Management Agreement dated as of October 2, 1997 between the
Company and Dorsett Hotels and Resorts International Ltd.
(incorporated herein by reference to Exhibit 10.13 to the Company's
Form 10-K for the fiscal year ended June 30, 1997)
- - Heads of Agreement dated October 3, 1997 between the Company and
Parbhoe's Handelmij N.V. (incorporated herein by reference to
Exhibit 10.15 to the Company's Form 10-K for the fiscal year ended
June 30, 1997)
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CONSERVER CORPORATION OF AMERICA
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, hereby appoints Miles R. Greenberg, Chief Financial
Officer of Conserver Corporation of America, a Delaware corporation (the
"Company"), and Gerald M. Breslauer, Vice President-Administration and
Secretary of the Company, and each of them, as proxies for the undersigned, each
with full power of substitution, for and in the name of the undersigned to act
for the undersigned and to vote, as designated below, all of the shares of
common stock, par value $.001, of the Company that the undersigned is entitled
to vote at the Special Meeting of Shareholders of the Company, to be held on
December 2, 1997, at 11:00 a.m. (local time), at the Grand Bay Hotel, 2669 South
Bayshore Drive, Coconut Grove, Florida 33133, and at any adjournments or
postponements thereof, in accordance with the directions as follows with respect
to the following matters:
Item 1. To approve the proposal permitting the Company to enter into a new line
of business in the hotel and casino industry, including certain new business
opportunities and to authorize the issuance of up to 5,500,000 shares of the
Company's Common Stock and options to purchase 600,000 shares of Common Stock.
Item 2. To approve an amendment to the Company's Certificate of Incorporation to
change the Company's name from "Conserver Corporation of America" to "CCA
Companies Incorporated".
Item 3. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from thirty million
shares to fifty million shares and preferred stock, par value $.01, of the
Company from five thousand to five million shares.
Item 4. To approve and adopt an amendment to the Company's 1996 Stock Option
Plan to increase the number of authorized shares of Common Stock to be issued
thereunder from 1.3 million shares to five million shares.
Item 5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 and 4: Please
mark your votes as in this example /x/.
1. To approve the proposal permitting the Company to enter into a new line of
business in the hotel and casino industry, including certain new business
opportunities and to authorize the issuance of up to 5,500,000 shares of the
Company's Common Stock and options to purchase 600,000 shares of Common Stock.
/ / FOR / / AGAINST / / ABSTAIN
2. To approve an amendment to the Company's Certificate of Incorporation to
change the Company's name from "Conserver Corporation of America" to "CCA
Companies Incorporated".
/ / FOR / / AGAINST / / ABSTAIN
3. To approve an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock from thirty million
shares to fifty million shares and preferred stock, par value, $.01 of the
Company from five thousand to five million shares.
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/ / FOR / / AGAINST / / ABSTAIN
4. To approve and adopt an amendment to the Company's 1996 Stock Option Plan to
increase the number of authorized shares of Common Stock to be issued thereunder
from 1.3 million shares to five million shares.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
This proxy will be voted as directed. Unless otherwise directed, this Proxy will
be voted for Proposals 1, 2, 3 and 4.
Dated: ______________________________________________, 1997
- ----------------------------------------------------------------
Shareholder sign here
- ----------------------------------------------------------------
Co-owner sign here
NOTE: Please sign exactly as the name appears on this card. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
YOUR PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE SO THAT YOUR VOTE WILL BE
COUNTED.
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EXHIBIT A-1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CONSERVER CORPORATION OF AMERICA
CONSERVER CORPORATION OF AMERICA, a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: That the Board of Directors of the Corporation, at a meeting
held on December 2, 1997, adopted resolutions proposing and declaring advisable
the following amendments to the Amended Certificate of Incorporation of the
Corporation, and declaring that such proposed amendments be submitted for
consideration by the stockholders of the Corporation entitled to vote in respect
thereof. The resolution setting forth the proposed amendments is as follows:
RESOLVED, that the Certificate of Incorporation of this Corporation be
amended, as follows:
I. Paragraph FIRST of the Certificate of Incorporation, relating to
the name of the Corporation, be deleted in its entirety and replaced
with the following provision to said article:
"FIRST: The name of the Corporation is CCA Companies Incorporated."
II. Paragraph FOURTH of the Certificate of Incorporation, relating to
the capitalization of the Corporation, be amended by deleting in its
entirety the first sentence of Paragraph Fourth and replacing it with
the following:
"a) Authorized shares. The total number of shares of stock
which the Corporation shall have the authority to issue is
fifty-five million (55,000,000) which shall consist of
50,000,000 shares, $.001 par value, designated as Common
Stock, and 5,000,000, $.01 par value, designated as Preferred
Stock."
SECOND: that thereafter pursuant to resolutions of the Board of
Directors of the Corporation, a special meeting of the stockholders of the
Corporation was duly called and held on December 2, 1997, upon at which meeting
the necessary number of shares as required by statute were voted in favor of the
amendment.
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THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Charles H. Stein, its President and Chief Executive Officer, on this
___ day of _________ 1997.
CONSERVER CORPORATION OF AMERICA, INC.
By:
Charles H. Stein, President and Chief Executive Officer
46
