<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CONSYGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
TEXAS 7371 76--0260145
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
10201 SOUTH 51ST STREET, SUITE 140, PHOENIX, ARIZONA 85044 (602) 496-4545
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------------
RONALD I. BISHOP,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CONSYGEN, INC.
10201 SOUTH 51ST STREET, SUITE 140
PHOENIX, ARIZONA 85044
(602) 496-4545
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
JOHN G. NOSSIFF, JR., ESQ.
BROWN, RUDNICK, FREED & GESMER
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
TEL: (617) 856-8200
FAX: (617) 856-8201
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
===============================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, $.003 par value 3,187,570 Shares $6.4375 $20,519,982 $6,218
- ------------------------------------- --------------------- ---------------------- ----------------------- --------------------
TOTAL 3,187,570 Shares $6.4375 $20,519,982 $6,218
===============================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED NOVEMBER 20, 1997
3,187,570 Shares
CONSYGEN, INC.
COMMON STOCK
-----------------------
Of the estimated 2,898,986 shares of Common Stock, $.003 par value (the
"Common Stock") of ConSyGen, Inc., a Texas corporation ("ConSyGen" or the
"Company"), offered hereby, an estimated 211,416 shares are being sold by the
Company upon conversion of outstanding convertible notes and 2,687,570 are being
sold by certain stockholders of the Company (the "Selling Stockholders"). See
"Selling Stockholders." There can be no assurance that the convertible notes
will be converted.
The Common Stock is quoted on the National Association of Securities
Dealer's OTC Bulletin Board ("OTC Bulletin Board") under the symbol "CSGI." On
November 13, 1997, the last reported sale price of the Common Stock was $6.75
per share.
-----------------------
SEE "RISK FACTORS" ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
Price to Proceeds to Proceeds to
Public (1) Company(2) Selling
Stockholders
<S> <C> <C> <C>
- ------------------------------------------ ------------------------- --------------------------- -----------------------
Per Share................... $[ ] $ (3) $
- ------------------------------------------ ------------------------- --------------------------- -----------------------
Total ...................... $[ ] $ $
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated based on the last reported sale of the Common Stock on the
OTC Bulletin Board on November 13, 1997.
(2) Before deducting expenses payable by the Company estimated to be
$200,000.
(3) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion rate of $4.73 per share (70% of $6.75, the closing price of
the Common Stock, as quoted on the OTC Bulletin Board on November 13,
1997), into approximately 211,416 shares of Common Stock. There can be
no assurance that such long-term debt will be converted into Common
Stock.
-----------------------
NOVEMBER ______, 1997.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OTC BULLETIN BOARD OR OTHERWISE. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
<PAGE> 3
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
(including the financial statements and notes thereto) appearing elsewhere in
this Prospectus.
THE COMPANY
The Company's business consists solely of the business of its wholly
owned subsidiary, ConSyGen, Inc., an Arizona corporation ("ConSyGen-Arizona").
ConSyGen-Arizona commenced business in 1979 for the purpose of developing and
marketing vertical market software for the hotel and airline industries. In
addition to providing these software packages, for many of its clients,
ConSyGen-Arizona converted these applications from proprietary Honeywell
computers to open systems (UNIX-compliant hardware), using an
internally-developed approach which automated the conversion process. Until
1995, ConSyGen-Arizona licensed its proprietary computer software, which was
used in the hotel and airline industries, and also provided software maintenance
services. In 1996, ConSyGen-Arizona discontinued its practice of software
licensing and providing software maintenance services.
In 1991, in response to growing business demand for migration of older
software applications from mainframe computers to open systems, ConSyGen-Arizona
commenced development of a fully-automated capability to allow clients to move
software applications from mainframes to open systems, while simultaneously
performing migration to alternative databases and providing replacement of
existing languages (primarily, COBOL). This process, also known as "down-sizing"
or "re-hosting", was designed to move application software from expensive,
inflexible, proprietary mainframe computers to newly-available, lower-cost
open-system computers, thereby opening up more effective environments, while
substantially reducing operating costs. After significant research and
development, an automated software conversion toolset - ConSyGen Conversion(SM)-
was completed. See "Risk Factors Absence of Proven Technology/Market
Acceptance."
Full automation of this otherwise-manual process offered the
significant benefit of eliminating most of the manual conversion tasks, thereby
reducing effort, time and expense, while improving accuracy and reducing testing
requirements.
In early 1996, ConSyGen-Arizona commenced the extension of the existing
conversion capability to deal specifically with the Year 2000 problem; that is
the inability of a software application to recognize the Year 2000.
ConSyGen-Arizona's objective was to develop a fully-automated process for the
identification and correction of date occurrences in software applications.
Although under continuous development, the Company's ConSyGen 2000(SM) toolset,
which provides automated date conversions, has been used to complete several
pilot (non-revenue generating) Year 2000 conversion projects, and patents are
pending on the technology. See "Risk Factors - Absence of Proven
Technology/Market Acceptance." Automation of the process by which software is
made compliant for the Year 2000 and beyond, as compared with a manual process,
offers the benefits of speed; accuracy; reduced staffing, time and cost; and
higher confidence in the delivered result. Client staff involvement is reduced
to project-related tasks (such as test planning), and to confirmation of some
date origins and cross-references in the software.
ConSyGen-Arizona now concentrates on the marketing and provision of
services related to its primary software products - ConSyGen 2000 and ConSyGen
Conversion. Marketing is performed by ConSyGen directly, through selected
teaming partners, and through a representative program.
Although the Company is actively marketing its ConSyGen 2000 and
ConSyGen Conversion toolsets, the Company is not currently generating any
significant revenue, either from its ConSyGen 2000 or its ConSyGen Conversion
toolset. See "Risk Factors - Absence of Proven Technology/Market Acceptance."
Although the Company has completed several pilot (non-revenue generating) Year
2000 conversion projects, the Company has not yet completed a revenue generating
Year 2000 conversion project. The Company did complete several revenue
generating migration projects from 1993 to 1995, but the Company has not since
completed such a project. Instead, the Company's efforts have been focused on
the further development of its ConSyGen Conversion toolset, including extending
the toolset to cover new hardware environments. Such further development and
extension of the toolset was necessary, as the toolset was limited in
application to Honeywell/BULL systems and did not perform conversions with
sufficient speed. The Company recently entered into a revenue generating
contract with Lender's Service, Inc., a subsidiary of Merrill Lynch, pursuant to
which the Company will provide conversion services, including both migration and
Year 2000 correction services.
-2-
<PAGE> 4
- --------------------------------------------------------------------------------
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the Company (1).................................. 211,416 shares
Common Stock Offered by Selling Stockholders............................. 2,687,570 shares
Common Stock to be Outstanding after the Offering........................ 15,265,494 shares(2)
Use of Proceeds.......................................................... Conversion of long-term debt.
See "Use of Proceeds."
OTC Bulletin Board Symbol................................................ CSGI
</TABLE>
- -------------------------
(1) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion rate of $4.73 per share (70% of $6.75, the closing price of the
Common Stock, as quoted on the OTC Bulletin Board on November 13, 1997),
into approximately 211,416 shares of Common Stock. There can be no assurance
that such long-term debt will be converted into Common Stock.
(2) Does not include: (i) outstanding warrants to purchase 1,400,000 shares of
Common Stock, at an exercise price of $5.00 per share, of which 1,300,000
are currently exercisable; and (ii) outstanding options to purchase
2,270,000 shares of Common Stock, at a weighted average exercise price of
$4.01, of which 1,211,250 are currently exercisable.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED AUGUST 31,
------------------------ ----------------
5 MONTHS ENDED
MAY 31, 1997 1996 1995 1994 1993 1992 1997 1996
------------ ---- ---- ---- ---- ---- ---- ----
CONSOLIDATED INCOME (unaudited) (unaudited)
STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 20 $ 44 $ 329 $ 790 $ 854 $ 819 $ 6 $ -
Net loss (1,648) (6,621) (1,120) (655) (595) (50) (744) (1,351)
Weighted average common
shares outstanding 13,700,231 9,438,062 6,116,661 5,958,327 3,500,000 1,000,000 13,919,831 8,076,889
Net loss per
common share (0.12) (0.70) (0.18) (0.11) (0.17) (0.05) (0.05) (0.17)
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1997
DECEMBER 31, ------------------------
MAY 31, 1997 1996 1995 1994 1993 1992 ACTUAL AS ADJUSTED(1)(2)
------------ ---- ---- ---- ---- ---- ------------------------
CONSOLIDATED BALANCE (unaudited) (unaudited)
SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 21 $ 83 $3 $14 $1 - $ 51 $ 5,759
Working capital (deficit) (857) (820) (1,460) (795) (3,363) (6,853) (295) 5,159
Total assets 211 222 173 64 230 423 1,004 6,210
Long-term debt 1,000 - - - - - 1,000 -
Stockholders' equity (deficit) (1,720) (742) (1,392) (779) (3,325) (6,819) (947) 5,508
</TABLE>
----------------------
(1) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion rate of $4.73 per share (70% of $6.75, the closing price of
the Common Stock, as quoted on the OTC Bulletin Board on November 13,
1997), into approximately 211,416 shares of Common Stock. There can be
no assurance that such long-term debt will be converted into Common
Stock.
(2) Gives effect to the following transactions: (i) the receipt of $504,000
(net of finder's fee) in payment of subscription receivable and the
issuance of the related 100,000 shares; (ii) the sale in September 1997
of 52,000 shares of Common Stock, for net proceeds of approximately
$312,000; (iii) the sale in October 1997 of 900,000 shares of Common
Stock at a price of $5.8625 per share, for net proceeds of approximately
$5.1 million; (iv) the issuance in October 1997 of 31,000 shares of
Common Stock in payment of current indebtedness in the amount of
approximately $250,000; and (v) the issuance of 20,000 shares of Common
Stock to a consultant of the Company as consideration for services
rendered and to be rendered.
- --------------------------------------------------------------------------------
-3-
<PAGE> 5
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby.
ABSENCE OF PROVEN TECHNOLOGY/MARKET ACCEPTANCE. The Company is
continuing to develop its ConSyGen Conversion and ConSyGen 2000 tool sets, and
there can be no assurance that such toolsets will perform to market
expectations, be well received, or generate substantial revenues, if any. The
Company is not currently generating any significant revenue from either its
ConSyGen 2000 or its ConSyGen Conversion toolset, or otherwise. Although the
Company is currently working on a revenue generating year 2000 conversion, the
Company has yet to complete a year 2000 conversion on a commercial basis with
its ConSyGen 2000 toolset. Moreover, the Company has not completed a revenue
generating migration project with its ConSyGen Conversion toolset since 1995.
There can be no assurance that the Company's ConSyGen 2000 toolset will enable
the Company to successfully convert software programs on a commercial basis so
that they are year 2000 compliant. Nor can there be any assurance that the
Company's ConSyGen Conversion toolset will enable the Company to successfully
perform migration projects on a commercial basis. Failure of the Company's
ConSyGen 2000 or ConSyGen Conversion toolsets to enable successful year 2000
conversions and migrations will have a material adverse effect on the price of
the Company's common stock and the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be able
to compete effectively in the market for its services. The failure of the
Company to penetrate its target market would have a material adverse effect upon
its operations and prospects. Market acceptance of the Company's services will
depend upon the ability of the Company to demonstrate the advantages of its
toolsets over competing technologies.
ACCUMULATED DEFICIT; NET LOSSES. The Company has not been profitable
and had accumulated losses at August 31, 1997 of approximately $19.6 million.
Management believes that the Company's long-term ability to continue as a going
concern is dependent upon obtaining adequate long-term financing and the
achievement of profitability. The Company has not yet generated significant
revenue from either its ConSyGen 2000 or ConSyGen Conversion toolset, or
otherwise. Nor has the Company completed a Year 2000 conversion on a commercial
basis with its ConSyGen 2000 toolset. Moreover, the Company has not since 1995
completed a migration project using its ConSyGen Conversion toolset. There can
be no assurance that the Company will be able to generate significant revenue
from services related to either its ConSyGen 2000 or ConSyGen Conversion
toolset. See "Risk Factors - Absence of Proven Technology/Market Acceptance."
Nor can there be any assurance that the Company will be able to obtain adequate
long term financing. See "Risk Factors -- Future Capital Needs." The failure of
the Company to generate significant revenue from its conversion services or
obtain adequate long term financing will have a material adverse effect on the
Company's ability to continue as a going concern. There can be no assurance that
the Company will be successful in achieving these goals.
NEED TO DEVELOP ADDITIONAL PRODUCTS AND SERVICES. Although the Company
has yet to generate any revenue from providing year 2000 conversion services,
the Company currently devotes significant resources to developing services that
address the year 2000 problem. Although the Company believes that the demand for
services relating to the year 2000 problem will continue to exist for a limited
time beyond the year 2000, eventually, the demand for such services will be
non-existent. Moreover, the Company is not currently generating any significant
revenue from its ConSyGen Conversion toolset, the toolset it uses to migrate
software applications from mainframe environments to open systems. There can be
no assurance that the Company will be able to diversify and develop and market
products and services (including its ConSyGen Conversion toolset) to enable the
Company to generate business from non-Year 2000 related services. The failure of
the Company to generate business unrelated to the year 2000 market will have a
material adverse effect on the Company's business, financial condition and
results of operations.
-4-
<PAGE> 6
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect the prevailing market price of the Common Stock. Upon
completion of this Offering, the Company will have approximately 15,265,494
shares of Common Stock outstanding. Of those shares, approximately 6,860,102
shares will be freely tradable without restriction under the Securities Act of
1933, as amended (the "Securities Act"). Upon completion of the Offering,
8,593,610 shares of Common Stock will be eligible for sale in the public market
without registration, subject to certain volume and other limitations, pursuant
to Rule 144 under the Securities Act. The remaining shares of Common Stock held
by existing stockholders, including shares issuable upon exercise of warrants,
will become eligible for sale under Rule 144 or otherwise at various times
thereafter. The Company is obligated to register under the Securities Act shares
of Common Stock held by certain stockholders of the Company. Except for
approximately 100,000 of such shares, all of such shares are registered on the
Registration Statement, of which this Prospectus is a part. In addition, there
are currently outstanding warrants to purchase 1,400,000 shares of Common Stock,
of which 1,300,000 are currently exercisable, and options to purchase 2,270,000
shares of Common Stock, of which 1,211,250 are currently exercisable. The
Company may in the future file a registration statement on Form S-8 registering
the shares issuable upon exercise of these options. If any portion of the Shares
of Common Stock registered hereunder or issuable upon exercise of the
outstanding warrants or options are sold in the public market, such sales may
have a material adverse effect on the market price of the Common Stock. See
"Risk Factors - Limited Trading Market." The sale of such shares may also have a
material adverse effect on the Company's ability to raise needed capital.
DEVELOPMENT OF NEW TECHNOLOGIES. The Company's success is dependent
upon the successful development and marketing of its current and future services
and products, as well as upon generating substantial revenue. The likelihood of
the Company's success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with
the development of new technologies. These include, but are not limited to,
competition, the need to develop customer support capabilities and market
expertise, and setbacks in product development, market acceptance and sales and
marketing.
FUTURE CAPITAL NEEDS. The Company's future capital requirements will
depend on many factors, including the Company's ability to generate cash flow
from operations, if any, continued progress in its research and development
programs, the development of superior technologies by the Company's competitors,
and the Company's ability to market its services successfully. See "Risk Factors
- - Accumulated Deficit, Net Losses", " - Absence of Proven Technology/Market
Acceptance," and "- Development of New Technologies." The Company may need to
raise additional funds in the future through equity and/or debt financings. Any
such financings will result in dilution to the Company's then existing
stockholders, and any financing, if available at all, may not be on terms
favorable to the Company. There can be no assurance that the Company will be
able to obtain needed financing or that the terms of such financing will be
favorable to the Company. If adequate funds are not available, there would be a
material adverse effect on the Company's ability to continue as a going concern.
LIMITED TRADING MARKET. There is currently a very limited public market
for the Common Stock of the Company. There can be no assurance that the current
limited public trading market for the Company's Common Stock is sustainable.
Because there is only a very limited public trading market for the Company's
Common Stock, the price of the Common Stock, as quoted on the OTC Bulletin
Board, is highly volatile. See "Price Range of Common Stock." The sale of a
small number of shares of Common Stock could cause the quoted price of the
Common Stock to drop dramatically. Due to the volatility of the market price of
the Company's Common Stock, an investor may not be able to dispose of the Common
Stock without losing all or a substantial portion of its investment. See "Risk
Factors - Shares Eligible for Future Sale."
RELIANCE ON KEY PERSONNEL/NEED FOR ADDITIONAL PERSONNEL. The Company is
highly dependent on the knowledge and experience of its key officers for its
growth and profitable operation. The Company relies heavily, at present, on its
four key officers, Ronald I. Bishop, President and CEO; Robert L. Stewart,
Chairman, Jeffrey Richards, Vice President, Sales and Marketing, and James
Vales, Vice President, Operations. While the
-5-
<PAGE> 7
Company will hire and train others to assist them, should they become unable to
serve or leave the Company in the near future, such an event may have a material
adverse effect on the Company. The Company does not currently hold key man life
insurance policies on any such officers. The ability of the Company to generate
revenues in the future will depend in part on its success in adding and managing
a significant number of management, research and product development,
operations, marketing, sales and sales support personnel. Due to the level of
technical and marketing expertise necessary to support and market the Company's
service offerings, the Company must attract and retain highly qualified and well
trained personnel. There are a limited number of persons with the requisite
skills to serve in these positions and it may become increasingly difficult for
the Company to hire and retain such personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to attract
and retain such personnel.
COMPETITION. The Company's business is extremely competitive. Many of
the Company's competitors have greater market recognition and greater financial,
technical, marketing and human resources than the Company. There can be no
assurance that the Company will be able to compete successfully against existing
companies or new entrants to the marketplace. Furthermore, the development by
competitors of new or improved products and technologies may render the
Company's services or proposed services obsolete or less competitive, which
could have a material adverse effect on the Company.
TECHNOLOGICAL OBSOLESCENCE. The market in which the Company operates is
characterized by extensive research and development and rapid technological
change, resulting in relatively short life cycles for the Company's service
offerings. Development by others of new or improved products, processes or
technologies may make the Company's services or proposed services or products
obsolete or less competitive. The Company will be required to devote substantial
efforts and financial resources to enhance its existing services and to develop
new services or products.
CONTROLLING SHAREHOLDER. More than a majority of the outstanding shares
of Common Stock is beneficially owned by Robert L. Stewart, Chairman of the
Company. Mr. Stewart will be able to control the board of directors and the
Company for the foreseeable future.
NO ANTICIPATED DIVIDENDS. The Company has not paid any cash dividends
on its capital stock since its inception and does not intend to pay any
dividends in the foreseeable future. Although the Company has not had any
earnings to date, the Company intends to retain any future earnings for use in
its business operations.
POTENTIAL LIABILITY FOR DEFECTS IN CONVERSION SERVICES. Conversion
services as complex as those offered by the Company frequently result in errors
or failures, especially when first introduced or when subsequently modified The
Company has in the past encountered difficulties while performing pilot
conversion services. There can be no assurance that the Company will not in the
future encounter further difficulties while performing conversion services on a
commercial basis, resulting in loss of revenue or delay in market acceptance,
diversion of development resources, damages to the Company's reputation,
increased service and warranty costs, and legal claims for damages, any of which
could have a material adverse effect on the Company. The Company does not have
insurance to cover potential liabilities related to the provision of defective
conversion services.
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors purchasing shares from
the selling stockholders in this offering will incur immediate and substantial
dilution of $6.38 (95%) per share between the adjusted net tangible book value
per share after this offering, $.37, and the estimated public offering price of
$6.75 (the closing price of the Common Stock on November 13, 1997, as quoted on
the OTC Bulletin Board. The holders of the convertible notes acquiring shares
from the Company upon conversion of the such notes will incur immediate and
substantial dilution of $4.36 (92%) per share between the adjusted net tangible
book value per share after this offering, $.37, and the assumed conversion price
of $4.73 (70% of $6.75, the closing price of the Common Stock on November 13,
1997, as quoted on the OTC Bulletin Board).
-6-
<PAGE> 8
INTELLECTUAL PROPERTY. The Company's ability to compete effectively
depends to a significant extent on its ability to protect is proprietary
information. The Company relies primarily upon confidentiality procedures, trade
secrets and trademark and trade name laws to protect its intellectual property
rights. The Company generally enters into confidentiality agreements with its
customers, key employees and its marketing partners, and generally controls
access to its technology, software and other proprietary information. Despite
these precautions, it may be possible for competitors or customers to copy all
or part of the Company's technology or obtain information from the Company which
the Company regards as proprietary. Furthermore, there can be no assurance that
others will not independently develop technology similar to that developed or
planned by the Company. Although the Company intends to defend its intellectual
property, there can be no assurance that the steps taken by the Company to
protect its proprietary information will be adequate to prevent misappropriation
of its technology or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology.
The Company is also subject to the risk of alleged infringement of
intellectual property rights of others. Although the Company believes that its
software does not infringe on the proprietary rights of others and has not
received any written notice of claimed infringement, because of the rapid
technological development of the computer industry, certain of the Company's
technologies could infringe on existing proprietary rights of third parties. If
any such infringement exists or occurs there can be no assurance that any
necessary licenses or rights could be obtained on terms satisfactory to the
Company, if at all. Further, in such event, the Company may be required to
modify the infringing technology. There can be no assurance that the Company
would be able to do so in a timely manner, upon acceptable terms and conditions
or at all, and the failure to do so could have material adverse effect on the
Company. In addition, litigation may be necessary to enforce the Company's
intellectual property rights, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company.
NASD REVIEW. The National Association of Securities Dealers, Inc.
("NASD") in December 1996 advised the Company that it was conducting a review of
trading in the Company's Common Stock following the acquisition of ConSyGen,
Inc., a privately held Arizona corporation ("ConSyGen-Arizona"). The NASD made a
written inquiry of the Company to which the Company responded in writing in
January 1997. The NASD made inquiry with respect to, among other things, a
private placement by ConSyGen-Arizona, the acquisition of ConSyGen-Arizona by
the Company, and issuances of Common Stock by the Company during 1996. The NASD
has not yet responded in writing to the Company's written response. Subsequent
to the Company's written response, the NASD made verbal inquiries primarily
focused on participation by NASD members in private placements. The NASD has not
made any inquiry of the Company for approximately eight months. The outcome of
the NASD review could have a material adverse effect on the Company and the
price of and trading market for the Company's Common Stock.
USE OF PROCEEDS
Of the estimated 2,898,986 shares of Common Stock offered hereby, an
estimated 211,416 shares are being sold by the Company upon conversion of $1.0
million in convertible notes and 2,687,570 shares are being sold by the Selling
Stockholders. The only proceeds to the Company upon conversion of the
outstanding convertible notes will be the discharge of $1 million of long-term
debt. There can be no assurance that the convertible notes will be converted.
The Company will not receive any proceeds from the sale of Common Stock by the
Selling Stockholders.
DIVIDEND POLICY
The Company has not paid any dividends on its capital stock since the
its inception. The Company's current policy is to retain any future earnings to
finance the continuing development of its business. Any future
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<PAGE> 9
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition,
operating results, capital requirements, general business conditions and such
other factors as the Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the OTC Bulletin Board under
the symbol "CSGI." The following table sets forth the range of high and low
sales prices as quoted on the OTC Bulletin Board for the period from September
10, 1996, when public trading for the Company's Common Stock commenced, through
November 13, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING MAY 31, 1997 HIGH LOW
---- ---
<S> <C> <C>
Second Quarter (commencing September 10, 1996)........... $16.25 $3.50
Third Quarter............................................ 13.25 6.50
Fourth Quarter .......................................... 13.125 8.50
14.25 7.00
FISCAL YEAR ENDING MAY 31, 1998
First Quarter ........................................... 15.00 7.00
Second Quarter (through November 13, 1997)............... 10.9375 6.75
</TABLE>
The last reported sale price of the Common Stock on the OTC Bulletin
Board on November 13, 1997 was $6.75 per share. As of November 13, 1997, there
were approximately 347 holders of record of the Company's Common Stock.
-8-
<PAGE> 10
CAPITALIZATION
The following table sets forth as of August 31, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization of the Company, after
giving effect to certain transactions and after deducting estimated offering
expenses payable by the Company. This table should be read in conjunction with
the Consolidated Financial Statements and related notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1997 AUGUST 31, 1997
ACTUAL AS ADJUSTED(1)(2)(3)
-------------- --------------
<S> <C> <C>
Current notes and loans payable $ 558,592 $ 308,018
============== ==============
Long-term debt $ 1,000,000 $ -----
-------------- --------------
Stockholders' equity (deficit)
Common stock, $.003 par value;
40,000,000 shares authorized;
issued and outstanding: 13,919,831
shares (actual) and 15,265,494
shares (as adjusted) 41,760 45,796
Additional paid-in capital 18,121,325 25,235,944
Common stock subscribed, 100,000 shares 504,000 ------
Accumulated deficit (19,613,596) (19,773,596)
-------------- --------------
Total stockholders' equity (deficit) (946,511) 5,508,144
-------------- --------------
Total capitalization $ 53,489 $ 5,508,144
============== ==============
</TABLE>
(1) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion price of $4.73 per share (70% of $6.75, the closing price of
the Common Stock, as quoted on the OTC Bulletin Board on November 13,
1997), into approximately 211,416 shares of Common Stock. There can be
no assurance that such long-term debt will be converted into Common
Stock.
(2) Gives effect to the following transactions (i) the receipt of $504,000
(net of finder's fee) in payment of subscription receivable and the
issuance of the related 100,000 shares; (ii) the sale in September 1997
of 52,000 shares of Common Stock, for net proceeds of approximately
$312,000; (iii) the sale in October 1997 of 900,000 shares of Common
Stock at a price of $5.8625 per share, for net proceeds of
approximately $5.1 million; (iv) the issuance in October 1997 of
approximately 31,000 shares of Common Stock in payment of current
indebtedness in the amount of approximately $250,000 ; and (v) the
issuance of 20,000 shares of Common Stock to a consultant of the
Company in exchange for service to be rendered.
(3) Does not include: (i) outstanding warrants to purchase 1,400,000 shares
of Common Stock, at an exercise price of $5.00 per share, of which
1,300,000 are currently exercisable; and (ii) outstanding options to
purchase 2,270,000 shares of Common Stock, at a weighted average
exercise price of $4.01, of which 1,211,250 are currently exercisable.
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<PAGE> 11
DILUTION
As of August 31, 1997, as adjusted (before giving effect to the assumed
conversion of $1.0 million of long term debt), the Company had net tangible book
value of approximately $4.6 million, or $.31 per share of Common Stock. "Net
tangible book value per share" represents the amount of total tangible assets
less total liabilities divided by the number of outstanding shares of Common
Stock. Investors purchasing shares from the Selling Stockholders in this
offering will incur immediate and substantial dilution of $6.38 (95%) per share
between the adjusted net tangible book value per share after this offering,
$.37, and the estimated public offering price of $6.75 (the closing price of the
Common Stock on November 13, 1997 as quoted on the OTC Bulletin Board). The
holders of the convertible notes acquiring shares from the Company upon
conversion of such notes will incur immediate and substantial dilution of $4.36
(92%) per share between the adjusted net tangible book value per share after
this offering, $.37, and the assumed conversion price of $4.73 (70% of $6.75 the
closing price of the Common Stock on November 13, 1997, as quoted on the OTC
Bulletin Board). Upon conversion of the convertible notes, the net tangible book
value per share of the Common Stock will increase from $.31 to $.37.
The foregoing gives effect to the following transactions (i) the
receipt of $504,000 (net of finder's fee) in payment of subscription receivable
and the issuance of the related 100,000 shares; (ii) the sale in September 1997
of 52,000 shares of Common Stock, for net proceeds of approximately $312,000;
(iii) the sale in October 1997 of 900,000 shares of Common Stock at a price of
$5.8625 per share, for net proceeds of approximately $5.1 million; (iv) the
issuance in October 1997 of approximately 31,000 shares of Common Stock in
payment of current indebtedness in the amount of approximately $250,000 ; (v)
the issuance of 20,000 shares of Common Stock to a consultant of the Company in
exchange for service to be rendered; and (v) the conversion of $1.0 Million of
long-term debt, at an assumed conversion price of $4.73 per share (70% of $6.75,
the closing price of the Common Stock, as quoted on the OTC Bulletin Board on
November 13, 1997), into approximately 211,416 shares of Common Stock. There can
be no assurance that such long-term debt will be converted into Common Stock.
-10-
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
The following table contains certain selected consolidated financial
data of the Company and is qualified in its entirety by the more detailed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus. The statement of operations data for the five months ended May 31,
1997 and for the years ended December 31, 1996, 1995 and 1994, and the balance
sheet data as of May 31, 1997, December 31, 1996, 1995 and 1994 have been
derived from the Consolidated Financial Statements of the Company, which
statements have been audited by Wolinetz, Gottlieb & Lafazan, P.C., independent
accountants, and are included elsewhere in this Prospectus. The unaudited
financial data as of August 31, 1997, December 31, 1993 and 1992 and for the
three months ended August 31, 1997 and 1996, and the years ended December 31,
1993 and 1992 have been prepared on a basis consistent with the audited
consolidated financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial condition and results of operations for the periods
presented. The results for the three months ended August 31, 1997, are not
necessarily indicative of the results that may be expected for the year ending
May 31, 1998. This data should be read in conjunction with the Consolidated
Financial Statements and related Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED AUGUST 31,
------------------------ ----------------
5 MONTHS ENDED
MAY 31, 1997 1996 1995 1994 1993 1992 1997 1996
------------ ---- ---- ---- ---- ---- ---- ----
CONSOLIDATED INCOME (unaudited) (unaudited)
STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 20 $ 44 $ 329 $ 790 $ 854 $ 819 $ 6 $ -
Net loss (1,648) (6,621) (1,120) (655) (595) (50) (744) (1,351)
Weighted average common
shares outstanding 13,700,231 9,438,062 6,116,661 5,958,327 3,500,000 1,000,000 13,919,831 8,076,889
Net loss per
common share (0.12) (0.70) (0.18) (0.11) (0.17) (0.05) (0.05) (0.17)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31, 1997
------------ ---------------
MAY 31, 1997 1996 1995 1994 1993 1992 ACTUAL AS ADJUSTED(1)(2)
------------ ---- ---- ---- ---- ---- ------------------------
CONSOLIDATED BALANCE (unaudited) (unaudited)
SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 21 $ 83 $3 $14 $1 - $ 51 $ 5,759
Working capital (deficit) (857) (820) (1,460) (795) (3,363) (6,853) (295) 5,159
Total assets 211 222 173 64 230 423 1,004 6,210
Long-term debt 1,000 - - - - - 1,000 -
Stockholders' equity (deficit) (1,720) (742) (1,392) (779) (3,325) (6,819) (947) 5,508
</TABLE>
----------------------
(1) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion price of $4.73 per share (70% of $6.75, the closing price of the
Common Stock, as quoted on the OTC Bulletin Board on November 13, 1997),
into approximately 211,416 shares of Common Stock. There can be no assurance
that such long-term debt will be converted into Common Stock.
(2) Gives effect to the following transactions: (i) the receipt of $504,000 (net
of finder's fee) in payment of subscription receivable and the issuance of
the related 100,000 shares; (ii) the sale in September 1997 of 52,000 shares
of Common Stock, for net proceeds of approximately $312,000; (iii) the sale
in October 1997 of 900,000 shares of Common Stock at a price of $5.8625 per
share, for net proceeds of approximately $5.1 million; (iv) the issuance in
October 1997 of 31,000 shares of Common Stock in payment of current
indebtedness in the amount of approximately $250,000; and (v) the issuance
of 20,000 shares of Common Stock to a consultant of the Company as
consideration for services rendered and to be rendered.
-11-
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes thereto
appearing elsewhere in this Prospectus.
OVERVIEW
ConSyGen, Inc., a Texas corporation (the "Company"), was incorporated
on September 28, 1988 as C-Square Ventures, Inc. The Company was formed for the
purpose of obtaining capital in order to take advantage of domestic and foreign
business opportunities which may have profit potential. On March 16, 1989, the
Company (then C Square Ventures, Inc.)
completed an initial public offering.
ACQUISITION OF CONSYGEN, INC.
The Company entered into an agreement, dated as of August 28, 1996, to
acquire 100% of the issued and outstanding shares of ConSyGen, Inc., a privately
held Arizona corporation formed on October 11, 1979 ("ConSyGen-Arizona") (f/k/a
International Data Systems, Inc.). Immediately prior to the acquisition
transaction, the Company effected a 1-for-40 reverse split of its Common Stock.
The Company closed the acquisition of ConSyGen-Arizona on September 5, 1996. As
a result of the acquisition, ConSyGen-Arizona became a wholly-owned subsidiary
of the Company. The transaction has been treated as a reverse acquisition
(purchase), with ConSyGen-Arizona being the acquirer and the Company being the
acquired company.
The Company and its wholly-owned subsidiary, ConSyGen-Arizona, are
herein collectively referred to as the "Company."
RECENT FINANCINGS
In March 1997, the Company raised $1,000,000 before deducting finder's
fees of $100,000 through a private placement of convertible notes (the "Notes")
in the principal amount of $1,000,000. The Notes are unsecured, bear interest at
the rate of 6% per annum, are payable in March 2000, and are convertible into
Common Stock of the Company. The principal amount of the Notes is convertible
into Common Stock of the Company at a rate equal to the lesser of (1) $10.85 per
share or (2) that price which is equal to 70% of the average closing bid price
of the Common Stock for the five trading days preceding the date of conversion.
The Common Stock issuable upon conversion of the Notes is registered for
issuance on the Registration Statement, of which this prospectus is a part.
In June 1997, the Company raised approximately $1,080,000, before
deducting a finder's fee of approximately $80,000, through the private placement
of 120,000 shares of Common Stock.
In late August and early September, 1997, the Company raised $882,500,
before deducting a finder's fee of $66,000, through the private placement of
152,000 shares of Common Stock.
In September 1997, the Company sold 900,000 shares of Common Stock in a
private placement for gross proceeds of $5,276,250. In connection with this
offering, the Company paid a finder's fee consisting of approximately $185,000
in cash and 31,500 shares of Common Stock. The net proceeds of this offering
were approximately $5.1 million.
-12-
<PAGE> 14
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The Company's fiscal year end is May 31. Effective January 1, 1997, the
Company's wholly-owned subsidiary, ConSyGen, Inc., an Arizona corporation
("ConSyGen-Arizona"), changed its fiscal year from December 31 to May 31 to
coincide with the fiscal year end of its parent company, ConSyGen. Since the
Company's acquisition of ConSyGen-Arizona has been accounted for as a reverse
acquisition (purchase), with ConSyGen-Arizona being the acquirer and the Company
being the acquired company, only the historical operations of ConSyGen-Arizona
are presented for periods through the date of acquisition. Subsequent to the
acquisition date, the consolidated operations of the Company are presented.
Accordingly, the financial statements presented are for the 5 month period ended
May 31, 1997, and for the years ended December 31, 1996, 1995, and 1994.
Although the Company is actively marketing its ConSyGen 2000 and
ConSyGen Conversion toolsets, the Company is not currently generating any
significant revenue, either from its ConSyGen 2000 or its ConSyGen Conversion
toolset, or otherwise. See "Risk Factors - Absence of Proven Technology/Market
Acceptance." Although the Company has completed several pilot (non-revenue
generating) Year 2000 conversion projects, the Company has not yet completed a
revenue generating Year 2000 conversion project. The Company did complete
several revenue generating migration projects from 1993 to 1995, but the Company
has not since completed such a project. Instead, the Company's efforts have been
focused on the further development of its ConSyGen Conversion toolset, including
extending the toolset to cover new hardware environments. Such further
development and extension of the toolset was necessary, as the toolset was
limited in application to Honeywell/BULL systems and did not perform conversions
with sufficient speed. The Company recently entered into a revenue generating
contract with Lender's Service, Inc., a subsidiary of Merrill Lynch, pursuant to
which the Company will provide conversion services, including both migration and
Year 2000 correction services.
Quarterly Periods Ended August 31, 1997 and 1996
Net Losses. For the quarter ended August 31, 1997, the Company incurred
net losses of $744,000, compared with net losses of $1,351,000 for the
comparable prior quarter, a decrease of $607,000. An explanation of these losses
is set forth below.
Revenues. For the quarters ended August 31, 1997 and 1996, the Company
had no operating revenue. The Company has abandoned its software licensing and
maintenance business and is now focused on the development of software for use
in providing conversion services, including Year 2000 conversion services, and
the marketing of such services. In September, 1997, the Company signed a revenue
generating contract with Lender's Service, Inc., a subsidiary of Merrill Lynch,
pursuant to which the Company will provide conversion services, including both
migration and Year 2000 correction services.
Software Development Expenses. For the quarter ended August 31, 1997,
software development expenses were $284,000, compared with approximately
$211,000 for the quarter ended August 31, 1996, an increase of approximately
$73,000. The increase in software development expenses is primarily attributable
to the Company's hiring of additional personnel dedicated to the development of
software for use in providing conversion services, including Year 2000
conversion services.
General and Administrative Expenses. For the quarter ended August 31,
1997, general and administrative expenses were approximately $334,000, compared
with approximately $1,011,000 for the three months ended August 31, 1996, a
decrease of $677,000. This decrease in general and administrative expenses was
primarily attributable to a decrease of $889,000 in non-cash compensation
expenses (related to stock issued for services), offset by the following: a
$113,000 increase in expenses associated with the Company's status as a public
company, consisting primarily of professional fees in the amount of $92,000 and
other expenses of $21,000; a
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<PAGE> 15
$30,000 increase in sales and marketing expense; a $12,000 increase in rent
expense; a $21,000 increase in expenses associated with hiring new personnel;
and a $36,000 increase in salaries and other general expenses.
Depreciation and Amortization Expense. For the quarter ended August 31,
1997, depreciation and amortization expense was approximately $21,000, compared
with $67,000 for the comparable prior period, a decrease of $46,000. This
decrease is attributable primarily to a $54,000 decrease in amortization of debt
issuance expense, partially offset by an $8,000 increase in depreciation
expense. The decrease in amortization of debt issuance expense is primarily
attributable to certain debt issuance expenses having been fully amortized.
Five Months Ended May 31, 1997 and 1996
The Company's subsidiary, ConSyGen-Arizona, changed its fiscal year end
date from December 31, to May 31, effective as of January 1, 1997. Accordingly,
the comparable five month period ended May 31, 1996 is included in the year
ended December 31, 1996. Management of the Company believes that a comparison of
the five month periods ended May 31, 1997 and 1996 is not relevant to an
understanding of the Company's financial condition and results of operations,
because prior to the acquisition of ConSyGen-Arizona in September 1996, the
Company had no operations.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net Losses. For the year ended December 31, 1996, the Company incurred
net losses of $6.6 million, compared with net losses of $1.1 million in 1995 and
$655,000 in 1994. An explanation of these losses is set forth below.
Revenues. For the years ended December 31, 1996, 1995, and 1994, the
Company had revenues of $44,000, $329,000 and $790,000, respectively. The
decreases in operating revenue are primarily attributable to the Company's
abandonment of its software licensing and maintenance business. The Company
abandoned software licensing and maintenance so that it could focus on the
development of software for use in providing conversion services, including Year
2000 conversion services.
Cost of Sales. For the years ended December 31, 1996, 1995 and 1994,
cost of sales were $0, $200,000 and $213,000, respectively. The $200,000
decrease in cost of sales from 1995 to 1996 was attributable to the abandonment
of the Company's software licensing and maintenance business.
Software Development Costs. For the years ended December 31, 1996,
1995, and 1994, software development costs were $740,000, $492,000, and
$588,000, respectively. The $248,000 increase in software development costs from
1995 to 1996 was primarily attributable to the Company's shift in focus from
software maintenance to the development of software for use in providing
conversion services, including Year 2000 conversion services. The $96,000
decrease in software development costs from 1994 to 1995 was primarily
attributable to the Company's transition from providing software maintenance
services to providing conversion services, as well as limited capital resources.
General and Administrative Expenses. For the year ended December 31,
1996, general and administrative expenses were approximately $5,650,000,
compared with approximately $594,000 for the year ended December 31, 1995, an
increase of $5,056,000. This increase in general and administrative expenses was
primarily attributable to an increase in non-cash charges of $4,868,000, related
to the issuance of Common Stock to consultants for services, and increased
professional fees and salaries and related expenses. General and administrative
expenses of $594,000 in 1995 compared with $577,000 for the year ended December
31, 1994, an increase of approximately $17,000. This increase in general and
administrative expenses was primarily attributable to an increase in non-cash
charges of $300,000, related to the issuance of Common Stock to consultants for
services, partially offset by a decrease of $283,000 in other general and
administrative expenses. This decrease in
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<PAGE> 16
other general and administrative expenses was attributable to a decrease in
activity relating to the Company's transition from providing software
maintenance services to providing conversion services, as well as limited
capital resources.
Depreciation and Amortization Expense. For the year ended December 31,
1996, depreciation and amortization expense was approximately $117,000, compared
with $50,000 for the year ended December 31, 1995, an increase of $67,000. This
increase is attributable primarily to a $59,000 increase in amortization of debt
issuance expenses incurred in connection with obtaining debt financing.
Depreciation and amortization expense of $50,000 in 1995 compared with $8,000
for the year ended December 31, 1994, an increase of $42,000. This increase is
attributable primarily to amortization of $40,000 of debt issuance expense
incurred in connection with obtaining debt financing.
MATERIAL CHANGES IN FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1997 the Company was experiencing a working capital
deficiency and has historically incurred substantial and recurring losses. For
the three months ended August 31, 1997, the Company did not generate any
operating revenue. The Company continues, however, to incur substantial costs
and expenses in connection with its business operations and the development of
its software. In September, 1997, the Company signed a revenue generating
contract with Lender's Service, Inc., a subsidiary of Merrill Lynch, pursuant to
which the Company will provide conversion services, including both migration and
Year 2000 correction services.
The Company's cash balances were approximately $51,000 at August 31,
1997, compared with $21,000 at May 31, 1997. The Company had a working capital
deficit of approximately $295,000 at August 31, 1997, compared with a working
capital deficit of approximately $857,000 at May 31, 1997, a decrease in the
working capital deficit of approximately $562,000. This decrease in the working
capital deficit is primarily attributable to a stock subscription in the amount
of $504,000 (net of finder's fees), and an increase in cash and cash equivalents
in the amount of $30,000.
In September 1997, the Company sold 900,000 shares of Common Stock in a
private placement for gross proceeds of $5,276,250. In connection with this
offering, the Company paid the following finder's fee: approximately $185,000 in
cash and 31,500 shares of Common Stock. The net proceeds of this offering were
approximately $5.1 million, the receipt of which has remedied the working
capital deficit that existed at August 31, 1997. The Company intends to use the
net proceeds of this $5.1 million offering for working capital and general
corporate purposes, including for the Company's sales and marketing efforts. The
Company believes that it now has sufficient capital to fund its continuing
operations for approximately twelve months.
As of November 1997, the Company has committed to spend approximately
$12,500 for capital expenditures, consisting of $6,250 for computer equipment
and $6,250 for furniture and fixtures. The Company will fund these expenditures
out of currently available cash.
IMPACT OF INFLATION
Increases in the inflation rate are not expected to affect the
Company's operating expenses. Although the Company has no current plans to
borrow additional funds, if it were to do so at variable interest rates, any
increase in interest rates would increase the Company's cost of borrowed funds.
SEASONALITY
The Company's operations are not affected by seasonal fluctuations,
although the Company's cash flows may at times be affected by fluctuations in
the timing of cash receipts from large contracts.
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<PAGE> 17
BUSINESS
ConSyGen, Inc., a Texas corporation (the "Company"), was incorporated
on September 28, 1988 as C-Square Ventures, Inc. The Company was formed for the
purpose of obtaining capital in order to take advantage of domestic and foreign
business opportunities which may have profit potential. On March 16, 1989, the
Company (then C Square Ventures, Inc.) completed an initial public offering.
ACQUISITION OF CONSYGEN, INC.
The Company entered into an agreement, dated as of August 28, 1996, to
acquire 100% of the issued and outstanding shares of ConSyGen, Inc., a privately
held Arizona corporation formed on October 11, 1979 ("ConSyGen-Arizona") (f/k/a
International Data Systems, Inc.). Immediately prior to the acquisition
transaction, the Company effected a 1-for-40 reverse split of its Common Stock.
The Company closed the acquisition of ConSyGen-Arizona on September 5, 1996. As
a result of the acquisition, ConSyGen-Arizona became a wholly-owned subsidiary
of the Company. The transaction has been treated as a reverse acquisition
(purchase), with ConSyGen-Arizona being the acquirer and the Company being the
acquired company.
For a description of the changes in capitalization of the Company in
connection with the acquisition, see the Company's Consolidated Financial
Statements and the Notes thereto appearing elsewhere in this Prospectus.
The Company and its wholly-owned subsidiary, ConSyGen-Arizona, are
herein collectively referred to as the "Company."
RECENT FINANCINGS
In March 1997, the Company raised $1,000,000 before deducting finder's
fees of $100,000 through a private placement of convertible notes (the "Notes")
in the principal amount of $1,000,000. The Notes are unsecured, bear interest at
the rate of 6% per annum, are payable in March 2000, and are convertible into
Common Stock of the Company. The principal amount of the Notes is convertible
into Common Stock of the Company at a rate equal to the lesser of (1) $10.85 per
share or (2) that price which is equal to 70% of the average closing bid price
of the Common Stock for the five trading days preceding the date of conversion.
In June 1997, the Company raised approximately $1,080,000, before
deducting a finder's fee of approximately $80,000, through the private placement
of 120,000 shares of Common Stock at a price of $9.00 per share.
In late August and early September, 1997, the Company raised $882,500,
before deducting a finder's fee of $66,000, through the private placement of
152,000 shares of Common Stock.
In September 1997, the Company sold 900,000 shares of Common Stock in a
private placement for gross proceeds of $5,276,250. In connection with this
offering, the Company paid a finder's fee consisting of approximately $185,000
in cash and 31,500 shares of Common Stock. The net proceeds of this offering
were approximately $5.1 million.
OVERVIEW
The Company's business consists solely of the business of its wholly
owned subsidiary, ConSyGen-Arizona. ConSyGen-Arizona commenced business in 1979
for the purpose of developing and marketing vertical market software for the
hotel and airline industries. In addition to providing these software packages,
for many of its clients, ConSyGen-Arizona converted these applications from
proprietary Honeywell computers to open systems (UNIX-compliant hardware), using
an internally-developed approach which automated the conversion
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<PAGE> 18
process. Until 1995, ConSyGen-Arizona licensed its proprietary computer
software, which was used in the hotel and airline industries, and also provided
software maintenance services. In 1996, ConSyGen-Arizona discontinued its
practice of software licensing and providing software maintenance services.
In 1991, in response to growing business demand for migration of older
software applications from mainframe computers to open systems, ConSyGen-Arizona
commenced development of a fully-automated capability to allow clients to move
software applications from mainframes to open systems, while simultaneously
performing migration to alternative databases and providing replacement of
existing languages (primarily, COBOL). This process, also known as "down-sizing"
or "re-hosting", was designed to move application software from expensive,
inflexible, proprietary mainframe computers to newly-available, lower-cost
open-system computers, thereby opening up more effective environments, while
substantially reducing operating costs. After significant research and
development, an automated software conversion toolset - ConSyGen ConversionSM -
was completed. See "Risk Factors - Absence of Proven Technology/Market
Acceptance".
Full automation of this otherwise-manual process offered the
significant benefit of eliminating most of the manual conversion tasks, thereby
reducing effort, time and expense, while improving accuracy and reducing testing
requirements.
In early 1996, ConSyGen-Arizona commenced the extension of the existing
conversion capability to deal specifically with the Year 2000 problem; that is
the inability of a software application to recognize the Year 2000.
ConSyGen-Arizona's objective was to develop a fully-automated process for the
identification and correction of date occurrences in software applications.
Although under continuous development, the Company's ConSyGen 2000SM toolset,
which provides automated date conversions, has been used to complete several
pilot (non-revenue generating) Year 2000 conversion projects, and patents are
pending on the technology. See "Risk Factors - Absence of Proven
Technology/Market Acceptance." Automation of the process by which software is
made compliant for the Year 2000 and beyond, as compared with a manual process,
offers the benefits of speed; accuracy; reduced staffing, time and cost; and
higher confidence in the delivered result. Client staff involvement is reduced
to project-related tasks (such as test planning), and to confirmation of some
date origins and cross-references in the software.
ConSyGen-Arizona now concentrates on the marketing and provision of
services related to its primary software products - ConSyGen 2000 and ConSyGen
Conversion. Marketing is performed by ConSyGen directly, through selected
teaming partners, and through a representative program.
Although the Company is actively marketing its ConSyGen 2000 and
ConSyGen Conversion toolsets, the Company is not currently generating any
significant revenue, either from its ConSyGen 2000 or its ConSyGen Conversion
toolset, or otherwise. See "Risk Factors - Absence of Proven Technology/Market
Acceptance." Although the Company has completed several pilot (non-revenue
generating) Year 2000 conversion projects, the Company has not yet completed a
revenue generating Year 2000 conversion project. The Company did complete
several revenue generating migration projects from 1993 to 1995, but the Company
has not since completed such a project. Instead, the Company's efforts have been
focused on the further development of its ConSyGen Conversion toolset, including
extending the toolset to cover new hardware environments. Such further
development and extension of the toolset was necessary, as the toolset was
limited in application to Honeywell/BULL systems and did not perform conversions
with sufficient speed. The Company recently entered into a revenue generating
contract with Lender's Service, Inc., a subsidiary of Merrill Lynch, pursuant to
which the Company will provide conversion services, including both migration and
Year 2000 correction services.
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<PAGE> 19
THE YEAR 2000 MARKET OPPORTUNITY
Awareness and recognition of the year 2000 problem has been spreading
rapidly as the next millennium approaches. The year 2000 problem relates to the
highly-publicized inability of many existing computer systems to process
information or logic completely or accurately involving the year 2000 and
beyond. The problem results from the traditional use of two-digit date fields to
perform computations and decision-making functions. For example, a program using
a two-digit date field may misinterpret "00" as the year 1900 rather than as
2000. As a result, many legacy systems are at risk. For example, unless year
2000 compliance is completed in certain systems, credit cards and ATM cards may
expire prematurely and insurance policies that span three to seven years may not
be able to be written. These date-dependent programs are ubiquitous in legacy
software applications used in many critical business operations.
Many organizations lack the internal resources to address adequately
the year 2000 problem in a timely manner. One industry source estimates that the
overall cost of solving the year 2000 problem worldwide will be in the range of
$300 to $600 billion. Another industry source estimates that for an average
company with 35,000 programs, it would take 75 to 150 person-years to complete
the necessary analysis and coding for year 2000 compliance, which translates
into a three-year period for a team of 25 to 50 programmers. A number of
solutions providers, including the Company, have developed special programs to
meet the needs of year 2000 compliance.
The Company believes that over the next three years most organizations
will attempt to acquire cost-effective solutions for the year 2000 problem. As a
result, the Company anticipates that demand for year 2000 tools and solutions
will grow significantly. Since the problem requires a large number of programs
and systems to be corrected, it is anticipated that most organizations will not
have adequate internal resources to perform all the year 2000 conversions tasks.
Consequently, most organizations will attempt to utilize highly-automated
solutions and in many cases to outsource the conversion to service providers who
can achieve economies of scale by setting up procedures, or "factories", that
utilize automation tools and well-defined processes for year 2000 compliance. In
addition, the Company believes that the year 2000 problem will cause many
organizations to explore further the possibility of migrating all or portions of
their legacy systems to client/server systems.
The Company believes that the following are the major approaches to Year 2000
solutions:
- - MANUAL APPROACHES - conversions are performed manually by programmers.
The drawbacks of this approach include that there may not be sufficient
personnel available with the skills requisite to do the work, the
length of time required to perform manual conversions, the high rate of
error, and, since there is no assurance that all of a client's systems
are found or corrected, in-depth and prolonged testing is required.
- - TOOLS - Basic software products designed to read through client
programs, and to identify anything resembling a date. Having acquired
these often-expensive tools, clients are required to train staff in
their use. This approach, though faster than a purely manual approach,
is still very lengthy, arduous, and error-prone, and does not ensure
that all of a client's programs are actually being examined or that all
dates are being found.
- - TOOL-ASSISTED - To obviate the problem of client staff shortages, many
service providers have arisen, using a combination of tools and
specialized staff. Although the quality and range of these new tools is
improving dramatically, and although many of the vendors describe their
service as "automated", there is still a level of manual programming
required. This approach, though faster than a client could provide, is
still error-prone, and does not ensure that all of a client's programs
are actually being examined or that all dates are being found.
The Company believes that it offers the only fully-automated Year 2000
correction service. This means that 100% of a client's code is collected and
analyzed automatically, date fields are identified automatically, and the
correction of the identified and confirmed date fields is done automatically.
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<PAGE> 20
The Company believes that ConSyGen 2000's ability to both identify and
to automatically convert software, so that it is compliant for the Year 2000 and
beyond, is unique among the various solutions being offered and that its fully
automated Year 2000 conversion service offers several advantages, including
consistency of changes throughout all cross-referenced date fields and programs,
error reduction, reduced testing, and reduced conversion time. The Company
believes that it is well positioned to take advantage of the significant market
opportunity presented by the Year 2000 problem. However, as described above, the
Company is not currently generating any significant revenue from Year 2000
related services or otherwise. Although the Company has completed several pilot
(non-revenue generating) Year 2000 conversion projects, the Company has not yet
completed a revenue generating Year 2000 conversion project. See "Risk Factors -
Absence of Proven Technology/Market Acceptance."
The Company has begun an aggressive marketing campaign, both
domestically and internationally. The Company has appointed teaming partners in
the US, Canada, and South-East Asia. These partners market the ConSyGen 2000
service to their clients, and also provide other related services.
THE SOFTWARE CONVERSION MARKET OPPORTUNITY
There are many thousands of mainframe computers installed worldwide.
The recent advent of "open-system" computers, using UNIX-compliant operating
systems (such as Hewlett-Packard and Sun Microsystems), particularly when
combined with new relational databases (such as Oracle or Sybase), has provided
mainframe computer users with the option of more efficient, less expensive
technology which also provides substantially-enhanced performance and business
capabilities.
The result is the "down-sizing" movement (also known as "re-hosting",
or "migration"), now established in all areas of computing in government and
commercial organizations in the U.S. and internationally. The Company believes
that users of older mainframe computers are attempting to reduce the high costs
associated with supporting and maintaining their computers, and are now actively
replacing them with new equipment operating under standard operating systems
with more modern languages and with relational database technology.
The Company believes that the market for conversion services worldwide
is significant. The Company believes that it is likely that this market will
grow significantly as newer technologies arise to replace currently-acceptable
environments. Since the Company has now extended the capabilities of the
ConSyGen Conversion toolset to cover automated date correction - the ConSyGen
2000 toolset - there is new interest in the capabilities of ConSyGen Conversion
among many organizations, and the potential to provide platform conversion
services along with Year 2000 correction services presents an additional
marketing opportunity with respect to both services.
Since the ConSyGen Conversion toolset is designed to address the
migration of software from any brand of hardware, the market for the Company's
ConSyGen Conversion toolset is virtually all mainframe computers used by
business or government, both domestically and internationally. The Company
believes that the market with the most immediate need for conversion services
consists of mainframe-dependent organizations which are dissatisfied with their
mainframe systems and with their mainframe providers. The Company believes that
users of Honeywell/BULL and other older mainframes computers manufactured by
Burroughs, Sperry, Unisys, Tandem, Digital and a steadily-increasing section of
IBM are becoming dissatisfied with their hardware and related support services.
The Company believes that the conversion market is expanding as businesses
dispose of obsolescent hardware in favor of new, open systems which provide the
client with the ability to move readily between hardware platforms.
Although other companies claim they have an automated solution, the
Company believes that it is the first provider of a fully-automated software
conversion toolset, and that, as a result, it is well positioned to benefit as
businesses and governments dispose of obsolescent hardware in favor of new open
systems.
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<PAGE> 21
With respect to its ConSyGen Conversion toolset, the Company is
currently concentrating its marketing efforts on those organizations which
require immediate conversions, namely, organizations using mainframe computers
with declining user bases. For a variety of reasons, there has been an overall
decline in Bull users internationally. As these organizations move their
applications from Bull systems to open environments, the need for software
conversion services will increase.
The Company is also concentrating its conversion marketing activities
on businesses/governments who seek to convert their software systems to those
standard environment components now most in demand:
- UNIX Operating Systems: Those who want to convert to modern computer
hardware utilizing UNIX-standard operating systems (e.g.,
Hewlett-Packard, Sun Microsystems, etc.).
- Relational Technology: Those who want to incorporate Relational
Database Management Systems (e.g., Oracle, Sybase, Informix)
into their application software.
- Enhanced Programming Languages: Those who want converted code to be in
the most recent versions of ANSI-standard procedural languages, such as
MicroFocus COBOL; those who wish to introduce interpretive languages,
such as Oracle's SQL*Forms/PL*SQL or PowerSoft's PowerBuilder, or those
who wish to enhance their on-line operations and to ease the transition
to graphic-based processing.
The Company has determined that the foregoing are the most desirable
target environments, and these components are the ones most frequently selected
by organizations needing conversions. ConSyGen Conversion provides a rapid and
efficient conversion capability into open systems, relational database design
and modern programming languages.
The Company has entered the down-sizing market with what it believes to
be a completely new alternative - a fully-automated software conversion service.
Through ConSyGen Conversion's capability to efficiently migrate existing
software from mainframes to alternative environments with no loss or change in
the underlying business functionality, the Company believes it is now well
positioned to take advantage of the market opportunity created by the demand for
migration services. However, as described above, the Company is not currently
generating any significant revenue from its ConSyGen Conversion related services
or otherwise. Although the Company completed several revenue generating
migration projects from 1993 to 1995, since 1995, the Company has not yet
completed a revenue generating migration project. See "Risk Factors Absence of
Proven Technology/Market Acceptance."
CONSYGEN 2000 CONVERSION SERVICES
Although the actual identification and conversion of Year 2000
occurrences in client programs is performed automatically through the ConSyGen
2000 toolset, there are a range of associated tasks in a Year 2000 conversion
project, and each project is managed according to the following phases:
Impact Assessment - ConSyGen offers an optional impact assessment
service. ConSyGen does not require the performance of an impact assessment to
provide pricing for a conversion project. Since the conversion project is fully
automated, and since ConSyGen's pricing is based on the number of lines of
client code (not on the number of identified date occurrences), ConSyGen will
provide a fixed-price quotation based on the client's estimate of its system's
size. The fixed price may be varied if the actual system size exceeds the
client's estimate by more than 10%.
Date Estimation - ConSyGen uses a proprietary parser to review all
received client source entities, and generates a report of all identified
candidate date fields, summarized by source entity. A detailed report,
identifying each candidate date field, is also available to project staff.
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<PAGE> 22
Cataloging - on receipt of client source entities (control language
programs, application programs, copy members, and data definitions), ConSyGen
conducts a cataloging exercise, in which client code is analyzed in detail in
order to identify and report any missing source entities, any programs without
initiating control programs, any system utilities, and any non-standard
technical conditions (e.g., other languages) within the applications. If
necessary, ConSyGen will extend the ConSyGen 2000 toolset to accommodate these
non-standard technical conditions.
This process is iterative, and is repeated until all source members
have been received and read, and all technical issues have been resolved. At
completion of cataloging, ConSyGen 2000 will have confirmed that all of the
client's environment has been received in a form that can be read and processed
by the toolset, and the exact size of the client's environment, with exact line
and entity counts, which is then used to confirm the fixed price for the
project.
The cataloging exercise will also generate a detailed hierarchical
report of all of the relationships within the client's environment. This report
is used to enable the client to define the composition of the converted code
deliverables ("Work Units") and to prepare test plans. Since the ConSyGen 2000
toolset can convert several million lines of code in a single overnight pass,
Work Units may be as large as the client requires (e.g., 1 million lines); they
will be converted and delivered in a client-defined sequence to enable a regular
and manageable approach to the preparation of test plans and to testing.
The successful completion of this cataloging exercise means that there
will be substantially less errors due to missing programs during the automated
identification and conversion exercises, and that a full set of data
cross-references will be able to be established in preparation for the
conversion process.
Identification - From the information derived during the cataloging
exercise, all source components will be searched automatically to identify all
date occurrences using known date identifiers, client-specified naming
conventions for date occurrences, and data fields with known implicit or
explicit date characteristics. All procedural logic involving date occurrences
or date-holding data variables will be automatically identified to provide a
basis for determining translation rules for both storage locations and the
procedural logic.
ConSyGen 2000 will search all client information and will report the
first use of each date condition ("origin"). As far as possible, the desired new
date formats will be identified automatically for each original occurrence and
will be matched with the origin date occurrence and all of its cross-referenced
date fields within the client's programs. This provides an efficient and
accurate method of preparing the system for conversion.
Conversion - The Company believes that ConSyGen's Year 2000 conversion
service is fully automated. There is no manual intervention by ConSyGen or the
client in the actual conversion process, and there is no requirement for any
manual modifications to the delivered code. ConSyGen expects that there will be
only a limited number of errors in the delivered code, and any identified errors
will be corrected rapidly and fully by re-translation of the affected Work Unit.
Data Conversion - After conversion, the Company generates
extract/re-load and data re-population programs, to assist the client to correct
data in their data files and databases, and to allow the client to prepare for
testing. Actual change of the data is the client's responsibility.
Testing - The client is responsible for testing of the converted
programs, using test plans which will be prepared on the basis of reports
generated by the Company during the project. The Company will supervise the
performance of a set of tests on the initial set of programs delivered to the
client.
The Company expects a Year 2000 conversion project to take a total of
approximately one month. The portion of the project performed by the Company is
expected to take approximately one to two weeks. The time necessary for the
Company to complete its portion of the project is not generally dependent on the
size of the applications involved. The Company expects to staff a Year 2000
conversion project with two employees on a
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<PAGE> 23
part-time basis. The Company currently has the capacity to simultaneously
perform a total of eight to ten Year 2000/migration projects.
CONSYGEN CONVERSION SOLUTION
Development of the ConSyGen Conversion toolset commenced in 1991. From
1993 to 1995, the toolset was utilized in completing several revenue generating
contracts involving conversions from mainframe environments to open systems and
proprietary platforms (for example, converting Honeywell/BULL computer systems
to Hewlett-Packard, Sun and IBM). Since 1995, the Company has not generated any
revenue from conversion services. Instead, the Company's efforts have been
focused upon further development of the ConSyGen Conversion toolset, including
extending the toolset to cover new hardware environments. Such further
development and extension of the toolset was necessary, as the toolset was
limited in application to Honeywell/BULL systems and did not perform conversions
with sufficient speed. The Company recently entered into a revenue generating
contract with Lender's Service, Inc., a subsidiary of Merrill Lynch, pursuant to
which the Company will provide conversion services, including both migration and
Year 2000 correction services.
Although the actual conversion or migration between hardware platforms
is performed automatically through the ConSyGen Conversion toolset, there are a
range of associated tasks in a conversion project, and the project is managed
according to the following five phases:
Strategy and Requirements Phase - During this phase, the joint
Company/client team is formed, the major technical and scope directions of the
project are defined and the project work plan is created. The Company takes all
of the client's source code and performs a cataloging exercise, resulting in a
comprehensive view of the code statistics and internal dependencies; this
information is used during the design phase of the project to define the work
units for delivery of the translated code.
The Company uses the cataloging of information about the client's code
to generate a repository, which will be used to identify non-standard coding and
system conditions, to generate the maps relating the source and target systems,
and to generate target code. The Company will also identify any additional
constructs for inclusion in the toolset.
Analysis and Design Phase - This phase involves a detailed examination
of the functionality of the source system. The project team will conduct a
series of sessions during which the application system will be de-composed to
its component functions, entities, and data, and then will be re-modeled in an
efficient database design which will reflect the client's chosen design
objectives. Additionally, any agreed re-engineering tasks will be defined and
embodied into the final design or into the toolset.
During this phase, the project team will use the cataloging information
to establish the toolset's acceptance criteria, and will commence the
preparation of detailed test plans designed to verify the toolset's accuracy.
Data Conversion Phase - The Company will convert the data required for
testing of the first delivered work unit, and the client will analyze the
accuracy of its data, in anticipation of the data conversion and transfer
exercise to be conducted during preparation for moving the converted code to
production.
Translation Phase - During this phase, the Company uses the toolset to
translate the original source code, and conducts internal testing to establish
the accuracy and consistency of the translation results. The first delivered
translated code (known as a verification work unit (VWU)), is tested by the
client against its own test plans to verify the toolset's accuracy. On
acceptance of the VWU, the Company is then ready to commence the progressive
delivery of the remaining translated code, separated into manageable units.
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<PAGE> 24
Transition and Documentation Phase - The client will be responsible
during this phase for internal systems and acceptance testing, data migration,
and migration of the translated code into production. The Company's primary
activities during this phase are the preparation of systems and operations
documentation, and the provision of on-going support during the client's
preparation for transition to production.
The Company expects a migration project to take a total of
approximately three to four months. The portion of the migration project
performed by the Company is expected to take approximately one month. The time
necessary for the Company to complete a project is not generally dependent on
the size of the applications involved. The Company expects to staff a migration
project with two employees on a part-time basis. The Company currently has the
capacity to simultaneously perform a total of eight to ten migration/Year 2000
projects.
The Company believes that its ConSyGen Conversion solution offers the
following benefits:
- New environment - Through use of the ConSyGen Conversion toolset, the
Company is able to move the client into a new "open" hardware
environment, which offers the Client several benefits, including
preservation of existing software functionality; translation of
existing code into a new language; substitution of a new database
design; ability to operate under a new hardware environment;
introduction of new , tools; and identification and resolution of the
Year 2000 date problem.
- - Reduced Migration time - The average "legacy" software system usually
consists of several million lines of application software code. A
manual conversion or re-write of an average existing legacy system may
involve years of intensive work with the involvement of a large group
of costly technical staff. Further, manual conversions do not provide
as reliable a result as an automated conversion. The ConSyGen
Conversion automated software conversion approach is done in the
context of a project involving only limited client staff resources
which are needed to coordinate project decision issues and to perform
client-specific project tasks. The Company believes that the ConSyGen
Conversion approach significantly reduces total conversion time, as
compared with a manual approach, and is less costly than a manual
conversion.
- Reduced Migration cost - Manually rewriting software, whether using
internal or external resources is costly. Using external resources
usually results in conversion costs averaging several dollars per line
of code, and costs as high as $8.00 per line are not uncommon. The cost
of software package replacement carries the additional costs of
re-training, internal modifications and additions, organizational
disruption and change, and on-going maintenance and license fees. Since
the Company's automated software conversion approach is done
automatically, the Company is able to offer conversion projects at
guaranteed fixed prices which are materially lower than a manual
conversion.
SALES, MARKETING AND DISTRIBUTION
The Company markets its products and services to a range of business
and governmental organizations. The Company's sales and marketing efforts are
implemented through its direct sales force, supported by promotion through trade
articles and trade shows that address the software maintenance market, its
independent sales representative program, and arrangements with system
integrators that provide computer related services to end-users.
The Company seeks to distribute its services through direct sales,
independent sales representatives, and system integrators that provide computer
related services to end-users, including year 2000 compliance services. In
general, under the arrangements with systems integrators, the integrator will
contract with the Company to provide conversion services, including year 2000
correction services to the integrator's customers. The Company believes that
this approach affords it the opportunity to have its services marketed to a
broader range of potential customers. The Company has entered into such
arrangements with several corporations, including Unisys, Strategia Corporation,
Agiss Software Corporation, SCB Computer Technology, and Millennium Enterprises.
In
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<PAGE> 25
addition, the Company has implemented an independent sales representative
program, under which the Company engages individuals on a non-exclusive basis to
refer conversion business to the Company, including year 2000 conversions. The
Company currently has ten independent sales representatives. The Company intends
to enter into additional distribution and/or marketing arrangements,
particularly with service providers or strategic systems integrators, for its
software products.
COMPETITION
The market for The Company's software products and solutions, including
its solutions for the year 2000 problem and client/server migration, is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. The Company's
principal competitors in the software tools market include CCD Online, Progeni,
Forecross, and Alydaar.
The Company believes that the principal factors affecting competition
in the software tools market include product performance and reliability,
product functionality, ability to respond to changing customer needs, ease of
use, training, quality of support and price. The primary competitive factors in
the solutions markets, including the year 2000 compliance market, are price,
service, the expertise and experience of the service personnel and the ability
of such personnel to provide solutions to application problems. Other than
technical expertise and, with respect to the year 2000 compliance market, the
limited time available until the year 2000 arrives, there are no significant
proprietary or other barriers to entry that could prevent potential competitors
from developing or acquiring similar tools or providing competing solutions in
the Company's market.
The Company's ability to compete successfully in the sale of its
conversion services will depend in large part upon its ability to attract new
customers, enhance its product and respond effectively to continuing
technological change by developing new products and solutions. The Company
believes that its tools will enable it to compete effectively with other service
providers/tool vendors for the year 2000 market and the systems migration
market. The Company believes that its primary competitive advantages are cost,
performance, including speed and accuracy, and support.
RESEARCH AND DEVELOPMENT
The Company plans to continue to expend a significant portion of its
available funds on research and development to enhance the functionality and
performance of its ConSyGen Conversion and ConSyGen 2000 toolsets. The Company's
development of new products has been accomplished primarily with in-house
development personnel and resources.
As of November 13, 1997, the Company had 12 employees engaged in
product development. All of the Company's research and development employees are
located at the Company's Phoenix, Arizona headquarters. In addition to
developing new products, the Company seeks to continually improve its existing
products.
During the five (5) months ended May 31, 1997 and the years ended
December 31, 1996, 1995 and 1994, research and development expenditures were
$335,000, $740,000, $492,000 and $558,000, respectively.
EMPLOYEES
The Company had 29 employees as of November 13, 1997, including two in
sales and marketing, 12 in research, development and support, and 15 in
corporate operations and administration. The future success of the Company will
depend in large part upon its continued ability to attract and retain highly
skilled and qualified personnel. Competition for such personnel is intense in
the computer software industry, particularly for talented software developers,
service consultants and sales and marketing personnel. None of the Company's
employees is
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<PAGE> 26
represented by a collective bargaining agreement. The Company believes that its
relations with its employees are good.
PROPERTIES
The Company's principal administrative, research and development,
customer support and marketing facilities are located in approximately 5,000
square feet of space in Phoenix, Arizona. The Company occupies these premises
under a lease agreement expiring October 31, 1998. The Company believes that its
facilities are adequate for its current needs and that suitable additional space
will be available as needed.
LEGAL PROCEEDINGS
The Company is not currently party to any legal proceedings.
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<PAGE> 27
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald I. Bishop............... 60 President, Chief Executive Officer and Director
Robert L. Stewart.............. 79 Chairman of the Board
Leslie F. Stewart.............. 43 Secretary, Director
</TABLE>
- ----------------
Ronald I. Bishop, has served as President, Chief Executive Officer, and
a director of the Company and ConSyGen-Arizona since January 15, 1997. From
September, 1986 to January 1, 1995, Mr. Bishop served as Vice President and
Director of Operations of Motorola Computer Group for Asia, and from January 2,
1995 to January 3, 1997, he served as Vice President and Director of Operations
for Motorola Computer Group for South America.
Robert L. Stewart, is the Chairman of the Board of the Company and
ConSyGen-Arizona. He has served in this capacity at the Company since its
acquisition of ConSyGen-Arizona, and at ConSyGen-Arizona since 1980. Mr. Stewart
previously served as President and Chief Executive Officer of ConSyGen-Arizona
from 1980 until January 15, 1997 and as President and Chief Executive Officer of
the Company from the time of the acquisition until January 15, 1997.
Leslie F. Stewart, is the Secretary and a director of the Company and
ConSyGen-Arizona. He has served in these capacities at the Company since its
acquisition of ConSyGen-Arizona and at ConSyGen-Arizona since 1980. Mr. Stewart
is the son of Robert L. Stewart, Chairman of the Board of the Company.
During the fiscal year ended May 31, 1997, the Company did not have a
compensation committee, and all deliberations concerning executive officer
compensation and all determinations with respect thereto were made by the
Company's Board of Directors, consisting of Robert L. Stewart, Ronald I. Bishop
and Leslie F. Stewart. Messrs. Bishop and Stewart are also executive officers of
the Company.
All directors hold office until the next annual meeting of stockholders
or until their successors are duly elected and qualified. Executive officers of
the Company are elected annually by and serve at the pleasure of the Board of
Directors.
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<PAGE> 28
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's
executive officers whose total annual salary and incomes exceeded $100,000 for
all services rendered in all capacities to the Company and its subsidiaries for
each of the Company's last three fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER LONG-TERM SECURITIES
NAME AND YEAR SALARY BONUS ANNUAL COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION(1) ENDED ($) ($) COMPENSATION AWARDS OPTIONS (#) COMPENSATION(3)
- ------------------ ----- --------- --------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald I. Bishop 5/31/97 $26,250 -- -- -- 400,000(2) --
President & CEO
Robert L. Stewart 5/31/97 $65,250 -- -- -- -- --
Former President &
CEO(4)
Carl H. Canter 5/31/97 -- -- -- -- -- --
Former President & 5/31/96 -- -- -- -- -- $36,000
CEO 5/31/95 -- -- -- -- -- $36,000
</TABLE>
- ---------------
(1) Mr. Bishop has served as President and CEO of the Company since January
15, 1997. Mr. Stewart served as President and CEO of the Company from
September 5, 1996, the date the Company acquired ConSyGen-Arizona,
through January 15, 1997. Mr. Canter served as President and CEO of the
Company until September 4, 1996.
(2) In September 1997, options to purchase an additional 500,000 shares of
Common Stock were granted to Mr. Bishop. The options have an exercise
price of $5.50 per share. Options to purchase 125,000 shares are
immediately exercisable and the remaining 375,000 become exercisable in
twenty-four equal monthly installments, commencing one month from the
date of grant. The options were granted under the 1997 Amended and
Restated Non-Qualified Stock Option Plan.
(3) Represents amounts accrued by the Company and payable to The Canter
Corporation, a consulting firm controlled by Mr. Canter, for consulting
services provided by The Canter Corporation to the Company. In
connection with the acquisition, The Canter Corporation forgave this
indebtedness.
(4) See "Certain Transactions."
EMPLOYMENT AGREEMENTS
None of the Company's employees are subject to employment agreements
with the Company.
STOCK OPTION PLANS
The following table sets forth the aggregate number and value of
options exercisable and unexercisable by the named executive officers during the
fiscal year ended May 31, 1997.
-27-
<PAGE> 29
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
POTENTIAL
REALIZABLE VALUE
NUMBER OF AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF
UNDERLYING OPTIONS STOCK PRICE
OPTIONS GRANTED TO EXERCISE APPRECIATION FOR
GRANTED EMPLOYEES IN PRICE EXPIRATION OPTION TERM (3)
NAME (#) FISCAL YEAR $/SHARE DATE 5% ($) 10%($)
- ---- --- ----------- ------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Ronald I. Bishop, 400,000(1)(2) 19.00% 8.875 3/18/07 $2,232,576 $5,657,786
President and CEO
</TABLE>
- ------------
(1) Options are immediately exercisable as of the date of grant.
(2) In September 1997, options to purchase an additional 500,000 shares of
Common Stock were granted to Mr. Bishop. The options have an exercise
price of $5.50 per share. Options to purchase 125,000 shares are
immediately exercisable and the remaining 375,000 become exercisable in
twenty-four equal monthly installments, commencing one month from the
date of grant. The options were granted under the 1997 Amended and
Restated Non-Qualified Stock Option Plan.
(3) The 5% and 10% assumed rates of annual compounded stock price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE
ACQUIRED ON REALIZED OPTIONS AT 5/31/97 -MONEY OPTIONS AT 5/31/97($)
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ---- ---------- ------ ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ronald I. Bishop, -- -- 400,000/0 $1,850,000/0
President and CEO
</TABLE>
- -----------
(1) The "value realized" reflects the appreciation on the date of exercise
(based on the excess of the fair market value of the shares on the date
of exercise over the exercise price). However, because the executive
officers may keep the shares they acquired upon the exercise of the
options (or sell them at a different price), these amounts do not
necessarily reflect cash realized upon the sale of those shares.
(2) Based on the excess of the last sale price of the Company's Common
Stock on June 2, 1997, as quoted on the OTC Bulletin Board ($13.50),
over the option exercise price ($8.875).
-28-
<PAGE> 30
CERTAIN TRANSACTIONS
On September 5, 1996, the Company acquired all the issued and outstanding
capital stock of ConSyGen-Arizona, from the stockholders of such corporation,
including Robert L. Stewart, who was the controlling stockholder of
ConSyGen-Arizona, Inc. In connection with the acquisition, the stockholders of
ConSyGen-Arizona surrendered 9,275,000 shares of Common Stock, being all the
issued and outstanding capital stock of ConSyGen-Arizona, of which 8,187,000
shares were surrendered by Robert L. Stewart, the former controlling stockholder
of ConSyGen-Arizona, who, in connection with the acquisition, acquired control
of the Company. For a more detailed description of the acquisition, see the
Company's Consolidated Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
At December 31, 1995, Robert L. Stewart, then Chairman and President of
ConSyGen-Arizona, had advanced an aggregate of $859,000 to ConSyGen-Arizona on
an as-needed basis to fund its continuing operations. These advances were
unsecured, non-interest bearing and had no stated maturity. In June 1996,
ConSyGen-Arizona issued 700,000 shares of its Common Stock to The Loreto F.
Stewart and Robert L. Stewart Family Trust, a trust of which Mr. Stewart is the
sole trustee (the "Trust"), in satisfaction of $350,000 of the indebtedness to
Mr. Stewart. Leslie F. Stewart, Robert L. Stewart's son and Secretary and
Director of the Company, is a beneficiary of the Trust. The shares were valued
at $0.50 per share, which was management's best estimate of fair market value at
the time of issuance. Further, in June 1996, Robert L. Stewart forgave an
additional $350,000 of indebtedness of ConSyGen-Arizona owed to him, without
additional consideration. During 1996, Mr. Stewart advanced an additional
$11,000 to ConSyGen-Arizona on an unsecured, non-interest bearing basis. Cash
principal payments were made to Robert L. Stewart during 1996 in the amount of
$37,000. During the five months ended May 31, 1997, additional cash principal
payments were made in the amount of $5,000. At May 31, 1997, the Company was
indebted to Mr. Stewart in the amount of $129,000. During the three months ended
August 31, 1997, Robert L. Stewart repaid $23,000 of indebtedness of the Company
to certain individuals, and the Company became obligated to repay Mr. Stewart
such $23,000. This advance was unsecured and non-interest bearing. Accordingly,
at August 31, 1997, the Company was indebted to Robert L. Stewart in the amount
of approximately $152,000. As described below, this amount was repaid to Mr.
Stewart in October 1997 through the issuance of 18,610 shares of Common Stock.
In June 1996, ConSyGen-Arizona issued an aggregate of 1,777,006 shares of
Common Stock to the Trust in consideration of services rendered by Mr. Robert L.
Stewart to ConSyGen-Arizona from its inception through the date of issuance.
These shares were valued at $0.50 per share, which was management's best
estimate of fair market value at the time of issuance. In September 1996, the
Company issued 400,000 shares of Common Stock to The Canter Corporation for
services rendered. The Canter Corporation is controlled by Carl H. Canter, who
was at the time of issuance the President of the Company. These shares were
valued at $1.00 per share, which was management's best estimate of fair market
value at the time of issuance. In addition, in connection with the acquisition
of ConSyGen-Arizona, the Canter Corporation forgave approximately $72,000 of
indebtedness owed by the Company to the Canter Corporation for consulting
services rendered.
In May 1997, the Trust sold 300,000 shares of Common Stock in a private
sale. In connection with such transaction, the Company agreed to use its best
efforts to register such shares for resale by the purchasers under the
Securities Act of 1933, as amended (the "Securities Act"). The Company had
previously obligated itself to file a registration statement under the
Securities Act with respect to other previously issued shares. The Company is
registering the shares sold by the Trust on the registration statement, of which
this prospectus is a part, which the Company was already obligated to file.
In October 1997, the Company issued 18,610 and 1,302 shares of Common
Stock to Robert L. Stewart and Leslie F. Stewart, respectively, in payment of
$151,665 and $10,609 of indebtedness of the Company to Robert L. Stewart and
Leslie F. Stewart, respectively. The effective price per share was $8.15.
Simultaneously with these transactions, the Company also issued an aggregate of
approximately 10,800 shares to unrelated third parties in payment of
approximately $88,000 of indebtedness of the Company to such persons. The
effective price per share of $8.15 paid by such unrelated third parties was the
same as that paid by Robert L. and Leslie F. Stewart.
-29-
<PAGE> 31
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November 13,
1997 concerning the beneficial ownership of the Company's Common Stock by (i)
each director of the Company, (ii) each of the executive officers, (iii) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock and (iv) all executive officers and directors
as a group. This information is based upon information received from or on
behalf of the named individuals. Unless otherwise noted, the beneficial owners
listed have sole voting and investment power with respect to the shares listed
except to the extent shared by spouses under applicable law.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner** Beneficial Ownership Class
- --------------------- -------------------- -----------
<S> <C> <C>
Robert L. Stewart 7,740,610 (1)(5) 51.4%
c/o ConSyGen, Inc.
10201 South 51st St.
Suite 140
Phoenix, AZ 805044
Leslie F. Stewart 35,677 (2) *
Ronald I. Bishop 588,500 (3) 3.7%
All executive officers a 8,364,787 (1)(2)(3)(5) 53.4%
nd directors as a
group (3 persons)
Howard R. Baer 817,000 (4) 5.4%
c/o Carriage House Capital
2530 South Rural Road
Tempe, Arizona 85282
Trinidad Cranbourne 1,000,000 (5) 6.6%
96 Pokfulam Road
11-F Flat B-2
YY Mansion, Hong Kong
</TABLE>
- ---------------------------
* Less than 1% of the outstanding Common Stock.
** Address provided for beneficial owners of more than 5% of the Common Stock.
(1) Includes 6,722,000 shares owned of record by The Loreto F. Stewart &
Robert L. Stewart Family Trust, a trust of which Robert L. Stewart is
the sole trustee.
(2) Includes (i) 1,302 shares of Common Stock issued to Mr. Stewart in
payment of $10,609 in indebtedness owing to Mr. Stewart by the Company
and (ii) 34,375 shares of Common Stock which Mr. Stewart has the right
to purchase upon exercise of outstanding options, exercisable within 60
days.
(3) Includes 587,500 shares of Common Stock which Mr. Bishop has the right
to purchase upon exercise of outstanding options, exercisable within 60
days.
(4) Includes (i) 287,000 shares of Common Stock owned of record by an
entity controlled by Mr. Baer and (ii) 200,000 shares of Common Stock
which Mr. Baer has the right to acquire upon exercise of immediately
exercisable warrants.
-30-
<PAGE> 32
(5) Includes 1,000,000 shares owned of record by GEO Co. Ltd. ("GEO"),
which, in addition to being controlled by Robert L. Stewart through his
equity ownership of GEO, is controlled by Trinidad Cranbourne, Robert
L. Stewart's daughter. Mr. Stewart, through his equity ownership of
GEO, effectively has voting and investment control of these shares. Ms.
Cranbourne also has voting and investment control of these shares.
-31-
<PAGE> 33
SELLING STOCKHOLDERS
The following table sets forth certain information as of November 13, 1997
concerning the beneficial ownership of the Company's Common Stock by the
stockholders of the Company who are offering shares hereby (the "Selling
Stockholders"). This information is based upon information received from or on
behalf of the named individuals. Unless otherwise noted, the beneficial owners
listed have sole voting and investment power with respect to the shares listed
except to the extent shared by spouses under applicable law. Except for 981,390
of the shares of Common Stock offered by Robert L. Stewart, all shares of Common
Stock being offered by Selling Stockholders are being registered hereunder
pursuant to contractual registration rights or similar obligations on behalf of
the Company.
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
--------------------------- --------------------------------
Name and Address Number of Percentage of Number of Shares Number of Percentage of
of Beneficial Owner** Shares Ownership Being Offered Shares Ownership
--------------------- ------ --------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
Robert L. Stewart(1) 7,740,610 51.4% 1,000,000 6,740,610 44.2% (14)
c/o ConSyGen, Inc.
10201 South 51st St.
Suite 140
Phoenix, AZ 85044
Leslie F. Stewart(2) 35,677 * 1,302 34,375 *
M.H. Meyerson & Co. Inc. 150,000 * 58,333 91,667 *
Innovative Research 106,300 * 106,300 0 *
Associates, Inc.(4)
Ming Sum Yeung(5) 190,000 1.2% 190,000 0 *
Wor Foon Yeung(6) 170,000 1.1% 170,000 0 *
Shu Kin Yeung(7) 40,000 * 40,000 0 *
Yuen Chi Kan(8) 120,000 * 120,000 0 *
Joseph and Frank Ciolli 50,000 * 20,000 30,000 *
Kevin C. Baer(9) 335,500 2.2% 2,000 333,500 2.2%
Robert H. and Delores M. 34,900 * 15,000 19,900 *
Goldsmith
Ameritech International 15,000 * 15,000 0 *
Corp.
Irvington International 3,600 * 3,600 0 *
Limited(10)
Martin E. Janis & 30,000 * 10,000 20,000 *
Company, Inc.(11)
Michael Block(12) 6,300 * 6,300 0 *
GFS, Inc.(13)(Khan) 18,900 * 18,900 0 *
COFEP, S.A. 10,000 * 10,000 0 *
</TABLE>
-32-
<PAGE> 34
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After Offering
--------------------------- --------------------------------
Name and Address Number of Percentage of Number of Shares Number of Percentage of
of Beneficial Owner** Shares Ownership Being Offered Shares Ownership
--------------------- ------ --------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
Rabobank (Switzerland) 237,000 1.5% 237,000 0 *
Ltd.
Dominick Company AG 40,000 * 40,000 0 *
Pat Finance AG 63,000 * 63,000 0 *
Rover SRL 30,000 * 30,000 0 *
Yamaco Ltd. 110,000 * 110,000 0 *
Cedar Globe Hedge Fund 10,000 * 10,000 0 *
L.P.
Rodney R. Schoemann 50,000 * 50,000 0 *
Remaco Invest AG 350,000 2.3% 350,000 0 *
Tom Warner 6,381 * 6,381 0 *
Harvey Dietrich 4,454 * 4,454 0 *
</TABLE>
- --------------------------
* Less than 1% of the outstanding Common Stock.
** Address provided for beneficial owners of more than 5% of the Common Stock.
(1) Includes (i) 6,722,000 shares owned of record by The Loreto F. Stewart
& Robert L. Stewart Family Trust, a trust of which Robert L. Stewart is
the sole trustee and (ii) 1,000,000 shares owned of record by GEO,
which is controlled by Robert L. Stewart through his equity ownership,
and with respect to which Mr. Stewart shares voting and investment
power.
(2) Includes 1,302 shares of Common Stock issued to Mr. Stewart in payment
of $10,609 in indebtedness owing to Mr. Stewart by the Company and
options to purchase 34,375 shares of Common Stock, exercisable within
60 days.
(3) Represents shares issued pursuant to a consulting agreement between
M.H. Meyerson & Co., Inc. and the Company.
(4) Includes 100,000 shares issued pursuant to a consulting agreement
between Innovative Research Associates, Inc. and the Company and 6,300
shares issued as a finder's fee in connection with a financing
transaction.
(5) Includes 100,000 shares purchased in a private transaction from the
Loreto F. Stewart and Robert L. Stewart Family Trust, of which Robert
L. Stewart is sole trustee.
(6) Includes 50,000 shares purchased in a private transaction from the
Loreto F. Stewart and Robert L. Stewart Family Trust, of which Robert
L. Stewart is sole trustee.
(7) Includes 30,000 shares purchased in a private transaction from the
Loreto F. Stewart and Robert L. Stewart Family Trust, of which Robert
L. Stewart is sole trustee.
(8) Includes 120,000 shares purchased in a private transaction from the
Loreto F. Stewart and Robert L. Stewart Family Trust, of which Robert
L. Stewart is sole trustee.
(9) Includes 130,000 shares of Common Stock which Mr. Baer has the right
to acquire upon exercise of immediately exercisable warrants.
(10) Represents 3,600 shares issued as a finder's fee in connection with a
financing transaction.
-33-
<PAGE> 35
(11) Represents 30,000 shares issued pursuant to a consulting agreement
between Martin E. Janis & Company, Inc. and the Company.
(12) Represents 6,300 shares issued to Mr. Block as a finder's fee in
connection with a financing transaction.
(13) Represents 18,900 shares issued to GFS, Inc. as a finder's fee in
connection with a financing transaction.
(14) Assumes conversion of $1.0 million of long-term debt, at an assumed
conversion rate of $4.73 per share (70% of $6.75, the closing price of
the Common Stock as quoted on the OTC Bulletin Board on November 13,
1997), into approximately 211,416 shares of Common Stock. There can be
no assurance that such long-term debt will be converted into Common
Stock.
-34-
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, $.003 par value (referred to herein as "Common Stock").
COMMON STOCK
As of November 13, 1997, there were 15,054,078 shares of Common Stock
outstanding, held of record by approximately 347 stockholders.
The holders of Common Stock are entitled to one vote per share on all
months to be voted on by stockholders and an entitled to receive such dividends,
if any, as may be declared from time to time by the Board of Directors from
funds legally available therefor. The holders of Common Stock do not have
cumulative voting rights in the election of directors. Upon liquidation or
dissolution of the Company, the holder of Common Stock are entitled to receive
all assets available for distribution to the stockholders. The Common Stock has
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking fund provisions with respect to such shares. All of the
shares of Common Stock are fully paid and nonassessable.
LIMITATION OF OFFICERS' AND DIRECTORS' LIABILITY; INDEMNIFICATION AGREEMENTS
The Company's Articles of Incorporation, as amended (the "Amended
Articles"), and By-Laws eliminate, subject to certain exceptions, the personal
liability of directors to the Company or its stockholders for monetary damages
for breaches of fiduciary duties as directors to the extent permitted by state
law. The Amended Articles and By-Laws do not provide for the elimination of or
any limitation on the personal liability of a director for intentional
misconduct, or in situations where a director is found not to have acted in good
faith or where liability is prescribed by law. These provisions of the Amended
Articles and By-Laws may limit the remedies available to a stockholder in the
event of breaches of any director's duties to such stockholder or the Company.
The Company has entered into indemnification agreements with each of
the directors and officers. The indemnification agreements provide that the
Company will pay certain amounts incurred by a director or officer in connection
with any civil or criminal action or proceeding and specifically including
actions by or in the name of the Company (derivative suits) where the
individual's involvement is by reason of the fact that he is or was a director
or officer. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily included in connection with legal proceedings. Under
the indemnification agreements, a director or officer will not receive
indemnification if he is found not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Interwest
Transfer, Inc.
-35-
<PAGE> 37
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have approximately
15,265,494 shares of Common Stock outstanding. Of those shares, approximately
6,860,102 shares will be freely tradable without restriction under the
Securities Act. Upon completion of the Offering, 8,593,610 shares of Common
Stock will be eligible for sale in the public market without registration,
subject to certain volume and other limitations, pursuant to Rule 144 under the
Securities Act. The remaining shares of Common Stock held by existing
stockholders, including shares issuable upon exercise of warrants, will become
eligible for sale under Rule 144 or otherwise at various times thereafter. The
Company is obligated to register under the Securities Act shares of Common Stock
held by certain stockholders of the Company. Except for approximately 100,000 of
such shares, all of such shares are registered on the Registration Statement, of
which this Prospectus is a part. In addition, there are currently outstanding
warrants to purchase 1,400,000 shares of Common Stock, of which 1,300,000 are
currently exercisable, and options to purchase 2,270,000 shares of Common Stock,
of which 1,211,250 are currently exercisable. The Company may in the future file
a registration statement on Form S-8 registering the shares issuable upon
exercise of these options. If any portion of the Shares of Common Stock
registered hereunder or issuable upon exercise of the outstanding warrants or
options are sold in the public market, such sales may have a material adverse
effect on the market price of the Common Stock. See "Risk Factors - Limited
Trading Market." The sale of such shares may also have a material adverse effect
on the Company's ability to raise needed capital.
PLAN OF DISTRIBUTION
Certain shares of Common Stock of the Company are being sold by the
Company upon conversion of certain outstanding convertible notes. See "Business
- - Recent Financings." The price and manner of sale of the shares of Common Stock
offered by the Selling Stockholders hereunder are in the sole discretion of the
Selling Stockholder. The shares of Common Stock offered hereby may be offered
through any of several methods, such as ordinary brokerage transactions at
market prices or in privately negotiated transactions at prices agreed upon by
the parties. Neither the Company nor the Selling Stockholder has any agreement,
arrangement or understanding with any broker or dealer entered into prior to the
effective date of the Registration Statement of which this Prospectus is a part
with respect to the sale of the Common Stock offered hereby.
LEGAL MATTERS
Certain legal matters in connection with this Offering will be passed
upon for the Company by Brown, Rudnick, Freed & Gesmer, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of ConSyGen, Inc. as of May 31, 1997
and December 31, 1996, and the consolidated statements of operations, changes in
stockholders' deficit, and cash flows for the five months ended May 31, 1997 and
each of the three years in the period ended December 31, 1996, included in this
prospectus, have been included herein in reliance on the report of Wolinetz,
Gottlieb & Lafazan, P.C., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
("Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the
-36-
<PAGE> 38
Company and the Common Stock, reference is made to the Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance where such contract or document is filed as an
exhibit to the Registration Statement, reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference. Copies of the
Registration Statement, including the exhibits thereto, may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Seven World Trade Center, 13th West Madison Street, Northwestern Atrium Center,
Suite 1400, Chicago, Illinois 60661-2511. Copies of materials can also be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549. The Commission maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains
registration statements, reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
accountants and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited consolidated financial
information.
-37-
<PAGE> 39
CONSYGEN, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ......................................................................... F-2
Consolidated Balance Sheet as of May 31, 1997 and
December 31, 1996 ....................................................................................... F-3
Consolidated Statement of Operations for the Five Months Ended
May 31, 1997 and the Years Ended December 31, 1996,
1995 and 1994 ......................................................................................... F-4
Consolidated Statement of Changes in Stockholders' Deficit for the
Period January 1, 1994 to May 31, 1997 .................................................................. F-5
Consolidated Statement of Cash Flows for the Five Months Ended
May 31, 1997 and the Years Ended December 31, 1996,
1995, and 1994 ........................................................................................ F-7
Notes to Consolidated Financial Statements, May 31, 1997 .................................................. F-9
Consolidated Balance Sheet as of August 31, 1997 (Unaudited) .............................................. F-24
Consolidated Statement of Operations for the Three Months
Ended August 31, 1997 and 1996 (Unaudited) .............................................................. F-25
Consolidated Statement of Changes in Stockholders' Deficit
for the Three Months Ended August 31, 1997(Unaudited) ................................................... F-26
Consolidated Statement of Cash Flows for the Three Months
Ended August 31, 1997 and 1996 (Unaudited) .............................................................. F-27
Notes to Consolidated Financial Statements,
August 31, 1997 (Unaudited) ............................................................................. F-29
</TABLE>
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
The Board of Directors and Stockholders
ConSyGen, Inc. (A Texas Corporation)
We have audited the accompanying consolidated balance sheet of ConSyGen, Inc. (a
Texas corporation) and its subsidiary as of May 31, 1997 and December 31, 1996,
and the related consolidated statements of operations, changes in stockholders'
deficit, and cash flows for the five months ended May 31, 1997 and the years
ended December 31, 1996, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ConSyGen, Inc. (a
Texas corporation) and its subsidiary as of May 31, 1997 and December 31, 1996,
and the consolidated results of their operations and their cash flows for the
five months ended May 31, 1997 and the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has a working capital and stockholders' deficit. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in Notes 12 and 13.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
July 15, 1997
<PAGE> 41
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
CONSOLIDATED BALANCE SHEET
--------------------------
ASSETS
------
<TABLE>
<CAPTION>
May 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 21,483 $ 83,204
Accounts Receivable -- --
Debt Issuance Expense (Net of Accumulated
Amortization of $55,556 in 1997 and $139,000 in 1996) 33,336 50,000
Prepaid Expenses 18,225 10,976
------------ ------------
Total Current Assets 73,044 144,180
------------ ------------
Furniture and Equipment (Net of Accumulated Depreciation
of $112,063 in 1997 and $102,583 in 1996) 72,031 72,513
------------ ------------
Other Assets:
Debt Issuance Expense - Net of Current Portion 61,108 --
Other Assets 4,596 5,283
------------ ------------
Total Other Assets 65,704 5,283
------------ ------------
Total Assets $ 210,779 $ 221,976
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current Liabilities:
Notes Payable $ 259,507 $ 343,507
Loans Payable 160,000 160,000
Loans Payable - Related Parties 139,177 143,877
Accounts Payable 62,704 97,199
Accrued Liabilities 308,899 219,801
------------ ------------
Total Current Liabilities 930,287 964,384
Long-Term Debt 1,000,000 --
------------ ------------
Total Liabilities 1,930,287 964,384
------------ ------------
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, $.003 Par Value, 16,666,666 Shares
Authorized, Issued and Outstanding 13,796,231 Shares
in 1997 and 13,686,231 Shares in 1996 41,389 41,059
Additional Paid-In Capital 17,108,689 16,438,365
Accumulated Deficit (18,869,586) (17,221,832)
------------ ------------
Total Stockholders' Deficit (1,719,508) (742,408)
------------ ------------
Total Liabilities and Stockholders' Deficit $ 210,779 $ 221,976
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 42
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
<TABLE>
<CAPTION>
For The
------------
Five Months Ended For The Year Ended
----------------- --------------------------------------------
May 31, December 31,
------------ --------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ ------------
Revenues $ 20,000 $ 43,552 $ 328,546 $ 790,466
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Costs and Expenses:
Cost of Sales -- -- 199,561 213,068
Software Development 334,868 740,000 492,399 587,552
General and Administrative Expenses 1,211,502 5,650,179 593,710 576,981
Interest Expense 56,348 157,210 112,779 59,788
Depreciation and Amortization 65,036 117,231 50,494 8,215
------------ ------------ ------------ ------------
Total Costs and Expenses 1,667,754 6,664,620 1,448,943 1,445,604
------------ ------------ ------------ ------------
Net Loss $ (1,647,754) $ (6,621,068) $ (1,120,397) $ (655,138)
============ ============ ============ ============
Weighted Average Common Shares
Outstanding 13,700,231 9,438,062 6,116,661 5,958,327
============ ============ ============ ============
Net Loss Per Common Share $ (.12) $ (.70) $ (.18) $ (.11)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 43
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
----------------------------------------------------------
FOR THE PERIOD JANUARY 1, 1994 THROUGH MAY 31, 1997
---------------------------------------------------
<TABLE>
<CAPTION>
Total
Additional ------------
Common Stock Paid-In Accumulated Stockholders'
----------------------- ------------ ------------ ------------
Shares Amount Capital Deficit Deficit
------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 5,499,994 $16,500 $5,483,500 $ (8,825,229) $(3,325,229)
Issuance of ConSyGen-Arizona
Common Stock as Payment of Debt 500,000 1,500 498,500 -- 500,000
Debt Cancellation by Related Party -- -- 2,680,210 -- 2,680,210
Interest on Loans -- -- 21,493 -- 21,493
Net Loss -- -- -- (655,138) (655,138)
--------- ------- ---------- ------------ -----------
Balance - December 31, 1994 5,999,994 18,000 8,683,703 (9,480,367) (778,664)
Issuance of ConSyGen-Arizona
Common Stock for Services 700,000 2,100 347,900 -- 350,000
Interest on Loans -- -- 67,016 -- 67,016
Debt Issuance Expense -- -- 90,000 -- 90,000
Net Loss -- -- -- (1,120,397) (1,120,397)
--------- ------- ---------- ------------ -----------
Balance - December 31, 1995
(Carried Forward) 6,699,994 20,100 9,188,619 (10,600,764) (1,392,045)
--------- ------- ---------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 44
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD JANUARY 1, 1994 THROUGH MAY 31, 1997
(Continued)
<TABLE>
<CAPTION>
Additional Total
---------- ------------
Common Stock Paid-In Accumulated Stockholders'
--------------------- ---------- ----------- ------------
Shares Amount Capital Deficit Deficit
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1995
(Brought Forward) 6,699,994 $20,100 $ 9,188,619 $(10,600,764) $(1,392,045)
Issuance of ConSyGen-Arizona
Common Stock for Services 98,000 294 48,706 -- 49,000
Issuance of ConSyGen-Arizona
Common Stock as Payment of Debt 700,000 2,100 347,900 -- 350,000
Donated Capital - Debt Cancellation
by Stockholder -- -- 350,000 -- 350,000
Issuance of ConSyGen-Arizona
Common Stock for Services 1,777,006 5,331 883,172 -- 888,503
Interest on Loans -- -- 90,802 -- 90,802
Effect of Reverse Acquisition 111,231 334 (7,134) -- (6,800)
Issuance of Common Stock
for Services 4,126,352 12,379 4,267,078 -- 4,279,457
Issuance of Common Stock as
Payment of Debt 173,648 521 1,182,022 -- 1,182,543
Donated Capital - Debt Cancellation -- -- 87,200 -- 87,200
Net Loss -- -- -- (6,621,068) (6,621,068)
---------- ------- ----------- ------------ -----------
Balance - December 31, 1996 13,686,231 41,059 16,438,365 (17,221,832) (742,408)
Interest on Loans -- -- 14,404 -- 14,404
Issuance of Common Stock
for Services 110,000 330 655,920 -- 656,250
Net Loss -- -- -- (1,647,754) (1,647,754)
---------- ------- ----------- ------------ -----------
Balance - May 31, 1997 13,796,231 $41,389 $17,108,689 $(18,869,586) $(1,719,508)
========== ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 45
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The
Five Months For The Year Ended
Ended December 31,
May 31, -----------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(1,647,754) $(6,621,068) $(1,120,397) $(655,138)
Adjustments to Reconcile Net Loss to Net Cash
Provided (Used) by Operating Activities:
Depreciation 9,480 18,231 10,494 8,215
Stock Issued for Services 656,250 5,167,961 300,000 --
Change in Allowance for Doubtful Accounts -- -- (15,910) --
Loss on Abandonment -- -- -- 29,016
Amortization of Debt Issuance Expense 55,556 99,000 40,000 --
Loan Interest - Additional Paid-In Capital 14,404 90,802 67,016 21,493
Changes in Operating Assets and Liabilities:
Accounts Receivable -- 1,876 35,381 149,164
Prepaid Expenses and Other Assets (6,562) (9,470) 11,502 2,497
Accounts Payable (4,495) (26,802) 13,603 9,934
Accrued Liabilities 89,098 43,905 90,658 83,357
Deferred Revenues -- (7,386) (1,215) 8,601
----------- ----------- ----------- ---------
Net Cash (Used) by Operating
Activities (864,023) (1,242,951) (568,868) (342,861)
----------- ----------- ----------- ---------
Cash Flows From Investing Activities:
Purchases of Furniture and Equipment (8,998) (30,227) (60,927) (9,594)
----------- ----------- ----------- ---------
Net Cash (Used) by Investing Activities (8,998) (30,227) (60,927) (9,594)
----------- ----------- ----------- ---------
Cash Flows From Financing Activities:
Proceeds of Debt Financings 1,000,000 1,123,700 -- --
Proceeds of Loans and Notes Payable -- 305,396 212,492 50,000
Payments of Loans and Notes Payable (84,000) (50,000) (3,200) (8,700)
Proceeds of Loans Payable - Related Parties -- 11,271 433,407 324,802
Payments of Loans Payable - Related Parties (4,700) (37,404) (23,351) (87,175)
Repayment of Loans Receivable - Related Parties -- -- -- 86,167
Payments for Debt Issuance Expense (100,000) -- --
Net Cash Provided by Financing
Activities 811,300 1,352,963 619,348 365,094
----------- ----------- ----------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents (61,721) 79,785 (10,447) 12,639
Cash and Cash Equivalents - Beginning of Period 83,204 3,419 13,866 1,227
----------- ----------- ----------- ---------
Cash and Cash Equivalents - End of Period $ 21,483 $ 83,204 $ 3,419 $ 13,866
=========== =========== =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 46
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For The
-----------------
Five Months
-----------------
Ended For The Year Ended
----------------- ----------------------------------------
May 31, December 31,
----------------- ----------------------------------------
1997 1996 1995 1994
----------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Supplemental Cash Flow Information:
Cash Paid for Interest $182 $ 3,300 $ 24,491 $ 14,919
==== =========== ======== ==========
Cash Paid for Income Taxes $ -- $ -- $ -- $ --
==== =========== ======== ==========
Supplemental Disclosure of Non-Cash Financing Activities:
Cancellation of Debt into Additional
Paid-In Capital - Related Parties $ -- $ 350,000 $ -- $2,680,210
==== =========== ======== ==========
Issuance of Common Stock as Debt Issuance
Expense $ -- $ 49,000 $ 50,000 $ --
==== =========== ======== ==========
Issuance of Common Stock as Payment of
Debt - Related Parties $ -- $ 350,000 $ -- $ 500,000
==== =========== ======== ==========
Debt Issuance Expense as Additional Paid-In
Capital $ -- $ -- $90,000 $ --
==== =========== ======== ==========
Effect of Reverse Acquisition - Accounts
Payable Acquired $ -- $ 6,800 $ -- $ --
==== ========== ======== ==========
Issuance of Common Stock as Payment of Debt $ -- $1,182,543 $ -- $ --
==== ========== ======== ==========
Cancellation of Debt into Additional Paid-In
Capital $ -- $ 87,200 $ -- $ --
==== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 47
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
HISTORY OF CONSYGEN, INC., (f/k/a C SQUARE VENTURES, INC.)
ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas'), was
incorporated on September 28, 1988 as C Square Ventures, Inc. ConSyGen-Texas was
formed for the purpose of obtaining capital in order to take advantage of
domestic and foreign business opportunities which may have profit potential. On
March 16, 1989, ConSyGen-Texas (then C Square Ventures, Inc.) completed an
initial public offering.
On September 5, 1996, ConSyGen-Texas acquired 100% of the
issued and outstanding shares of ConSyGen, Inc., a privately held Arizona
corporation formed on October 11, 1979 ("ConSyGen-Arizona") (f/k/a International
Data Systems, Inc.). On June 25, 1996, International Data Systems, Inc. changed
its name to ConSyGen, Inc. Immediately prior to the acquisition transaction,
ConSyGen-Texas effected a 1-for-40 reverse split of its common stock. In
connection with the acquisition, ConSyGen-Texas issued an aggregate of 9,275,000
shares of its common stock directly to the stockholders of ConSyGen-Arizona in
exchange for all of the issued and outstanding shares of ConSyGen-Arizona. Upon
the closing of the acquisition, the Company issued 3,850,000 shares of common
stock to various consultants for services rendered. Such shares were registered
under the Securities Act of 1933, as amended, pursuant to a Registration
Statement on Form S-8. In addition, the Company issued 150,000 shares of common
stock to a consultant for services to be rendered. These 4,000,000 shares were
valued at $1.00 per share, which was management's best estimate of fair market
value at the time of issuance. The exchange resulted in ConSyGen-Arizona's
stockholders holding a larger portion of voting rights of ConSyGen-Texas than
was held after the acquisition by the persons who were ConSyGen-Texas
stockholders prior to the acquisition (approximately 69% at closing). In
connection with the acquisition, outstanding options to purchase 1,275,000
shares of ConSyGen-Arizona's common stock granted under its Non-Qualified Stock
Option Plan were terminated and ConSyGen-Texas adopted a new Non-Qualified Stock
Option Plan (see Note 11). In addition, ConSyGen-Arizona terminated warrants to
purchase 1,000,000 shares of its common stock in connection with the
acquisition, and ConSyGen-Texas issued replacement warrants to purchase
1,000,000 shares of its common stock (see Note 11). As a result of the
acquisition, ConSyGen-Arizona became a wholly-owned subsidiary of
ConSyGen-Texas. The transaction has been treated as a reverse acquisition
(purchase) with ConSyGen-Arizona being the acquirer and ConSyGen-Texas being the
acquired company. Consequently, only the historical operations of
ConSyGen-Arizona are presented for the periods through September 5, 1996.
Subsequent to the acquisition, ConSyGen-Texas changed its name to ConSyGen, Inc.
(A Texas corporation).
ConSyGen-Texas and its wholly-owned subsidiary
ConSyGen-Arizona are hereafter collectively referred to as the "Company".
DESCRIPTION OF BUSINESS
ConSyGen-Texas' business consists solely of the business of
its wholly-owned subsidiary, ConSyGen-Arizona. The Company is currently engaged
in the business of rendering automated software conversion services, including
"year 2000" conversions, although it did not realize any significant operating
revenue from its conversion business during fiscal 1997. Until 1995,
ConSyGen-Arizona licensed its proprietary computer software used in the hotel
and airline industries, and provided software maintenance services. In 1996
ConSyGen-Arizona discontinued its practice of software licensing and providing
maintenance services.
F-9
<PAGE> 48
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and at May 31, 1997 had a working
capital deficit of approximately $857,000 and a deficiency in stockholders'
equity of approximately $1,720,000. These factors raise substantial doubt about
the Company's ability to continue as a going concern. Continuation of the
Company is dependent on (1) achieving sufficiently profitable operations and (2)
obtaining adequate financing. Management's plans in this regard include forming
additional strategic alliances with computer hardware and consulting firms and
implementation of an independent sales representative program (see Note 12). In
addition, in June 1997 the Company raised net proceeds of approximately $1
million through the private sale of its common stock. In late August 1997, the
Company accepted subscriptions to purchase an aggregate 100,000 shares of Common
Stock for aggregate consideration of $504,000 (net of finders fees). The Company
expects to receive the proceeds of these subscriptions ($504,000) in early
September, 1997 (see Note 13). The Company intends to raise additional funds.
However, the success of these planned measures cannot be determined at this
time. The financial statements do not include any adjustment relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
FISCAL YEAR
ConSyGen-Texas' fiscal year end is May 31. Effective January
1, 1997, ConSyGen-Arizona changed its fiscal year from December 31 to May 31 to
coincide with the fiscal year end of its parent company, ConSyGen-Texas. Since
ConSyGen-Texas' acquisition of ConSyGen-Arizona has been accounted for as a
reverse acquisition (purchase), with ConSyGen-Arizona being the acquirer and
ConSyGen-Texas being the acquired company, only the historical operations to
ConSyGen-Arizona are presented for periods through the date of acquisition.
Subsequent to the acquisition date, the consolidated operations of the Company
are presented. Accordingly, the financial statements presented are for the five
month period ended May 31, 1997 and for the years ended December 31, 1996, 1995,
and 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
ConSyGen-Texas and its wholly-owned subsidiary, ConSyGen-Arizona. Significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-10
<PAGE> 49
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized in accordance with Statement of Position
91-1, "Software Revenue Recognition". Accordingly, revenue from software
licensing is recognized when delivery of the software has occurred, a signed
noncancelable license agreement has been received from the customer and any
remaining obligations under the license agreement are insignificant. Revenue
which related to insignificant obligations was deferred and was recognized as
the obligations were fulfilled. Revenue in 1995 and 1994 from software license
fees that were related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
was unbundled from the license fee at its fair value and was deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) was
deferred and recognized straight-line over the term of the contracts. In 1996,
the Company discontinued its practice of software licensing and entering into
maintenance contracts. Conversion service revenue is recognized upon completion
of the conversion service.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost, less accumulated
depreciation. Deprecation is computed by both straight-line method and
accelerated methods over the estimated useful lives of the related assets, which
approximate five years.
DEBT ISSUANCE EXPENSE
Costs associated with the Company's debt financing
transactions have been capitalized. These costs include the value of common
stock issued, both by the Company or directly from a significant stockholder, as
consideration for obtaining various loans. Such costs are being amortized over
the terms of the related loans.
RESEARCH AND DEVELOPMENT
Research and development expenditures, including the cost of
software development, are expensed as incurred.
F-11
<PAGE> 50
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK PLANS
The Company accounts for its stock option plans in accordance
with provisions of the Accounting Principle Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board released Statement of Financial Accounting Standard No. 123
(SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an
alternative to APB 25 and is effective for fiscal years beginning after December
15, 1995. The Company will continue to account for its employee stock option
plans in accordance with the provisions of APB 25, and therefore will be
required to disclose certain pro-forma information in the notes to its financial
statements. SFAS 123 is not expected to have a material effect on the Company's
financial condition or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been
determined by the Company using available market information and valuation
methodologies. Considerable judgment is required in estimating fair values.
Accordingly, the estimates may not be indicative of the amounts the Company
could realize in a current market exchange. The carrying amounts of cash,
accounts receivable and accounts payable approximate fair value.
LOSS PER SHARE
Prior to the acquisition, the computation of net loss per
share is based on the weighted average number of outstanding common shares of
ConSyGen-Arizona. Following the acquisition, shares presented are adjusted for
the effect of the reverse acquisition. Common stock equivalents have not been
included in this calculation since their inclusion would be antidilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 128, Earnings per Share
(SFAS 128). SFAS 128, which applies to entities with publicly held common stock,
simplifies the standards for computing earnings per share previously required in
APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Earlier adoption is not permitted. Management is currently reviewing
the provisions of SFAS 128, however, it does not believe that adoption of this
new accounting pronouncement will have a material impact on the calculation and
presentation of earnings per share.
NOTE 3 - LOANS PAYABLE - RELATED PARTIES
Loans payable to related parties with interest imputed at 10%
per annum, are due on demand and are unsecured (see Note 9).
F-12
<PAGE> 51
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 4 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following:
May 31, December 31,
------------- ----------------
1997 1996
------------- ----------------
<S> <C> <C>
Note payable, bearing interest at 10% per annum, no stated
maturity and unsecured. As additional consideration to the
lender for making the loan, a significant stockholder
personally transferred to the lender 30,000 shares of his
common stock, valued at $1.00 per share. The value of such
shares has been capitalized as debt issuance expense. $ 30,000 $ 30,000
Note payable, bearing interest at 10% per annum, due July 31,
1996 and unsecured. Since August 1, 1996, the Company has been
in default under the terms of the Note, and interest has been
accruing at the default rate of 18% per annum. As additional
consideration to the lender for making the loan, a significant
stockholder personally transferred to the lender 60,000 shares
of his common stock, valued at $1.00 per share. The value of
such shares has been capitalized as debt issuance expense. 100,000 100,000
Note payable, bearing interest at the prime rate,
original maturity June 30, 1989 and unsecured. 23,000 23,000
</TABLE>
F-13
<PAGE> 52
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31,1997
<TABLE>
<CAPTION>
NOTE 4 - Notes Payable (Continued)
May 31, December 31,
------------ ---------------
1997 1996
------------ ---------------
<S> <C> <C>
Note payable, bearing interest at 10% per
annum, due on demand and unsecured. 23,317 23,317
Note payable, bearing interest at 10% per annum, payable on
demand, and unsecured. As additional consideration to the
lender for making the loan, the Company issued 25,000 shares
of its common stock to the lender valued at $1.00 per share.
The value of such shares has
been capitalized as debt issuance expense. 25,000 25,000
Note payable, with interest imputed at 10% per
annum, no stated maturity and unsecured. 23,190 23,190
Note payable, with interest imputed at 10% per
annum, no stated maturity and unsecured. 5,000 5,000
Note payable, bearing interest at 10% per annum,
payable on demand, and unsecured. - 84,000
Note payable, bearing interest at 10% per annum, payable on
demand and unsecured. As additional consideration to the
lender for making the loan, the Company issued 50,000 shares
of its common stock to the lender valued at $1.00 per share.
The value of such shares has been capitalized as debt issuance
expense. 30,000 30,000
--------- ---------
$ 259,507 $ 343,507
========= =========
</TABLE>
F-14
<PAGE> 53
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 5 - LOANS PAYABLE
Loans payable consist of the following:
<TABLE>
<CAPTION>
May 31, December 31,
--------- ------------
1997 1996
--------- ------------
<S> <C> <C>
Loan payable, with interest imputed at 10% per
annum, due on demand and unsecured. $ 52,000 $ 52,000
Loan payable, non-interest bearing, due on
demand and unsecured. 8,000 8,000
Loan payable, with interest imputed at 10% per
annum, due on demand and unsecured. 100,000 100,000
--------- ---------
$ 160,000 $ 160,000
========= =========
</TABLE>
NOTE 6 - LONG-TERM DEBT
In March 1997, ConSyGen-Texas raised $1,000,000, before
deducting finder's fees of $100,000, through a private placement of convertible
notes (the "Notes") in the principal amount of $1,000,000. The Notes are
unsecured, bear interest at the rate of 6% per annum, are payable in March 2000,
and are convertible into common stock of ConSyGen-Texas. The principal amount of
the Notes is convertible into common stock of ConSyGen-Texas at a rate equal to
the lesser of (1) $10.85 per share (115% of the closing bid price of the common
stock on March 21,1997); or (2) that price which is equal to 70% of the average
closing bid price of the common stock for the five trading days preceding the
date of conversion. ConSyGen-Texas is obligated to register the shares of common
stock issuable upon conversion of the Notes, under the Securities Act of 1933,
as soon as practicable after the closing date. The Notes provide that if the
underlying shares are not registered within 90 days of closing, ConSyGen-Texas
is obligated to pay penalties amounting to 2% of the principal amount of the
Notes. In addition, the Company is obligated to pay penalties equal to 3% of the
principal amount of the Notes for each subsequent month after expiration of the
90 day period during which the underlying shares are not registered under the
Securities Act of 1933. At July 15, 1997, the underlying shares had not been
registered under the Securities Act of 1933. ConSyGen-Texas may compel
conversion of the Notes at any time after the expiration of six months after the
effective date of the Registration Statement. The Notes are redeemable, at a
price equal to 130% of the principal amount of the Notes, in the event that the
price of ConSyGen-Texas' common stock is less than the bid price on March 21,
1997.
F-15
<PAGE> 54
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company's corporate offices are leased under a
noncancelable operating lease, as amended, which expires October 31, 1998.
Rental expense aggregated $31,503 for the five months ended May 31, 1997, and
$61,434, $49,884 and $48,144 for the years ended December 31, 1996, 1995 and
1994, respectively. Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
Year Ending
May 31,
-----------
<S> <C>
1998 $ 87,586
1999 37,090
---------
$124,676
</TABLE>
LEGAL PROCEEDINGS
From time to time, the Company may be named in legal actions
which are incidental to the industry in which the Company operates. Currently,
the Company is not a party to any legal proceedings.
NASD REVIEW
The National Association of Securities Dealers, Inc. ("NASD")
in December 1996 advised the Company that it is conducting a routine review of
trading in ConSyGen-Texas' common stock following the acquisition of
ConSyGen-Arizona. The NASD made a written inquiry of the Company, to which the
Company responded in writing in January 1997. The NASD made inquiry with respect
to, among other things, a private placement by ConSyGen-Arizona, the acquisition
of ConSyGen-Arizona by ConSyGen-Texas, and issuance of common stock by the
Company during 1996. The NASD has not yet responded in writing to the Company's
written response. Although it is not possible to determine the outcome of this
review, the outcome could have a material adverse effect on the Company and the
price of and trading market for the Company's common stock.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards, No. 109, "Accounting for Income
Taxes". Deferred income taxes are provided with respect to differences between
results of operations for financial reporting purposes and income tax purposes.
For the five months ended May 31, 1997, and the years ended December 31, 1996,
1995 and 1994, the Company generated net operating losses.
Deferred tax assets and liabilities are recorded based on
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect when those differences are expected to
reverse. Effective May 31, 1997, the Company will file its federal corporation
income tax return on a consolidated basis. As of May 31, 1997, the Company had a
net operating loss carryforward (NOLC) for federal income tax purposes of
approximately $16,000,000, which begins to expire in 1998. Pursuant to Section
382 of the Internal Revenue Code, due to changes in the ownership of the
Company, the utilization of these loss carryforwards may be subject to an annual
limitation.
F-16
<PAGE> 55
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 8 - INCOME TAXES (CONTINUED)
For income tax purposes, the NOLC may be used by the Company
to offset future taxable income. However, due to the Company's historical
operating results, the Company has placed a 100% valuation reserve on the NOLC.
The following table sets forth the components of deferred taxes at:
<TABLE>
<CAPTION>
May 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Deferred Tax Assets $ - $ 10,000
Net Operating Loss Carryforwards 6,000,000 5,880,000
Less: Valuation Reserve (6,000,000) (5,890,000)
------------ ------------
$ -0- $ -0-
============ ============
</TABLE>
Income tax benefit attributable to net loss differed from the
amounts computed by applying the statutory Federal Income tax rate applicable
for each period as a result of the following:
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 31, 1997 December 31, 1996
------------ -----------------
<S> <C> <C>
Computed "expected" tax benefit $ 337,000 $ 2,251,000
Decrease in tax benefit resulting
from:
Net operating loss for which no
benefit is currently available (337,000) (2,251,000)
------------ -----------
$ -0- $ -0-
============ ===========
</TABLE>
NOTE 9 - RELATED PARTY TRANSACTIONS
A significant shareholder, who is also an officer and director
of the Company, and his relatives and affiliates have advanced funds to the
Company on an as needed basis. As of May 31, 1997 and December 31, 1996, such
shareholder and relatives had outstanding advances of $139,177 and $143,877 (see
Notes 3 and 10). In May 1997, in connection with the significant stockholder's
private sale of 300,000 shares of common stock of the Company to certain
individuals, the Company agreed to use its best efforts to register such shares
for resale by such individuals under the Securities Act of 1933 within 120 days
of the closing of the sale.
F-17
<PAGE> 56
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIT
In February 1994, ConSyGen-Arizona converted $500,000 of a
loan payable to a significant shareholder into 500,000 shares of common stock.
In addition, an affiliate of a significant shareholder canceled certain loans it
had made to ConSyGen-Arizona in the amount of $2,680,210. This amount was
credited to ConSyGen-Arizona's additional paid-in capital.
In October 1995, ConSyGen-Arizona's board of directors
increased the number of its authorized shares of common stock to 20,000,000 and
changed the stated par value of such shares from $1 to $.01 per share. All
periods presented have been retroactively adjusted to reflect this change.
In November 1995, ConSyGen-Arizona issued 700,000 shares of
common stock to advisors and consultants of ConSyGen-Arizona as consideration
for services rendered, including 100,000 shares issued to a consultant as a
retainer for services to be rendered. For accounting purposes the shares were
valued at $.50 per share, which was management's best estimate of fair value at
the date of issuance. The accompanying financial statements include a charge of
$300,000 for the issuance of 600,000 of such shares, which is included in
general and administrative expenses. In addition, $50,000 has been capitalized
and subsequently amortized as debt issuance expense in connection with the
issuance of the remaining 100,000 shares.
ConSyGen-Arizona has recognized a financial (imputed) interest
charge on loans and notes payable as to which there were originally no stated
interest rates. The interest has been charged to operations and credited to
additional paid-in capital and is summarized as follows:
<TABLE>
<CAPTION>
Five Months Ended Year Ended
----------------- --------------------------------------------
May 31, December 31,
----------------- --------------------------------------------
1997 1996 1995 1994
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Significant Stockholder $ 5,854 $ 72,179 $ 65,516 $ 21,493
Others 8,550 18,623 1,500 -
----------- ---------- ---------- ---------
$ 14,404 $ 90,802 $ 67,016 $ 21,493
=========== ========== ========== =========
</TABLE>
During 1996, ConSyGen-Arizona issued to a significant
shareholder, who is also an officer and director of the Company, an aggregate of
2,477,006 shares of common stock, of which 700,000 were issued in satisfaction
of a $350,000 loan payable to such stockholder, and the remaining 1,777,006
shares were issued as compensation for services rendered by such person in his
capacity as an officer and director of ConSyGen-Arizona. In addition, such
shareholder forgave, without further consideration, an additional $350,000 of
indebtedness of ConSyGen-Arizona owed to him. In addition, 98,000 shares of
common stock were issued to certain individuals as consideration for advancing
funds to ConSyGen-Arizona. For accounting purposes, all the shares were valued
at $.50 per share, which was management's best estimate of fair value at the
date of issuance.
During 1996 the Company issued to a consultant for services
100,000 shares of common stock valued at $1.00 per share, which was management's
best estimate of fair value at date of issuance.
F-18
<PAGE> 57
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)
DEBT FINANCINGS
During 1995 ConSyGen-Arizona entered into an agreement with a
consultant, as supplemented in 1996, under which the consultant agreed to assist
ConSyGen-Arizona in obtaining financing. As noted above, ConSyGen-Arizona issued
100,000 shares of its common stock to the consultant as a retainer for services
to be rendered. In 1996 such consultant assisted ConSyGen-Arizona in raising
approximately $1,200,000 in a private placement of debt. The debt bore interest
at a rate of 10% per annum, was unsecured, and was to be repaid in one year. As
additional consideration to the lenders, ConSyGen-Arizona agreed to issue
warrants to purchase an aggregate of 1,000,000 shares of ConSyGen-Arizona's
common stock at an exercise price of $5.00 per share. The warrants would have
become exercisable one year from the date of the loan, had a term of two years
and were callable upon 60 days notice. As described in Note 11, in connection
with ConSyGen-Texas' acquisition of ConSyGen-Arizona, ConSyGen-Arizona
terminated these warrants and ConSyGen-Texas reserved for issuance new warrants
to purchase 1,000,000 shares of ConSyGen-Texas common stock on the same terms
and conditions.
Following the loan transaction in September 1996, the
Company's consultant transferred common stock of ConSyGen-Texas held by it to
the lenders in exchange for ConSyGen-Arizona's debt. As a result of this
transaction, ConSyGen-Arizona's obligation to repay the lenders was extinguished
and ConSyGen-Arizona became obligated to repay such consultant. Subsequently,
ConSyGen-Texas and the consultant agreed that ConSyGen-Texas would issue an
aggregate of 200,000 shares of its common stock to such consultant, of which
173,648 shares was in cancellation of ConSyGen-Arizona's debt acquired by the
consultant from the lenders and 26,352 shares were as payment for services.
In May 1997, the Company entered into a new agreement with the
consultant which supersedes all prior agreements with the consultant. Under this
agreement, the Company (1) granted the consultant, until June 1998, a right of
first refusal with respect to future financings and (2) issued the consultant
100,000 shares of common stock, in full satisfaction of all amounts owing under
all existing arrangements with the consultant. These 100,000 shares, which are
restricted under the Securities Act of 1933, were valued at $6.00 per share. In
addition, the Company issued the consultant warrants to purchase 300,000 shares
of common stock (see Note 13). The consultant agreed to provide such consulting
services as the Company may request until June 1998. In addition, the consultant
would be entitled to receive compensation, in an amount to be agreed upon, if
any individual previously introduced by the consultant to the Company makes an
investment in the Company.
F-19
<PAGE> 58
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 10 - STOCKHOLDERS' DEFICIT (CONTINUED)
ACQUISITION OF CONSYGEN-ARIZONA
On September 5, 1996, ConSyGen-Texas, pursuant to an exchange
agreement, acquired 100% of the issued and outstanding shares of
ConSyGen-Arizona directly from the stockholders of ConSyGen-Arizona. Immediately
prior to the acquisition, ConSyGen-Texas effected a 1-for-40 reverse split of
its common stock. In connection with the acquisition, ConSyGen-Texas issued an
aggregate of 9,275,000 shares of its common stock in exchange for all of the
issued and outstanding shares of ConSyGen-Arizona. Upon the closing of the
acquisition, ConSyGen-Texas issued 3,850,000 shares of common stock to various
consultants for services rendered. Such shares were registered under the
Securities Act of 1933, as amended, pursuant to a Registration Statement on Form
S-8. In addition, ConSyGen-Texas issued 150,000 shares of common stock to a
consultant for services to be rendered. These 4,000,000 shares were valued at
$1.00 per share, which was management's best estimate of fair market value at
the time of issuance. The accompanying financial statements include a charge of
$4,000,000 for the issuance of such shares, which is included in general and
administrative expenses. In connection with the acquisition, ConSyGen-Arizona
terminated all options and warrants to acquire its common stock, and
ConSyGen-Texas simultaneously adopted replacement options and warrants (see Note
11).
The exchange resulted in ConSyGen-Arizona's shareholders
holding a larger portion of the voting rights of ConSyGen-Texas than was held
after the acquisition by the persons who were ConSyGen-Texas stockholders prior
to the acquisition (approximately 69% at closing). The transaction has been
treated as a reverse acquisition (purchase) with ConSyGen-Arizona being the
acquirer and ConSyGen-Texas being the acquired company. Subsequent to the
acquisition, ConSyGen-Texas changed its legal name to ConSyGen, Inc.
NOTE 11 - STOCK OPTION PLANS AND WARRANTS
In October 1995, ConSyGen-Arizona's Board of Directors
approved the ConSyGen-Arizona Non-Qualified Stock Option Plan (the "1995 Plan"),
which covered 1,275,000 shares of ConSyGen-Arizona's common stock. Under the
terms of the 1995 Plan, the exercise price per share may not be less than the
par value of ConSyGen-Arizona's common stock. Options may be granted for terms
of up to five years from the date of grant. At December 31, 1995, options to
purchase an aggregate of 1,275,000 shares were granted under the 1995 Plan. The
1995 Plan and all options outstanding thereunder were terminated effective as of
September 5, 1996, the closing of the ConSyGen-Texas acquisition. ConSyGen-Texas
adopted a new non-qualified stock option plan (the "1996 Plan") on September 5,
1996, covering 1,500,000 shares. At May 31, 1997, options to purchase an
aggregate of 1,225,000 shares were outstanding under the 1996 Plan.
F-20
<PAGE> 59
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 11 - STOCK OPTION PLANS AND WARRANTS (CONTINUED)
On March 1, 1997, ConSyGen-Texas adopted the ConSyGen, Inc.
1997 Non-Qualified Stock Option Plan (the "1997 Plan") , which reserves for
issuance options to purchase 1,000,000 shares of common stock. In March 1997,
the Company granted options to the President and Chief Executive Officer of the
Company to purchase up to 400,000 shares of common stock at an exercise price of
$8.875 per share. The options expire 10 years from the date of grant. At the
date of grant, the options were immediately exerciseable.
Effective as of the closing of the ConSyGen-Texas acquisition,
ConSyGen-Arizona terminated warrants to purchase 1,000,000 shares of its common
stock, which were issuable in connection with ConSyGen-Arizona's $1,200,000 debt
financing in 1996. ConSyGen-Texas simultaneously reserved for issuance
replacement warrants to purchase 1,000,000 shares of its common stock on the
same terms. These warrants have an exercise price of $5.00 per share, become
exerciseable in August of 1997, expire in September 1998 and are callable upon
60 days notice.
The following tables summarize the activity under the 1995,
1996 and 1997 Plans along with common stock warrant activity for the periods
indicated:
<TABLE>
<CAPTION>
Weighted
Price of Average
Options Option Exercise
Outstanding Grants Price
----------- ------ -----
<S> <C> <C> <C>
Outstanding at December 31, 1994 - -
Granted 1,275,000 $ .01
----------
Outstanding at December 31, 1995 1,275,000 - $ .01
Terminated (1,275,000) - -
Replacement Options 1,275,000 $ 1.00 -
Terminated (450,000) -
Granted 375,000 $ 1.00 -
Granted 50,000 $ 6.50 -
---------- -------
Outstanding at December 31, 1996 1,250,000 . $ 1.00
Granted 405,000 $8.88-$10.
Terminated (25,000)
---------- -------
Outstanding at May 31, 1997 1,630,000 $ 3.11
========== =======
</TABLE>
F-21
<PAGE> 60
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 11 - STOCK OPTION PLANS AND WARRANTS (Continued)
<TABLE>
<CAPTION>
Weighted
Price of Average
Warrants Warrant Exercise
Outstanding Grants Price
---------- ---------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1995 -
Granted 1,000,000 $ 5.00
---------
Outstanding at December 31, 1996 1,000,000 $ 5.00
Granted -
Outstanding at May 31, 1997 1,000,000 $ 5.00
========= =======
</TABLE>
At December 31, 1996, 293,750 options and 0 warrants to
purchase shares were exercisable. The weighted average exercise price of the
exercisable options is $1.
At May 31, 1997, 698,750 options and 0 warrants to purchase
shares were exercisable. The weighted average exercise price of the exercisable
options is $5.58.
At May 31, 1997 the average life of outstanding options and
warrants was 9.5 years and 1.3 years respectively and the average life of
exercisable options was 9.5 years.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation", requires companies to measure employee stock
compensation plans based on the fair value method of accounting. However, the
Statement allows the alternative of continued use of Accounting Principles Board
(APB) Option No. 25, "Accounting for Stock Issued to Employees," with pro forma
disclosure of net income and earnings per share determined as if the fair value
based method had been applied in measuring compensation cost. The Company
adopted the new standard in 1996 and elected the continued use of APB Opinion
No. 25. Pro forma disclosure has not been provided, as the effect on 1996 net
earnings was immaterial.
F-22
<PAGE> 61
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 12 - SALES AND MARKETING
The Company's sales and marketing strategy includes an
independent sales representative program, and entering into alliances with
system integrators that provide computer related services to end-users. Under
the sales representative program, the Company engages individuals on a
non-exclusive basis to refer business to the Company. In general, under the
alliances with systems integrators, the systems integrator will contract with
the Company to provide conversion services, including Year 2000 correction
services, to the integrator's customers. The Company believes that this approach
affords it the opportunity to have its services marketed to a wide range of
potential customers. The Company has entered into such alliances with several
major corporations, including Unisys Corporation, Strategia Corporation, Agiss
Software Corporation, SCB Computer Technology, and Millenium Enterprises.
NOTE 13 - SUBSEQUENT EVENTS
COMMON STOCK PRIVATE PLACEMENT
In June 1997 the Company sold 120,000 shares of its common
stock at $9.00 per share in a private placement for gross proceeds of
$1,080,000. In connection with the sale, the Company paid a 7% cash commission
and issued 3,600 shares of common stock as a finders fee. The Company has agreed
to use its best efforts to register the shares under the Securities Act of 1933,
as amended, within 120 days from the date of sale.
In late August 1997, the Company accepted subscriptions to
purchase an aggregate 100,000 shares of Common Stock for aggregate consideration
of $504,000 (net of finders fees). The Company expects to receive the proceeds
of these subscriptions ($504,000) in early September, 1997.
WARRANT ISSUANCE TO CONSULTANT
In July, 1997, in connection with the new agreement with the
Company's consultant (see Note 10), the Company agreed to issue the consultant
warrants to purchase 300,000 shares of common stock at a price of $5.00 per
share. The shares of common stock issuable upon exercise of these warrants will
be restricted securities under the Securities Act of 1933. The warrants are
immediately exerciseable, expire two years from the date of grant, and are
callable upon 60 days notice.
INCREASE IN COMMON SHARES AUTHORIZED
In July 1997, the Company amended its Articles of
Incorporation to increase its authorized common shares from 16,666,666 to
40,000,000 shares.
F-23
<PAGE> 62
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 51,084
Stock Subscriptions Receivable 560,000
Debt Issuance Expense - Net 33,336
Prepaid Expenses 10,425
----------
Total Current Assets 654,845
Furniture and Equipment - Net 291,617
Other Assets:
Debt Issuance Expense - Net of Current Portion $ 52,775
Other Assets 4,596
-------------
Total Other Assets 57,371
----------
Total Assets $1,003,833
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes Payable $ 236,317
Loans Payable 160,000
Loans Payable - Related Parties 162,275
Accounts Payable 114,947
Accrued Liabilities 276,805
----------
Total Current Liabilities 950,344
Long-Term Debt 1,000,000
----------
Total Liabilities 1,950,344
Stockholders' Deficit:
Common Stock, $.003 Par Value, 40,000,000 Shares
Authorized, Issued and Outstanding 13,919,831 Shares $ 41,760
Additional Paid-In Capital 18,121,325
Common Stock Subscribed, 100,000 Shares 504,000
Accumulated Deficit (19,613,596)
-------------
Total Stockholders' Deficit (946,511)
----------
Total Liabilities and Stockholders' Deficit $1,003,833
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 63
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months
-------------------------------
Ended
-------------------------------
August 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Interest Income $ 5,915 $ -
----------- -----------
Costs and Expenses:
Software Development 284,045 210,560
General and Administrative Expenses 333,813 1,010,658
Interest Expense 110,664 62,980
Depreciation and Amortization 21,403 67,216
----------- -----------
Total Costs and Expenses 749,925 1,351,414
----------- -----------
Net Loss $ (744,010) $(1,351,414)
=========== ===========
Weighted Average Common Shares Outstanding 13,919,831 8,076,889
=========== ===========
Net Loss Per Common Share $ (.05) $ (.17)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE> 64
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Total
---------- ------------
Common Stock Paid-In Common Stock Accumulated Stockholders'
------------------ ---------- ------------ ----------- ------------
Shares Amount Capital Subscribed Deficit Deficit
------ ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance - June 1, 1997 13,796,231 $41,389 $17,108,689 $ - $(18,869,586) $(1,719,508)
Sale of Common Stock,
Net of Offering Costs 120,000 360 1,004,040 - - 1,004,400
Common Stock Issued as
Finder's Fees 3,600 11 (11) - - -
Interest on Loans - - 8,607 - - 8,607
Subscription for 100,000
Shares of Common Stock,
Net of Finder's Fees - - - 504,000 - 504,000
Net Loss - - - - (744,010) (744,010)
---------- ------- ----------- -------- ------------ -----------
Balance - August 31, 1997 13,919,831 $41,760 $18,121,325 $504,000 $(19,613,596) $ (946,511)
========== ======= =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE> 65
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months
---------------------------
Ended
---------------------------
August 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (744,010) $(1,351,414)
Adjustments to Reconcile Net Loss to Net
Cash (Used) by Operating Activities:
Depreciation 13,070 4,883
Stock Issued for Services -- 888,503
Amortization of Debt Issuance Expense 8,333 62,333
Loan Interest - Additional Paid-In Capital 8,607 16,430
Changes in Operating Assets and Liabilities:
Accounts Receivable -- 13,265
Prepaid Expenses 7,800 --
Accounts Payable 52,243 (52,030)
Accrued Liabilities (88,094) (30,560)
----------- -----------
Net Cash (Used) by Operating Activities (742,051) (448,590)
----------- -----------
Cash Flows From Investing Activities:
Purchases of Furniture and Equipment (232,656) (11,644)
----------- -----------
Net Cash (Used) by Investing Activities (232,656) (11,644)
----------- -----------
Cash Flows From Financing Activities:
Proceeds of Debt Financing -- 481,000
Proceeds of Loans and Notes Payable -- 34,908
Payments of Loans and Notes Payable (23,190) (50,000)
Proceeds of Loans Payable - Related Parties 23,190 --
Payments of Loans Payable - Related Parties (92) (1,549)
Proceeds on Sale of Common Stock 1,080,000 --
Commissions on Sale of Common Stock (75,600) --
----------- -----------
Net Cash Provided by Financing Activities 1,004,308 464,359
----------- -----------
Net Increase in Cash and Cash Equivalents 29,601 4,125
Cash and Cash Equivalents - Beginning of Period 21,483 --
----------- -----------
Cash and Cash Equivalents - End of Period $ 51,084 $ 4,125
=========== ===========
</TABLE>
F-27
The accompanying notes are an integral part of the financial statements.
<PAGE> 66
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
For The Three Months
---------------------
Ended
---------------------
August 31,
---------------------
1997 1996
---------- --------
Supplemental Cash Flow Information:
<S> <C> <C>
Cash Paid for Interest $ 95,000 $ 1,559
========== ========
Cash Paid for Income Taxes $ -- $ --
========== ========
Supplemental Disclosure of Non-Cash Financing Activities:
Cancellation of Debt into Additional Paid-In Capital - Related Parties $ -- $350,000
========== ========
Issuance of Common Stock as Debt Issuance Expense $ -- $ 24,000
========== ========
Issuance of Common Stock as Payment of Debt - Related Parties $ -- $350,000
========== ========
Issuance of Common Stock as Finder's Fees on Sale of Common Stock $ 21,600 $ --
========== ========
Common Stock Subscribed - Net of Finder's Fees $ 504,000 $ --
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 67
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas") and its wholly-owned
subsidiary, ConSyGen, Inc., an Arizona corporation ("ConSyGen-Arizona").
Significant intercompany accounts and transactions have been eliminated.
ConSyGen-Texas and its wholly-owned subsidiary
ConSyGen-Arizona are hereafter collectively referred to as the "Company".
In the opinion of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the results of
operations and cash flows for the periods presented.
Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year due to external factors
which are beyond the control of the Company.
NOTE 2 - STOCKHOLDERS' DEFICIT
COMMON STOCK PRIVATE PLACEMENT
In June 1997 the Company sold 120,000 shares of its common
stock in a private placement for gross proceeds of $1,080,000. In connection
with the sale, the Company paid finder's fees of $75,600 and issued 3,600 shares
of common stock valued at $21,600. These shares were sold in a private placement
exempt from registration under the Securities Act of 1933, as amended ("the
Act"), pursuant to Regulation D promulgated thereunder.
In late August 1997, the Company accepted subscriptions to
purchase 100,000 shares of common stock for aggregate consideration of $504,000,
net of $56,000 in finder's fees. On September 9, 1997, the Company received the
net proceeds (504,000) of these subscriptions. These shares were sold in a
private placement exempt from registration under the Act, pursuant to Regulation
D promulgated thereunder.
WARRANT ISSUANCE TO CONSULTANT
In July 1997, in connection with the new agreement with the
Company's consultant the Company agreed to issue the consultant warrants to
purchase 300,000 shares of common stock at a price of $5.00 per share. The
shares of common stock issueable upon exercise of these warrants will be
restricted securities under the Act. The warrants are immediately exerciseable,
expire two years from the date of grant, and are callable upon 60 days notice.
INCREASE IN COMMON SHARES AUTHORIZED
In July 1997, the Company amended its Articles of
Incorporation to increase its authorized common shares from 16,666,666 to
40,000,000 shares.
F-29
<PAGE> 68
CONSYGEN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(Unaudited)
NOTE 3 - SUBSEQUENT EVENTS
In early September 1997, the Company accepted subscriptions to
purchase an additional 52,000 shares of common stock for aggregate consideration
of $312,500, net of $10,000 in finder's fees. The Company has since received the
net proceeds ($312,500) of these subscriptions. These share were sold in a
private placement exempt from registration under the Act, pursuant to Regulation
D promulgated thereunder.
On September 10, 1997, the Company granted Ronald I. Bishop,
President and Chief Executive Officer of the Company, options to purchase
500,000 shares of common stock pursuant to the Company's 1997 Amended and
Restated Non Qualified Stock Option Plan. The option has a term of 10 years, the
exercise price is $5.50 per share, and the options are exerciseable as follows:
125,000 are immediately exerciseable and the remaining 375,000 become
exerciseable in 24 equal monthly installments commencing one month from the date
of grant.
In September 1997, the Company sold 900,000 shares of Common
Stock in a private placement for gross proceeds of $5,276,250. In connection
with this offering, the Company paid the following finder's fees: approximately
$185,000 in cash and 31,500 shares of Common Stock. The net proceeds of this
offering were approximately $5.1 million. These shares were sold in a private
placement exempt from registration under the Act, pursuant to Regulation D
promulgation thereunder.
In October 1997, the Company issued approximately 31,000
shares of common stock, including approximately 19,900 shares to related
parties, in connection with the payment of indebtedness in an aggregate amount
of approximately $250,000.
In November 1997, the Company issued to a consultant for
services rendered warrants to purchase an aggregate of 100,000 shares of common
stock at an exercise price of $5.00 per share. The warrants become fully
exercisable in November 1998.
F-30
<PAGE> 69
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL.
--------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Prospectus Summary........................... 2
Risk Factors................................. 4
Use of Proceeds.............................. 7
Dividend Policy.............................. 7
Price Range of Common Stock.................. 8
Capitalization............................... 9
Dilution..................................... 10
Selected Consolidated Financial Data......... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 12
Business..................................... 16
Management................................... 26
Certain Transactions......................... 29
Principal Stockholders....................... 30
Selling Stockholders......................... 32
Description of Capital Stock................. 35
Shares Eligible for Future Sale.............. 36
Plan of Distribution......................... 36
Legal Matters................................ 36
Experts...................................... 36
Additional Information....................... 36
Index to Consolidated Financial Statements F-1
</TABLE>
================================================================================
3,187,570 SHARES
CONSYGEN, INC.
COMMON STOCK
------------------
PROSPECTUS
------------------
NOVEMBER __, 1997
================================================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
Total Expenses
--------------
<S> <C>
SEC Registration Fee................................ $ 6,218
Blue Sky Fees and Expenses.......................... NA
Transfer Agent and Registrar Fees .................. NA
Accounting Fees and Expenses........................ 50,000
Legal Fees and Expenses............................. 125,000
Printing and Engraving ............................. NA
Miscellaneous....................................... 18,782
TOTAL......................................... $200,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation, as amended (the "Amended
Articles"), and By-Laws eliminate, subject to certain exceptions, the personal
liability of directors to the Company or its stockholders for monetary damages
for breaches of fiduciary duties as directors to the extent permitted by state
law. The Amended Articles and By-Laws do not provide for the elimination of or
any limitation on the personal liability of a director for intentional
misconduct, or in situations where a director is found not to have acted in good
faith or where liability is prescribed by law. These provisions of the Amended
Articles and By-Laws may limit the remedies available to a stockholder in the
event of breaches of any director's duties to such stockholder or the Company.
The Company has entered into indemnification agreements with each of
the directors and officers. The indemnification agreements provide that the
Company will pay certain amounts incurred by a director or officer in connection
with any civil or criminal action or proceeding and specifically including
actions by or in the name of the Company (derivative suits) where the
individual's involvement is by reason of the fact that he is or was a director
or officer. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts and
other expenses customarily included in connection with legal proceedings. Under
the indemnification agreements, a director or officer will not receive
indemnification if he is found not to have acted in good faith in the reasonable
belief that his action was in the best interests of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities
issued by the Company within the past three years which were not registered
under the Securities Act.
In connection with the acquisition of ConSyGen-Arizona in September
1996, ConSyGen-Texas issued an aggregate of 9,275,000 shares of Common Stock
directly to the stockholders of ConSyGen-Arizona in exchange for all of the
issued and outstanding shares of ConSyGen-Arizona. In addition, upon the closing
of the acquisition, ConSyGen-Texas issued 150,000 shares of Common Stock to a
consultant for services rendered and agreed to issue 200,000 shares to a
consultant in cancellation of indebtedness and as payment for services. In
connection with the acquisition, ConSyGen-Arizona terminated outstanding options
to
II-1
<PAGE> 71
purchase 1,275,000 shares of its common stock granted under its non-qualified
stock option plan, and ConSyGen-Texas adopted a new non-qualified stock option
plan and issued options to purchase 1,275,000 shares of Common Stock to
employees of ConSyGen-Arizona. In addition, in connection with the acquisition,
ConSyGen-Arizona terminated warrants to purchase 1,000,000 shares of its common
stock, and ConSyGen-Texas reserved for issuance replacement warrants to purchase
1,000,000 shares of Common Stock, on the same terms and conditions.
On September 3, 1996, ConSyGen-Texas agreed to issue 100,000 shares to
a consultant as a retainer for services to be rendered.
On March 3, 1997, the Company issued options to purchase an aggregate
of 405,000 shares of Common Stock to employees in consideration for services.
On March 20, 1997, the Company raised $1,000,000 (before deducting
finder's fees of $100,000) through a private placement to two investors of
convertible notes (the "Notes") in the principal amount of $1,000,000. On June
2, 1997, the Company raised $1,080,000 (before deducting a finder's fee of
approximately $75,000) through the private sale of 120,000 shares of Common
Stock at a price of $9.00 per share. The Company also issued 3,600 shares in
payment of additional finder's fees. These transactions were exempt from
registration under the Securities Act pursuant to Rule 506 of Regulation D
promulgated under the Securities Act.
On April 11, 1997, the Company issued 10,000 shares of Common Stock to
a consultant for services to be rendered. On October 13, 1997, the Company
issued an additional 20,000 shares of Common Stock to such consultant for
additional services to be rendered.
From on or around August 27, 1997 until on or around September 6, 1997,
the Company sold an aggregate of 152,000 shares of Common Stock for aggregate
consideration of $882,500. In connection with this transaction, the Company paid
a finder's fee of $66,000. This transaction was exempt from registration under
the Securities Act pursuant to Rule 506 of Regulation D promulgated under the
Securities Act.
On August 1, 1997, the Company issued to a consultant and its designee
warrants to purchase an aggregate of 300,000 shares of Common Stock at an
exercise price of $5.00 per share. The warrants were issued to the consultant in
consideration for services rendered to the Company. This transaction was exempt
from registration under the Securities Act pursuant to Rule 506 of Regulation D
promulgated under the Securities Act.
On September 10, 1997 and September 29, 1997, the Company issued
options to purchase 510,000 and 100,000 shares of Common Stock, respectively, to
officers in consideration for services rendered.
In September 1997, the Company sold 900,000 shares of Common Stock in a
private placement for gross proceeds of $5,276,250. In connection with this
offering, the Company paid a finder's fee consisting of approximately $185,000
in cash and 31,500 shares of Common Stock. The net proceeds of this offering
were approximately $5.1 million. This transaction was exempt from registration
under the Securities Act pursuant to Rule 506 of Regulation D promulgated under
the Securities Act.
In October 1997, the Company issued approximately 31,000 shares of
Common Stock in payment of indebtedness in the aggregate amount of approximately
$250,000. This transaction was exempt from registration under the Securities Act
pursuant to Rule 506 of Regulation D promulgated under the Securities Act.
In November 1997, the Company issued to a consultant for services
rendered warrants to purchase an aggregate of 100,000 shares of Common Stock, at
an exercise price of $5.00 per share. This transaction was
II-2
<PAGE> 72
exempt from registration under the Securities Act pursuant to Rule 506 of
Regulation D promulgated under the Securities Act.
To the extent that the foregoing transactions constituted "sales"
within the meaning of the Securities Act, the securities issued in such
transactions were not registered under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2) thereof, relating to sales
by an issuer not involving any public offering. Each of the foregoing
transactions, to the extent constituting "sales" within the meaning of the
Securities Act, were exempt under Section 4(2) thereof based on the following
facts: to the knowledge of the Company, there was no general solicitation, there
were a limited number of purchasers, the purchasers were provided with or had
access to information about the Company, and either the purchasers or their
respective representatives were sophisticated about business and financial
matters; and, as applicable, the purchasers were "accredited investors" within
the meaning of Rule 501 under the Securities Act and the Company took reasonable
steps to assure that the purchasers were not underwriters within the meaning of
Section 2(11) under the Securities Act.
None of the foregoing transactions, either individually or in the
aggregate, involved a public offering.
ITEM 16(a). EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
2 Plan of Acquisition between the Company and the stockholders of ConSyGen, Inc., an
Arizona corporation, dated August 28, 1996, filed as Exhibit 2 to the Company's
Current Report on Form 8-K, dated September 5, 1996 and incorporated herein by
reference.
3.1 Articles of Incorporation of the Company, as amended. (1)
3.2 By-Laws of the Company, filed as Exhibit 3.B to the Company's Registration
Statement on Form S-18, File No. 33-22900-FW, and incorporated herein by reference.
4.1 Specimen common stock certificate, filed as Exhibit 4.B to the Company's
Registration Statement on Form S-18, File No. 33-22900-FW, and incorporated herein
by reference.
4.2 Form of Common Stock Purchase Warrant used in connection with the issuance of
warrants to purchase an aggregate of 1,000,000 shares of the Company's Common
Stock, $.003 par value. (2)
4.3 Subscription Agreement between the Company and Little Wing, L.P. for convertible
debt of the Company (including Summary of Terms). (2)
4.4 Subscription Agreement between the Company and Tonga Partners, L.P. for convertible
debt of the Company (including Summary of Terms). (2)
4.5 Form of Subscription Agreement used in connection with Rule 506 offering in the
aggregate amount of $1,080,000. (1)
4.6 Form of Subscription Agreement used in connection with Rule 506 offering in the
aggregate amount of $882,500. (1)
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
<S> <C>
4.7 Form of Common Stock Purchase Warrant issued to a consultant, Howard R. Baer, in
August 1997. (1)
4.8 Common Stock Purchase Warrant issued to Howard R. Baer's designee, Kevin C. Baer,
in August 1997. (1)
4.9 Subscription Agreement used in Rule 506 offering in the aggregate amount of
$5,276,250.
4.10 Form of Subscription Agreement used in connection with issuance of shares in
payment of indebtedness in the aggregate amount of approximately $250,000.
4.11 Common Stock Purchase Warrant issued to a consultant's designee, Irvington
International Limited, in November, 1997.
5.1 Legal Opinion of Brown, Rudnick, Freed & Gesmer.
10.1 Agreement between the Company and Carriage House Capital, Inc. dated May 19, 1997,
superseding letter agreements (also filed as Exhibit 10.1) between Carriage House
Capital, Inc. and the Company's wholly-owned subsidiary, dated June 14, 1996 and
October 26, 1995. (2)
10.2 Consulting Agreement between Carriage House Capital, Inc. and the Company dated
July 10, 1996. (2)
10.3 Consulting Agreement between Mikesco, Inc. and the Company dated July 10, 1996. (2)
10.4 Consulting Agreement between Concorda Corp. and the Company dated July 10, 1996. (2)
10.5 Consulting Agreement between Scarlet Investment Group, Inc. and the Company dated
July 10, 1996. (2)
10.6 Consulting Agreement between The Canter Corporation and the Company dated August
20, 1996. (2)
10.7 Company's 1996 Non-Qualified Stock Option Plan. (2)
10.8 Company's Amended and Restated 1997 Non-Qualified Stock Option Plan.
10.9 Consulting Agreement between the Company and Innovative Research Associates, Inc. (2)
10.10 Form of Indemnification Contract between the Company and each executive officer and
director of the Company.
10.11 Agreement between the Company and Carriage House Capital, Inc., effective as of
September 1, 1997, terminating all existing agreements between the Company and
Carriage House Capital, Inc. and its affiliates.
</TABLE>
II-4
<PAGE> 74
<TABLE>
<CAPTION>
<S> <C>
23.1 Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit 5.1).
23.2 Consent of Wolinetz, Gottlieb & Lafazan, P.C., Independent Accountants.
24 Power of Attorney (included on signature page hereof).
</TABLE>
- ------------
(1) Filed as an Exhibit, with the same Exhibit number, to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31 1997, and
incorporated herein by reference.
(2) Filed as an Exhibit, with the same Exhibit number, to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and
incorporated herein by reference.
ITEM 16(b). The financial statement schedules have been omitted because they are
not required or because the information contained therein is included in the
Notes to the Consolidated Financial Statements.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the Registrant's By-Laws, the Underwriting
Agreement relating to this offering, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 75
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Phoenix,
State of Arizona, on November 20, 1997.
CONSYGEN, INC.
By:/s/ Ronald I. Bishop
---------------------
RONALD I. BISHOP
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald I. Bishop and Robert L. Stewart, and each
of them (with full power to each of them to act alone), his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, and, in connection with any
registration of additional securities pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, to sign any abbreviated registration
statement and any and all amendments thereto, and to file the same, with all
exhibits thereto and other documents in connection therewith, in each case, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ronald I. Bishop President, Chief Executive Officer November 20, 1997
---------------------------- and Director
Ronald I. Bishop
/s/ Kenneth W. Harvey Controller (Principal Financial and November 20, 1997
---------------------------- Accounting Officer)
Kenneth W. Harvey
/s/ Robert L. Stewart Chairman November 20, 1997
----------------------------
Robert L. Stewart
/s/ Leslie F. Stewart Secretary and Director November 20, 1997
----------------------------
Leslie F. Stewart
</TABLE>
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Sequentially
- ----------- Numbered Page
-------------
<S> <C> <C>
2 Plan of Acquisition between the Company and the stockholders of ConSyGen, Inc., an
Arizona corporation, dated August 28, 1996, filed as Exhibit 2 to the Company's
Current Report on Form 8-K, dated September 5, 1996 and incorporated herein by
reference.
3.1 Articles of Incorporation of the Company, as amended. (1)
3.2 By-Laws of the Company, filed as Exhibit 3.B to the Company's Registration
Statement on Form S-18, File No. 33-22900-FW, and incorporated herein by reference.
4.1 Specimen common stock certificate, filed as Exhibit 4.B to the Company's
Registration Statement on Form S-18, File No. 33-22900-FW, and incorporated herein
by reference.
4.2 Form of Common Stock Purchase Warrant used in connection with the issuance of
warrants to purchase an aggregate of 1,000,000 shares of the Company's Common
Stock, $.003 par value. (2)
4.3 Subscription Agreement between the Company and Little Wing, L.P. for convertible
debt of the Company (including Summary of Terms). (2)
4.4 Subscription Agreement between the Company and Tonga Partners, L.P. for convertible
debt of the Company (including Summary of Terms). (2)
4.5 Form of Subscription Agreement used in connection with Rule 506 offering in the
aggregate amount of $1,080,000. (1)
4.6 Form of Subscription Agreement used in connection with Rule 506 offering in the
aggregate amount of $882,500. (1)
4.7 Form of Common Stock Purchase Warrant issued to a consultant, Howard R. Baer, in
August 1997. (1)
4.8 Common Stock Purchase Warrant issued to Howard R. Baer's designee, Kevin C. Baer,
in August 1997. (1)
4.9 Subscription Agreement used in Rule 506 offering in the aggregate amount of
$5,276,250.
4.10 Form of Subscription Agreement used in connection with issuance of shares in
payment of indebtedness in the aggregate amount of approximately $250,000.
</TABLE>
<PAGE> 77
<TABLE>
<S> <C>
4.11 Common Stock Purchase Warrant issued to a consultant's designee, Irvington
International Limited, in November, 1997.
5.1 Legal Opinion of Brown, Rudnick, Freed & Gesmer.
10.1 Agreement between the Company and Carriage House Capital, Inc. dated May 19, 1997,
superseding letter agreements (also filed as Exhibit 10.1) between Carriage House
Capital, Inc. and the Company's wholly-owned subsidiary, dated June 14, 1996 and
October 26, 1995. (2)
10.2 Consulting Agreement between Carriage House Capital, Inc. and the Company dated
July 10, 1996. (2)
10.3 Consulting Agreement between Mikesco, Inc. and the Company dated July 10, 1996. (2)
10.4 Consulting Agreement between Concorda Corp. and the Company dated July 10, 1996. (2)
10.5 Consulting Agreement between Scarlet Investment Group, Inc. and the Company dated
July 10, 1996. (2)
10.6 Consulting Agreement between The Canter Corporation and the Company dated August
20, 1996. (2)
10.7 Company's 1996 Non-Qualified Stock Option Plan. (2)
10.8 Company's Amended and Restated 1997 Non-Qualified Stock Option Plan.
10.9 Consulting Agreement between the Company and Innovative Research Associates, Inc. (2)
10.10 Form of Indemnification Contract between the Company and each executive officer and
director of the Company.
10.11 Agreement between the Company and Carriage House Capital, Inc., effective as of
September 1, 1997, terminating all existing agreements between the Company and
Carriage House Capital, Inc. and its affiliates.
23.1 Consent of Brown, Rudnick, Freed & Gesmer (contained in Exhibit 5.1).
23.2 Consent of Wolinetz, Gottlieb & Lafazan, P.C., Independent Accountants
24 Power of Attorney (included on signature page hereof).
</TABLE>
- ------------
(1) Filed as an Exhibit, with the same Exhibit number, to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31 1997, and
incorporated herein by reference.
(2) Filed as an Exhibit, with the same Exhibit number, to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 4.9
September 22, 1997
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, AZ 85044
ATTN: Ronald I. Bishop, President and Chief Executive Officer
Re: CONSYGEN, INC.
Ladies and Gentlemen:
The undersigned hereby subscribes for the account of its clients
("Client"), to the immediate acquisition of 900,000 shares of Common Stock,
$.003 par value (the "Securities"), of ConSyGen, Inc., a Texas corporation (the
"Company"), at a per share price of U.S. $5.8625 for aggregate consideration of
U.S. $5,276,250. The undersigned shall deliver on or before October 1, 1997 (the
"Closing") to the Company at the above address U.S. $5,276,250 by certified
check or federal funds wire transfer to the following account:
BANK: FIRST NATIONAL BANK OF MARYLAND
ABA: 052000113
ADDRESS: 25 S. CHARLES STREET
CITY: BALTIMORE
STATE: MARYLAND 21203
FOR CREDIT TO: ALEX, BROWN & SONS INC.
ACCOUNT NO. ___________
FOR FURTHER CREDIT TO: CONSYGEN, INC.
ACCOUNT NO. ___________
ORIGINATION OF FUNDS:
BANK: Rabobank (Switzerland) Ltd.
--------------------------------------
STREET: Brandshenkenstrasse 41, Suite 81
-------------------------------------
CITY/COUNTRY: Zurich, Switzerland
------------------------------
AMOUNT OF FUNDS WIRED 5,276,250
----------------------
Pending acceptance of this subscription, the funds delivered herewith will
be held by the Company in an interest-bearing account. In the event the Company
rejects this subscription (which the Company reserves the right to do in its
sole discretion), the Company shall return the funds to the subscriber with
interest earned thereon. Upon the Company's acceptance of this subscription, the
Company shall cause the Securities to be delivered in accordance with written
instructions to be provided by the undersigned.
<PAGE> 2
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for the account of Client
which is acquiring the Securities without the intention of participating,
directly or indirectly, in a distribution of the Securities, and not with a view
to resale or any distribution of the Securities, or any portion thereof.
2. The Client has knowledge and experience in financial and business
matters and has consulted with its own professional representatives as it has
considered appropriate to assist in evaluating the merits and risks of this
investment. The Client has been provided with and has carefully reviewed the
ConSyGen, Inc. Disclosure Memorandum dated September 15, 1997 (the "Company
Information"). The Client has had access to and an opportunity to question the
officers of the Company, or persons acting on their behalf, with respect to
material information about the Company and, in connection with its evaluation of
this investment, has, to the best of its knowledge, received all information and
data with respect to the Company that it has requested. The Client is acquiring
the Securities based solely upon (1) the Company Information; and (2) its
independent examination and judgment as to the prospects of the Company.
3. The Securities were not offered to the Client by means of publicly
disseminated advertisements or sales literature.
4. The Client acknowledges that an investment in the Securities is
speculative and the Client may have to continue to bear the economic risk of the
investment in the Securities for an indefinite period. The Client acknowledges
that the Securities are being sold to the Client without registration under any
state or federal law requiring the registration of securities for sale, and
accordingly will constitute "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission. The transferability of the Securities is
therefor restricted by applicable United States Federal and state securities
laws and may be restricted under the laws of other jurisdictions.
5. The Client is an "accredited investor" as such term is defined in
Appendix A.
6. In consideration of the acceptance of this subscription, the undersigned
on behalf of Client agrees that the Securities will not be offered for sale,
sold or transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The Client understands that no U.S. federal or state agency has passed
upon the offering of the Securities or has made any finding or determination as
to the fairness of any investment in the Securities.
<PAGE> 3
The undersigned agrees to indemnify and hold harmless the Company and its
officers, directors, employees and agents from and against any and all costs,
liabilities and expenses (including attorneys' fees) arising out of or related
in any way to any breach of any representation or warranty contained herein.
The Company agrees to use its best efforts to file, within 45 days but no
later than 60 days of Closing, a Registration Statement on Form S-1 registering
the shares for resale by the Client. In the event the Company fails to do so,
the Client shall have the right, until such time as a Registration Statement
registering the shares for resale by the Client has been filed, to demand
registration of the shares.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
ConSyGen, Inc. ______________________________
Name: _______________________
Address: _____________________
By: /s/ Ronald I. Bishop _________________
---------------------------
Ronald I. Bishop, President _________________
Dated: September 29, 1997
<PAGE> 4
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings and
loan association or other institution as defined in section 3(a)(5)(A) of the
Act, whether acting in its individual or fiduciary capacity; a broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not formed
for the specific purpose of acquiring the Securities, (iii) whose purchase is
directed by a person who, either alone or with his purchaser representative, has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two full
calendar years whose reasonably expected income for this calendar year exceeds
either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
<PAGE> 5
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 1
EXHIBIT 4.10
October 15, 1997
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
ATTN: Ronald I. Bishop, President and Chief Executive Officer
Re: CONSYGEN, INC.
Ladies and Gentlemen:
The undersigned hereby subscribes to the immediate acquisition of ______
shares of Common Stock, $.003 par value (the "Securities"), of ConSyGen, Inc., a
Texas corporation (the "Company"). The Securities are being issued to the
undersigned in full satisfaction of all indebtedness of ConSyGen, Inc., an
Arizona corporation, to the undersigned, including, without limitation,
$______________ in indebtedness owing to the undersigned.
Upon the Company's acceptance of this subscription, the Company shall
deliver the Securities to the undersigned at the address indicated below.
In connection with the purchase of the Securities, the undersigned
acknowledges, warrants and represents to the Company as follows:
1. The undersigned is acquiring the Securities for investment for its
own account and without the intention of participating, directly or indirectly,
in a distribution of the Securities, and not with a view to resale or any
distribution of the Securities, or any portion thereof.
2. The undersigned has knowledge and experience in financial and
business matters and has consulted with its own professional representatives as
it has considered appropriate to assist in evaluating the merits and risks of
this investment. The undersigned has had access to and an opportunity to
question the officers of the Company, or persons acting on their behalf, with
respect to material information about the Company and, in connection with its
evaluation of this investment, has, to the best of its knowledge, received all
information and data with respect to the Company that the undersigned has
requested. The undersigned is acquiring the Securities based solely upon (1) the
Company Information; and (2) its independent examination and judgment as to the
prospects of the Company.
3. The Securities were not offered to the undersigned by means of
publicly disseminated advertisements or sales literature.
4. The undersigned acknowledges that an investment in the Securities
is speculative and the undersigned may have to continue to bear the economic
risk of the investment in the Securities for an indefinite period. The
undersigned acknowledges that the
<PAGE> 2
Securities are being sold to the undersigned without registration under any
state or federal law requiring the registration of securities for sale, and
accordingly will constitute "restricted securities" as defined in Rule 144 of
the Securities and Exchange Commission. The transferability of the Securities is
therefor restricted by applicable United States Federal and state securities
laws and may be restricted under the laws of other jurisdictions.
5. The undersigned is an "accredited investor" as such term is
defined in Appendix A.
6. In consideration of the acceptance of this subscription, the
undersigned agrees that the Securities will not be offered for sale, sold or
transferred by the undersigned other than pursuant to (i) an effective
registration under the Securities Act of 1933, as amended ("the Act"), an
exemption available under the Act or a transaction that is otherwise in
compliance with the Act; and (ii) an effective registration under the securities
law of any state or other jurisdiction applicable to the transaction, an
exemption available under such laws, or a transaction that is otherwise in
compliance with such laws.
7. The undersigned understands that no U.S. federal or state agency
has passed upon the offering of the Securities or has made any finding or
determination as to the fairness of any investment in the Securities.
8. The undersigned agrees to execute such further documents as the
Company may request in order to give effect to the cancellation of indebtedness
contemplated hereby.
The undersigned agrees to indemnify and hold harmless the Company and its
officers, directors, employees and agents from and against any and all costs,
liabilities and expenses (including attorneys' fees) arising out of or related
in any way to any breach of any representation or warranty contained herein.
The Company agrees to use its best efforts to cause a Registration
Statement on Form S-1 registering the shares for resale by the undersigned to be
effective under the Securities Act of 1933, as amended (the "Act") within 120
days of the date hereof.
ACCEPTANCE OF SUBSCRIPTION SUBSCRIBER
ConSyGen, Inc. ------------------------------------
Name:
By: /s/ Ronald I. Bishop Address:
----------------------------- ----------------------------
Ronald I. Bishop, President ----------------------------
----------------------------
Dated: OCTOBER 16, 1997
<PAGE> 3
APPENDIX A
An "Accredited Investor" within the meaning of Regulation D under the Securities
Act of 1933 includes the following:
ORGANIZATIONS
(1) A bank as defined in section 3(a)(2) of the Act, or any savings
and loan association or other institution as defined in section 3(a)(5)(A) of
the Act, whether acting in its individual or fiduciary capacity; a broker or
dealer registered pursuant to section 15 of the Securities Exchange Act of 1934;
insurance company as defined in section 2(13) of the Act; an investment company
registered under the Investment Company Act of 1940 or a business development
company as defined in section 2(a)(48) of that act; a Small Business Investment
Company licensed by the U.S. Small Business Administration under section 301(c)
or (d) of the Small Business Investment Act of 1958; an employee benefit plan
within the meaning of Title I of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan fiduciary, as defined in
section 3(21) of such act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee benefit
plan has total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors.
(2) A private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
(3) A trust (i) with total assets in excess of $5,000,000, (ii) not
formed for the specific purpose of acquiring the Securities, (iii) whose
purchase is directed by a person who, either alone or with his purchaser
representative, has such knowledge and experience in financial and business
matters that he is capable of evaluating the merits and risks of the proposed
investment.
(4) A corporation, business trust, partnership, or an organization
described in section 501(c)(3) of the Internal Revenue Code, which was not
formed for the specific purpose of acquiring the Securities, and which has total
assets in excess of $5,000,000.
INDIVIDUALS
(5) Individuals with income from all sources for each of the last two
full calendar years whose reasonably expected income for this calendar year
exceeds either of:
(i) $200,000 individual income; or
(ii) $300,000 joint income with spouse.
NOTE: Your "income" for a particular year may be calculated by adding to your
adjusted gross income as calculated for Federal income tax purposes any
deduction for long term capital gains, any deduction for depletion allowance,
any exclusion for tax exempt interest and any losses of a partnership allocated
to you as a partner.
(6) Individuals with net worth as of the date hereof (individually or
jointly with your spouse), including the value of home, furnishings, and
automobiles, in excess of $1,000,000.
(7) Directors, executive officers or general partners of the Issuer.
<PAGE> 4
SCHEDULE TO EXHIBIT 4.10
<TABLE>
<CAPTION>
NO. OF SHARES SUBSCRIBED PRICE PER SHARE TOTAL SUBSCRIPTION PRICE
<S> <C> <C>
4,454 $8.15 $ 36,300
1,302 8.15 10,609
6,381 8.15 52,000
18,610 8.15 151,665
</TABLE>
<PAGE> 1
EXHIBIT 4.11
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR STATE SECURITIES LAWS. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS
WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO UNDER APPLICABLE STATE SECURITIES
LAWS, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SUCH LAWS IS
AVAILABLE.
Warrant No. 65 STOCK PURCHASE WARRANT No. of Shares 100,000
To Subscribe for and Purchase Common Stock of
CONSYGEN, INC.
THIS CERTIFIES that, for value received, Irvington International Limited
(together with any subsequent transferees of all or any portion of this Warrant,
the "Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from CONSYGEN, INC., a
Texas corporation (hereinafter called the "Company"), at the price hereinafter
set forth in Section 2, up to one hundred thousand (100,000) fully paid and
non-assessable shares (the "Shares") of the Company's Common Stock, $.003 par
value per share (the "Common Stock").
1. DEFINITIONS. As used herein the following term shall have the
following meaning:
"ACT" means the Securities Act of 1933, as amended, or a successor
statute thereto and the rules and regulations of the Securities and Exchange
Commission issued under that Act, as they each may, from time to time, be in
effect.
2. PURCHASE RIGHTS. Subject to this Section 2, the purchase rights
represented by this Warrant shall be exercisable by the Holder in whole or in
part commencing one (1) year from the date hereof.
Subject to the terms hereof, the purchase rights represented by this
Warrant shall expire three (3) years from the date hereof.
Subject to this Section 2, this Warrant may be exercised for Shares at a
price of five dollars ($5.00) per share, subject to adjustment as provided in
Section 6 (the "Warrant Purchase Price").
This Warrant may be redeemed by the Company upon 60 days written notice
to the Holder hereof at a price equal to the product of the number of Shares
issuable hereunder and the par value of the Shares ($.003). The Company may
exercise its redemption right by delivering
<PAGE> 2
or mailing to the Holder written notice of redemption to the address according
to the Company's records. Within 60 days after the date of the Company's notice
of redemption hereunder, the Holder shall tender to the Company at its principal
offices the certificate or certificates representing this Warrant, all in form
suitable for transfer of this Warrant to the Company, together with such
documents as the Company may reasonably require to effectuate such transfer.
Upon its receipt of such certificate(s), the Company shall deliver or mail to
the Holder a check in the amount of the redemption price determined in
accordance herewith. After the time at which the certificate(s) is required to
be delivered to the Company for transfer to the Company hereunder, the Holder
shall have no rights hereunder, including without limitation the right to
exercise the purchase rights evidenced by this Warrant. In the event that the
Company elects to exercise its redemption right hereunder, it may do so by
canceling the certificate(s) evidencing this Warrant and depositing the
redemption price determined hereunder in a bank account for the benefit of the
Holder, whereupon this Warrant shall be, for all purposes, canceled and neither
the Holder nor any transferee shall have any rights hereunder. In addition to
any other legal or equitable remedies which it may have, the Company may enforce
its rights by actions for specific performance (to the extent permitted by law).
3. EXERCISE OF WARRANT. Subject to Section 2 above, the purchase
rights represented by this Warrant may be exercised, in whole or in part and
from time to time, by the surrender of this Warrant and the duly executed Notice
of Exercise (the form of which is attached as Exhibit A) at the principal office
of the Company and by the payment to the Company, by check, of an amount equal
to the then applicable Warrant Purchase Price per share multiplied by the number
of Shares then being purchased. Upon exercise, the Holder shall be entitled to
receive, within a reasonable time, a certificate or certificates, issued in the
Holder's name or in such name or names as the Holder may direct, for the number
of Shares so purchased. The Shares so purchased shall be deemed to be issued as
of the close of business on the date on which this Warrant shall have been
exercised.
4. SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants
that the Shares that may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon issuance in accordance herewith, be fully
paid and non-assessable, and free from all liens and charges with respect to the
issue thereof. During the period within which the purchase rights represented by
the Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issuance upon exercise of the purchase rights
represented by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the right represented by this Warrant.
5. NO FRACTIONAL SHARES. No fractional shares shall be issued upon
the exercise of this Warrant. In lieu thereof, a cash payment shall be made
equal to such fraction multiplied by the fair market value of such shares of
Common Stock, as determined in good faith by the Company's Board of Directors.
6. ADJUSTMENTS OF WARRANT PURCHASE PRICE AND NUMBER OF SHARES. If
there shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate
-2-
<PAGE> 3
structure of the Company, appropriate adjustments shall be made by the Board of
Directors of the Company (or if the Company is not the surviving corporation in
any such transaction, the Board of Directors of the surviving corporation) in
the aggregate number and kind of shares subject to this Warrant, and the number
and kind of shares and the price per share then applicable to shares covered by
the unexercised portion of this Warrant.
7. NO RIGHTS AS SHAREHOLDERS. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company
prior to exercise of this Warrant and the payment for the Shares so purchased.
Notwithstanding the foregoing, the Company agrees to transmit to the Holder such
information, documents and reports as are generally distributed to holders of
the capital stock of the Company concurrently with the distribution thereof to
the shareholders. Upon valid exercise of this Warrant and payment for the Shares
so purchased in accordance with the terms of the Warrant, the Holder or the
Holder's designee, as the case may be, shall be deemed a shareholder of the
Company.
8. SALE OR TRANSFER OF THE WARRANT AND THE SHARES; LEGEND. The
Warrant and the Shares shall not be sold or transferred unless either (i) they
first shall have been registered under applicable State Securities laws, or (ii)
such sale or transfer is exempt from the registration requirements of such laws.
Each certificate representing any Warrant shall bear the legend set out on page
1 hereof. Each certificate representing any Shares shall bear a legend
substantially in the following form, as appropriate:
9. THE SHARES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO
SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO UNDER APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS.
10. Such Warrant and Shares may be subject to additional restrictions
on transfer imposed under applicable state and federal securities law.
11. MODIFICATIONS AND WAIVERS. This Warrant may not be changed,
waived, discharged or terminated except by an instrument in writing signed by
the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
delivered, or shall be sent by certified or registered mail, postage prepaid, to
the Holder at its address shown on the books of the Company or in the case of
the Company, at the address indicated therefor on the signature page of this
Warrant, or, if different, at the principal office of the Company.
13. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants with the Holder that upon its receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant or any stock certificate and, in the case of
-3-
<PAGE> 4
any such loss, theft or destruction, of an indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of this Warrant
or stock certificate, if mutilated, the Company will make and deliver a new
Warrant or stock certificate, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant or stock certificate.
14. REPRESENTATIONS AND WARRANTIES OF HOLDER. By accepting this
Warrant, the Holder represents and warrants that he, she or it is acquiring this
Warrant and the Shares for his, her or its own account, for investment and not
with a view to, or for sale in connection with, any distribution thereof or any
part thereof. Holder represents and warrants that he, she or it is (a)
experienced in the evaluation of businesses similar to the Company, (b) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Company, (c) has the
ability to bear the economic risks of an investment in the Company, (d) has been
furnished with or has had access to such information as is specified in
subparagraph (b)(2) of Rule 502 promulgated under the Act and (e) has been
afforded the opportunity to ask questions of and to receive answers from the
officers of the Company and to obtain any additional information necessary to
make an informed investment decision with respect to an investment in the
Company.
15. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon exercise of this Warrant
shall survive the exercise and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder.
16. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas.
IN WITNESS WHEREOF, CONSYGEN, INC. has caused this Warrant to be executed
by its officer thereunto duly authorized.
ORIGINAL ISSUANCE AS OF: November 10, 1997
CONSYGEN, INC.
/s/ Robert L. Stewart
-----------------------------------------
By: Robert L. Stewart, Chairman
Address: 10201 South 51st Street
Suite 140
Phoenix, AZ 85044
-4-
<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE
To: CONSYGEN, INC.
1. The undersigned hereby elects to purchase _________ shares of
Common Stock of CONSYGEN, INC. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below.
3. The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares. The undersigned further represents that such shares shall not be
sold or transferred unless either (1) they first shall have been registered
under applicable state securities laws or (ii) or an exemption from applicable
state registration requirements is available.
4. In the event of partial exercise, please re-issue an appropriate
Warrant exercisable into the remaining shares.
IRVINGTON INTERNATIONAL LIMITED
By: ______________________________________
Name:_________________________________
Title:________________________________
Address:___________________________________
___________________________________________
(Signature)
___________________________________________
(Date)
-5-
<PAGE> 1
EXHIBIT 5.1
Brown Rudnick Freed & Gesmer
One Financial Center
Boston, MA 02110
(617) 856-8200
November 20, 1997
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
RE: Registration Statement on Form S-1 of ConSyGen, Inc. filed on November
20, 1997
- --------------------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to ConSyGen, Inc., a Texas corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission of a Registration Statement on Form S-1 (the
"Registration Statement") pursuant to which the Company is registering under the
Securities Act of 1933, as amended (the "Act"), a total of 3,187,570 shares of
common stock, $.003 par value, of the Company (the "Common Stock"). Pursuant to
the Registration Statement, the Company proposes to sell up to a maximum of
500,000 shares of Common Stock (the "Company Shares") and certain of the
Company's stockholders (the "Selling Stockholders") propose to sell 2,687,570
shares of Common Stock (the "Selling Stockholder Shares" and, together with the
Company Shares, the "Shares"). The Company Shares are issuable upon conversion
of certain outstanding convertible promissory notes in the aggregate principal
amount of $1 million (the "Notes"). This opinion is being rendered in connection
with the filing of the Registration Statement.
For purposes of this opinion, we have assumed, without any investigation,
(i) the legal capacity of each natural person, (ii) the full power and authority
of each entity and person other than the Company to execute, deliver and perform
each document heretofore executed and delivered or hereafter to be executed and
delivered and to do each other act heretofore done or hereafter to be done by
such entity or person, (iii) the due authorization by each entity or person
other than the Company of each document heretofore executed and delivered or
hereafter to be executed and delivered and to do each other act heretofore done
or to be done by such entity or person, (iv) the due execution and delivery by
each entity or person other than the Company of each document heretofore
executed and delivered or hereafter to be executed and delivered by such entity
or person, (v) the legality, validity, binding effect and enforceability as to
each entity or person other than the Company of each document heretofore
executed and delivered or hereafter to be executed and delivered and of each
other act heretofore done or hereafter to be done by such entity or person, (vi)
the genuineness of each signature on, and the completeness of each document
submitted to us as an original, (vii) the conformity to the original of each
document submitted to us as a copy, (viii) the authenticity of the original of
each document submitted to us as a copy, (ix) the completeness, accuracy and
proper indexing of all governmental and judicial records searched and (x) no
modification of any provision of any
<PAGE> 2
ConSyGen, Inc.,
November 20, 1997
Page 2
document, no waiver of any right or remedy and no exercise of any right or
remedy other than in a commercially reasonable and conscionable manner and in
good faith.
In connection with this opinion, we have examined only the following
documents (collectively, the "Documents"):
(i) the Articles of Incorporation of the Company, as amended,
incorporated by reference as Exhibit 3.1 to the Registration
Statement;
(ii) the Bylaws of the Company incorporated by reference as Exhibit 3.2
to the Registration Statement;
(iii) certain proceedings of the directors of the Company and other
records of the Company pertaining to the Shares;
(iv) a specimen certificate for the Common Stock incorporated by
reference as Exhibit 4.1 to the Registration Statement; and
(v) a certificate of an officer of the Company.
The opinions expressed herein are based solely upon (i) our review of the
Documents, (ii) discussions with Ronald I. Bishop, the Chief Executive Officer
and President of the Company, Kenneth W. Harvey, the Controller of the Company,
and Robert L. Stewart, the Chairman of the Company, (iii) discussions with those
of our attorneys who have devoted substantive attention to the matters contained
herein, and (iv) such review of published sources of law as we have deemed
necessary.
Our opinions contained herein are limited to the laws of the Commonwealth
of Massachusetts and the federal law of the United States of America and are
being rendered as if only the internal laws of the Commonwealth of Massachusetts
were applicable thereto, notwithstanding that the Company is a Texas
corporation.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company Shares to be sold by the Company under the
circumstances contemplated in the Registration Statement are duly authorized,
and, when issued and paid for in accordance with the terms of the Notes, will be
validly issued, fully paid and nonassessable.
2. The Selling Stockholder Shares to be sold by the Selling
Stockholders under the circumstances contemplated in the Registration Statement
are duly authorized, validly issued, fully paid and nonassessable.
We understand that this opinion is to be used in connection with the
Registration Statement. We consent to the filing of this opinion as an Exhibit
to said Registration Statement and to the reference to our firm wherever it
appears in the Registration Statement, including the
<PAGE> 3
ConSyGen, Inc.,
November 20, 1997
Page 2
prospectus constituting a part thereof and any amendments thereto. This opinion
may be used in connection with the offering of the Shares only while the
Registration Statement, as it may be amended from time to time, remains in
effect.
Very truly yours,
BROWN, RUDNICK, FREED & GESMER
By: BROWN, RUDNICK, FREED & GESMER, P.C.
By: /s/ John G. Nossiff, Jr.
-------------------------------------
John G. Nossiff, Jr., A Member
Duly Authorized
JGN/SRL/JRS
<PAGE> 1
EXHIBIT 10.8
CONSYGEN, INC.
AMENDED AND RESTATED
1997 NON-QUALIFIED STOCK OPTION PLAN
SECTION I. PURPOSE OF THE PLAN.
The purposes of this ConSyGen, Inc. Amended and Restated 1997
Non-Qualified Stock Option Plan (the "1997 Plan") are (i) to provide long-term
incentives and rewards to those key employees (the "Employee Participants") of
ConSyGen, Inc., a Texas corporation (the "Corporation") and its subsidiaries (if
any), and any other persons (the "Non-employee Participants") who are in a
position to contribute to the long-term success and growth of the Corporation
and its subsidiaries, (ii) to assist the Corporation in retaining and attracting
executives and key employees with requisite experience and ability, and (iii) to
associate more closely the interests of such executives and key employees with
those of the Corporation's stockholders.
SECTION II. DEFINITIONS.
"COMMON STOCK" is the $.003 par value common stock of the
Corporation.
"COMMITTEE" is defined in Section III, paragraph (a).
"CORPORATION" is defined in Section I.
"EMPLOYEE PARTICIPANTS" is defined in Section I.
"FAIR MARKET VALUE" of any property is the value of the property
as reasonably determined by the Committee.
"1997 PLAN" is defined in Section I.
"NON-EMPLOYEE PARTICIPANTS" is defined in Section I.
"NON-QUALIFIED OPTION" is a Stock Option which does not qualify as
an Incentive Stock Option or for which the Committee provides, in
the terms of such option and at the time such option is granted,
that the option shall not be treated as an Incentive Stock Option.
"PARENT CORPORATION" has the meaning provided in Section 424(e) of
the Code.
-1-
<PAGE> 2
"PARTICIPANTS" are all persons who are either Employee
Participants or Non-employee Participants.
"PERMANENT AND TOTAL DISABILITY" has the meaning provided in
Section 22(e)(3) of the Code.
"RULE 16B-3" means Securities and Exchange Commission Rule 16b-3.
"SECTION 16" means Section 16 of the Securities Exchange Act of
1934, as amended, or any similar or successor statute, and any
rules, regulations, or policies adopted or applied thereunder.
"STOCK OPTIONS" are rights granted pursuant to this 1997 Plan to
purchase shares of Common Stock at a fixed price.
"SUBSIDIARY CORPORATION" has the meaning provided in Section
424(f) of the Code.
SECTION III. ADMINISTRATION.
(a) THE COMMITTEE. This 1997 Plan shall be administered by the Board
of Directors or by a compensation committee consisting solely of two or more
"non-employee directors", as defined in Rule 16b-3, who shall be designated by
the Board of Directors of the Corporation (the administering body is hereafter
referred to as the "Committee"). The Committee shall serve at the pleasure of
the Board of Directors, which may from time to time, and in its sole discretion,
discharge any member, appoint additional new members in substitution for those
previously appointed and/or fill vacancies however caused. A majority of the
Committee shall constitute a quorum and the acts of a majority of the members
present at any meeting at which a quorum is present shall be deemed the action
of the Committee. No person shall be eligible to be a member of the Committee if
that person's membership would prevent the plan from complying with Section 16,
if applicable to the Corporation.
(b) AUTHORITY AND DISCRETION OF THE COMMITTEE. Subject to the express
provisions of this 1997 Plan and provided that all actions taken shall be
consistent with the purposes of this 1997 Plan, and subject to ratification by
the Board of Directors only if required by applicable law, the Committee shall
have full and complete authority and the sole discretion to: (i) determine those
persons who shall constitute key employees eligible to be Employee Participants;
(ii) select the Participants to whom Stock Options shall be granted under this
1997 Plan; (iii) determine the size and the form of the Stock Options, if any,
to be granted to any Participant; (iv) determine the time or times such Stock
Options shall be granted including the grant of Stock Options in connection with
other awards made, or compensation paid, to the Participant; (v) estab-
-2-
<PAGE> 3
lish the terms and conditions upon which such Stock Options may be exercised
and/or transferred, including the exercise of Stock Options in connection with
other awards made, or compensation paid, to the Participant; (vi) make or alter
any restrictions and conditions upon such Stock Options and the Stock received
on exercise thereof, including, but not limited to, providing for limitations on
the Participant's right to keep any Stock received on termination of employment;
(vii) determine whether the Participant or the Corporation has achieved any
goals or otherwise satisfied any conditions or requirements that may be imposed
on or related to the exercise of Stock Options; and (viii) adopt such rules and
regulations, establish, define and/or interpret these and any other terms and
conditions, and make all determinations (which may be on a case-by-case basis)
deemed necessary or desirable for the administration of this 1997 Plan.
(c) APPLICABLE LAW. This 1997 Plan and all Stock Options shall be
governed by the law of the state in which the Corporation is incorporated.
SECTION IV. TERMS OF STOCK OPTIONS.
(a) AGREEMENTS. Stock Options shall be evidenced by a written
agreement between the Corporation and the Participant awarded the Stock Option.
This agreement shall be in such form, and contain such terms and conditions (not
inconsistent with this 1997 Plan) as the Committee may determine. The agreement
shall include the following or a similar statement: "This stock option is not
intended to be an Incentive Stock Option, as that term is described in Section
422 of the Internal Revenue Code of 1986, as amended."
(b) TERM. Stock Options shall be for such periods as may be determined
by the Committee.
(c) PURCHASE PRICE. The purchase price of shares purchased pursuant to
any Stock Option shall be determined by the Committee, and shall be paid by the
Participant or other person permitted to exercise the Stock Option in full upon
exercise, (i) in cash, (ii) by delivery of shares of Common Stock (valued at
their Fair Market Value on the date of such exercise), (iii) any other property
(valued at its Fair Market Value on the date of such exercise), or (iv) any
combination of cash, stock and other property, with any payment made pursuant to
subparagraphs (ii), (iii) or (iv) only as permitted by the Committee, in its
sole discretion. In no event will the purchase price of Common Stock be less
than the par value of the Common Stock.
(d) RESTRICTIONS. At the discretion of the Committee, the Common Stock
issued pursuant to the Stock Options granted hereunder may be subject to
restrictions on vesting or transferability. For the purposes of this limitation,
options shall be taken into account in the order granted.
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(e) WITHHOLDING OF TAXES. Pursuant to applicable federal, state, local
or foreign laws, the Corporation may be required to collect income or other
taxes upon the grant of a Stock Option to, or exercise of a Stock Option by, a
holder. The Corporation may require, as a condition to the exercise of a Stock
Option, or demand, at such other time as it may consider appropriate, that the
Participant pay the Corporation the amount of any taxes which the Corporation
may determine is required to be withheld or collected, and the Participant shall
comply with the requirement or demand of the Corporation. In its discretion, the
Corporation may withhold shares to be received upon exercise of a Stock Option
if it deems this an appropriate method for withholding or collecting taxes.
(f) SECURITIES LAW COMPLIANCE. Upon exercise (or partial exercise) of
a Stock Option, the Participant or other holder of the Stock Option shall make
such representations and furnish such information as may, in the opinion of
counsel for the Corporation, be appropriate to permit the Corporation to issue
or transfer Stock in compliance with the provisions of applicable federal or
state securities laws. The Corporation, in its discretion, may postpone the
issuance and delivery of Stock upon any exercise of this Option until completion
of such registration or other qualification of such shares under any federal or
state laws, or stock exchange listing, as the Corporation may consider
appropriate. Furthermore, the Corporation is not obligated to register or
qualify the shares of Common Stock to be issued upon exercise of a Stock Option
under federal or state securities laws (or to register or qualify them at any
time thereafter), and it may refuse to issue such shares if, in its sole
discretion, registration or exemption from registration is not practical or
available. The Corporation may require that prior to the issuance or transfer of
Stock upon exercise of a Stock Option, the Participant enter into a written
agreement to comply with any restrictions on subsequent disposition that the
Corporation deems necessary or advisable under any applicable federal and state
securities laws. Certificates of Stock issued hereunder shall bear a legend
reflecting such restrictions.
(g) RIGHT TO STOCK OPTION. No employee of the Corporation or any other
person shall have any claim or right to be a participant in this 1997 Plan or to
be granted a Stock Option hereunder. Neither this 1997 Plan nor any action taken
hereunder shall be construed as giving any person any right to be retained in
the employ of the Corporation. Nothing contained hereunder shall be construed as
giving any person any equity or interest of any kind in any assets of the
Corporation or creating a trust of any kind or a fiduciary relationship of any
kind between the Corporation and any such person. As to any claim for any unpaid
amounts under this 1997 Plan, any person having a claim for payments shall be an
unsecured creditor.
(h) INDEMNITY. Neither the Board of Directors nor the Committee, nor
any members of either, nor any employees of the Corporation or any parent,
subsidiary, or other affiliate, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with their responsibilities with respect to this 1997 Plan, and the Corporation
hereby
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agrees to indemnify the members of the Board of Directors, the members of the
Committee, and the employees of the Corporation and its parent or subsidiaries
in respect of any claim, loss, damage, or expense (including reasonable counsel
fees) arising from any such act, omission, interpretation, construction or
determination to the full extent permitted by law.
(i) PARTICIPATION BY FOREIGNERS. Without amending this 1997 Plan, the
Committee may modify grants made to participants who are foreign nationals or
employed outside the United States so as to recognize differences in local law,
tax policy, or custom.
SECTION V. AMENDMENT AND TERMINATION: ADJUSTMENTS UPON CHANGES IN STOCK.
The Board of Directors of the Corporation may at any time, and from time
to time, amend, suspend or terminate this 1997 Plan or any portion thereof,
provided that no amendment shall be made without approval of the Corporation's
stockholders if such approval is necessary to comply with any applicable rules
or regulations of the Securities and Exchange Commission, including Rule 16b-3
(or any successor rule thereunder), or the rules and regulations of any exchange
or stock market on which the Corporation's securities are listed or quoted.
Except as provided herein, no amendment, suspension or termination of this 1997
Plan may affect the rights of a Participant to whom a Stock Option has been
granted without such Participant's consent. If there shall be any change in the
Common Stock or to any Stock Option granted under this 1997 Plan through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure of the Corporation, appropriate
adjustments may be made by the Committee (or if the Corporation is not the
surviving corporation in any such transaction, the Board of Directors of the
surviving corporation, or its designee) in the aggregate number and kind of
shares subject to this 1997 Plan, and the number and kind of shares and the
price per share subject to outstanding options. In connection with the
foregoing, the Committee may issue new Stock Options in exchange for outstanding
Stock Options.
SECTION VI. SHARES OF STOCK SUBJECT TO THE PLAN.
The number of shares of Common Stock that may be the subject of awards
under this 1997 Plan shall not exceed an aggregate of 2,000,000 shares. Shares
to be delivered under this 1997 Plan may be either authorized but unissued
shares of Common Stock or treasury shares. Any shares subject to an option
hereunder which for any reason terminates, is canceled or otherwise expires
unexercised, and any shares reacquired by the Corporation due to restrictions
imposed on the shares, shares returned because payment is made hereunder in
stock of equivalent value rather than in cash, and/or shares reacquired from a
recipient for any other reason shall, at such time, no longer count towards the
aggregate number of shares which have been the subject of Stock Options issued
hereunder, and such number of shares shall be subject to further awards under
this 1997 Plan, provided, first, that the total number of shares then eligible
for award under
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this 1997 Plan may not exceed the total specified in the first sentence of this
Section VI, and second, that the number of shares subject to further awards
shall not be increased in any way that would cause this 1997 Plan or any Stock
Option to not comply with Section 16, if applicable to the Corporation.
SECTION VII. EFFECTIVE DATE AND TERM OF THIS PLAN.
The effective date of this 1997 Plan is March 1, 1997 (the "Effective
Date") and awards under this 1997 Plan may be made for a period of ten years
commencing on the Effective Date. The period during which a Stock Option may be
exercised may extend beyond that time as provided herein.
DATE OF APPROVAL BY STOCKHOLDERS: N/A
DATE OF ORIGINAL APPROVAL BY BOARD OF DIRECTORS: March 1, 1997
AMENDED AND RESTATED: September 10, 1997
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EXHIBIT 10.10
INDEMNIFICATION CONTRACT
This Agreement, made and entered into as of this __ day of ___________,
1997 ("Agreement"), by and between CONSYGEN, INC., a Texas corporation (the
"Company"), and _______________________________ (the "Indemnitee").
WHEREAS, highly competent persons are becoming more reluctant to serve
corporations as directors, officers or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that
Indemnitee be indemnified to the fullest extent permitted.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the meanings
indicated:
1.01 "BOARD" shall mean the Board of Directors of the Company.
1.02 "CORPORATE STATUS" describes the status of a person who is or was a
director, officer, employee, agent, trustee or fiduciary of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other Enterprise which such person is or was serving at the express written
request of the Company.
1.03 "COURT" means the court in which the Proceeding in respect of which
indemnification is sought by the Indemnitee shall have been brought or is
pending, or another court having subject matter jurisdiction and personal
jurisdiction over the parties.
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1.04 "DISINTERESTED DIRECTOR" means a director of the Company who is not
and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
1.05 "ENTERPRISE" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent, trustee or fiduciary.
1.06 "EXPENSES" shall include, without limitation, all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, facsimile transmission
charges, and all other disbursements or expenses of the types customarily
incurred in connection with prosecuting, defending, preparing to prosecute or
defend, investigating or being or preparing to be a witness in a Proceeding.
1.07 "GOOD FAITH" shall mean Indemnitee having acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, in the case of an Enterprise which is an employee
benefit plan, the best interests of the participants or beneficiaries of said
plan, as the case may be, and, with respect to any Proceeding which is criminal
in nature, having had no reasonable cause to believe Indemnitee's conduct was
unlawful.
1.08 "IMPROPER PERSONAL BENEFIT" shall include, but not be limited to, the
personal gain in fact by reason of a person's Corporate Status of a financial
profit, monies or other advantage not also accruing to the benefit of the
Company or to the stockholders generally and which is unrelated to his usual
compensation including, but not limited to, (i) in exchange for the exercise of
influence over the Company's affairs, (ii) as a result of the diversion of
corporate opportunity, or (iii) pursuant to the use or communication of
confidential or inside information for the purpose of generating a profit from
trading in the Company's securities. Notwithstanding the foregoing, "Improper
Personal Benefit" shall not include any benefit, directly or indirectly, related
to actions taken in order to evaluate, discourage, resist, prevent or negotiate
any transaction with or proposal from any person or entity seeking control of,
or a controlling interest in, the Company.
1.09 "INDEPENDENT COUNSEL" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and may include law firms or
members thereof that are regularly retained by the Company but not any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the standards of professional conduct then prevailing and
applicable to such counsel, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
1.10 "OFFICER" means the president, vice presidents, treasurer, assistant
treasurer(s), clerk, assistant clerk and such other executive officers as are
appointed by the board of directors of the Company or any other Enterprise, as
the case may be.
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<PAGE> 3
1.11 "PROCEEDING" includes any action, suit, arbitration, alternate dispute
resolution mechanism, investigation (including any internal corporate
investigation), administrative hearing or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative or investigative,
other than one initiated by Indemnitee. For purposes of the foregoing sentence,
a "Proceeding" shall not be deemed to have been initiated by Indemnitee where
Indemnitee seeks, pursuant to Article VIII of this Agreement, to enforce
Indemnitee's rights under this Agreement.
ARTICLE II
TERM OF AGREEMENT
This Agreement shall continue until and terminate upon the later of: (i)
ten (10) years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee, agent, trustee or fiduciary of the Company or of
any other Enterprise; or (ii) the final termination of all pending Proceedings
in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Article VIII of this Agreement relating thereto.
ARTICLE III
SERVICES BY INDEMNITEE, NOTICE OF PROCEEDINGS
3.01 SERVICES. Indemnitee agrees to serve or continue to serve as a
Director or Officer of the Company for so long as he is duly elected or
appointed. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
3.02 NOTICE OF PROCEEDING. Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter
which may be subject to indemnification or advancement of Expenses covered
hereunder, but the omission so to notify the Company shall not relieve the
Company from its obligations hereunder.
ARTICLE IV
INDEMNIFICATION
4.01 IN GENERAL. In connection with any Proceeding, the Company shall
indemnify and advance Expenses to Indemnitee serving as a Director or Officer of
the Company, as provided in this Agreement and to the fullest extent permitted
by applicable law in effect on the date hereof and to such greater extent as
applicable law may hereafter from time to time permit.
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4.02 PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
Indemnitee shall be entitled, subject to Section 4.01 hereof, to the rights of
indemnification provided in this Section 4.02 if, by reason of Indemnitee's
Corporate Status, Indemnitee is, or is threatened to be made, a party to or is
otherwise involved in any Proceeding, other than a Proceeding by or in the right
of the Company. Indemnitee shall be indemnified, subject to Section 4.01 hereof,
against Expenses, judgments, penalties, fines and amounts paid in settlement,
actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with such Proceeding or any claim, issue or matter therein, if
Indemnitee acted in Good Faith and such Indemnitee has not been adjudged during
the course of such Proceeding to have derived an Improper Personal Benefit from
the transaction or occurrence forming the basis of such Proceeding.
4.03 PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.
(a) Indemnitee shall be entitled, subject to Section 4.01 hereof, to the
rights of indemnification provided in this Section 4.03 if, by reason of
Indemnitee's Corporate Status, Indemnitee is, or is threatened to be made, a
party to or is otherwise involved in any Proceeding brought by or in the right
of the Company to procure a judgment in its favor. Indemnitee shall be
indemnified, subject to Section 4.01 hereof, against Expenses, judgments,
penalties, and amounts paid in settlement, actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection with such Proceeding if
Indemnitee acted in Good Faith and such Indemnitee has not been adjudged during
the course of such Proceeding to have derived an Improper Personal Benefit from
the transaction or occurrence forming the basis of such Proceeding.
Notwithstanding the foregoing, no such indemnification shall be made in respect
of any claim, issue or matter in such Proceeding as to which Indemnitee shall
have been adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the Company in such event if and
only to the extent that the Court which is considering the matter shall so
determine.
4.04 INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of Indemnitee's Corporate Status, a party to or is
otherwise involved in and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified, subject to Section 4.01 hereof, to
the maximum extent permitted by law, against all Expenses, judgments, penalties,
fines, and amounts paid in settlement, actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith. If Indemnitee is
not wholly successful in such Proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Indemnitee, subject to Section 4.01
hereof, to the maximum extent permitted by law, against all Expenses, judgments,
penalties, fines, and amounts paid in settlement, actually and reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection with each
successfully resolved claim, issue or matter. For purposes of this Section 4.04
and without limitation, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
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4.05 INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall be
indemnified, subject to Section 4.01 hereof, against all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith.
ARTICLE V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI, the Company
(acting through the President or any Vice President of the Company) shall
advance all reasonable Expenses which, by reason of Indemnitee's Corporate
Status, were incurred by or on behalf of Indemnitee serving as a Director of the
Company in connection with any Proceeding, within thirty (30) days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances, whether prior to or after final disposition of such
Proceeding. Notwithstanding any provision to the contrary in Article VI, the
Company (acting through the President or any Vice President of the Company) may,
at the discretion of the Board, advance all reasonable Expenses which, by reason
of Indemnitee's Corporate Status, were incurred by or on behalf of Indemnitee
serving as an Officer of the Company in connection with any Proceeding, within
thirty (30) days after the receipt by the Company of a statement or statements
from Indemnitee requesting such advance or advances, whether prior to or after
final disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or be
preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay
any Expenses if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified against such Expenses. Any advance and undertakings
to repay pursuant to this Article V shall be unsecured and interest free.
Advancement of Expenses pursuant to this Article V made to an Indemnitee serving
as a Director of the Company shall not require approval of the Board of
Directors or the stockholders of the Company, or of any other person or body.
The Clerk of the Company shall promptly advise the Board in writing of the
request for advancement of Expenses, of the amount and other details of the
advance and of the undertaking to make repayment pursuant to this Article V.
ARTICLE VI
PROCEDURES FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION AND DEFENSE OF
CLAIMS
6.01 INITIAL REQUEST. To obtain indemnification under this Agreement (other
than advancement of Expenses pursuant to Article V), Indemnitee shall submit to
the Company a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonable
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Clerk of the Company shall promptly advise the Board in
writing that Indemnitee has requested indemnification.
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6.02 METHOD OF DETERMINATION. A determination (if required by applicable
law in the specific case) with respect to Indemnitee's entitlement to
indemnification shall be made (a) by the Board by a majority vote of a quorum
consisting of Disinterested Directors, or (b) in the event that a quorum of the
Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, such quorum of Disinterested Directors so directs, by Independent
Counsel in a written opinion to the Board, a copy of which shall be delivered to
Indemnitee, or (c) by the holders of a majority of the votes of the outstanding
stock at the time entitled to vote on matters other than the election or removal
of directors, voting as a single class, including the stock of the Covered
Person seeking indemnification.
6.03 SELECTION, PAYMENT, DISCHARGE, OF INDEPENDENT COUNSEL. In the event
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 6.02 of this Agreement, the Independent Counsel
shall be selected, paid, and discharged in the following manner:
(a) The Independent Counsel shall be selected by the Board, and the
Company shall give written notice to Indemnitee advising
Indemnitee of the identity of the Independent Counsel so
selected.
(b) Following the initial selection described in clause (a) of this
Section 6.03, Indemnitee may, within seven (7) days after such
written notice of selection has been given, deliver to the
Company a written objection to such selection. Such objection may
be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel"
as defined in Section 1.10 of this Agreement, and the objection
shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so
selected shall act as Independent Counsel. If such written
objection is made, the Independent Counsel so selected may not
serve as Independent Counsel unless and until a court has
determined that such objection is without merit.
(c) Either the Company or Indemnitee may petition a Court if the
parties have been unable to agree on the selection of Independent
Counsel within twenty (20) days after submission by Indemnitee of
a written request for indemnification pursuant to Section 6.01 of
this Agreement. Such petition may request a determination whether
an objection to the party's selection is without merit and/or
seek the appointment as Independent Counsel of a person selected
by the Court or by such other person as the Court shall
designate. A person so appointed shall act as Independent Counsel
under Section 6.02 of this Agreement.
(d) The Company shall pay any and all reasonable fees of Independent
Counsel and expenses incurred by such Independent Counsel in
connection with acting pursuant to this Agreement, and the
Company shall pay all reasonable fees and expenses incident to
the procedures of this Section 6.03,
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regardless of the manner in which such Independent Counsel was
selected or appointed.
(e) Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 8.02 of this Agreement,
Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
6.04 COOPERATION. Indemnitee shall cooperate with the person, persons or
entity making the determination with respect to Indemnitee's entitlement to
indemnification under this Agreement, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
6.05 DEFENSE OF CLAIM. With respect to any Proceeding to which Indemnitee
shall have requested indemnification in accordance with Section 6.01:
(a) The Company will be entitled to participate in the defense at its
own expense.
(b) Except as otherwise provided below, the Company jointly with any
other indemnifying party will be entitled to assume the defense
with counsel reasonably satisfactory to Indemnitee. After notice
from the Company to the Indemnitee of its election to assume the
defense of a suit, the Company will not be liable to the
Indemnitee under this Agreement for any legal or other expenses
subsequently incurred by the Indemnitee in connection with the
defense of the Proceeding other than reasonable costs of
investigation or as otherwise provided below. The Indemnitee
shall have the right to employ his own counsel in such Proceeding
but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense shall be at the
expense of the Indemnitee unless (i) the employment of counsel by
the Indemnitee has been authorized by the Company, (ii) the
Indemnitee shall have concluded reasonably that there may be a
conflict of interest between the Company and the Indemnitee in
the conduct of the defense of such action and such conclusion is
confirmed in writing by the Company's outside counsel regularly
employed by it in connection with corporate matters or (iii) the
Company shall not in fact have employed counsel to assume the
defense of such Proceeding, in each of which cases the fees and
expenses of counsel shall be at the expense of the Company. The
Company shall not be entitled to assume the defense of any
Proceeding brought by or in the right of the Company or as to
which the
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Indemnitee shall have made the conclusion provided for in (ii)
above and such conclusion shall have been so confirmed by the
Company's said outside counsel.
(c) Notwithstanding any provision of this Agreement to the contrary,
the Company shall not be liable to indemnify the Indemnitee under
this Article of any amounts paid in settlement of any Proceeding
or claim effected without its written consent. The Company shall
not settle any Proceeding or claim in any manner which would
impose any penalty, limitation or disqualification of the
Indemnitee for any purpose without the Indemnitee's written
consent. Neither the Company nor the Indemnitee will unreasonably
withhold their consent to any proposed settlement.
6.06 PAYMENT. If it is determined that Indemnitee is entitled to
indemnification not covered by defense of the claim afforded under Section 6.05
above, payment to Indemnitee shall be made within ten (10) days after such
determination.
ARTICLE VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
7.01 BURDEN OF PROOF. In making a determination with respect to entitlement
to indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6.01 of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
7.02 EFFECT OF OTHER PROCEEDINGS. The termination of any Proceeding or of
any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of guilty or of NOLO CONTENDERE or its equivalent,
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee did not act in Good Faith.
7.03 RELIANCE AS SAFE HARBOR. For purposes of any determination of Good
Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's
action is based on the records or books of account of the Enterprise, including
financial statements, or on information supplied to Indemnitee by the Officers
of the Enterprise in the course of their duties, or on the advice of legal
counsel for the Enterprise or on information or records given or reports made to
the Enterprise by an independent certified public accountant or by an appraiser
or other expert selected with reasonable care by the Enterprise. The provisions
of this Section 7.03 shall not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
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7.04 ACTIONS OF OTHERS. The knowledge and/or actions, or failure to act, of
any Director, Officer, employee, agent, trustee or fiduciary of the Enterprise
shall not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
ARTICLE VIII
REMEDIES OF INDEMNITEE
8.01 APPLICATION. This Article VIII shall apply in the event of a Dispute.
For purposes of this Article, "Dispute", shall mean any of the following events:
(a) a determination is made pursuant to Article VI of this Agreement
that Indemnitee is not entitled to indemnification under this
Agreement;
(b) advancement of Expenses is not timely made pursuant to Article V
of this Agreement;
(c) the determination of entitlement to be made pursuant to Section
6.02 of this Agreement has not been made within sixty (60) days
after receipt by the Company of the request for indemnification;
(d) payment of indemnification is not made pursuant to Section 4.05
of this Agreement within ten (10) days after receipt by the
Company of a written request therefor; or
(e) notice of election by the Company to assume defense of a claim as
provided for in Section 6.05 or payment of indemnification, as
the case may be, is not given or made within ten (10) days after
a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made
pursuant to Article VI of this Agreement.
8.02 ADJUDICATION. In the event of a Dispute, Indemnitee shall be entitled
to an adjudication in an appropriate Court of Indemnitee's entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at
Indemnitee's option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within one hundred eighty (180) days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 8.02. The Company shall not oppose Indemnitee's right to seek any such
adjudication or award in arbitration.
8.03 DE NOVO REVIEW. In the event that a determination shall have been made
pursuant to Article VI of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Article VIII shall be conducted in all respects as a DE NOVO trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by
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reason of that adverse determination. In any such proceeding or arbitration, the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
8.04 COMPANY BOUND. If a determination shall have been made or deemed to
have been made pursuant to Article VI of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration absent (i) a misstatement by Indemnitee
of a material fact, or any omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
8.05 PROCEDURES VALID. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Article VIII that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
8.06 EXPENSES OF ADJUDICATION. In the event that Indemnitee, pursuant to
this Article VIII, seeks a judicial adjudication of or an award in arbitration
to enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 1.08 of this Agreement)
actually and reasonably incurred by Indemnitee in such adjudication or
arbitration, but only if Indemnitee prevails therein. If it shall be determined
in such adjudication or arbitration that Indemnitee is entitled to receive part
but not all of the indemnification or advancement of Expenses sought, the
expenses incurred by Indemnitee in connection with such adjudication or
arbitration shall be appropriately prorated.
ARTICLE IX
NON-EXCLUSIVITY, INSURANCE, SUBROGATION
9.01 NON-EXCLUSIVITY. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Articles of Incorporation, as amended, the By-Laws,
any agreement, a vote of shareholders or a resolution of directors, or
otherwise. No amendment, alteration, rescission or replacement of this Agreement
or any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by such Indemnitee in Indemnitee's Corporate Status
prior to such amendment, alteration, rescission or replacement.
9.02 INSURANCE. The Company may maintain an insurance policy or policies
against liability arising out of this Agreement or otherwise.
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9.03 SUBROGATION. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
9.04 NO DUPLICATIVE PAYMENT. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
ARTICLE X
GENERAL PROVISIONS
10.01 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's legal representatives, heirs, executors and
administrators.
10.02 SEVERABILITY. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is
not itself invalid, illegal or unenforceable) shall not in any
way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or
unenforceable.
10.03 NO ADEQUATE REMEDY. The parties declare that it is impossible to
measure in money the damages which will accrue to either party by reason of a
failure to perform any of the obligations under this Agreement. Therefore, if
either party shall institute any action or proceeding to enforce the provisions
hereof, such party against whom such action or proceeding is brought hereby
waives the claim or defense that such party has an adequate remedy at law, and
such party shall not urge in any such action or proceeding the claim or defense
that the other party has an adequate remedy at law.
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10.04 HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.05 MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
10.06 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, (ii) sent by prepaid commercial
overnight courier, or (iii) mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:
If to Indemnitee, to: As shown with Indemnitee's
Signature below.
If to the Company, to: CONSYGEN, INC.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
Attention: Ronald I Bishop, President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
10.07 GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Texas without application of the conflict of laws principles thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the __ day of ________, 1997.
CONSYGEN, INC.
By: ___________________________
Ronald I. Bishop, President
INDEMNITEE
-------------------------------
Name:
Address: _____________________
---------------------
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EXHIBIT 10.11
TERMINATION AGREEMENT
This Termination Agreement, effective as of September 1, 1997, is entered
into by and between ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas"), and
Carriage House Capital, Inc., a corporation with a principal place of business
in Tempe, Arizona ("Carriage House").
WHEREAS, Carriage House and ConSyGen-Texas are party to a certain letter
agreement dated May 19, 1997, which the parties wish to terminate, effective as
of September 1, 1997.
WHEREAS, the parties hereto wish to terminate any and all other agreements
between the parties and their respective affiliates.
NOW THEREFORE
The parties hereto, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, do hereby agree as follows:
1. TERMINATION OF AGREEMENTS. All agreements between Carriage House and/or its
affiliates (together "CHC"), on the one hand, and ConSyGen-Texas and/or its
wholly-owned subsidiary, ConSyGen, Inc., a Arizona corporation, and their
respective affiliates (together, the "Company"), on the other hand, including,
without limitation, that certain letter agreement between Carriage House and
ConSyGen-Texas are hereby terminated, and neither CHC nor the Company shall have
any further liability under any such agreements.
CONSYGEN, INC. (a Texas Corporation)
By: /s/ Robert L. Stewart
------------------------------
Robert L. Stewart, Chairman
CARRIAGE HOUSE CAPITAL, INC.
By: /s/ Howard Baer
------------------------------
Howard Baer, President
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report on ConSyGen, Inc. dated July 15, 1997, in the Registration
Statement on Form S-1 filed with the Commissioner on November 20, 1997 and
related Prospectus of ConSyGen, Inc. for the Registration of common stock.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
November 20, 1997
