-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3mRnhg9X5d96TYGCkXLYQNbEmeAJRkvcS9TsAZIAl+z4KwPr3qG3pwWK6EDxPbX FRgXAM+TUIQGmZ1bgr3+1g== 0001024739-97-000740.txt : 19971117 0001024739-97-000740.hdr.sgml : 19971117 ACCESSION NUMBER: 0001024739-97-000740 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSERVER CORP OF AMERICA CENTRAL INDEX KEY: 0001026671 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE SERVICES [0700] IRS NUMBER: 650675901 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-16571 FILM NUMBER: 97722155 BUSINESS ADDRESS: STREET 1: 2655 LEJEUNE RD STREET 2: STE 535 CITY: CORAL GABLES STATE: FL ZIP: 33134 BUSINESS PHONE: 3054443888 MAIL ADDRESS: STREET 1: 2655 LEJEUNE RD STREET 2: STE 535 CITY: CORAL GABLES STATE: FL ZIP: 33134 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 0-22191 CONSERVER CORPORATION OF AMERICA ------------------------------------ (Exact Name of Registrant) Delaware 65-0675901 --------------------------------- ----------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 3250 Mary Street Suite 405 Coconut Grove, FL 33133 ---------------------------------------- (Address of Principal Executive Offices) (305) 444-3888 ------------------- (Registrant's Telephone Number, Including Area Code) Not Applicable ---------------------- (Former Name, Former Address and Former Fiscal Year, if changed Since Last Report) Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No. [ ] State the number of shares outstanding of each of the registrant's classes of common equity, as of the latest practicable date. Class Outstanding at November 12, 1997 ---------- -------------------------------- Common Stock, $.001 par value 6,793,404 shares CONSERVER CORPORATION OF AMERICA (a development stage company) INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets as of June 30, 1997 and September 30, 1997 (unaudited)....................................1 Condensed Statements of Operations for the Three Months ended August 31, 1996 (unaudited), the Three Months ended September 30, 1997 (unaudited), and for the period from March 6, 1996 (inception) to September 30, 1997 (unaudited)........................................2 Condensed Statements of Cash Flows for the Three Months ended August 31, 1996 (unaudited), the Three Months ended September 30, 1997 (unaudited), and for the period from March 6, 1996 (inception) to September 30, 1997 (unaudited)......................................................3 Notes to Condensed Financial Statements.......................................4 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations...................14 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds........................23 Item 6. Exhibits and Reports on Form 8-K.................................24 SIGNATURES...................................................................25 i PART I. FINANCIAL INFORMATION Item 1. Financial Statements CONSERVER CORPORATION OF AMERICA (a development stage company) CONDENSED BALANCE SHEETS ASSETS June 30, September 30, 1997 1997 ------------- -------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 7,715,460 $ 7,402,482 Advances to officers and employees 26,965 36,296 Loans receivable 41,041 Inventory 20,000 20,000 Other current assets 166,783 203,636 ------------ -------------- Total current assets 7,929,208 7,703,455 Property and equipment, net 21,986 54,136 Note receivable 500,000 ------------ -------------- TOTAL $ 7,951,194 $ 8,257,591 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses 476,602 741,523 Notes payable - current (net of $60,328 discount) 689,672 Accrued interest 55,000 ------------- -------------- Total current liabilities 1,221,274 741,523 ------------- -------------- Commitments and contingencies STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY): Preferred stock, par value $.01, 5,000 shares authorized, none issued and outstanding Common stock, par value $.001; 30,000,000 shares 6,386 6,794 authorized; 6,385,404 and 6,793,404 shares issued and outstanding at June 30, 1997 and September 30, 1997, respectively Additional paid-in capital 16,672,672 18,865,637 (Deficit) accumulated during the development stage (9,949,138) (11,356,363) ------------- -------------- Total stockholders' equity 6,729,920 7,516,068 ------------- -------------- TOTAL $ 7,951,194 $ 8,257,591 ============= ==============
See notes to condensed financial statements. CONSERVER CORPORATION OF AMERICA (a development stage company) CONDENSED STATEMENTS OF OPERATIONS (Unaudited) For the Three For the Three Period from Months Months March 6, 1996 Ended Ended (Inception) to August 31, September 30, September 30, 1996 1997 1997 ------------- ------------- -------------- REVENUES $ $ 5,470 $ 5,470 OPERATING EXPENSES: Marketing and sales 102,312 217,888 Research and development 34,027 86,274 General and administrative 412,584 1,078,630 3,224,413 Write-down of inventory 355,800 Provision for bad debt 1,000,000 Compensation charges in connection with issuance of options and warrants 457,201 228,000 6,130,307 ----------- ------------- -------------- Total operating expenses 869,785 1,442,969 11,014,682 ----------- ------------- -------------- (LOSS) FROM OPERATIONS (869,785) (1,437,499) (11,009,212) OTHER INCOME (EXPENSE): Interest income 8,741 103,552 163,473 Interest expense (30,000) (12,950) (198,124) Amortization of debt discount (60,328) (312,500) ----------- ------------- -------------- Total other income (expense) (21,259) 30,274 (347,151) ----------- ------------- -------------- NET (LOSS) $(891,044) $(1,407,225) $(11,356,363) =========== ============= ============== NET (LOSS) PER SHARE OF COMMON STOCK $(0.20) $(0.21) =========== ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 4,490,400 6,744,737 ============ =============
See notes to condensed financial statements. 2 CONSERVER CORPORATION OF AMERICA (a development stage company) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the Three For the Three Period from Months Months March 6, 1996 Ended Ended (Inception) to August 31, September 30, September 30, 1996 1997 1997 ------------- ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (Loss) $(891,044) $(1,407,225) $(11,356,363) Adjustments: Compensation expense in connection with 457,201 228,000 6,130,307 issuance of options and warrants Impairment of inventory 355,900 Provision for bad debt 1,000,000 Depreciation and amortization 487 70,154 324,490 Compensation expense relating to 65,000 30,000 200,000 officer's salary Legal services provided by shareholder without charge 41,500 101,500 Consulting services provided for common stock 26,250 26,250 Changes in current assets and current liabilities: Advances to officers and employees 5,571 (9,331) (25,619) Prepaid expenses and other current assets: (17,502) (16,686) (183,469) Accounts payable and accrued expenses 105,317 236,475 757,400 ----------- ------------- -------------- Total adjustments 616,074 606,362 8,686,759 ----------- ------------- -------------- Net cash (used) by operating activities (274,970) (800,863) (2,669,604) ----------- ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment (4,865) (33,643) (57,793) Funds used for notes receivable (541,041) (1,916,841) ----------- ------------- -------------- Net cash (used) by investing activities (4,865) (574,684) (1,974,634) ----------- ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Subscriptions receivable 1,374 Subscription funds to be returned 90,000 Repurchase of shares of common stock (1,800,000) Net proceeds form public offering 1,447,569 10,306,296 Proceeds from sale of common stock 1,306,000 3,174,150 Proceeds from notes payable 2,250,000 Repayments of notes payable (385,000) (1,885,000) ------------ ------------- ------------- Net cash provided (used) by financing activities 1,396,000 1,062,569 12,046,820 ------------ ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,116,165 (312,978) 7,402,582 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,287,423 7,715,460 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $2,403,588 $7,402,482 $7,402,582 ============= ============= =============
See notes to condensed financial statements. 3 CONSERVER CORPORATION OF AMERICA (a development stage company) NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (Note A) Basis of Presentation and the Company: The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the three-month period ended September 30, 1997 are not necessarily indicative of the results that may be expected for any interim period or the year ending June 30, 1998. The Company was incorporated on March 6, 1996 and initially adopted a fiscal year ending August 31. Subsequently, in June 1997 the Company elected to change its fiscal year end to June 30. Accordingly, the condensed statements of operations and cash flows have been prepared for the three months ended September 30, 1997 as compared to the three months ended August 31, 1996. The balance sheet at June 30, 1997 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the audited financial statements and footnotes thereto included in the Form 10-K for the year ended June 30, 1997 filed by the Company. (Note B) The Company: Conserver Corporation of America (the "Company") is a development stage company incorporated under the laws of the State of Delaware on March 6, 1996. The Company holds the exclusive right to promote, import, distribute, market, sell and otherwise commercially exploit Conserver 21(TM), a non-toxic product which can be used to retard spoilage and decay in food and flowers, in the United States and Canada. The Company also holds an option and a right of first refusal to exercise such rights throughout the world. Conserver 21(TM) is currently packaged in two forms: packets and filters. As a development stage company, the Company's activities since its inception have been primarily focused on raising both debt and equity financing (public and private), recruiting management personnel, testing, developing and exploiting Conserver 21(TM) and negotiating distribution and other arrangements. Since the first quarter of fiscal 1998, the management of the Company has also been engaged in exploring new business opportunities for the Company. From March 1996 through November 1996, the Company raised capital necessary for its business development through debt and equity private placements. In June and July 1997, the Company raised additional capital through an initial public offering (the "Offering"). (See Note D.) While the Company has incurred losses since the date of its incorporation, for the first time since its inception, the Company recorded nominal revenues of $5,470 for the three months ended September 30, 1997. 4 In August 1997, the Company announced that it was considering diversifying beyond its sole line of business of marketing, distributing and otherwise commercially exploiting Conserver 21(TM) (the "Principal Line of Business") and was exploring a possible new line of business in the hotel and casino industry (the "New Line of Business"). At a Special Meeting of Stockholders, which the Company anticipates will be held during December 1997, the Company's stockholders will be asked to consider and to vote on a proposal regarding the New Line of Business and related matters. (See Notes E and F.) (Note C) Summary of Significant Accounting Policies: [1] Loss per share of common stock: Net loss per share of common stock is based on the weighted average number of shares outstanding during the period. Common shares issued and options and warrants granted by the Company at prices less than the $5.00 Offering price during the twelve months preceding the Offering date have been included in the calculation of common and common equivalent shares outstanding as if they were outstanding since inception using the treasury stock method. [2] Stock based compensation: The Company applies Accounting Principal Board Opinion No. 25 and related interpretations in accounting for its employee stock option and purchase plans. In October 1995, Statement of Financial Accounting Standards No. 123 ("SFAS 123") was issued and requires the Company to elect either expense recognition or disclosure-only alternative for stock based employee compensation. The expense recognition provision encouraged by SFAS 123 would require fair-value based financial accounting to recognize compensation expense for the employee stock compensation plans. The Company has elected the disclosure-only alternative. The Company has computed the pro forma disclosures required under SFAS 123 for employee stock options granted as of August 31, 1996 and June 30, 1997 using the Black Scholes option pricing model prescribed by SFAS 123. (Note D) Initial Public Offering: In June 1997, the Company completed the Offering in which it received net proceeds of approximately $8,900,000 from the sale of 2,200,000 shares of its common stock, $0.001 par value (the "Common Stock") at a per share price of $5.00. In July 1997, the Company's underwriter exercised its over-allotment option to purchase an aggregate of 330,000 shares of Common Stock at $5.00 per share, resulting in the Company receiving additional net proceeds of approximately $1,448,000. Aggregate net proceeds to the Company from the Offering amounted to approximately $10,348,000. Also in connection with the Offering, the Company sold to the underwriters, for nominal consideration, Underwriters' Warrants to purchase 220,000 shares of Common Stock exercisable for a period of four years at $8.25 per share. 5 During the three months ended September 30, 1997, approximately $1,761,000 of the proceeds from the Offering were used for general business purposes, including the initial $500,000 payment made in August 1997 under the Sakhalin Agreement (see Note F) and the retirement of convertible debentures in the amount of $385,000. In October 1997, the Company utilized an additional $250,000 from the proceeds of the Offering in connection with certain payments due under the Sakhalin Agreement. At June 30, 1997, approximately $2,130,000 of the proceeds from the Offering was used for general business purposes, including the $1,000,000 loan to Agrotech under the Distribution Agreement and the repayment of a $1,000,000 convertible debenture, together with the accrued interest thereon. The Company anticipates that the balance of the proceeds from the Offering will be used for working capital and general business purposes primarily in connection with its Conserver 21(TM) business. (Note E) The Conserver 21(TM) Distribution Agreement: The Company's distribution and marketing rights for Conserver 21(TM) are derived from a distribution agreement entered into in March 1997 (the "Distribution Agreement") with Agrotech 2000 S.L. ("Agrotech"), a Spanish company that manufactures and packages Conserver 21(TM) and whose principal stockholder is the developer of Conserver 21(TM). Pursuant to the Distribution Agreement, if the Company fails to purchase a minimum of $2,000,000 of Conserver 21(TM) products between April 1997 and April 1998, or fails to meet the minimum annual purchase goals, Agrotech may sell Conserver 21(TM) to other customers in the United States and Canada. The Distribution Agreement requires the Company to purchase a minimum of $2,000,000 of Conserver 21(TM) products by April 1998 (the "Initial Volume Commitment") and thereafter to continue to meet mutually agreed upon minimum annual purchase goals. The purchase by the Company of the Conserver 21(TM) packets and filters from Agrotech is at a fixed per-unit price. The Company is also required to pay Agrotech a 4% royalty on net revenues derived from the Company's sales of Conserver 21(TM). Should the Company fail to meet the minimum annual volume commitments established for any period, Agrotech may sell Conserver 21(TM) to other customers in the United States and Canada after 90 days' written notice to the Company. Initial marketing efforts of the Conserver 21(TM) packets in the United States have indicated that the Company needs to renegotiate the terms of its Distribution Agreement with Agrotech and to improve the packaging of the Conserver 21(TM) packets. The Company is currently in discussions with Agrotech with a view to reduce the pricing arrangements regarding the Conserver 21(TM) packets and to modify the manufacturing arrangements so that all packaging is done in the United States. Management of the Company is currently in discussions with a U.S.-based company that specializes in packaging products comparable to Conserver 21(TM), and has identified other U.S.-based packaging plants capable of packaging Conserver 21(TM). Estimated packaging costs provided by these entities indicate that the Company would be able to reduce the wholesale costs of the Conserver 21(TM) packets if the product were packaged in the United States. Management believes that this cost reduction even if partially offset by an increase in the royalty percentage to be paid to Agrotech would enable the Company to competitively price the packets at a level that would be profitable to the Company. There can be no assurance, however, that the Company will be able to successfully renegotiate the Distribution Agreement on more favorable terms or enter into a packaging arrangement with a third party to its satisfaction. Under such circumstances the Company would have to shift its initial marketing efforts and focus on the sale of the Conserver 21(TM) filters. There can be no 6 assurance that the Company would be able to successfully implement this revised marketing strategy. If the Company is unable to successfully renegotiate the Distribution Agreement or if there is a sustained impairment of the Company's ability to market Conserver 21(TM), the Company's ability to successfully commercialize Conserver 21(TM) may be materially adversely affected. The Distribution Agreement requires the Company to make loans to Agrotech of up to $1,500,000 for the enhancement of Agrotech's manufacturing capacity. Under the terms of the Distribution Agreement, the first $1,000,000 of such loan is repayable over a three-year period as an offset against Conserver 21(TM) purchases by the Company in excess of $2,000,000 annually and the balance of any such loan is payable out of royalties which may be due Agrotech from such sales over a three- to four-year period. At September 30, 1997, the Company had advanced Agrotech $1,000,000 (the "Agrotech Loan") under the terms of the Distribution Agreement. Due to the current uncertainty as to the outcome of the renegotiation of the Distribution Agreement with Agrotech and recent limitations with Agrotech's current packaging of the Conserver 21(TM) product, management of the Company believes that exceeding the Initial Volume Commitment necessary to offset the Company's purchases from Agrotech against the Agrotech Loan is remote. Accordingly, the Company has established a reserve equal to the Agrotech Loan. Under the terms of the Distribution Agreement, the Company may be obligated to extend an additional loan of $500,000 to Agrotech. Due to the current renegotiations, the Company cannot determine at the present time whether any additional loans, under the terms of the Distribution Agreement, will be made or whether any offsets under the Distribution Agreement will be available. (Note F) Proposed New Line of Business and New Business Opportunities: In August 1997, the Company announced that it was considering diversifying beyond its sole line of business of marketing, distributing and otherwise commercially exploiting Conserver 21(TM) (the "Principal Line of Business") and was exploring a possible new line of business in the hotel and casino industry (the "New Line of Business"). At a Special Meeting of Stockholders, which the Company anticipates will be held during December 1997, the Company's stockholders will be asked to consider and to vote on a proposal regarding the New Line of Business and New Business Opportunities (as hereinafter defined). (See Note G.) In connection with the New Line of Business, and subject to the receipt of requisite approval by the Company's stockholders, the Company has, as more fully described herein, (i) entered into an agreement to acquire certain rights to develop a hotel and casino project in Yuzhno-Sakhalinsk on the Sakhalin Island of the Russian Federation (the "Sakhalin Project"), located 20 minutes by air from Sapporo, Japan, (ii) entered into an agreement with Dato David Chiu to provide certain development services with respect to the Sakhalin Project, (iii) reached an agreement to manage certain hotels of Dorsett Hotels and Resorts International, including hotels presently operating or being developed in the United States, Bali, Australia, Canada, Cambodia, Malaysia and Thailand and (iv) entered into several other related agreements, including the Surinam Project, as hereinafter described (collectively, the "New Business Opportunities"). The foregoing agreements (other than the agreement relating to the Surinam Project), if approved by the Company's stockholders, would obligate the Company to pay 7 approximately $6.75 million and to provide for the issuance by the Company, under certain circumstances and subject to the completion of certain terms and obligations thereunder, of up to 5,500,000 million shares of Common Stock and options to purchase 600,000 shares of Common Stock. In connection with the Company seeking New Business Opportunities, the Company entered into an agreement in principle, as of October 3, 1997, with Parbhoe Handelmij NV, a Surinamese limited liability, to create a joint venture company to develop a casino project (the "Surinam Project") in Paramaribo, the capital city of Surinam (the former Dutch Guyana). Pursuant to the agreement, the joint venture company will also enter into an operating agreement with the Company to manage the casino. If the Surinam Project is developed as contemplated, the Company, subject to stockholder approval, is expected to provide the joint venture company with approximately $3,000,000 in initial capital. In addition to the direct issuance of shares of the Company's Common Stock in connection with the proposed transactions, the Company anticipates funding the cash portion of the initial capital required for the proposed New Line of Business and New Business Opportunities with the proceeds from the private offering of shares of additional Common Stock and/or other securities of the Company. Both the proposed New Line of Business and New Business Opportunities are subject to receipt of requisite stockholder approval. Sakhalin Agreement. In connection with the Sakhalin Project, the Company entered into an agreement dated as of August 12, 1997, and amended September 9, 1997 (as amended, the "Sakhalin Agreement"), subject to receipt of requisite approval by the Company's stockholders, with Sakhalin Trading and Investments Limited ("SGTI") and Sovereign Gaming and Leisure Limited ("Sovereign"), each a limited liability company organized under the laws of Cyprus, pursuant to which the Company would acquire: (i) all of the share capital of SGTI, which includes (a) all of SGTI's rights and interest in a project to develop the Sakhalin Project, and (b) SGTI's ownership interest in 50% of the shares of Sakhalin City Centre Limited ("SCC"), a closed joint stock company incorporated under the laws of the Russian Federation, which, in turn, holds certain rights, including a guarantee by the city of Yuzhno-Sakhalinsk to issue a gaming license to SCC and (ii) all rights and interest to or in the Sakhalin Project held by Sovereign, including certain operating and project management agreements with respect to the Project (collectively, the "Shares and Rights"). In consideration of the Shares and Rights, the Company is required under the terms of the Sakhalin Agreement, as amended, to pay to SGTI and its stockholders (i) an initial payment of $500,000 paid August 1997, (ii) $1,000,000 payable by October 15, 1997, (iii) $1,500,000 payable by October 31, 1997 and (iv) an aggregate of 1,538,462 shares of the Company's Common Stock (valued for the purpose of the Sakhalin Agreement at an aggregate of $10,000,000 or $6.50 per share) (collectively, the "Purchase Price"). The Company's Common Stock was trading at $6.125 per share on the date of execution of the Sakhalin Agreement. In connection with the $1,000,000 payment due October 15, 1997 and the $1,500,000 payment due October 31, 1997, the Company delivered an additional $250,000 due under the Sakhalin Agreement on October 16, 1997. As of the date hereof, the Company has paid to SGTI $750,000 with respect to its obligations under the Sakhalin Agreement. As to the $2,225,000 balance due by the Company under the Sakhalin Agreement, the Company, SGTI and Messrs. William Stephan Cairns and John Byrne Horgan, as directors of SGTI, agreed pursuant to the 8 terms of a stock purchase agreement (see Note G), dated as of October 24, 1997 (the "Stock Purchase Agreement"), that the Company would pay the balance of $2,500,000 of the Purchase Price due under the Sakhalin Agreement, on or about October 31, 1997, or as soon as possible thereafter. Upon completion of the Company's due diligence in connection with the Sakhalin Agreement, should the Company conclude for any reason that it does not wish to proceed with the Sakhalin Project (including the failure of the stockholders of the Company to approve the New Line of Business and the New Business Opportunities) and the transactions contemplated under the Sakhalin Agreement, the Company has the right to convert any cash portion of the Purchase Price then delivered to SGTI into shares of SGTI at a conversion rate of one ordinary share of SGTI for each $30.00 so delivered. Any such conversion resulting in an investment in SGTI will likely be illiquid and there can be no assurance that the Company will recoup any cash paid under the Sakhalin Agreement. The Sakhalin Agreement further provides that, upon request of the Company, Sovereign agrees to become project manager during the construction phase of the Sakhalin Project, subject to agreement on reasonable compensation for such services, which shall not exceed 5% of the construction cost of the Sakhalin Project or $5,000,000, whichever is less. In connection with the execution of the Sakhalin Agreement and with the Company's approval, SGTI acquired an additional 15% of the share capital of SCC from certain shareholders of SCC resulting in SGTI owning 65% of the share capital of SCC. As a result of the acquisition of the additional 15% of the share capital of SCC, the Purchase Price payable by the Company for the shares of SGTI under the Sakhalin Agreement will increase by 461,538 shares of the Company's Common Stock. Thus, with respect to the Sakhalin Agreement, aggregate total consideration for the Shares and Rights payable by the Company to SGTI and its shareholders will be $3,000,000 and 2,000,000 shares of the Company's Common Stock. In addition, it is the Company's understanding that the $3,000,000 cash portion of the Purchase Price will be used by SGTI as a loan to SCC (in which SGTI holds a 65% interest) for the initial development and costs for the Sakhalin Project. Development Services Agreement. On October 2, 1997, the Company entered into an agreement (the "Development Services Agreement") with Dato David Chiu ("Chiu"), pursuant to which the Company, subject to approval by its stockholders and subject to the Company acquiring all of the shares of SGTI (which would result in the Company owning 65% of the share capital of SCC), would, as described below, transfer to Chiu 38.46% of the share capital of SGTI and would issue to Chiu one share of convertible junior preferred stock of the Company (the "Convertible Preferred Stock Share") which would convert, under specified conditions and certain circumstances, into 1,500,000 shares of Common Stock of the Company. The Development Services Agreement provides that Chiu will provide certain development services to the Company in connection with the Sakhalin Project, including using his best efforts to procure or secure the necessary debt financing and guarantees (on behalf of the Company and its subsidiaries and affiliates) for the complete turnkey construction of the Sakhalin Project which financing is to be on mutually acceptable terms. Construction costs for the Sakhalin Project are currently estimated at US$100 million. The shares of Common Stock underlying the Convertible Preferred Stock Share and the shares of SGTI to be issued to Chiu in consideration for his services will be issued on the date of mutual execution by the Company or its nominated affiliate 9 of a legally enforceable and binding agreement from a lender, the terms of which are acceptable to the Company, SGTI and SCC, to provide the financing. In the event Chiu is unable to procure or secure the necessary financing and guarantees acceptable to the Company in accordance with the Development Services Agreement, the Convertible Preferred Stock Share issued to Mr. Chiu would not convert into 1,500,000 shares of Common Stock of the Company. If the financing is not realized as contemplated pursuant to the Development Services Agreement, the Company and the other investors in the Sakhalin Project would be required to obtain additional financing on behalf of SCC from a variety of sources, including borrowings under bank credit facilities, sales of securities and placement of term debt, to construct the hotel and casino. There can be no assurance that such additional financing would be available on terms satisfactory to the Company. Furthermore, here can be no assurance that the Company will not be required to issue additional securities of the Company in connection with the financing of the construction of the Sahkalin Project. Chiu has also agreed that he shall not for a period of three years from the date of issuance or transfer, as applicable, of the Convertible Preferred Stock Share (and the underlying Common Stock) received under the Development Services Agreement, voluntarily or involuntarily, directly or indirectly, sell, contract to sell, grant a right to purchase, exchange, mortgage, pledge, hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any other way whatsoever dispose of (hereinafter collectively called "transfer") any of such shares, including any options and warrants with respect to such shares, received by way of dividend or upon an increase, reduction, substitution or reclassification or combination of stock of the Company or upon any reorganization of the Company, as applicable. Notwithstanding any of the foregoing, Chiu may transfer such shares to any affiliate, subject to the Company's consent, which consent shall not be unreasonably withheld. Chiu also agreed, until three years from the issuance date of the shares to give the Company an irrevocable proxy, with full power of substitution, to vote on all matters as the Company deems appropriate, with respect to the shares at all meetings of the stockholders of the Company and by means of any written consent of stockholders with respect to all matters. The Company has designated Charles H. Stein, the Chairman, President and Chief Executive Officer of the Company as the authorized person to exercise the aforementioned voting rights on behalf of the Company, until such time as the Mr. Stein is incapacitated to act. Furthermore, the Development Services Agreement provides that, in the event that Chiu wishes to sell all or any part of the shares after the three year period described above, the Company shall have the first option to purchase all or any part of the shares from Chiu. Chiu agreed to give the Company written notice thereof of its intent to sell any or all of the shares. The Company has a right to purchase said shares at a price equal to the (i) closing price per share as reported on the Nasdaq (as reported in The Wall Street Journal) on the date written notice is given to the Company or (ii) the price offered to Chiu by an unaffiliated third party (not a competitor of the Company) in an irrevocable and unconditional bona fide written offer (the "Bona Fide Offer"), as applicable. The Company has the right to purchase all or a portion of the shares by giving Chiu written notice no later than ten business days after written notice is provided to the Company. In the event that the Company fails to exercise its option, Chiu has the right to sell the shares to such third party at the price offered to the Company without any further obligations to sell the shares to the Company. If, however, any or all of the shares are not 10 sold pursuant to the Bona Fide Offer within 30 days from the receipt by the Company of Chiu's notice of intent to sell, the unsold shares shall remain subject to the terms of the Development Services Agreement. Consummation of Sakhalin Agreement and Development Services Agreement. Assuming consummation of each of the transactions contemplated above, the Company and Chiu would own through their respective shares in SGTI, a 40% and 25% interest in SCC, respectively, and the remaining 35% of the interests would continue to be held 20% by the City of Yuzhno-Sakhalinsk and 15% by the Sakhalin Oblast (the regional government). Proposed Pledge Agreement. Brian J. Bryce, Jay M. Haft and James V. Stanton, directors of the Company, and Jasmine Trustees Ltd., a trust for the benefit of Mr. Bryce and his children, have agreed to enter into a pledge agreement (the "Proposed Pledge Agreement") with the Company in connection with the transactions contemplated by the Sakhalin Agreement. This matter was approved by the Board of Directors at its meeting held on September 10, 1997. In November 1997, it was agreed that the Proposed Pledge Agreement would provide that in the event the proposal relating to the New Line of Business and the New Business Opportunities is not approved by the stockholders of the Company at a Special Meeting of Stockholders to be held for such purpose, Messrs. Bryce, Haft and Stanton would jointly reimburse the Company for the $750,000 advanced by the Company under the Sakhalin Agreement. As presently contemplated, these obligations would be secured by an aggregate of 150,000 shares of Common Stock of the Company owned, either directly or beneficially, by such directors. Sakhalin Casino Consulting Agreement. Effective as of August 14, 1997, the Company entered into an agreement (the "Casino Consulting Agreement"), subject to the receipt of the requisite approval from the Company's stockholders (the "Commencement Date"), with Star Casinos Limited, a limited liability company organized under the laws of Cyprus (the "Consultant"), whereby the Consultant has agreed to provide consulting and technical services to the Company and any affiliated entities for a period of two years from the Commencement Date with respect to the development and ongoing operations of the Sakhalin Project casino. Under the terms of the Casino Consulting Agreement, the Consultant has agreed to make available the services of David Hartley ("Hartley"). As of the Commencement Date, the Consultant will receive (i) a fee of $21,000 per month plus reimbursement of reasonable expenses for the term of the agreement, adjusted pro rata for any partial month of service and (ii) options to purchase 100,000 shares of the Company's Common Stock, at $6.50 per share, with 50% of the options becoming exercisable on each of the first and second anniversary dates of the Commencement Date and expiring on the third anniversary date. At the end of the term of the agreement, provided that the Consultant is not in breach of the Casino Consulting Agreement, the Consultant will also be entitled to receive a $250,000 bonus. From the period between October 1, 1997 through the Commencement Date, the Consultant will be paid by the Company a fee of $21,000 a month, adjusted pro rata for any partial month of service, plus reimbursement of reasonable expenses. The Company may terminate the Casino Consulting Agreement for "cause," which includes (i) a material breach of the agreement, (ii) the unavailability of Hartley, (iii) material misconduct injurious to the Company by the Consultant or Hartley or (iv) the conviction of an act of fraud or conviction of a crime by the Consultant or Hartley. The agreement also binds the Consultant and Hartley to a two-year non-compete, non-solicitation provision. 11 Hotel Management Services. On October 2, 1997, the Company entered an agreement (the "Hotel Management Agreement") with Dorsett Hotels and Resorts International, Ltd. ("Dorsett"), a company controlled 100 percent by Chiu, pursuant to which the Company, directly or through a subsidiary, would act as exclusive operator and manager of certain hotels owned by Dorsett. In consideration for Dorsett entering into the Hotel Management Agreement, the Company, subject to requisite approval of the Company's stockholders, would (i) issue to Dorsett up to an aggregate 2,000,000 shares of the Company's Common Stock, upon specified conditions being satisfied and (ii) pay Dorsett $3,000,000. The Hotel Management Agreement provides for twenty year exclusive operating agreements (which have not yet been executed) with respect to the management of the Dallas Grand Hotel, Dallas, Texas, Dorsett Regency Bali, Indonesia and Rockman's Regency Melbourne, Australia, as well as operating agreements on substantially similar terms for five other hotels scheduled to open within the next two years (the "Operating Agreements"). The Company, pursuant to the terms of the Operating Agreement for each hotel managed, would be entitled to management fees equal to three percent of gross revenues plus ten percent of gross operating profits. In addition, the Company would receive service fees equal to four percent of gross revenues for marketing, promotion and advertising expenses as well as an additional one-half of one percent of gross revenues for training costs which would be used in turn to fund such expenses. Each Operating Agreement would further provide that in the event Dorsett terminates the Operating Agreement for any reason other than for a material breach by the Company, the Company would be entitled to a termination fee. The termination fee shall be calculated based on the formula which is the remaining number of years under such Operating Agreement multiplied by a factor which is: (i) in the event of a termination during the first five years of the Agreement, the factor shall be the sum of the actual fees paid or payable to the Company based on revenues generated to date plus fees payable to the Company based on projected revenues for the rest of the year, (ii) in the event of a termination after the first five years, the factor shall be the average of the fees paid or payable to the Company for the preceding two years, or (iii) in the event of a termination after the first ten years, the factor shall be the average of the fees paid or payable to the Company for the preceding three years. If the Hotel Management Agreement is consummated, subject to requisite stockholder approval, the Company plans to add a management team with experience with major international hotel chains in the operation and management of hotels and leisure time activities worldwide. Dorsett agreed that it shall not for a period of three years from the date of issuance or transfer, as applicable, of the shares received under the Hotel Management Agreement, voluntarily or involuntarily, directly or indirectly, sell, contract to sell, grant a right to purchase, exchange, mortgage, pledge, hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any other way whatsoever dispose of (hereinafter collectively called "transfer") any of such shares, including any options and warrants with respect to such shares, received by way of dividend or upon an increase, reduction, substitution or reclassification or combination of stock of the Company or upon any reorganization of the Company, as applicable. Notwithstanding any of the foregoing, Dorsett may transfer the shares to any subsidiary or affiliate of Dorsett, subject to the Company's consent, which consent shall not be unreasonably withheld. Dorsett also agreed, until three years from the issuance date of the shares, to give the Company an irrevocable proxy, with full power of substitution, to vote on all matters as the Company deems appropriate, with respect to the shares at all meetings of the stockholders of the Company and by means of 12 any written consent of stockholders with respect to all matters. The Company has designated Charles H. Stein, the Chairman, President and Chief Executive Officer of the Company as the authorized person to exercise the aforementioned voting rights on behalf of the Company, until such time as Mr. Stein is incapacitated to act. Furthermore, the Hotel Management Agreement provides that, in the event that Dorsett wishes to sell all or any part of the shares after the three-year period described above, the Company shall have the first option to purchase all or any part of the shares from Dorsett. Dorsett agreed to give the Company written notice thereof of its intent to sell any or all of the shares received under the Hotel Management Agreement. The Company has a right to purchase said shares at a price equal to the (i) closing price per share as reported on the Nasdaq (as reported in The Wall Street Journal) on the date written notice is given to the Company or (ii) the price offered to Dorsett by an unaffiliated third party (not a competitor of the Company) in an irrevocable and unconditional bona fide written offer (the "Bona Fide Offer"), as applicable. The Company has the right to purchase all or a portion of the shares by giving Dorsett written notice no later than 10 business days after written notice is provided to the Company. In the event that the Company fails to exercise its option, Dorsett has the right to sell the shares to such third party at the price offered to the Company without any further obligations to sell the shares to the Company. If, however, any or all of the shares are not sold pursuant to the Bona Fide Offer within 30 days from the receipt by the Company of Dorsett's notice of intent to sell, the unsold shares shall remain subject to the terms of the Hotel Management Agreement. Other. In connection with the Company entering into the New Line of Business, the Board of Directors has adopted resolutions to issue to Brian J. Bryce and Jay M. Haft, respectively, options to purchase 300,000 and 200,000 shares of Common Stock at an exercise price equal to $6.125 per share. The issuance of the options to Messrs. Bryce and Haft, who are directors of the Company, is subject to receipt of requisite shareholders' approval for the Company to enter into the New Line of Business and the New Business Opportunities. The Surinam Project. As of October 3, 1997, the company entered into an agreement in principle with Parbhoe Handelmij NV, a Surinamese limited liability, to create a joint venture company to develop a casino project (the "Surinam Project") in Paramaribo, the capital city of Surinam (the former Dutch Guyana). Pursuant to the agreement, the joint venture company will also enter into an operating agreement with the Company to manage the casino. There can be no assurance that the Surinam Project will be developed or, if developed, will be profitable for the Company. If the Surinam Project is developed as contemplated, the Company, subject to stockholder approval, is expected to provide the joint venture company with approximately $3,000,000 in initial capital. General. The transactions contemplated under the Sakhalin Agreement, the Development Services Agreement, the Hotel Management Agreement, the Casino Consulting Agreement and the Stock Purchase Agreement are subject to several conditions precedent, including, but not limited to, satisfactory results from the Company's due diligence investigation, obtaining certain local governmental concessions and incentives for the Sakhalin Project and 13 stockholder approval. In addition to the foregoing, the Surinam Project would also require the completion of a definitive agreement. With regard to the New Line of Business and the New Business Opportunities, there is no guarantee that the Company will receive the requisite approval of it stockholders, or if approved, whether the Company can successfully implement its business plan or operate profitably. The Company's stockholders will experience significant dilution in their percentage ownership interest in the Company upon the issuance of the shares of Common Stock as contemplated under the agreements related to the New Line of Business and the New Business Opportunities. (Note G) Subsequent Events: Stock Purchase Agreement. On October 24, 1997, the Company, SGTI and Messrs. William Stephan Cairns and John Bryne Horgan, as directors of SGTI, entered into a stock purchase agreement (the "Stock Purchase Agreement") pursuant to which the parties agreed, that the Company would pay to SGTI the remaining $2,500,000 of the Purchase Price under the Sakhalin Agreement on or about October 31, 1997 or as soon as practicable thereafter, and, subject to requisite approval of the Company's stockholders, to transfer all of the capital stock of SGTI and SGTI's rights in the Sakhalin Project to the Company and to issue 2,000,000 shares of Common Stock of the Company to certain stockholders of SGTI and certain entities having an interest in SGTI. Pursuant to the terms of the Stock Purchase Agreement, the Company's obligation to purchase all of the shares of SGTI is subject to certain conditions including, but not limited to, obtaining the requisite approval of the Company's stockholders, customary representations and warranties with respect to SGTI and SCC being true and correct on the date of the purchase of the shares of SGTI, the valid assignment to the Company of all of Sovereign's rights in the Sakhalin Project under each of the project management agreement and operational management agreement and the receipt of all required consents and approvals. Proposed Pledge Agreement. See Note F, "Proposed Pledge Agreement," which is incorporated herein by reference. Sakhalin Agreement Payments. On October 16, 1997 the Company delivered an additional $250,000 with respect to its obligations under the Sakhalin Agreement. A total of $750,000 has been paid to SGTI by the Company with respect to the Company's cash obligations under the Sakhalin Agreement. Preliminary Proxy Statement. On November 13, 1997 the Company filed with the Securities and Exchange Commission a preliminary proxy statement for a Special Meeting of Stockholders (the "Special Meeting"). At the Special Meeting, the Company's stockholders will be requested to: (i) approve a proposal permitting the Company to enter into the New Line of Business in the hotel and casino industry and the New Business Opportunities, and to authorize the issuance of up to 5,500,000 shares of the Company's common stock $.001 par value (the "Common Stock") and options to purchase 600,000 shares of Common Stock in connection with the proposal; (ii) approve an amendment to the Company's Certificate of Incorporation to change the Company's name from "Conserver Corporation of America" to "CCA Companies Incorporated"; (iii) approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock and preferred stock, $.01 par value (the "Preferred Stock"); (iv) approve an amendment to the Company's 1996 Stock Option Plan to increase the number of Common Stock shares authorized for issuance thereunder; and (v) take such other action as may properly come before the Meeting or any adjournments thereof (the "Proxy Statement"). The preliminary Proxy Statement is subject to the completion of a definitive Proxy Statement, the timing of which no assurances can be given. The Company anticipates that the Special Meeting will be held in December 1997. Item 2. Management's Discussion And Analysis Of Financial Condition And Results of Operation The following discussion and analysis of significant factors affecting the Company's operating results and liquidity and capital resources should be read in conjunction with the accompanying financial statement and related notes. Overview The Company, which was organized in March 1996, is in the development stage and its activities since the date of incorporation have been primarily focused on raising both debt and equity financing (public and private), recruiting management personnel, testing, developing and 14 exploiting Conserver 21(TM) and negotiating distribution and other arrangements. Since the first quarter of fiscal 1998, management of the Company has also been engaged in exploring new business opportunities for the Company. The Company's operations are subject to all of the risks inherent in the establishment of a new business enterprise, including the need to obtain financing, lack of revenues, reliability of sources of supply and the uncertainty of market acceptance of its business. The company has incurred losses since inception. From March 6, 1996 to June 30, 1997, the Company did not derive any revenues from operations. During the three months ended September 30, 1997, the Company had nominal revenues of $5,470 from the preliminary sales of its Conserver 21(TM) products. The Company's accumulated deficit at September 30, 1997 was $11,356,363, which included $6,130,307 of non-compensation charges related to the value attributed to stock options and warrants issued by the Company. From March 1996 to November 1996, the Company raised the capital necessary for its business development through debt and equity private placements. In June 1997, the Company completed an initial underwritten public offering (the "Offering") in which it received net proceeds of approximately $8,900,000 from the sale of 2,200,000 shares of its Common Stock at a per share price of $5.00. In July 1997, the Company's underwriter exercised it over-allotment option to purchase an aggregate of 330,000 shares of Common Stock at $5.00 per share resulting in the Company receiving additional net proceeds of $1,448,000. Aggregate net proceeds to the Company from the Offering amounted to $10,348,000. Also in connection with the Offering, the Company sold to the underwriters, for nominal consideration, Underwriters' Warrants to purchase 220,000 shares of Common Stock exercisable for a period of four years at $8.25 per share. During the three months ended September 30, 1997, approximately $1,761,000 of the proceeds from the Offering was used for general business purposes, including the initial $500,000 payment made under the Sakhalin Agreement in connection with the New Business Opportunities and the partial retirement of convertible debentures outstanding in the amount of $385,000. At June 30, 1997, approximately $2,130,000 of the proceeds from the Offering was used for general business purposes, including the $1,000,000 loan to Agrotech under the Distribution Agreement and the repayment of a $1,000,000 convertible debenture, together with the accrued interest thereon. The Company anticipates that the balance of the proceeds from the Offering will be used for working capital and general business purposes primarily in connection with its Conserver 21(TM) business. The marketing and sale of Conserver 21(TM) currently constitutes the Company's sole line of business and will account for substantially all of the Company's revenues, if any, for the foreseeable future and until the Company's New Line of Business and New Business Opportunities, if approved by stockholders, result in a viable operation. There are several methods of food preservation commercially available that compete directly or indirectly with the Company's Conserver 21(TM). In order to market and sell Conserver 21(TM), the Company will need to maintain a sales force with technical expertise in the food preservation and food transportation industries. The success of the Company's Principal Line of Business will depend on its ability to demonstrate the commercial viability and effectiveness of Conserver 21(TM). The Company currently has no orders for Conserver 21(TM) and there can be no assurance that potential customers will be willing to incur the costs of Conserver 21(TM). 15 Initial marketing efforts of the Conserver 21(TM) packets in the United States have indicated that the Company needs to renegotiate the terms of its Distribution Agreement with Agrotech and to improve the packaging of the Conserver 21(TM) packets. The Company is currently in discussions with Agrotech with a view to reduce the pricing arrangements regarding the Conserver 21(TM) packets and to modify the manufacturing arrangements so that all packaging is done in the United States. Management of the Company is currently in discussions with a U.S.-based company that specializes in packaging products comparable to Conserver 21(TM) packets. If the product were packaged in the United States, Management believes that this cost reduction even if partially offset by an increase in the royalty percentage to be paid to Agrotech would enable the Company to competitively price the packets at a level that would be profitable to the Company. There can be no assurance, however, that the Company will be able to successfully renegotiate the Distribution Agreement on more favorable terms or enter into a packaging arrangement with a third party to its satisfaction. Under such circumstances the Company would have to shift its initial marketing efforts and focus on the sale of the Conserver 21(TM) filters. There can be no assurance that the Company would be able to successfully implement this revised marketing strategy. Any sustained impairment of the Company's ability to market Conserver 21(TM) could significantly delay or materially impair the Company's ability to commercialize Conserver 21(TM). In August 1997, the Company announced that it was considering diversifying beyond its Principal Line of Business of marketing and distributing Conserver 21(TM) and was exploring a possible New Line of Business in the hotel and casino industry. The Company has entered into certain agreements regarding the proposed New Business Opportunities. The New Line of Business and the New Business Opportunities (including the issuance of shares of Common Stock of the Company in connection therewith) are subject to receipt of requisite approval by the Company's stockholders. (See "Subsequent Events" in this section and Note G to the financial statements included in this report.) In connection with the New Line of Business, and subject to the receipt of requisite approval by the Company's stockholders, the Company has, as more fully described herein, (i) entered into an agreement to acquire certain rights to develop a hotel and casino project in Yuzhno-Sakhalinsk on the Sakhalin Island of the Russian Federation (the "Sakhalin Project"), located 20 minutes by air from Sapporo, Japan, (ii) entered into an agreement with Dato David Chiu to provide certain development services with respect to the Sakhalin Project, (iii) reached an agreement to manage certain hotels of Dorsett Hotels and Resorts International, including hotels presently operating or being developed in the United States, Bali, Australia, Canada, Cambodia, Malaysia and Thailand and (iv) entered into several other related agreements, including the Surinam Project (collectively, the "New Business Opportunities"). The foregoing agreements, other than the agreement for the Surinam Project, if approved by the Company's stockholders, would obligate the Company to pay approximately $6.75 million and to provide for the issuance by the Company, under certain circumstances and subject to the completion of certain terms and obligations thereunder, of up to 5,500,000 million shares of Common Stock and options to purchase 600,000 shares of Common Stock. As of October 3, 1997, the Company entered into an agreement in principle with Parbhoe Handelmij NV, a Surinamese limited liability, to create a joint venture company to develop a casino project in Paramaribo, the capital city of Surinam (the former Dutch Guyana). Pursuant to the agreement, the joint venture company will also enter into an operating agreement with the Company to manage the casino. If the Surinam Project is developed as contemplated, the Company, subject to stockholder 16 approval, is expected to provide the joint venture company with approximately $3,000,000 in initial capital. In addition to the direct issuance of shares of the Company's Common Stock in connection with the proposed transactions, the Company anticipates funding the cash portion of the initial capital required for the proposed New Line of Business and New Business Opportunities with the proceeds from the private offering of additional shares of Common Stock and/or other securities of the Company. For further information, see Note F to the Company's financial statements included in this report, which is incorporated herein by reference. Changes in Fiscal Year The Company initially adopted a fiscal year ending August 31, when it incorporated on March 6, 1996. During the current calendar year, the Company elected to change its fiscal year end to June 30. Accordingly, the following discussion of the Company's results for the three months ended September 30, 1997 is compared to the three months ended August 31, 1996. Results of Operations The Company has a limited operating history upon which an evaluation of its performance and prospects can be made. During the period from March 6, 1996 to September 30, 1997, the Company's activities were primarily limited to organization efforts and raising public and private capital to defray its organizational expenses and the development and initial implementation of its business plan for its Principal Line of Business. From March 6, 1996 to June 30, 1997 the Company had no revenues. During the three months ended September 30, 1997 the Company had nominal revenues of $5,470. Since the first quarter of fiscal 1998, the Company has also been involved in the development of its proposed New Line of Business and New Business Opportunities. Comparison of Three Months Ended September 30, 1997 to Three Months Ended August 31, 1996 Net Loss. The Company incurred a net loss of $1,407,225, or $0.21 per share, for the three months September 30, 1997, as compared to a net loss of $891,044, or $0.20 per share, for the three months ended August 31, 1996. This increase was primarily due to increases in general and administrative expenses, which were partially offset by a decrease in compensation charges in connection with the issuance of options and warrants. Revenues. For the three months ended September 30, 1997, the Company had nominal revenues of $5,470 from the preliminary sales of its Conserver 21(TM) products. During the three months ended August 31, 1996, the Company had no revenues. Compensation Charges. During the three months ended September 30, 1997, non-cash compensation charges were $228,000 compared to $457,201 for the three months ended August 31, 1996. This 50% decrease from the prior period was primarily the result of a decrease in the Company's utilization of stock options and warrants in lieu of cash compensation payments. 17 General and Administrative Expenses. General and administrative expenses, which include travel expenses, salaries and professional and consulting fees, were $1,078,630 for the three months ended September 30, 1997 compared to $412,584 for the three months ended August 31, 1996. This 162% increase was primarily the result of costs associated with increases in the Company's business activities for its Principal Line of Business, additional expenses incurred as a result of the Company's status as a publicly traded entity and expenses incurred in exploring the New Line of Business and New Business Opportunities. Marketing and Sales. During the three months ended September 30, 1997, the Company incurred $102,312 in marketing and sales expenses in connection with its preliminary marketing and sales efforts for Conserver 21(TM). The Company incurred no marketing and sales expenses for the three months ended August 31, 1996. Research and Development. During the three months ended September 30, 1997, the Company incurred $34,027 in research and development expenses for Conserver 21(TM) which consisted primarily of product testing for the Conserver 21(TM) products. The Company incurred no research and development expenses for the three months ended August 31, 1996. Interest Income. For the three months ended September 30, 1997 interest income was $103,552, compared to $8,741 for the three months ended August 31, 1996. This increase was due to additional cash being available for investment from the proceeds of the Offering. Interest Expense. For the three months ended September 30, 1997, interest expense was $12,950 compared to $30,000 for the three months ended August 31, 1996. This decrease was the result of the repayment of certain outstanding obligations by the Company from the proceeds of the Offering. Income Taxes. For the three months ended September 30, 1997 and August 31, 1996, the Company, for tax purposes, did not have any operations or net operating losses. The Company's expenses are pre-operating and therefore, will be capitalized and amortized when operations commence. Liquidity and Capital Resources Since its date of incorporation through November 1996, the Company has relied primarily upon privately raised debt and equity financing to fund its operations and raised $3,172,000 through the private placement of its Common Stock at $5.00 per share. In June 1997, the Company completed an initial underwritten public offering in which it received net proceeds of approximately $8,900,000 through the sale of 2,200,000 shares of its Common Stock at a price of $5.00 per share. Additional net proceeds of $1,448,000 were received by the Company in July 1997 as a result of the underwriter's exercise of its over-allotment option to purchase an aggregate of 330,000 shares of Common Stock at $5.00 per share. During the three months ended September 30, 1997, approximately $1,761,000 were used for general purposes, including the initial $500,000 payment made under the Sakhalin Agreement in connection with the New Business Opportunities and the retirement of convertible 18 debentures outstanding in the amount of $385,000. At June 30, 1997, approximately $2,130,000 of proceeds was used for general business purposes, including the $1,000,000 loan to Agrotech under the Distribution Agreement and the repayment of the $1,000,000 convertible debenture, together with accrued interest thereon. The Company anticipates that the balance of the proceeds from the Offering will be used for working capital and general business purposes and general business purposes primarily in connection with its Conserver 21(TM) business. On October 16, 1997, the Company made an additional payment under the Sakhalin Agreement of $250,000. At June 30, 1997 and at September 30, 1997, the Company had available cash and cash equivalents of $7,715,460 and $7,402,482, respectively. During the three months ended September 30, 1997, in connection with the convertible debentures issued by the Company in September and November 1996 in the aggregate principal amounts of $600,000 and $150,000, respectively, the $150,000 debenture issued in November 1996 was repaid in full from the proceeds of the Offering, and of the $600,000 debenture issued in September 1996, $365,000 of such debenture was converted into Common Stock at $5.00 per share and $235,000 was repaid from the proceeds of the Offering. The Company's 1996 Stock Option Plan (the "Plan") was adopted in November 1996, and amended in December 1996 and April 1997. Under the Plan, which authorizes the granting of incentive stock options or nonincentive stock options, the maximum number of shares of common stock for which options may be granted is 1,300,000 shares. During the three months ended September 30, 1997, the Company issued to employees stock options under the Plan to purchase an aggregate of 40,000 shares of Common Stock and to consultants stock options to purchase 137,500 shares of Common Stock. As at September 30, 1997, options to purchase 1,132,500 shares of Common Stock had been granted under the Plan. During the three months ended September 30, 1997, the Company also issued to a consultant 5,000 shares of Common Stock and issued to another consultant currently exercisable warrants to purchase 100,000 shares of Common Stock at $6.50 per share which expire in August 2001. Historically, the Company has used Common Stock issuances and stock option grants and warrants to pay a significant portion of its compensation expenses. In August 1997, the Company made a $210,000 loan to D&M Investments, Inc. ("D&M"), an unaffiliated party due September 24, 1997 and bearing interest at 10% per annum. At June 30, 1997, D&M Investments held a $210,000 convertible debenture issued by the Company. In connection with the loan, D&M pledged to the Company the rights to the convertible debenture. On September 24, 1997, in lieu of demanding payment on the loan, the Company elected to deduct amounts due under the loan from the amounts payable by the Company under the debenture. In connection with the above transaction, D&M Investments signed a lockup agreement with respect to any securities of the Company that it holds. In connection with the Company's Principal Line of Business, the Distribution Agreement requires the Company to make loans to Agrotech of up to $1,500,000 for the enhancement of Agrotech's manufacturing capacity. Under the terms of the Distribution Agreement, the first $1,000,000 of such loan is repayable over a three-year period as an offset against Conserver 21(TM) purchases by the Company in excess of $2,000,000 annually and the balance of any such loan is payable out of royalties which may be due to Agrotech from such sales 19 over a three- to four-year period. At September 30, 1997, the Company had advanced Agrotech $1,000,000 under the terms of the Distribution Agreement. The Company has established a reserve equal to the amount advanced to Agrotech. Under the terms of the Distribution Agreement, the Company may be obligated to extend an additional loan of $500,000 to Agrotech. Due to the current renegotiations, the Company cannot determine at the present time whether any additional loans, under the terms of the Distribution Agreement, will be made or whether any offsets under the Distribution Agreement will be available. During the three months ended September 30, 1997, the Company incurred $102,312 and $34,027 in marketing and sales expenses and research and development costs for Conserver 21(TM), respectively. Although the Company has completed some initial testing of Conserver 21(TM), the Company has not completed all of its own comprehensive independent tests. Thus, it is possible that Conserver 21(TM) may require further research, development, design and testing, as well as regulatory clearances, prior to larger-scale commercialization. During the fiscal year ending June 30, 1998, the Company anticipates a significant increase in marketing and sale costs and research and development costs for Conserver 21(TM), particularly if the Distribution Agreement is renegotiated to the Company's satisfaction. The Company is in the development stage and its operations are subject to all of the risks inherent in the establishment of a new business enterprise, including the need to obtain financing, lack of revenues and the uncertainty of market acceptance of its business. The Company has derived only nominal revenues from operations and has incurred losses since inception. No significant operating revenues are anticipated until such time, if ever, as the Company can demonstrate the commercial viability of Conserver 21(TM). The Company currently has nominal orders for Conserver 21(TM) and there can be no assurance that potential customers will be willing to incur the costs of Conserver 21(TM). There can be no assurance regarding whether or when the Company will successfully implement its Conserver 21(TM) business plan or operate profitably. The Company anticipates, particularly if the Distribution Agreement is renegotiated to its satisfaction, that during the fiscal year ended June 30, 1998 it will enter the operating stage for its Conserver 21(TM) Principal Line of Business and as a result will incur additional costs in connection with inventory purchases, warehousing and shipping and hiring additional employees and consultants. The Company currently estimates that its available cash reserves will be sufficient to meet the Company's liquidity and working capital requirements for its Principal Line of Business, including additional expenditures for inventory purchase, hiring additional employees, consultants and warehouse space through June 1999. The continued expansion and operation of the Company's Principal Line of Business beyond such period may be dependent on its ability to obtain additional financing. The Company currently has eight employees. Should the Company commence sales of Conserver 21(TM) and/or if the New Line of Business or the New Business Opportunities are approved by its stockholders, management of the Company would anticipate a significant increase in the number of employees and consultants during the fiscal year ended June 30, 1998. Such possible increase in the number of employees and consultants and the attendant costs cannot be estimated at this time. Management does not anticipate, however, such workforce 20 increases until such time the Company's Principal New Line of Business and/or proposed New Line of Business have the potential to generate sufficient revenues to offset such costs. In the event the Company proceeds with its New Line of Business and the New Business Opportunities, the Company would not utilize current cash reserves. In addition to the direct issuance of shares of the Company's Common Stock, the Company anticipates funding the cash portion of the initial capital required for the proposed New Line of Business and New Business Opportunities with the proceeds from the private sale of additional Common Stock and/or other securities of the Company. Issuances of securities would be dilutive to stockholders and any other types of financing would likely constrain the Company's financial and operating flexibility. In the event the Company proceeds with its New Line of Business and the New Business Opportunities, the Company would be obligated to pay an aggregate of approximately $6.75 million under the Sakhalin Agreement, the Hotel Management Agreement, the Development Services Agreement and the Casino Consulting Agreement, and $3 million in connection with the Surinam Project. In addition, under the Sakhalin Agreement and the Hotel Management Agreement, the Company would also be required to issue, under certain circumstances and subject to the completion of certain terms and obligations thereunder, up to 5,500,000 shares of Common Stock and options to purchase 600,000 shares of Common Stock. The Company's stockholders will experience significant dilution in their percentage ownership interest in the Company upon the issuance of the shares of Common Stock as contemplated under the agreements related to the New Line of Business and the New Business Opportunities. In the event the Company's plans change, its assumptions prove to be inaccurate or its available cash reserves together with the privately raised funds prove to be insufficient to fund its operations (as a result of future changes in the industry, general economic conditions, unanticipated increases in expenses or other factors), the Company may be required to seek additional financing. Any additional equity financing may be dilutive to stockholders and debt financing, if available, will likely include restrictive covenants, including financial maintenance covenants restricting the Company's ability to incur additional indebtedness and to pay dividends. Except as disclosed herein with respect to the New Line of Business and the New Business Opportunities, the Company has no current arrangement with respect to, or sources of, additional financing and there can be no assurance that any needed financing would be available to the Company on acceptable terms, or at all. The Company's ability to obtain additional financing will depend upon, among other things, the willingness of financial organizations to participate in the funding and the Company's financial condition and results of operations. The Company's future performance will be subject to a number of business and other factors, including the successful renegotiation of the Distribution Agreement and many factors beyond the Company's control, such as economic downturns and changes in the marketplace, as well as the level of competition and the ability of the Company to successfully implement its business strategy and effectively monitor and control its costs. There can be no assurance that the Company will be able to generate significant revenues or achieve profitable operations. Subsequent Events Stock Purchase Agreement. On October 24, 1997, the Company, SGTI and Messrs. William Stephan Cairns and John Bryne Horgan, as directors of SGTI entered into a stock 21 purchase agreement (the "Stock Purchase Agreement") pursuant to which the parties agreed, that they would pay to SGTI the remaining $2,500,000 of the Purchase Price under the Sakhalin Agreement on or about October 31, 1997 or as soon as practicable thereafter, and, subject to requisite approval of the Company's stockholders, to transfer all of the capital stock of SGTI and SGTI's rights in the Sakhalin Project to the Company and to issue 2,000,000 shares of Common Stock of the Company to certain stockholders of SGTI and certain entities having an interest in SGTI. Pursuant to the terms of the Stock Purchase Agreement, the Company's obligation to purchase all of the shares of SGTI is subject to certain conditions including, but not limited to, obtaining the requisite approval of the Company's stockholders, customary representations and warranties with respect to SGTI and SCC being true and correct on the date of the purchase of the shares of SGTI, the valid assignment to the Company of all of Sovereign's rights in the Sakhalin Project under each of the project management agreement and operational management agreement, and the receipt of all required consents and approvals. Proposed Pledge Agreement. Brian J. Bryce, Jay M. Haft and James V. Stanton, directors of the Company, and Jasmine Trustees Ltd., a trust for the benefit of Mr. Bryce and his children, have agreed to enter into a pledge agreement (the "Proposed Pledge Agreement") with the Company in connection with the transactions contemplated by the Sakhalin Agreement. This matter was approved by the Board of Directors at its meeting held on September 10, 1997. In November 1997, it was agreed that the Proposed Pledge Agreement would provide that in the event the proposal relating to the New Line of Business and New Business Opportunities is not approved by the stockholders of the Company at the Special Meeting of Stockholders, Messrs. Bruce, Haft and Stanton would jointly reimburse the Company for the $750,000 paid by the Company under the Sakhalin Agreement. As presently contemplated, these obligations would be secured by an aggregate of 150,000 shares of Common Stock of the Company owned, either directly or beneficially, by such directors. Preliminary Proxy Statement. On November 13, 1997 the Company filed with the Securities and Exchange Commission a preliminary proxy statement for a Special Meeting of Stockholders (the "Special Meeting"). At the Special Meeting, the Company's stockholders will be requested to: (i) approve a proposal permitting the Company to enter into the New Line of Business in the hotel and casino industry and the New Business Opportunities, and to authorize the issuance of up to 5,500,000 shares of the Company's common stock $.001 par value (the "Common Stock") and options to purchase 600,000 shares of Common Stock in connection with the proposal; (ii) approve an amendment to the Company's Certificate of Incorporation to change the Company's name from "Conserver Corporation of America" to "CCA Companies Incorporated"; (iii) approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's Common Stock and preferred stock, $.01 par value (the "Preferred Stock"); (iv) approve an amendment to the Company's 1996 Stock Option Plan to increase the number of Common Stock shares authorized for issuance thereunder; and (v) take such other action as may properly come before the Meeting or any adjournments thereof (the "Proxy Statement"). The preliminary Proxy Statement is subject to the completion of a definitive Proxy Statement, the timing of which no assurances can be given. The Company anticipates that the Special Meeting will be held in December 1997. Other Certain statements in this Quarterly Report on Form 10-Q are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements to be materially different form the results, performance or achievements expressed or implied by the forward looking statement. Factors that impact such forward looking statements include, among others, risk factors included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. 22 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds The following information is furnished pursuant to Item 701(f) of Regulation S-K in connection with the Company's Offering: The effective day of the Securities Act registration: June 5, 1997 The commission file number assigned to the subject registration statement: 333-15639 The date on which the offering commenced: June 6, 1997 The date on which the offering terminated: June 13, 1997; the offering terminated after all of the securities were sold. The names of the sole underwriter(s): Janssen/Meyers Associates, L.P. The title of securities registered: Common Stock, $0.001 par value For each of securities registered, the amount registered: 2,530,000 shares (including underwriter's overallotment) Aggregate price of the offering amount registered: $12,650,000 For each of securities, the amount sold: 2,530,000 shares (including underwriter's overallotment) Aggregate offering price of the amount of each securities sold: $12,650,000 24 From the effective date of the Securities Act registration statement to the ending date of the reporting period, the amount of expenses incurred for the Company's account in connection with the issuance and distribution of the Securities registered: $2,302,000. Underwriters discounts and commissions $1,075,250 Expenses paid to or for underwriter $ 561,750 Auditors Fees $ 85,000 Legal Fees $ 280,000 Printing Expenses $ 233,000 Miscellaneous Filing Fees and Other Expenses $ 67,000 Such payments referred to above were not direct or indirect payments to officers, directors, general partners of the issuer or their associates, affiliates of the issuer or any person owning 10% or more of any class of equity securities of the issuer, nor were such payments referred to above were direct or indirect payments to others, except as indicated Net offering proceeds were: $10,348,000 From the effective date of the Securities Act registration to the end of the reporting period the amount of net offering proceeds used for any purpose for which at least 5% of the issuer's total offering proceeds, whichever is less, has been used were: Retirement of Convertible Debentures, together with accrued interest thereon $1,583,000 Loan pursuant to Distribution Agreement $1,000,000 Payment under Sakhalin Agreement $ 500,000 Working Capital and General Business Purposes $ 808,000 Such payments referred to above were not direct or indirect payments to officers, directors, general partners of the issuer or their associates, affiliates of the issuer or any person owning 10% or more of any class of equity securities of the issuer, nor were such payments referred to above were direct or indirect payments to others, except as indicated If the use of proceeds disclosed represents a material change in the use of proceeds described in the prospectus, describe the material change: As of the end of the reporting period $500,000 had been used in connection with payments due under the Sakhalin Agreement. (See Note F to the Company's financial statements included in this report.) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Documents ----------- --------- 10.1 Stock Purchase Agreement dated as of October 24, 1997 among the Company, SGTI, William Stephen Cairns and John Byrne Horgan, directors of SGTI. 27 Financial Data Schedule (b) Reports on Form 8-K A Report on Form 8-K was filed with the Securities and Exchange Commission on September 18, 1997, noticing proposed financing plans for the Sakhalin Project and international hotel management opportunity. 25 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSERVER CORPORATION OF AMERICA Dated: November 14, 1997 By: /s/ Charles H. Stein ------------------------------ Charles H. Stein Chairman, Chief Executive Officer and President By: /s/ Miles R. Greenberg ------------------------------ Miles R. Greenberg Chief Financial Officer EX-27 2 FDS --
5 0001026671 Conserver Corporation of America 1 U.S. Dollars 3-MOS JUN-30-1997 JUL-1-1997 SEP-30-1997 1.000 7,402,482 0 0 0 0 7,703,455 57,794 3,658 8,257,591 741,523 0 0 0 6,794 7,509,274 8,257,591 5,470 5,470 0 0 1,442,969 0 73,278 (1,407,255) 0 0 0 0 0 (1,407,255) (.21) (.21)
EX-10.1 3 STOCK PURCHASE AGREEMENT Exhibit 10.1 STOCK PURCHASE AGREEMENT CONSERVER CORPORATION OF AMERICA and SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED and WILLIAM STEPHEN CAIRNS and JOHN BYRNE HORGAN Dated as of 24 October 1997 McFadden, Pilkington & Ward City Tower - Level 4 40 Basinghall Street London EC2V 5DE TABLE OF CONTENTS Part Page - ---- ---- Preamble............................................. 1 ARTICLE 1 - SALE AND PURCHASE OF SHARES.............. 2 1.1 SGTI Shares to be Acquired..................... 2 1.2 Conveyance of the SGTI Shares.................. 3 1.3 Resignations................................... 3 1.4 Default by SGTI................................ 3 ARTICLE 2 - CASH ADVANCES; PURCHASE PRICE............ 3 2.1 Cash Advances.................................. 3 2.2 Purchase Price................................. 4 2.3 Conveyance of the CCA Shares................... 4 ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF SGTI AND THE DIRECTORS........................ 4 3.1 Organization, Power, Standing and Qualification 5 3.2 Corporate Power and Authority.................. 5 3.3 Validity of Contemplated Transactions.......... 5 3.4 Capitalization of SGTI......................... 6 3.5 Ownership of SGTI Shares....................... 6 3.6 SGTI's Subsidiary and Principal Business....... 7 3.7 The Subsidiary - SCC........................... 7 3.8 Financial Statements........................... 8 3.9 Title to Properties............................ 9 3.10 Absence of Undisclosed Liabilities............. 9 3.11 Certain Tax Matters............................ 10 3.12 Litigation; Compliance with Laws............... 10 3.13 Contracts...................................... 11 3.14 Other Transactions............................. 12 3.15 Bank Accounts.................................. 13 3.16 Compensation Arrangements...................... 13 3.17 Copies of Memorandum and Articles.............. 13 3.18 Condition of Tangible Assets................... 14 3.19 Directors and Officers......................... 14 3.20 Accounts Receivable............................ 14 3.21 No Changes..................................... 14 3.22 Number of Purchasers of CCA Shares............. 15 3.23 Veracity of Statements......................... 16 ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF CCA.... 17 4.1 Organization and Good Standing................. 17 4.2 Corporate Power and Authority.................. 17 4.3 Conflict With Authority, Bylaws, etc........... 18 4.4 CCA Shares..................................... 18 ARTICLE 5 - ACTIVITIES PRIOR TO THE CLOSING DATE BY SGTI..................................... 18 5.1 Operation of Business.......................... 18 5.2 Access to Information.......................... 20 Part Page - ---- ---- ARTICLE 6 - CONDITIONS PRECEDENT TO THE CLOSING...... 21 6.1 Obligation of CCA to Close..................... 21 6.1.1 Shareholder Approval.................... 21 6.1.2 Action of SGTI Directors................ 21 6.1.3 Representations and Warranties; Compliance with Agreement............... 22 6.1.4 Assignment of Sovereign Agreements...... 22 6.1.5 Opinion of Cyprus Counsel............... 22 6.1.6 Opinion of Russian Counsel.............. 22 6.1.7 Litigation Affecting Closing............ 23 6.1.8 Required Consents....................... 23 6.1.9 No Material Damage to Business.......... 23 6.1.10 Approval of Counsel; Corporate Matters.. 24 6.1.11 Other Documents......................... 24 6.2 Obligation of the Shareholders to Close........ 24 6.2.1 Representations and Warranties.......... 24 6.2.2 Litigation Affecting Closing............ 25 ARTICLE 7 - THE CLOSING.............................. 25 7.1 Time and Place................................. 25 7.2 Conduct of Closing............................. 25 ARTICLE 8 - CONDUCT OF THE PARTIES AFTER CLOSING..... 26 ARTICLE 9 - SURVIVAL OF REPRESENTATIONS, WARRANTIES, GUARANTEES, AND COVENANTS................ 27 9.1 Date Certain For Survival...................... 27 ARTICLE 10 - INDEMNIFICATION......................... 27 10.1 By the Directors............................... 27 10.2 By CCA......................................... 28 10.3 Limitation of Indemnity........................ 28 10.4 Notice; Proceedings............................ 29 10.5 Money Damages.................................. 31 ARTICLE 11 - BROKERAGE; EXPENSES..................... 31 11.1 Brokerage...................................... 31 11.2 Expenses....................................... 32 ARTICLE 12 - TAXES................................... 32 ARTICLE 13 - ARBITRATION............................. 32 13.1 ICC Rules...................................... 32 13.2 Arbitrators.................................... 33 Part Page - ---- ---- ARTICLE 14 - TERMINATION............................. 33 14.1 Events of Termination.......................... 33 14.2 Consequences of Termination.................... 34 ARTICLE 15 - GENERAL................................. 34 15.1 Entire Agreement; Amendments................... 34 15.2 Headings....................................... 35 15.3 Gender; Number................................. 35 15.4 Exhibits and Schedules......................... 35 15.5 Notices........................................ 35 15.6 Waiver......................................... 37 15.7 Assignment..................................... 37 15.8 Successors and Assigns......................... 37 15.9 Governing Law.................................. 37 15.10 No Benefit to Others........................... 38 15.11 Publicity...................................... 38 15.12 Counterparts................................... 38 SCHEDULES - --------- 1.2 Registered Shareholders of SGTI 2.3 Allocation to the Subcribers of Shares in CCA 3.7.2 Shareholders of SCC 3.9 SGTI Properties 3.15 Bank Accounts 3.17 SGTI and SCC Company Documents 3.19 SCC Directors and Officers 3.23 Documents Provided to CCA 13.1 Arbitration Agreement EXHIBITS - -------- 1.2A Share Transfer Form 1.2B Share Transfer Form 2.3 Subscription Agreement 6.1.2 Minutes of the Board of Directors of SGTI STOCK PURCHASE AGREEMENT Stock Purchase Agreement (the "Agreement") dated as of 24th October 1997 among (i) CONSERVER CORPORATION OF AMERICA, a corporation organized under the laws of the State of Delaware having its principal place of business at Suite 405, 3250 Mary Street, Coconut Grove, Florida 33133, U.S.A. ("CCA"), (ii) SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED, a limited liability company organized under the laws of Cyprus whose legal office is at Doma Building, 227 Archbishop Markarios III Avenue, Limassol, Cyprus ("SGTI"), (iii) WILLIAM STEPHEN CAIRNS, a British subject having his principal residence at Key West, Doyle Road, St. Peter Port, Guernsey, Channel Islands GY1 1RG ("Mr. Cairns") and a Director of SGTI, and (iv) JOHN BYRNE HORGAN, an Australian citizen having his principal residence at Vasse Highway, Pemberton, Western Australia 6260 and a Director of SGTI ("Mr. Horgan"; Messrs. Cairns and Horgan being together called the "Directors"). PREAMBLE WHEREAS, CCA, SGTI and Sovereign Gaming and Leisure Limited, a Cypriot limited liability company ("Sovereign"), entered into an agreement dated 12th August 1997, which was amended in writing on 9th September 1997, by the terms of which (i) SGTI agreed, subject to certain terms and conditions, to transfer the whole of its share capital to CCA and (ii) SGTI and Sovereign agreed, subject to certain terms and conditions, to transfer to CCA all of their rights and interest in the hotel, casino, retail, commercial and residential project that is to be established in Yuzhno-Sakhalinsk, Russia, by Sakhalin City Centre, Limited ("SCC", which is described in Section 3.6 below) in collaboration with the Sakhalin Oblast and the City of Yuzhno-Sakhalinsk (the "Sakhalin Project"); WHEREAS, the said terms and conditions either have been satisfied or will be satisfied simultaneously with the performance of this Agreement; and WHEREAS, CCA, SGTI and the Directors have therefore agreed to complete the sale and transfer by the shareholders of SGTI of all of the share capital of SGTI to CCA and wish to set forth the terms and conditions of that agreement in writing; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants, representations, warranties, and agreements herein contained, and intending to be legally bound, CCA, SGTI and the Directors hereby agree as follows: ARTICLE 1 SALE AND PURCHASE OF SHARES 1.1 SGTI Shares to be Acquired Subject to the terms and conditions contained herein, SGTI and the Directors agree that all of the shareholders of SGTI shall, on the Closing Date (as defined in Section 7.1), sell, assign, transfer and deliver to CCA, free and clear of all pledges, liens, security interests, encumbrances or other restrictions, and CCA shall purchase from the shareholders of SGTI, all of the outstanding share capital of SGTI (the "SGTI Shares") for an aggregate purchase price as set forth in Article 2 hereof. It is understood and agreed that CCA's obligation to purchase any of the SGTI Shares is conditioned upon all of the SGTI Shares being tendered to it, and CCA shall have no obligation to purchase any of the SGTI Shares or otherwise to comply with its obligations hereunder if fewer than all of the SGTI Shares are tendered to it on the Closing Date, provided, however, that CCA shall have the right to acquire fewer than all of the SGTI Shares if it so elects. 1.2 Conveyance of the SGTI Shares SGTI and the Directors agree to arrange for the registered shareholders of SGTI, as named on Schedule 1.2 attached hereto (the "Shareholders"), to deliver to CCA on the Closing Date the stock certificates evidencing the SGTI Shares, together with stock transfer forms in substantially the form of Exhibits 1.2A and 1.2B attached hereto ("Share Transfer Forms"), duly executed by each Shareholder in favour of CCA, in order to effect a transfer of such Shareholder's SGTI Shares to CCA. 1.3 Resignations The Directors shall resign as directors of SGTI effective as of the Closing Date, and SGTI will make their written resignations available to CCA at the Closing. SGTI shall cause the nominees of CCA to be elected as directors of SGTI by the resigning directors, effective as of the Closing Date, in accordance with the Memorandum and Articles of SGTI. 1.4 Default by SGTI SGTI and the Directors acknowledge that the SGTI Shares are unique and otherwise not available and agree that, in addition to any other remedies, CCA may invoke any equitable remedies to enforce performance hereunder, including an action or suit for specific performance. ARTICLE 2 CASH ADVANCES; PURCHASE PRICE 2.1 Cash Advances CCA agrees to make cash advances to SGTI as follows: 2.1.1 Five Hundred Thousand U.S. Dollars ($500,000), which amount SGTI acknowledges was paid to it on 15th August 1997; 2.1.2 Two Million Five Hundred Thousand U.S. Dollars ($2,500,000), to be paid in accordance with SGTI's instructions on or about 31st October 1997 or as soon as practicable thereafter. 2.2 Purchase Price The total purchase price to be paid by CCA for the SGTI Shares (the "Purchase Price") shall be a total of two million (2,000,000) shares of CCA common stock, par value $.001 per share (such two million shares being referred to herein as the "CCA Shares"), which shall be subject to a lock-up period of one year from the Closing Date, in accordance with the provisions of the Subscription Agreements referred to in Section 2.3. 2.3 Conveyance of the CCA Shares SGTI instructs CCA to issue the share certificates representing the CCA Shares in the names of the persons and entities named on Schedule 2.3 ("Subscribers"), each Subscriber to receive the number of CCA Shares indicated opposite his, her or its name on Schedule 2.3, and to deliver the CCA Shares to the Subscribers (or to their designated representatives on their behalf) on the Closing Date. SGTI and the Directors agree to arrange for each of the Subscribers to execute and deliver to CCA on the Closing Date a Subscription Agreement in substantially the form of Exhibit 2.3 attached hereto ("Subscription Agreement"). 2 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SGTI AND THE DIRECTORS SGTI and each of the Directors, jointly, severally and (in the case of the Directors) personally, represent and warrant and, where applicable, covenant as follows: 3.1 Organization, Power, Standing and Qualification SGTI is a company limited by shares duly organized, validly existing, and in good standing under the laws of the Republic of Cyprus and has full corporate power and authority to carry on its business as it is now being conducted and to own and operate, as applicable, the properties and assets now owned and operated by it. The only jurisdictions in which SGTI carries on business or owns property or assets are the Republic of Cyprus and the Russian Federation, and SGTI is duly qualified to do business and is in good standing in each of these jurisdictions to the extent required by applicable law and/or to the extent that the failure to qualify or to be in good standing would have a material adverse effect upon its financial condition, the conduct of its business or the ownership of its property and assets. 3.2 Corporate Power and Authority SGTI has the corporate power and authority to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of SGTI, and this Agreement is a valid and binding obligation of SGTI, enforceable against SGTI in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally. 3.3 Validity of Contemplated Transactions The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not as at the Closing Date contravene any provision of the Memorandum and Articles of Association of SGTI; or violate, be in conflict with, or constitute a default under, cause the acceleration of any payments pursuant to, or otherwise impair the good standing, validity, or effectiveness of any agreement, contract, indenture, lease, or mortgage, or subject any property or asset of SGTI to any indenture, mortgage, contract, commitment or agreement, other than this Agreement, to which SGTI is a party or by which SGTI or any of its assets is bound; or violate any provision of law, rule, regulation, order, permit, or license to which SGTI is subject. 3.4 Capitalization of SGTI The authorized share capital of SGTI is Two Hundred Seventy-Nine Thousand Six Hundred Fifty-Five Cypriot Pounds (C(pound) 279,655) consisting of Two Hundred Seventy-Nine Thousand Six Hundred Fifty-Five (279,655) authorized ordinary shares, par value One Cypriot Pound (C(pound)1.00) each, of which Two Hundred Twenty-Nine Thousand Six Hundred Fifty-Five (229,655) ordinary shares are presently outstanding, validly issued, fully paid and non-assessable. SGTI has no other classes of shares besides its ordinary shares. There are no outstanding options, warrants, conversion privileges, subscription, calls, commitments or rights of any character relating to the SGTI Shares or any authorized but unissued capital shares of SGTI. 3.5 Ownership of SGTI Shares The persons and entities named on Schedule 1.2 are all of the registered shareholders of SGTI and the number of shares indicated opposite the name of each Shareholder on Schedule 1.2 is the exact number of ordinary shares of SGTI held by such Shareholder. The Shareholders collectively hold all legal ownership of and title to the SGTI Shares, in the respective amounts set forth in Schedule 1.2, free and clear of any liens, security interests, restrictions or encumbrances of any kind whatsoever. The Subscribers are, or they represent, the beneficial owners of the share capital of SGTI in proportion to the numbers of CCA Shares specified opposite their names on Schedule 2.3. 3 3.6 SGTI's Subsidiary and Principal Business SGTI is the registered and beneficial owner of Six Thousand Five Hundred (6500) ordinary shares, nominal value One Thousand Russian Rubles (RUR 1,000) each, in the charter capital of Closed Joint Stock Company "Sakhalin City Centre, Limited" ("SCC" or the "Subsidiary"), a company established under the laws of the Russian Federation having its registered office at 32 Kommunistichesky Prospect, Office 452, 693000 Yuzhno-Sakhalinsk, in the Sakhalin Oblast of the Russian Federation. SGTI's shareholding constitutes sixty-five per cent (65%) of the total charter capital of SCC. The principal and only business of SGTI is to act as a holding company for the registered and beneficial ownership of such shares in SCC. SCC is the only company wholly or partially owned by SGTI. As such, the "ordinary course of business" of SGTI, as used in this Agreement, consists of, and only of, the management and supervision of the financing and operations of SCC and fulfilling the administrative requirements of a Cyprus limited liability company. 3.7 The Subsidiary - SCC 3.7.1 SCC is a closed joint stock company having limited liability that is duly organized, validly existing and in good standing under the laws of the Russian Federation, which has all requisite corporate power and authority to conduct its business as it has been and is now being conducted, and to own, lease and operate the properties and assets used in connection therewith, and which is duly qualified to do business in and is in good standing in each jurisdiction wherein the conduct of its business or the ownership or leasing of its properties and assets requires such qualification. 3.7.2 The chartered capital of SCC is Ten Million Russian Rubles (RUR 10,000,000) divided into ten thousand (10,000) ordinary shares, nominal value One Thousand Russian Rubles (RUR 1,000) each. The shareholders of SCC are listed on Schedule 3.7.2. The shares in SCC owned by SGTI are owned of record and beneficially by SGTI, free and clear of all pledges, liens, claims and encumbrances of every kind, including, without limitation, any agreements, subscriptions, options, warrants, calls, commitments or rights of any character granting to any person, firm, corporation or other entity any interest in or right to acquire from SGTI, at any time, or upon the happening of any event, any of its shares of the issued and outstanding capital stock of the Subsidiary. 3.7.3 All of the shares in SCC owned by SGTI have been duly authorized and are validly issued, fully paid and non-assessable. 3.7.4 There are no existing agreements, subscriptions, options, warrants, calls, commitments or rights of any character to purchase or otherwise acquire from the Subsidiary at any time, or upon the happening of any event, any shares of the capital stock of the Subsidiary, whether or not presently issued or outstanding; no outstanding securities of the Subsidiary which are convertible into shares of such Subsidiary; and no agreements, subscriptions, options, warrants, calls, commitments or rights to purchase or otherwise acquire from the Subsidiary any such securities so convertible. 3.8 Financial Statements SGTI has delivered to CCA the audited financial statements for the entire existence of SGTI since its incorporation on 28th September 1994 through 30th September 1997, consisting of a consolidated balance sheet of SGTI as at 31st March 1995, 31st March 1996, 31st March 1997 and 30th September 1997 (30th September 1997 being defined as the "Financial Statement Date"), together with a consolidated income statement and statement of changes in financial condition of SGTI for each of the periods then ended (such balance sheets, income statements and statements of change in financial condition being referred to herein collectively as the "Financial Statements"). Each of such Financial Statements has been reported on and certified by P.G. Economides & Co, independent Certified Public Accountants (Cyprus). The Financial Statements are in accordance with the applicable books and records of SGTI and have been prepared in accordance with the Company Law, Cap. 113, of Cyprus and in conformity with generally accepted accounting principles, consistently applied during the relevant period, and present fairly the financial condition of SGTI and the results of their operations for the respective periods ended on such dates. 4 3.9 Title to Properties All of SGTI's and the Subsidiary's material properties and assets, real, personal and mixed, including all of the properties and assets reflected on the balance sheet which is part of the Financial Statements and those acquired since the Financial Statement Date, are listed on Schedule 3.9 hereto, and except as set forth in Schedule 3.9, SGTI has good, valid and marketable title to all such properties and assets, free and clear of all mortgages, liens, pledges, security interests and other encumbrances. 3.10 Absence of Undisclosed Liabilities Neither SGTI nor the Subsidiary has any liabilities or obligations except for (i) those reflected or reserved against (which reserves the Directors represent are adequate) in the Financial Statements and (ii) those which are specifically disclosed in this Agreement. Neither SGTI nor the Directors know or have any reasonable grounds to know of any basis for the assertion against SGTI or the Subsidiary as of the Financial Statement Date of any liability of any nature or in any amount that is not fully reflected or reserved against in SGTI's balance sheet as of such date or as disclosed by this Agreement. For the purposes of this Agreement, the term "liabilities or obligations" shall include any direct or indirect indebtedness, claim, loss, damage, deficiency (including deferred income tax and other net tax deficiencies), cost, expense, obligation, guarantee, or responsibility, whether accrued, absolute, or contingent, known or unknown, fixed or unfixed, liquidated or unliquidated, secured or unsecured. 3.11 Certain Tax Matters SGTI and the Subsidiary have each duly filed all tax returns and reports required to be filed by it and all taxes, including income, gross receipt, value added and other taxes and any penalties with respect thereto, due and payable, have been paid, withheld, or reserved for or, to the extent that they relate to periods on or prior to the Financial Statement Date, are reflected as a liability on the Financial Statements. SGTI and the Subsidiary have caused to be delivered to CCA correct and complete copies of such income tax returns for the periods covered by the Financial Statements. Neither SGTI nor the Subsidiary has entered into any agreements for the extension of time for the assessment of any tax or tax delinquency, has received any outstanding or unresolved notices from any taxing body of any proposed examination or of any proposed deficiency or assessment, and each of them has properly withheld all amounts required by law to be withheld for income or other taxes and relating to its employees and remitted such withheld amounts to the appropriate taxing authority. 3.12 Litigation; Compliance with Laws There is (a) no suit, action, claim, arbitration, administrative or legal or other proceeding, or governmental investigation pending or, to SGTI's or the Directors' knowledge, threatened against or related to SGTI or the Subsidiary, nor (b) any failure to comply with, nor any default under, any law, ordinance, requirement, regulation, or order applicable to SGTI or the Subsidiary, nor (c) any violation of or default with respect to any order, writ, injunction, judgment, or decree of any court or governmental department, official, commission, authority, board, bureau, agency, or other instrumentality issued or pending against SGTI or the Subsidiary, any of which might have a material, adverse effect on the financial condition, business, results of operations, properties, or assets of SGTI or the Subsidiary (as the case may be) or CCA's purchase or ownership of the SGTI Shares. SGTI and the Subsidiary have obtained all permits, licenses, and other required authorization for the complete operation of its business as presently operated. All such permits, licenses, and authorizations are presently valid and in full force and no renovation, cancellation, or withdrawal thereof has been effected or, to SGTI's or the Directors' individual knowledge, threatened. The execution of this Agreement and the performance of the transactions contemplated hereby will not change in any respect, or result in the termination of, any such permits, licenses, certificates, or authorizations. There have been no illegal payments, kickbacks, bribes or political contributions made by, on behalf of, or for the benefit of, SGTI or the Subsidiary. 3.13 Contracts Except for the contracts, agreements, commitments, leases, and other indentures listed in Schedule 3.13, copies of which have been made available to CCA, neither SGTI nor the Subsidiary is a party to: 3.13.1 any written or oral contract, agreement, lease or commitment of any kind (including, without limitation, mortgages, contracts for the future purchase and delivery of goods or rendition of services, or government contracts), which provides for the payment from or to it of One Thousand U.S. Dollars ($1,000) or more after the date hereof and such contracts, agreements and commitments do not, in the aggregate, provide for a payment from or to it of Three Thousand U.S. Dollars ($3,000) or more after the date hereof; 5 3.13.2 any written or oral (i) contract, agreement or commitment for the employment of any officer or individual employee, (ii) profit sharing, bonus, commission, stock option, pension, vacation pay, employee's insurance, retirement plan or agreement, or other welfare plans or agreements, (iii) agreement or indenture relating to the borrowing of money or to the mortgaging, pledging or otherwise placing of a lien on its assets, (iv) lease or agreement under which it is lessee of or holds or operates any material property, real or personal, owned by any other party, or (v) lease or agreement under which it is lessor of, or permits any third party to hold or operate, any material property, real or personal, owned by it. SGTI and the Subsidiary have each in all material respects performed all the material obligations required to be performed by it to date, and is not in material default under any such material contract, agreement, commitment, lease, or indenture, nor has an event occurred which with the passage of time or giving of notice or both will result in the occurrence of a material default by SGTI or the Subsidiary (as the case may be) under any of the aforesaid documents. 3.14 Other Transactions Each of SGTI and the Subsidiary has not, since the Financial Statement Date, (a) operated its business except in the ordinary course, (b) incurred any debts, liabilities or obligations, (c) discharged or satisfied any material liens or encumbrances, or paid any material liens or encumbrances, or paid any material debts, liabilities or obligations, (d) mortgaged, pledged or subjected to lien or other encumbrance any of its assets, tangible or intangible, (e) sold or transferred any of its tangible assets or cancelled any material debts or claims, or (f) suffered any material extraordinary losses or waived any rights of substantial value. 3.15 Bank Accounts Schedule 3.15 hereto lists the names and addresses of every bank and other financial institution in which SGTI or the Subsidiary maintains an account (whether checking, savings or otherwise), lock box or safe deposit box, and the account numbers and names of persons having signing authority or other access thereto. 3.16 Compensation Arrangements Except as reflected in the Financial Statements, the aggregate annual compensation paid or to be paid to all of the directors, officers or employees of SGTI or the Subsidiary, the value of any accrued sick leave or vacation and any bonus or similar arrangement with any of them does not exceed US$50,000. 3.17. Copies of Memorandum and Articles The copies of SGTI's Memorandum and Articles of Association and of SCC's Charter (certified by an appropriate official in the respective jurisdictions of incorporation) and internal constituent documents, such as by-laws (certified by the Secretaries of the respective entities), which have been delivered to CCA, are correct and are in effect as at the date of this Agreement and will be in effect on the Closing Date. There are no other material books and records of SGTI or the Subsidiary. All such books and records of SGTI and the Subsidiary, including those set forth in Schedule 3.17, have been regularly and properly kept and are complete, accurate and legally sufficient under applicable law. 6 3.18 Condition of Tangible Assets All material tangible portions of the property, including the real property and structures thereon, of SGTI and the Subsidiary are in good operating condition and the operation and use of such property in SGTI's and the Subsidiary's respective businesses conform in all material respects to all applicable laws, ordinances, regulations, permits, licenses and certificates that are material to the business and operations of SGTI or the Subsidiary, as the case may be. 3.19 Directors and Officers Mr. Cairns and Mr. Horgan are both directors of SGTI, each has been duly elected as such, and they are the only directors of SGTI. Schedule 3.19 is a true and complete list as of the date of this Agreement showing the names of each of the Subsidiary's directors and officers, each of whom has been duly elected or appointed in accordance with applicable law. 3.20 Accounts Receivable Neither SGTI nor the Subsidiary has any accounts receivable. 3.21 No Changes Since the Financial Statement Date, other than in the ordinary course of business, there has not been: 3.21.1 any change in the financial or other condition, assets, liabilities or business of SGTI or the Subsidiary; 3.21.2 any damage, destruction or loss (whether or not covered by insurance) or any condemnation by governmental authorities which has or may materially adversely affect the business, prospects or any property of SGTI or the Subsidiary; 3.21.3 any strike, lockout, labor trouble or any event or condition of any similar character materially adversely affecting the business or prospects of SGTI or the Subsidiary; 3.21.4 any declaration, setting aside or payment of any dividend or other distribution in respect of any of SGTI's or the Subsidiary's shares of stock, or any direct or indirect redemption, purchase or other acquisition of any such shares; or 3.21.5 any increase in the compensation payable or to become payable by SGTI or the Subsidiary to any of its or their officers, employees or agents, or any known payment or arrangement made to or with any thereof. 3.22 Number of Purchasers of CCA Shares There are no more than thirty-five (35) "purchasers" of the CCA Shares under this Agreement. For purposes of calculating the number of purchasers (including the Subscribers and perhaps certain other persons and entities), the following shall apply: 7 3.22.1 The following purchasers shall be excluded: (i) any relative, spouse or relative of the spouse of a purchaser who has the same principal residence as the purchaser; (ii) any trust or estate in which a purchaser or any of the persons related to him or her as specified in clause (i) or (iii) of this Section 3.22.1 collectively have more than fifty per cent (50%) of the beneficial interest (excluding contingent interests); (iii) any corporation or other organization of which a purchaser or any of the persons related to him or her as specified in clause (i) or (ii) of this Section 3.22.1 collectively are beneficial owners of more than fifty per cent (50%) of the CCA Shares; and (iv) any "accredited investor" (as defined in the Subscription Agreement). 3.22.2 A corporation, partnership or other entity shall be counted as one purchaser. If, however, that entity is organized for the specific purpose of acquiring CCA Shares and it is not an "accredited investor" (as defined in the Subscription Agreement), then each beneficial owner of CCA Shares shall count as a separate purchaser, except as provided in Section 3.22.1. 3.23 Veracity of Statements No representation or warranty by SGTI or the Directors contained in this Agreement and no statement contained in any certificate, schedule, instrument or other document furnished to CCA pursuant hereto or in connection with the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading with respect to SGTI, the Subsidiary and their affairs. Schedule 3.23 is a list of all such certificates, schedules, instruments and documents provided to CCA to date, and this warranty is limited to the representations and statements made in this Agreement, in the documents to be delivered to CCA in accordance with Articles 6 and 7 hereof and in the certificates, schedules, instruments and documents described on Schedule 3.23, provided that, if any additional certificates, schedules, instruments or documents are provided to CCA after the date of this Agreement, any party hereto may add such certificates, schedules, instruments and documents to the coverage of this warranty by written notice to the other parties. The Directors are not aware of any other information with respect to SGTI, the Subsidiary and their affairs that a reasonable investor would consider important in making a decision to acquire the SGTI Shares. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF CCA CCA hereby represents and warrants to SGTI, the Directors and the Shareholders as follows: 4.1 Organization and Good Standing CCA is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, United States of America, and it has full corporate power and authority to carry on its business as it is now being conducted and to own and operate, as applicable, the properties and assets now owned and operated by it. CCA is duly qualified to do business and is in good standing in each and every jurisdiction where the failure to qualify or to be in good standing would have a material adverse effect upon its financial condition, the conduct of its business or the ownership of its property and assets. 8 4.2 Corporate Power and Authority CCA has full corporate power and authority to enter into this Agreement and to perform all of CCA's covenants and undertakings herein set forth, including without limitation the full corporate power and authority to purchase and take title to the SGTI Shares upon the terms and conditions set forth herein; the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of CCA; and this Agreement is a valid and binding obligation of CCA, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally. 4.3 Conflict With Authority, Bylaws, etc . Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby in the manner herein provided will (i) contravene any provision of the Certificate of Incorporation or Bylaws of CCA; (ii) violate, be in conflict with, constitute a default under, cause the acceleration of any payments pursuant to, or otherwise impair the good standing, validity, and effectiveness of any lease, license, permit, authorization, or approval applicable to CCA; or (iii) violate any provision of law, rule, regulation, order, or permit to which CCA is subject. 4.4 CCA Shares All of the CCA Shares shall be, on the Closing Date, validly issued, fully paid and non-assessable. ARTICLE 5 ACTIVITIES PRIOR TO THE CLOSING DATE BY SGTI 5.1 Operation of Business SGTI hereby agrees that from and after the date hereof to the Closing Date, except as otherwise contemplated by this Agreement, SGTI shall, and it shall cause the Subsidiary to, conduct its business solely in the ordinary course and SGTI and the Subsidiary shall: 5.1.1 not amend SGTI's Memorandum and Articles of Association or the Subsidiary's Charter or other constituent documents except as may be necessary to carry out this Agreement or as required by law; 5.1.2 not change its corporate name or permit the use thereof by any other company; 5.1.3 not pay or agree to pay to any employee, officer, or director of SGTI or the Subsidiary, without the consent of CCA, compensation that is in excess of the current compensation level of such employee, officer, or director; 5.1.4 not make any changes in the management of SGTI or the Subsidiary without the consent of CCA; 5.1.5 not merge or consolidate itself or the Subsidiary with any other company or allow it to acquire or agree to acquire or be acquired by any corporation, association, partnership, joint venture, or other entity; 5.1.6 not sell, transfer, or otherwise dispose of any of its or the Subsidiary's assets without the prior written consent of CCA; 9 5.1.7 not, nor allow the Subsidiary to, create, incur, assume, or guarantee any indebtedness for money borrowed; create or suffer to exist any mortgage, lien, or other encumbrance on any of its properties or assets, real or personal, except those in existence on the date hereof; or increase the amount of any indebtedness outstanding under any loan agreement, mortgage, or other borrowing arrangement in existence on the date hereof; provided that SGTI may make a loan advance to SCC in an amount not exceeding Two Million Five Hundred Thousand U.S. Dollars ($2,500,000) during the period from the date of this Agreement up to the Closing Date on terms acceptable to CCA; 5.1.8 pay when due, and in any event within thirty (30) days from the date of invoice (unless other payment terms are expressly set forth thereon), all accounts payable and trade obligations of SGTI and the Subsidiary; 5.1.9 maintain the facilities, assets, and properties of SGTI and the Subsidiary in good operating repair, order, and condition, reasonable wear and tear excepted, and notify CCA immediately upon any loss of, damage to, or destruction of any of the assets of SGTI or the Subsidiary; 5.1.10 maintain in full force and effect all agreements, contracts, leases, licenses, permits, authorizations, and approvals necessary for or related to the operation of the business of SGTI and the Subsidiary in all respects and in all places as such business is now conducted; 5.1.11 use their best efforts to preserve SGTI's and the Subsidiary's business organization intact, to keep available the services of its present employees and to preserve the good will of those having business relations with it; 5.1.12 promptly advise CCA in writing of the commencement of, and of any known threat to commence any, suit, claim, action, arbitration, legal or administrative proceeding, governmental investigation, or tax audit against SGTI or the Subsidiary; and 5.1.13 deliver to CCA as soon as available any monthly financial statements ("Monthly Financial Statements") of SGTI and the Subsidiary commencing with the month of October 1997 and for each calendar month thereafter prior to the Closing Date. 5.2 Access to Information SGTI and the Directors will cooperate fully with CCA and shall provide CCA and its accountants, legal advisers, and other representatives, during normal business hours, full access to the books, records, equipment, real estate, contracts, and other assets of SGTI and the Subsidiary, and full opportunity to discuss SGTI's and the Subsidiary's business, affairs, and assets with its officers, employees, and independent accountants, and furnish to CCA and its representatives copies of such documents, records, and information with respect to the affairs of SGTI and the Subsidiary as CCA or its representatives may reasonably request. In addition to the foregoing right of access and information, CCA may designate on-site observers of the business and operations of SGTI and the Subsidiary, which observers shall be permitted such access to SGTI's and the Subsidiary's business and operations as CCA may reasonably request and shall be fully informed by SGTI and the Subsidiary concerning all of their assets, operation, and business affairs. 10 ARTICLE 6 CONDITIONS PRECEDENT TO THE CLOSING 6.1 Obligation of CCA to Close The obligation of CCA to consummate the purchase of the SGTI Shares on the Closing Date shall be subject to the satisfaction or the waiver by CCA of the following conditions on or prior to the Closing Date: 6.1.1 Shareholder Approval The shareholders of CCA shall have approved the consummation of the transactions contemplated by this Agreement. 6.1.2 Action of SGTI Directors The Directors shall have approved a resolution substantially in the form of Exhibit 6.1.2, approving the necessary actions for the transfer of the SGTI Shares to CCA, and delivered a certified copy of such resolution to CCA on the Closing Date. 6.1.3 Representations and Warranties; Compliance with Agreement The representations and warranties of SGTI and the Directors set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and they shall have performed all covenants and agreements to be performed by them under this Agreement on or prior to the Closing Date, and SGTI shall have delivered to CCA certificates to such effect dated the Closing Date signed on behalf of SGTI by its Directors and by the Directors in their individual capacity, which certificates shall be in form and substance satisfactory to CCA's counsel. The representations and warranties of the Shareholders in the Share Transfer Forms and of the Subscribers in the Subscription Agreements shall be true and correct as of the Closing Date. 6.1.4 Assignment of Sovereign Agreements Sovereign shall have executed and delivered to CCA assignments to CCA of all of Sovereign's right, title and interest in and to (a) the Project Management Agreement dated 18th December 1994 between SCC and Sovereign relating to the establishment of the Sakhalin Project and (b) the Operational Management Agreement dated 18th December 1994 between SCC and Sovereign relating to the operation and management of the Sakhalin Project. 6.1.5 Opinion of Cyprus Counsel Messrs. Andreas Neocleous & Co, special Cypriot counsel for CCA, shall have delivered to CCA their favorable opinion, dated the Closing Date, as to matters related to SGTI and Cyprus law, as required by CCA counsel. 6.1.6 Opinion of Russian Counsel Mr. Igor I. Golub, special Russian counsel for CCA, shall have delivered to CCA his favorable opinion, dated the Closing Date, as to matters related to SGTI, SCC and Russian law, as required by CCA counsel. 6.1.7 Litigation Affecting Closing On the Closing Date, no proceeding shall be pending or threatened before any court or governmental agency in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transactions contemplated hereby, and no investigation that might result in any such suit, action or proceeding shall be pending or threatened. 11 6.1.8 Required Consents The holders of any indebtedness of SGTI or the Subsidiary, the lessors of any real or personal property or assets leased by SGTI or the Subsidiary, the parties (other than SGTI or the Subsidiary) to any other contract, commitment or agreement to which SGTI or the Subsidiary is a party, any governmental agency or body or any other person, firm or company which owns or has authority to grant any franchise, license, permit, easement, right or other authorization necessary for the business or operations of SGTI or the Subsidiary, and any governmental body or regulatory agency having jurisdiction over CCA, SGTI or the Subsidiary, to the extent that their consent or approval is required under the pertinent debt, lease, contract, commitment or agreement or other document or instrument or under applicable laws, rules or regulations for the consummation of the transaction contemplated hereby in the manner herein provided, shall have granted such consent or approval. 6.1.9 No Material Damage to Business The assets, properties and business of SGTI and the Subsidiary shall not have been and shall not be threatened to be materially adversely affected in any way as a result of fire, explosion, earthquake, disaster, accident, labor dispute, any action by any governmental authority, flood, drought, embargo, riot, civil disturbance, uprising, activity of armed forces or act of God or public enemy. 6.1.10 Approval of Counsel; Corporate Matters All actions, proceedings, resolutions, instruments and documents required to carry out this Agreement or incidental hereto and all other related legal matters shall have been approved on the Closing Date by Messrs. McFadden, Pilkington & Ward, counsel for CCA, in the exercise of their reasonable judgment, and CCA or its counsel shall have been furnished with certified copies, satisfactory in form and substance to CCA's counsel in the exercise of their reasonable judgment, of all such corporate records of SGTI and of the proceedings of SGTI authorizing its execution, delivery and performance of this Agreement as CCA or its counsel shall reasonably require. 6.1.11 Other Documents CCA shall have been provided with such other documents as it shall have reasonably requested from SGTI. 6.2 Obligation of the Shareholders to Close The obligation of the Shareholders (or the Directors on their behalf) to consummate the sale of the SGTI Shares on the Closing Date shall be subject to the satisfaction of the following conditions on or prior to the Closing Date: 6.2.1 Representations and Warranties The representations and warranties of CCA set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, and CCA shall have delivered to SGTI a certificate to such effect, dated the Closing Date and signed by its Chairman and President or one of its directors or vice presidents, which certificate shall be in form and substance satisfactory to SGTI's counsel. 6.2.2 Litigation Affecting Closing On the Closing Date, no proceeding shall be pending or threatened before any court or governmental agency in which it is sought to restrain or prohibit or to obtain damages or other relief in connection with this Agreement or the consummation of the transaction contemplated hereby, and no investigation that might eventuate in any such suit, action or proceeding shall be pending or threatened. 12 ARTICLE 7 THE CLOSING 7.1 Time and Place The closing of the transactions contemplated hereby shall be held at 10.00 A.M. on the fifth business day following the approval of the shareholders of CCA in satisfaction of Section 6.1.1, or at such other time and on such other date as the parties hereto may mutually agree to in writing (the "Closing Date"). The closing shall be held at the offices of McFadden, Pilkington & Ward at City Tower, 40 Basinghall Street, London EC2V 5DE, England. 7.2 Conduct of Closing 7.2.1 Subject to the fulfillment of all of the conditions set forth in Sections 6.1 and 7.2.2 and the delivery of all certificates and opinions required thereby, except such conditions as may be waived by the parties, on the Closing Date CCA shall deliver share certificates to each of the Subscribers (or the authorized representative of a Subscriber) representing that number of shares of the common stock of CCA to which each Subscriber is entitled, in accordance with Schedule 2.3. 7.2.2 Subject to the fulfillment of all of the conditions set forth in Sections 6.2 and 7.2.1 and the delivery of all certificates and opinions required thereby, except such conditions, certificates, and opinions as may be waived by the parties, (a) the Shareholders shall deliver to CCA the stock certificates described in Section 1.3 and their respective Share Transfer Forms, and all other good and sufficient instruments of transfer and conveyance as may be necessary in CCA's counsel's opinion to vest in CCA good, absolute, and marketable title to the SGTI Shares, and (b) the Subscribers shall deliver to CCA their respective Subscription Agreements. ARTICLE 8 CONDUCT OF THE PARTIES AFTER CLOSING CCA, SGTI and the Directors will cooperate upon and after the Closing Date in effecting the orderly transfer of the operations of SGTI to CCA. Without limiting the generality of the foregoing, at the request of any party and at the requesting party's expense, but without additional consideration, each party shall, and the Directors agree to ensure that the Shareholders and the Subscribers shall, (a) execute and deliver from time to time such further instruments of assignment, conveyance and transfer, (b) cooperate in the conduct of litigation and the processing and collection of insurance claims, and (c) take such other actions as may reasonably be required to convey and deliver more effectively to CCA the SGTI Shares or to confirm and perfect any Shareholder's present title to the SGTI Shares, and otherwise to accomplish the orderly transfer to CCA of the SGTI Shares and the business assets and operations of SGTI as contemplated by this Agreement. ARTICLE 9 SURVIVAL OF REPRESENTATIONS, WARRANTIES, GUARANTEES, AND COVENANTS 9.1 Date Certain For Survival Except for any representations or warranties made by a party to this Agreement which were not true when made and which were made by such party fraudulently or with intent to defraud or mislead, which representations and warranties shall survive without limitation as to time, all representations and warranties made by SGTI, the Directors and CCA in this Agreement, by the Shareholders in the Share Transfer Forms, or by the Subscribers in the Subscription Agreements, or pursuant hereto or thereto, shall survive the closing hereunder for a period ending one year following the Closing Date, notwithstanding any investigation made by or on behalf of CCA, SGTI, the Directors, the Shareholders or the Subscribers prior to or after the Closing Date. 13 ARTICLE 10 INDEMNIFICATION 10.1 By the Directors From and after the Closing Date, the Directors shall indemnify and hold harmless CCA (a) from and against any and all damages, losses, obligations, deficiencies, liabilities, claims, encumbrances, penalties, costs, and expenses, including reasonable legal fees and expenses, which CCA may suffer or incur, resulting from, related to, or arising out of any misrepresentation, breach of warranty, or nonfulfillment of any of the respective covenants of SGTI or the Directors in this Agreement, or of the Shareholders in the Stock Transfer Forms or the Subscribers in the Subscription Agreements, or any misrepresentation in or omission from any Schedule to this Agreement, certificate, financial statement, or any other document furnished or to be furnished to CCA hereunder, and (b) from any and all actions, suits, investigations, proceedings, demands, assessments, audits, judgments, and claims (including employment-related claims) arising out of any of the foregoing or out of facts that have occurred on or prior to the Closing Date even though such proceeding or claim may not be filed or come to light until after the Closing Date; provided, however, that before CCA may assert a claim for indemnity under this Section, CCA must give or cause to be given written notice of such claim to the Directors as provided in Section 10.4. 10.2 By CCA From and after the Closing Date, CCA agrees to indemnify and hold harmless SGTI, the Directors and the Subscribers (a) from and against any and all damages, losses, obligations, deficiencies, liabilities, claims, encumbrances, penalties, costs, and expenses, including reasonable legal fees, which the Subscribers may suffer or incur, resulting from, related to, or arising out of any misrepresentation, breach of warranty, or nonfulfillment of any of the covenants or agreements of CCA in this Agreement or any misrepresentation in or omission from any certificate or document furnished or to be furnished to the Shareholders hereunder and (b) from any and all suits, actions, investigations, proceedings, demands, assessments, audits, judgments, and claims arising out of any of the foregoing; provided, however, that before a Subscriber may assert a claim for indemnity under this Section, said Subscriber must give or cause to be given written notice of such claim to CCA as provided in Section 10.4. 10.3 Limitation of Indemnity Notwithstanding any provisions herein to the contrary: 10.3.1 except for any representations or warranties made by a party to this Agreement which were not true when made and which were made by such party fraudulently or with intent to defend or mislead, which representations and warranties shall survive without limitation as to time, neither party shall be liable to the other party for any claim based on a misrepresentation, breach of warranty or nonfulfillment of any covenant or agreement herein for which it has not received written notice prior to one year from the Closing Date; 10.3.2 the liability of any party computed otherwise in accordance with this Section 10 shall be limited to the after-tax consequence to the indemnified party (or the affiliated group of which such indemnified party is a member) of any such damage, loss, liability, deficiency cost or expense suffered or incurred by such indemnified party; and 10.3.3 The liability of any party for misrepresentation, breach of warranty, or non-fulfillment any covenant or agreement in this Agreement or for indemnity under this Section 10 shall not exceed, in the case of CCA, the value of the SGTI Shares, and in the case of the Directors, the lesser of (a) $13,000,000 (being the equivalent of $6.50 per share for all of the CCA Shares) or (b) the mid-market value of the CCA Shares on the date when liability under this Article is finally determined or admitted. 10.4 Notice; Proceedings 10.4.1 Promptly after acquiring knowledge of any damage, loss, deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit, investigation, proceeding, demand, assessment, audit, judgment, or claim against which the Directors or Subscribers are giving an indemnity to CCA or against which CCA is giving an indemnity to the Subscribers, the Directors, Subscribers or CCA, as the case may be, shall give to the other party written notice thereof. 14 10.4.2 Each indemnifying party shall, at its own expense, promptly defend, contest or otherwise protect against any damage, loss, deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit, investigation, proceeding, demand, assessment, audit, judgment, or claim against which it has indemnified an indemnified party, and each indemnified party shall receive from the other party all necessary and reasonable cooperation in said defense including, but not limited to, the services of employees of the other party who are familiar with the events out of which any such damage, loss, deficiency, liability, claim, encumbrance, penalty, cost, expense, action, suit, investigation, proceeding, demand, assessment, audit, judgment, or claim may have arisen. 10.4.3 The indemnifying party shall have the right to control the defense of any such proceeding unless it is relieved of its liability hereunder with respect to such defense by the indemnified party. The indemnifying party shall have the right, at its option, and, unless so relieved, to compromise or defend, at its own expense by its own legal counsel, any such matter involving the asserted liability of the indemnified party. In the event that the indemnifying party shall undertake to compromise or defend any such asserted liability, it shall promptly notify the indemnified party of its intention to do so. 10.4.4 In the event that an indemnifying party, after written notice from an indemnified party, fails to take timely action to defend the same, the indemnified party shall have the right to defend the same by legal counsel of its own choosing, but at the cost and expense of the indemnifying party. 10.5 Money Damages If the damages, losses, obligations, deficiencies, liabilities, claims, encumbrances, penalties, costs, and expenses indemnified against pursuant to the provisions of Sections 10.1 and 10.2 hereof can be compensated by the payment of money to the other party, the indemnifying party shall, within twenty-one (21) days after receipt of a written notice of a claim pursuant to Section 10.4, deliver to the other Party either: (i) the amount of such claim by check or by wire transfer to the bank account of that party's choosing, or (ii) a written notice stating that it objects to the validity of such claim and setting forth in reasonable detail the grounds on which it is contesting the validity of the claim. ARTICLE 11 BROKERAGE; EXPENSES 11.1 Brokerage None of the parties, nor, where applicable, any of their respective shareholders, officers, directors, or employees, has employed or will employ any broker, agent, finder, or consultant (a "Financial Agent") or has incurred or will incur any liability for any brokerage fees, commissions, finders' fees, or other fees, in connection with the negotiation or consummation of the transactions contemplated by this Agreement, except as herein set forth. 11.1.1 Neither SGTI, nor either Director nor any Shareholder has engaged any Financial Agent. 11.1.2 CCA may engage a Financial Agent in connection with the cash advances, as set forth in Section 2.1, for whose fees CCA will be solely responsible, and CCA hereby indemnifies and holds SGTI and the Directors harmless against and in respect of any claim for brokerage fees, commissions, or other finders' fees or commissions of such Financial Agent and any additional such claims incurred by CCA relative to this Agreement and the transactions contemplated hereby. 11.2 Expenses Except as otherwise expressly provided in this Agreement, the parties agree to bear their respective expenses individually, each in respect of all expenses of any character incurred by it in connection with this Agreement or the transactions contemplated hereby. 15 ARTICLE 12 TAXES 12.1 The Shareholders shall pay any applicable sales, documentary, use, filing, transfer, and other taxes payable as a result of the transfer of the SGTI Shares. CCA shall pay any applicable sales, documentary, use, filing, transfer, and other taxes payable as a result of the transfer of the CCA Shares. Subject to the foregoing undertaking, all other taxes on or measured by the net income or revenues of CCA, SGTI, the Shareholders, or the Subscribers (including without limitation, income, gross receipts, value added and net worth taxes) imposed or levied by or payable to any taxing authority shall be paid or payable by the party upon whom such taxes are imposed or levied. ARTICLE 13 ARBITRATION 13.1 ICC Rules All disputes arising in connection with this Agreement shall be finally settled under the Rules on Conciliation and Arbitration of the International Chamber of Commerce. The place of arbitration shall be London, England. The arbitration shall be conducted in the English language. Certain additional provisions relating to any arbitration are set forth in Schedule 13.1 hereto. 13.2 Arbitrators The Arbitral Tribunal shall consist of three arbitrators. One arbitrator shall be nominated by CCA. One arbitrator shall be nominated jointly by the Directors. The two party-nominated arbitrators shall appoint the third arbitrator, who shall act as chairman of the Arbitral Tribunal. If a party fails to appoint an arbitrator, the appointment shall be made in accordance with the ICC Rules referred to in Section 13.1. ARTICLE 14 TERMINATION 14.1 Events of Termination Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated by written notice of termination at any time before the Closing Date only as follows: 14.1.1 by mutual consent of SGTI, the Directors and CCA; 14.1.2 provided that CCA is not in material default hereunder, by the Board of Directors of CCA, upon fourteen (14) days' written notice to the SGTI given at any time after the Closing Date (or such later date as shall have been specified in a writing authorized on behalf of the Shareholders and CCA) if all of the conditions precedent set forth in Section 6.2 hereof have not been met within such fourteen-day period; or 14.1.3 provided that SGTI, the Directors and the Shareholders are not in material default hereunder, by SGTI, upon fourteen (14) days' written notice to CCA given at any time after the Closing Date (or such later date as shall have been specified in a writing authorized on behalf of SGTI and CCA) if all of the conditions precedent set forth in Section 6.1 hereof have not been met within such fourteen-day period. 14.2 Consequences of Termination In the event of the termination and abandonment hereof pursuant to the provisions of this Section 14: 14.2.1 CCA shall have the right to convert any cash sums advanced to SGTI in accordance with Section 2.1 of this Agreement into shares in SGTI at the conversion rate of one (1) ordinary share of SGTI for each Thirty U.S. Dollars (US$30) so advanced, and SGTI agrees to take all necessary steps to accomplish such conversion and the issuance of shares in SGTI to CCA therefor; and 14.2.2 except as provided in Section 14.2.1, this Agreement shall become void and have no effect, without any liability on the part of any of the parties or their directors or officers or stockholders in respect of this Agreement. 16 ARTICLE 15 GENERAL 15.1 Entire Agreement; Amendments This Agreement constitutes the entire understanding among the parties with respect to the subject matter contained herein and supersedes any prior understandings and agreements among them respecting such subject matter, other than the Agreement dated 12th August 1997 and the amendment thereto dated 9th September 1997, which shall remain in full force and effect, in particular clauses 1(a), 2, 3 and 4(a) thereof, except for clause 1(b) which is replaced by provisions of this Agreement. This Agreement may be amended, supplemented, and terminated only by a written instrument duly executed by all of the parties. 15.2 Headings The headings in this Agreement are for convenience of reference only and shall not affect its interpretation. 15.3 Gender; Number Words of gender may be read as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. 15.4 Exhibits and Schedules Each Exhibit and Schedule referred to herein is incorporated into this Agreement by such reference. 15.5 Notices All notices and other communications hereunder shall be in writing and shall be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by courier services, charges prepaid, or by fax, to such party's address (or to such party's fax). If the notice is sent by mail or courier services, it shall be deemed to have been given to the person entitled thereto three days after deposit in a recognized postal service or courier service for delivery to that person or in the case of fax, when received. 17 If to CCA, to: Conserver Corporation of America 3250 Mary Street - Suite 405 Coconut Grove, Florida 33133 U.S.A. Attention: Mr. Charles H. Stein Fax No.: 1-305-444-7550 With a copy to: McFadden, Pilkington & Ward City Tower - Level 4 40 Basinghall Street London EC2V 5DE England Attention: Gregory K. Pilkington, Esq. Fax No.: 44-171-638-8799 If to SGTI, to: Sakhalin General Trading & Investments Ltd. c/o Weighbridge Trust Limited P. O. Box 182 Belmont Court Kings Road St. Peter Port, Guernsey, Channel Islands GY1 4HL Attention: W. S. Cairns, Esq. Fax No.: 44-1481-712634 If to Mr. Cairns, to him c/o SGTI at the address set forth above. If to Mr. Horgan, to: John B. Horgan, Esq. Vasse Highway P. O. Box 261 Pemberton Western Australia 6260 Fax No.: 61-897-761 504 18 If to a Shareholder, to the address set forth in Schedule 1.2, with a copy to SGTI at the address set forth above. If to a Subscriber, to the address set forth in Schedule 2.3, with a copy to SGTI at the address set forth above. Notice of any change in any such address shall also be given in the manner set forth above. Whenever the giving of notice is required, the giving of such notice may be waived by the party entitled to receive such notice. 15.6 Waiver The failure of any party to insist upon strict performance of any of the terms or conditions of this Agreement will not constitute a waiver of any of its rights hereunder. 15.7 Assignment No party may assign any of its rights or delegate any of its obligations hereunder without the prior written consent of the other parties hereto, provided, however, that CCA shall have the right to assign its rights hereunder to any entity which it controls, is controlled by, or is under common control with. 15.8 Successors and Assigns This Agreement binds, inures to the benefit of, and is enforceable by the successors and permitted assigns of the parties, and does not confer any rights on any other persons or entities. 15.9 Governing Law This Agreement shall be construed and enforced in accordance with the law of the State of New York. 15.10 No Benefit to Others The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto and the Shareholders and their successors and assigns, and they shall not be construed as conferring and are not intended to confer any rights on any other persons. 15.11 Publicity Prior to the Closing Date, all notices to third parties and all other publicity relating to the transactions contemplated by this Agreement shall be planned, coordinated and agreed to by CCA. Prior to the Closing Date, none of the parties hereto shall act unilaterally in this regard without the prior approval of CCA; provided, however, that such approval shall not be unreasonably withheld. 15.12 Counterparts This Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. The execution of this Agreement by any party hereto will not become effective until counterparts hereof have been executed by all the parties hereto. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement personally or by their duly authorized representatives on the date first above written. CONSERVER CORPORATION OF AMERICA By: /s/ Charles H. Stein -------------------------- Title: Chairman ----------------------- SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED By: /s/ -------------------------- Title: Chairman ----------------------- WILLIAM STEPHEN CAIRNS /s/ William Stephen Cairns -------------------------- JOHN BYRNE HORGAN /s/ John Byrne Horgan -------------------------- 19 SCHEDULE 1.2 Registered Shareholders of SAKHALIN GENERAL TRADING & INVESTMENTS LIMITED
NAME AND CONTACT NO. OF DETAILS DETAILS SHARES % - --------------------------------------------------------------------------------------------------------------- ALDERSGATE NOMINEE LTD 15,000 7% - ---------------------- P O Box 3175 Mr David Solomon Road Town, Tortola E.B.C. Trust Corporation British Virgin Islands "Le Montaigne", No. 6 Boulevard des Moulins MC 98000 Monaco Tel: (377) 92 16 59 99 Fax: (377) 93 25 55 60 BEECHWIRTH PTY LTD 6,325 3% - ------------------ 152 St George's Terrace P O Box 204 Perth Subiaco Western Australia Western Australia 6160 Tel: 61-89 430 7554 Fax: 61-89 430 7559 GILPIN PARK PTY LTD 10,000 4% - ------------------- 34th Floor 51 Saunders St Central Park Mosman Park 152 St George's Terrace Western Australia 6012 Perth Tel: 61-89 334 3310 Western Australia Fax: 61-89 362 1845 HOLBROOK PROPERTIES LTD 45,500 20% - ----------------------- P O Box 3175 Mr David Solomon Road Town E.B.C. Trust Corporation Tortola "Le Montaigne", No. 6 British Virgin Islands Boulevard des Moulins MC 98000 Monaco Tel: (377) 92 16 59 99 Fax: (377) 93 25 55 60 TOXFORD CORPORATION 5,000 2% - ------------------- Hong Kong Bank Building Daniel M. Fleming Esq. Sixth Floor Rathbone Trust Company SA Samuel Lewis Avenue Place de Saint-Gervais 1 Panama City Case Postale 2049 Panama 1211 Geneve 1 Switzerland Tel: 41-22 909 8900 Fax: 41-22 909 8939 WEIGHBRIDGE TRUST LTD 147,829 64% - --------------------- P O Box 182 W.S. Cairns Channel House Director Forest Lane Tel: 44-1481-720 581 St Peter Port Fax: 44-1481-712 634 Guernsey Channel Islands GY1 2NF WEIGHBRIDGE TRUST ADMINISTRATION LTD 1 - - ------------------------------------ (As Weighbridge Trust Ltd.) TOTAL SHARES IN ISSUE 229,655 100% ======= ===
SCHEDULE 2.3 Allocation to the Subscribers of Shares in CONSERVER CORPORATION OF AMERICA
NAME AND DETAILS CONTACT DETAILS NO. OF SHARES - ---------------- --------------- ------------- ALDERSGATE NOMINEES LTD. 69,231 P O Box 3175 Mr David Solomon Road Town, Tortola E.B.C. Trust Corporation British Virgin Islands "Le Montaigne", No. 6 Boulevard des Moulins MC 98000 Monaco Tel: (377) 92 16 59 99 Fax: (377) 93 25 55 60 BEECHWIRTH PTY LTD. 29,192 - ------------------- 152 St George's Terrace P O Box 204 Perth Subiaco Western Australia Western Australia 6160 Tel: 61-89 430 7554 Fax: 61-89 430 7559 CLOISTER FINANCE LTD. 307,692 P O Box 3175 Mr David Solomon Road Town, Tortola E.B.C. Trust Corporation British Virgin Islands "Le Montaigne", No. 6 Boulevard des Moulins MC 98000 Monaco Tel: (377) 92 16 59 99 Fax: (377) 93 25 55 60 CLUBS LTD. 50,000 - ---------- 3rd Floor, R. Redmayne 1-4 Goldie Terrace Director Douglas Tel/Fax: 44-1624-611 355 Isle of Man CRAYFORD ASSOCIATES LTD. 153,846 2nd Floor, Mr Doran 42 Upper Baggot Street Falcon Management Dublin 4 Isle of Man Ireland Tel: 44-1624-611 929 Fax: 44-1624-612 343 DIAMONDS HOLDINGS LTD. 50,000 - ---------------------- 3rd Floor, R. Redmayne 1-4 Goldie Terrace Director Douglas Tel/Fax: 44-1624-611 355 Isle of Man
E.B.C. TRUST CORPORATION 478,516 "Le Montaigne", No. 6 Mr. David Solomon Boulevard des Moulins Tel: (377) 92 16 59 99 MC 98000 Monaco Fax: (377) 93 25 55 60 GILPIN PARK PTY LTD 46,154 34th Floor 51 Saunders Street Central Park Mosman Park 152 St George's Terrace Western Australia 6012 Perth Tel: 61-89 334 3310 Western Australia Fax: 61-89 362 1845 HEARTS LTD. 50,000 - ----------- 3rd Floor, R. Redmayne 1-4 Goldie Terrace Director Douglas Tel/Fax: 44-1624-611 355 Isle of Man HOLBROOK PROPERTIES LTD 210,000 P O Box 3175 Mr David Solomon Road Town E.B.C. Trust Corporation Tortola "Le Montaigne", No. 6 British Virgin Islands Boulevard des Moulins MC 98000 Monaco Tel: (377) 92 16 59 99 Fax: (377) 93 25 55 60 SPADES LTD. 50,000 - ----------- 3rd Floor, R. Redmayne 1-4 Goldie Terrace Director Douglas Tel/Fax: 44-1624-611 355 Isle of Man TOXFORD CORPORATION 23,077 - ------------------- Hong Kong Bank Building Daniel M. Fleming Esq. Sixth Floor Rathbone Trust Company SA Samuel Lewis Avenue Place de Saint-Gervais 1 Panama City Case Postale 2049 Panama 1211 Geneve 1 Switzerland Tel: 41-22 909 8900 Fax: 41-22 909 8939 WEIGHBRIDGE TRUST LTD. 482,292 - ---------------------- P O Box 182 W.S. Cairns Channel House Director Forest Lane Tel: 44-1481-720 581 St Peter Port Fax: 44-1481-712 634 Guernsey Channel Islands GY1 2NF TOTAL 2,000,000 =========
SCHEDULE 3.7.2 SHAREHOLDERS of SAKHALIN CITY CENTRE, LIMITED Administration of the City of Yuzhno-Sakhalinsk, Sakhalin Oblast, Russian Federation 2,000 shares - 20% Administration of the Sakhalin Oblast, Russian Federation 1,500 shares - 15% Sakhalin General Trading and Investments Limited 6,500 shares - 65% SCHEDULE 3.9 SGTI PROPERTIES 1. 6,500 shares, nominal value RUR 1,000 per share, in the charter capital of Sakhalin City Centre, Limited ("SCC"). 2. Receivables from SCC for loans made in the aggregate principal amount of US$511,000 as of the Financial Statement Date. SCHEDULE 3.15 BANK ACCOUNTS SGTI 1. Hambros Bank (Guernsey) Limited Guernsey, Channel Islands Account no. 3274760027 SCC 2. INKOMBANK Yuzhno-Sakhalinsk Branch Yuzhno-Sakhalinsk, Russia Account No. 7467715 Currency Account: 460070613/001 Correspondent Account: 700161000 MFO: 046401700 Transferring funds: Beneficiary: Sakhalin City Centre Ltd Yuzhno-Sakhalinsk, Russia Account: 460070613/20089006/001 Bank: Inkombank, Moscow, Branch Sakhalinsky SWIFT BIC: INCORUMM VIA ACCOUNT / 890-0056-096 The Bank of New York New York CHIPS UID 315784 3. MOSCOW NARODNY BANK LTD London, UK US Dollar Account: 10684021 Of: Sakhsotsbank Yuzhno-Sakhalinsk, Russia Beneficiary: Sakhalin City Centre Ltd Account no. 11070864 in Sakhsotsbank SCHEDULE 3.17 SGTI AND SCC DOCUMENTS Sakhalin General Trading and Investments Limited ("SGTI") - --------------------------------------------------------- Memorandum and Articles of Association Sakhalin City Centre, Limited ("SCC") - ------------------------------------- Charter dated 25 January 1996 Joint Venture Agreement for the Construction of a Tourist and entertainment Centre on Sakhalin dated 7 October 1994 between the Administration of the City of Yuzhno-Sakhalinsk ("City") and SCC Agreementon mutual obligations for creating and managing a tourism and entertainment complex on Sakhalin dated 15 December 1994 between the City and SCC Project Management Agreement dated 18 December 1994 between SCC and Sovereign Gaming and Leisure Limited ("Sovereign") Operation Management Agreement dated 18 December 1994 between SCC and Sovereign Agreement dated 13 February 1996 between Municipal enterprise "Gorstroizakaztchik" and SCC Agreementfor Lease relating to a site in Yuzhno-Sakhalinsk, Russian Federation, dated 3 June 1996 between the City and SCC Lease No. 326 of a site in Yuzhno-Sakhalinsk, Russian Federation dated 3 June 1996 between the City and SCC SGTI and SCC Agreementabout closer definition and conclusion of the additional agreements for realization of the project, construction and operation of the tourist entertainment centre in Yuzhno-Sakhalinsk dated 20 July 1995 between the Administration of the Sakhalin Oblast ("Oblast"), the City, SCC, Sovereign and SGTI Various loan agreements relating to advances made by SGTI to SCC SCHEDULE 3.19 SCC DIRECTORS AND OFFICERS Directors: William Stephen Cairns (UK) Dallas Reginald Dempster (UK) John Byrne Horgan (Australia) Richard Cameron Maclellan (Monaco) Michael Boyd Marshall (UK) Scott Sherwood Spencer (Australia) Valery Pavlovich Mozolevsky (Russia) Igor Pavlovich Farkhutdinov (Russia) Vladimir Petrovich Yagubov (Russia) Raisa Alexeyevna Yarovikova (Russia) Victor Ivanovich Peretyagin (Russia) Officers: General Director Mr. Dallas Dempster Executive Directors Mr. Dallas Dempster Mr. V. P. Mozolevsky Chief Accountant Ms. Okhsana Romantsova SCHEDULE 3.23 DOCUMENTS PROVIDED TO CCA ALL DOCUMENTS LISTED IN SCHEDULE 3.17 SCC DOCUMENTS - - Agreement Between CCA, SGTI and Sovereign dated 12 August 1997 - - Amendment to Agreement of 12 August 1997 dated 1 September 1997 - - Foundation Agreement of SCC dated 9 March 1994 - - Certification of Registration of SCC dated 2 March 1994 - - Minutes of SCC: - Founders Meeting #2 dated 20 September 1994 - Founders Meeting #3 dated 20 September 1994 - Shareholders Meeting #2 dated 25 January 1996 - Board of Directors Meeting #1 dated 26 January 1996 - Shareholders Meeting #3 dated 26 January 1996 - - Shareholders' Appointment of Representatives to the SCC Shareholders Meeting of 25 January 1996 - - City of Yuzhno-Sakhalinsk Resolution of the Mayor dated 16 August 1995, no. 1130 - - Appendix to Agreement on Land Rent Settlement for SCC as Tenant dated 17 August 1995, no. 159 - - SCC Memorandum dated 5 June 1996, with Government Resolutions on Licensing Activity dated 24 December 1994, no. 1418 - - SGTI Submission to the Sakhalin Oblast for Exemption from Gaming Tax, no date - - City of Yuzhno-Sakhalinsk Letter to SCC Concerning Guarantee of Grant of Long-Term Gaming License dated 19 March 1997, no. 05-188 - - City of Yuzhno-Sakhalinsk Letter to SCC Concerning Guarantee of Grant of Long-Term Gaming License dated 12 March 1996, no. 208 - - SCC letter to Governor of Sakhalin Oblast dated 31 May 1996 - - Letter of Mayor of Yuzhno-Sakhalinsk to SCC Approving SCC Tourist Terminal at Airport and Supporting Short-Term Visa Proposal, (June) 1996 - - SCC fax dated 25 September 1997, with Resolutions of the City of Yuzhno-Sakhalinsk - - Audit Report of Vostok-Audit Concerning SCC dated 25 March 1996 - - SCC Memorandum Concerning Financial Report dated 1 June 1996 - - Financial Statement of SCC as of 1 July 1995 - - Auditors Report of "Audit-INFO" as of 1 January 1995 - - Stock Sale and Purchase Agreements dated 23 February 1996: - Between SGTI and Sassey Pty. Ltd. - Between SGTI and Sovereign - Between SGTI and Trout Nominees Pty. Ltd. - Between SGTI and Limited Liability Company "Trade House Potential Sakhalina" - - Curriculum Vitae of V. P. Mozolevsky delivered to CCA 4 September 1997 - - SCC Memorandum dated 11 November 1996, with letter of Governor of Sakhalin Oblast dated 10 November 1996, no. 2804 - - Registration Documents of SCC by Sakhalin Oblast dated 21 March 1994, nos. 199 and 85-SP - - Decree of the Mayor of the City of Yuzhno-Sakhalinsk dated 25 March 1996, no. 401 - - SCC fax dated 24 April 1996, with texts of documents from the City of Yuzhno-Sakhalinsk and the Sakhalin Oblast - - Letter from the Sakhalin Oblast to SCC dated 4 June 1996, no. 01-449 - - Letter from the Governor of the Sakhalin Oblast to SCC dated 30 August 1996, no. 1-2204 - - Letter from the Mayor of the City of Yuzhno-Sakhalinsk to SCC dated 10 November 1996, no. 1-2804 - - Stock Sale and Purchase Agreement Between Limited Liability Company "Sakhin, Ltd." and SGTI dated 24 November 1996 - - Stock Sale and Purchase Agreement Between V. P. Mozolevsky and SGTI dated 10 October 1996 - - SCC Memorandum dated 3 October 1997, with Resolutions of the City of Yuzhno-Sakhalinsk Duma dated 25 September 1997, nos. 98/7 and 99/7 - - Extract from the SCC Register of Shareholders Confirming SGTI as Owner of 6500 Common Shares dated 4 September 1997 SGTI DOCUMENTS - -------------- - - Bank Confirmations of Hambros Bank (Guernsey) Limited - - Certificate from the Companies Registrar of Cyprus dated 8 August 1996 - - Certificate from the Companies Registrar of Cyprus dated 13 August 1996 - - SGTI Letter Concerning Shareholdings dated 3 June 1997, and Enclosures - - Central Bank of Cyprus Letter dated 27 June 1997 - - Various Documents of Sassey Pty. Ltd. - - Various Documents of Sovereign - - Various Documents of Trout Nominees Pty. Ltd. - - Various Documents of Weighbridge Trust Limited - - SGTI Financial Statements as at 31 March 1997 - - SGTI Financial Statements as at 31 May 1996 - - Prospectus Concerning SCC Project, 1997 SCHEDULE 13.1 ARBITRATION AGREEMENT Dated as of 24th October 1997 This Arbitration Agreement relates to the agreements, contracts and other documents related to the acquisition by Conserver Corporation of America ("CCA") of all of the share capital of Sakhalin General Trading & Investments Limited ("SGTI"), and in particular to the following agreements: o Agreement dated 12th August 1997 among CCA, SGTI and Sovereign Gaming and Leisure Limited ("Sovereign") and the amendment thereto dated 9th September 1997. o Stock Purchase Agreement dated as of 24th October 1997 ("Stock Purchase Agreement") among CCA, SGTI, William Stephen Cairns ("Mr. Cairns") and John Byrne Horgan ("Mr. Horgan"). o Share Transfer Forms to be executed and delivered to CCA by the Shareholders of SGTI, in accordance with the Stock Purchase Agreement. o Subscription Agreements to be executed and delivered to CCA by the Subscribers to CCA Shares, in accordance with the Stock Purchase Agreement. o Assignments to be executed and delived by Sovereign to CCA in accordance with the Stock Purchase Agreement of (a) the Project Management Agreement dated 18th December 1994 between Sakhalin City Centre, Limited ("SCC") and Sovereign relating to the establishment of the Sakhalin Project and (b) the Operational Management Agreement dated 18th December 1994 between SCC and Sovereign relating to the operation and management of the Sakhalin Project. All of the agreements and documents named above are herein collectively called the "Agreements". THE PARTIES AGREE AS FOLLOWS: 1. Any and all disputes, controversies or claims arising out of, involving or relating to: (a) one or more of the Agreements and any amendments, modifications or supplements thereto, or the existence, validity, performance, breach or termination thereof. (b) the existence, validity, performance, breach or termination of any other contract or document between two or more of the parties related to the Agreements, and/or (c) any other legal, regulatory, contractual or other matters related to the Agreements, shall be referred to, settled and finally resolved exclusively by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (the "ICC Rules"). 2. In application of the ICC Rules: (a) the place of arbitration shall be London, England. (b) There shall be three (3) arbitrators who must be fluent in the English language. (i) One arbitrator will be appointed by CCA. (ii) One arbitrator will be appointed by Messrs. Cairns and Horgan (both of whom are on the date of this Arbitration Agreement directors of SGTI), acting on behalf of SGTI, the Shareholders of SGTI who executed Share Transfer Forms, the Subscribers to CCA Shares, and themselves personally. (iii) The third arbitrator will be appointed by the first two arbitrators. If the two party-appointed arbitrators fail to appoint the third presiding arbitrator, he will be appointed in accordance with the ICC Rules. (c) The language to be used in the arbitral proceedings shall be English. All documents in another language shall be translated into English. (d) The parties to any arbitration under this Agreement shall each bear their own expenses in connection with such arbitration. 3. All disputes, controversies and claims described in clause 1 above arising among all or some of the parties hereto will be included and settled in a single comprehensive arbitration. In this regard: (a) Any party hereto shall have the right to pursue any type of claim described in clause 1 above against any other party hereto regardless of whether or not they are parties to the same contract. (b) Any party hereto shall have the right to intervene in any arbitration proceeding between two or more other parties hereto under this Arbitration Agreement, regardless of whether or not they are parties to the same contract, without having to obtain the consent of the other parties hereto and regardless of whether the claims of the intervening party against any or all of the parties to the pending arbitration proceeding arise out of the claims or matters in issue in the said pending arbitration proceeding. (c) Any party hereto who is a defendant in an arbitration under this Arbitration Agreement shall have the right to involve one or more of the other parties hereto in arbitration, and such other party(ies) shall be obliged to participate in the arbitration. (d) Any party commencing an arbitration against any other party hereunder shall notify all of the other parties hereto of the commencement of such arbitration. (e) Any party joining, intervening or brought into an arbitration proceeding under this Arbitration Agreement after the arbitration shall have commenced shall be required to accept the arbitrators who shall have been already appointed, and such joining, intervening or brought-in party shall be bound by all procedural and substantive decisions and awards already made by the arbitrators in such proceeding, provided they were notified of the existence of such arbitration proceeding (and thus were given an adequate opportunity to become parties to the arbitration) and of all such procedural and substantive decisions and awards. (f) Any party hereto shall have the right to obtain the recognition of and compliance with any partial or final award of the arbitral tribunal by all the other parties hereto, whether or not they were parties to the arbitration proceeding under this Arbitration Agreement, provided they were notified of the existence of such arbitration proceeding (and thus were given an adequate opportunity to become parties to the arbitration) and of all procedural and substantive decisions and awards made by the arbitrators in such proceeding. 4. All notices and communications in connection with this Arbitration Agreement and any arbitration or other proceeding commenced hereunder shall be in writing and shall be delivered or sent to each of the parties at its address set forth in the agreement or contract to which this Arbitration Agreement is a part (or to such other address as it may indicate to the other parties). All such notices and communications shall be delivered by hand or sent by registered air mail, messenger, courier, facsimile or other reliable means of telecommunication (a confirmation copy of facsimiles or other telecommunications should be sent by mail). All notices shall be effective on receipt of the original transmission (and not receipt of the confirmation copy). 5. This Arbitration Agreement shall be governed by and construed in accordance with the law of the State of New York. This Arbitration Agreement shall be a contract separate and apart from the Agreements to which a reference is made in this Arbitration Agreement. EX-1.2A 4 SHARE TRANSFER FROM Exhibit 1.2A Share Transfer Form I, ___________________ of ____________________ in consideration of _______________ paid to me by Conserver Corporation of America of 3250 Mary Street - Suite 405, Coconut Grove, Florida 33133, U.S.A. (herein called the "said transferee") hereby transfer to the said transferee the share(s) numbered __________ in the undertaking called Sakhalin General Trading and Investments Limited so that the said transferee, his executors, administrators and assigns shall hold the same subject to the same terms as I held the same at the time of the execution of this transfer. Made and signed the ...........day of ..............1997. And I, the said transferee hereby agree to accept the said shares subject to the aforesaid terms. Made and signed the ................. day of .................... 1997. CONSERVER CORPORATION OF AMERICA By ----------------------------- Witness to the Signatures of .......................... EX-1.2B 5 SHARE TRANSFER FORM Exhibit 1.2B SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED SHARE TRANSFER FORM ------------------- Name of Shareholder ______________ 1997 Conserver Corporation of America 3250 Mary Street - Suite 405 Coconut Grove, Florida 33133 U. S. A. Gentlemen: 1. The undersigned shareholder (the "Shareholder") of Sakhalin General Trading and Investments Limited, a limited liability company organized under the laws of Cyprus whose legal office is at Doma Building, 227 Archbishop Markarios III Street, Limassol, Cyprus ("SGTI"), recognising that Conserver Corporation of America, a corporation organized under the laws of the State of Delaware in the United States of America ("CCA"), is and will be relying upon the information, representations and warranties set forth herein, hereby acknowledges, represents and warrants that the Shareholder has received, has carefully read and reviewed, and is familiar with the Stock Purchase Agreement dated 24th October 1997 ("Stock Purchase Agreement") by and among (i) CCA, (ii) SGTI, (iii) William Stephen Cairns, a British subject having his principal residence at Key West, Doyle Road, St. Peter Port, Guernsey, Channel Islands, and (iv) John Byrne Horgan, an Australian citizen having his residence at Vasse Highway, Pemberton, Western Australia 6260 (Mr. Cairns and Mr. Horgan, both of whom are directors of SGTI, are referred to herein as the "Directors"). 2. The Shareholder acknowledges that, pursuant to the Stock Purchase Agreement, the Directors have recommended to the Shareholder that he, she or it transfer all of the ordinary shares in SGTI held by the Shareholder to CCA as part of the consummation of the transactions contemplated by the Stock Purchase Agreement, and the Shareholder hereby transfers to CCA the following ordinary shares, One Cypriot Pound (C, 1.00) per share, in SGTI: Share Certificate No. ___________ Sakhalin General Trading and Investment Limited Share Transfer Form _______________ 1997 Page 2 Representing ______________________________ Shares being all of such shares held by the Shareholder (the "SGTI Shares"), so that CCA and its successors and assigns shall hold the SGTI Shares subject to the same terms as the Shareholder held the SGTI Shares at the time of execution and delivery of the Share Transfer Form. 3. (a) The Shareholder holds full legal ownership of and title to the SGTI Shares, free and clear of any liens, security interests, restrictions or encumbrances of any kind whatsoever. (b) If the Shareholder does not hold full beneficial title to the SGTI Shares, the holder of such beneficial interest has authorized the Shareholder to transfer the SGTI Shares to CCA, to execute this Share Transfer Form and otherwise to take such actions as may be required to consummate the transactions contemplated hereunder and under the Stock Purchase Agreement. (c) No representation or warranty by the Shareholder contained in this Share Transfer Form contains any untrue statement of a material fact or omits to state a material fact necessary to make it not misleading with respect to matters arising under this Share Transfer Form. The Shareholder does not have of his, her or its personal knowledge any information which would cause him, her or it to believe that any representation or warranty given by SGTI or the Directors in the Stock Purchase Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading, or that such representations and warranties contain all the information related to SGTI, the Subsidiary (as defined in the Stock Purchase Agreement) and their affairs that a reasonable investor would consider important in making a decision to acquire the SGTI Shares. 4. The Shareholder hereby agrees to indemnify and hold harmless CCA for any costs or other damages CCA may sustain (including reasonable lawyers' fees and costs) by reason of, or arising out of, any misrepresentation in this Share Transfer Form by the Shareholder, any breach of the representations and warranties contained herein, Sakhalin General Trading and Investment Limited Share Transfer Form _______________ 1997 Page 3 or any other breach of this Share Transfer Form by the Shareholder, provided that the Shareholder shall not be liable to CCA for any claim based upon a misrepresentation, breach of representation or warranty or nonfulfillment of any covenant or agreement contained herein for which it has not received written notice prior to one year from the date of issuance of the CCA Shares. The liability of the Shareholder with respect to the second sentence of clause 3(c) above shall be subject to the overall limitations set forth in Section 10.3 of the Stock Purchase Agreement. 5. (a) This Share Transfer Form shall be construed and enforced in accordance with the law of the State of New York; any dispute arising under this Share Transfer Form shall be resolved by arbitration conducted in accordance with Article 13 of the Stock Purchase Agreement and the Arbitration Agreement contained in Schedule 13.1 attached thereto. The Shareholder expressly authorizes Messrs. Cairns and Horgan jointly to appoint an arbitrator on his, her or its behalf in connection with any arbitration commenced under said Article 13 and Schedule 13.1. (b) This Share Transfer Form and the Stock Purchase Agreement, including any additional documentation provided hereunder, contain the entire agreement between the Shareholder and CCA with respect to the matters provided for herein. (c) This Share Transfer Form and the rights, powers and duties set forth herein shall, except as set forth herein, bind and inure to the benefit of the successors and assigns of CCA. (d) All notices, demands or other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by certified or registered airmail or by air courier, with return receipt requested, if to CCA, to the address set out at the head of this Share Transfer Form, and if to the Shareholder, at the address set forth below, or to such other address as may be designated by notice from either party to the other. Any notice, demand or other communication given or made in the manner prescribed in this paragraph shall be deemed to have been received as of the date on the receipt reflecting delivery. [END OF PAGE] Sakhalin General Trading and Investment Limited Share Transfer Form _______________ 1997 Page 4 IN WITNESS WHEREOF, the Shareholder has executed and delivered this Share Transfer Form personally or by its duly authorized representative this day of , 1997. ___________________________ Signature of Shareholder ___________________________ Full Name of Shareholder Address of Shareholder: ___________________________ ___________________________ ___________________________ ACCEPTED: CONSERVER CORPORATION OF AMERICA By:_____________________________ Title: Date: EX-2.3 6 SUBSCRIPTION AGREEMENT Exhibit 2.3 SUBSCRIPTION AGREEMENT ------------------ Name of Subscriber ______________ 1997 Conserver Corporation of America 3250 Mary Street - Suite 405 Coconut Grove, Florida 33133 U. S. A. Gentlemen: 1. The undersigned (the "Subscriber"), recognising that Conserver Corporation of America, a corporation organized under the laws of the State of Delaware in the United States of America ("CCA"), is and will be relying upon the information, representations and warranties set forth herein and in the Stock Purchase Agreement (as defined below), hereby acknowledges, represents and warrants that the Subscriber has received, has carefully read and reviewed, and is familiar with the Stock Purchase Agreement dated as of 24th October 1997 ("Stock Purchase Agreement") by and among (i) CCA, (ii) Sakhalin General Trading and Investments Limited, a limited liability company organized under the laws of Cyprus whose legal office is at Doma Building, 227 Archbishop Markarios III Street, Limassol, Cyprus ("SGTI"), (iii) William Stephen Cairns, a British subject having his principal residence at Key West, Doyle Road, St. Peter Port, Guernsey, Channel Islands GY1 1RG, and (iv) John Byrne Horgan, an Australian citizen having his residence at Vasse Highway, Pemberton, Western Australia 6260 (Mr. Cairns and Mr. Horgan, both of whom are directors of SGTI, are referred to herein as the "Directors"). 2. Pursuant to the Stock Purchase Agreement, which remains subject to approval of the stockholders of CCA, the Subscriber hereby subscribes to: ___________________________________________________ shares of the common stock of CCA, par value $.001 (the "CCA Shares"), to be delivered to the Subscriber or its authorized representative at the Closing under the Stock Purchase Agreement. The Subscriber hereby acknowledges receipt of the CCA Shares. 3. The Subscriber hereby acknowledges, represents and warrants to, and agrees with, CCA as follows: -2- (a) The Subscriber is acquiring the CCA Shares for his, her or its own account as principal or as a nominee for a principal known to the Subscriber, in either case for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person has a direct or indirect beneficial interest in the CCA Shares. Further, the Subscriber does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the CCA Shares for which the Subscriber is subscribing. (b) The Subscriber has full power and authority to enter into this Agreement, the execution and delivery of this Agreement has been duly authorized, if applicable, and this Agreement constitutes a valid and legally binding obligation of the Subscriber. (c) The Subscriber acknowledges his, her or its understanding that the offering and sale of the Shares is intended to be exempt from registration in the United States under the Securities Act of 1933, as amended (the "Securities Act") by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof, the Subscriber represents and warrants to and agrees with CCA and its affiliates as follows: (i) the Subscriber realizes that the basis for the exemption may not be present if, notwithstanding such representations, the Subscriber has in mind merely acquiring the CCA Shares for a fixed or determinable period in the future, or for a market rise, or for sale if the market does not rise; the Subscriber represents and warrants that he, she or it does not have any such intention; (ii) the Subscriber has the financial ability to bear the economic risk of his, her or its investment, has adequate means for providing for his, her or its current needs and personal contingencies and has no need for liquidity with respect to his, her or its investment in CCA; (iii) if the Subscriber has appointed a Purchaser Representative (which term is used herein with the same meaning as given in Rule 501(h) of Regulation D), the Subscriber has been advised by his, her or its Purchaser Representative as to the merits and risks of an investment in CCA in general and the suitability of an investment in the CCA Shares for the Subscriber in particular; and -3- (iv) the Subscriber (together with his, her or its Purchaser Representative(s), if any) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment in the CCA Shares; if other than an individual, the Subscriber also represents it has not been organized for the purpose of acquiring the CCA Shares. (v) the Subscriber understands that an investment in the CCA Shares is a speculative investment which involves a high degree of risk of loss of his, her or its entire investment. (vi) the Subscriber's overall commitment to investments which are not readily marketable is not disproportionate to the Subscriber's net worth, and an investment in the CCA Shares will not cause such overall commitment to become excessive. (d) The Subscriber is an "accredited investor," as that term is defined in Rule 501 of Regulation D. To qualify as an accredited investor under Regulation D, the Subscriber must satisfy at least one of the following alternative criteria: ALTERNATIVE ONE: The Subscriber (natural persons only) has an individual net worth (or joint net worth with spouse) at the time of the purchase in excess of $1,000,000; ALTERNATIVE TWO: The Subscriber (natural persons only) had an individual income in excess of $200,000 in each of 1995 and 1996, or joint income with that person's spouse in excess of $300,000 in each of such years, and reasonably expects reaching the same income level in 1997; ALTERNATIVE THREE: The Subscriber is (i) a bank (as defined in Section 3(a)(2) of the Securities Act) or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; (ii) any broker-dealer registered pursuant to Section 15 of the U.S. Securities Exchange Act of 1934, as amended; (iii) an insurance company (as defined in Section 2(13) of the Securities Act); (iv) an investment company registered under the U.S. Investment Company Act of 1940, as amended, or a business development company (as defined in Section 2(a)(48) of that Act); (v) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the U.S. Small Business Investment Act of 1958, as amended; (vi) any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; or -4- (vii) an employee benefit plan within the meaning of the U.S. Employee Retirement Income Security Act of 1974, as amended, if the investment decision is made by a plan fiduciary (as defined in Section 3(21) of such Act), which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if such employee benefit plan has total assets in excess of $5,000,000, or if such employee benefit plan is a self-directed plan with investments made solely by person who are accredited investors; ALTERNATIVE FOUR: The Subscriber is a private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940, as amended; ALTERNATIVE FIVE: The Subscriber is an organization described in Section 501(c)(3) of the U.S. Internal Revenue Code, as amended, or is a corporation, Massachusetts or similar business trust, or partnership not formed for the specific purpose of acquiring the CCA Shares, with total assets in excess of $5,000,000; ALTERNATIVE SIX: The Subscriber is a director or executive officer of CCA; ALTERNATIVE SEVEN: The Subscriber is an entity in which all of the equity owners are accredited investors; or ALTERNATIVE EIGHT: The Subscriber is a trust with assets in excess of $5,000,000, not formed for the specific purpose of acquiring the CCA Shares offered hereby, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Securities Act. (e) The Subscriber and his, her or its Purchaser Representative, if any: (i) have been furnished with the Prospectus of CCA dated 6th June 1997 and a copy of the Form 10-K filed by CCA with the United States Securities & Exchange Commission on 15th October 1997, including all exhibits thereto and any documents which may have been made available upon request for a reasonable time prior to the date hereof, and the Subscriber or his, her or its Purchaser Representative(s) have carefully read the Prospectus and Form 10-K and understand and have evaluated the risks set forth under "Risk Factors" and the considerations described in the Prospectus and Form 10-K and have relied solely (except as indicated in subsections (ii) and (iii) below) on the information contained in the Prospectus and Form 10-K (including all exhibits thereto); (ii) have been provided an opportunity for a reasonable time prior to the date hereof to obtain -5- additional information concerning the issue of the CCA Shares, CCA and all other information to the extent CCA possesses such information or can acquire it without unreasonable effort or expense; (iii) have been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive answers from, CCA or its representatives concerning the terms and conditions of the issue of the CCA Shares and other matters pertaining to this investment, and have been given the opportunity for a reasonable time prior to the date hereof to obtain such additional information necessary to verify the accuracy of the information contained in the Prospectus and Form 10-K or that which was otherwise provided in order for the Subscriber to evaluate the merits and risks of subscribing for the CCA Shares to the extent CCA possesses such information or can acquire it without unreasonable effort or expense; (iv) have not been furnished with any oral representation or oral information in connection with the "issue" of the CCA Shares which is not contained in the Prospectus or Form 10-K; and (v) have determined that the CCA Shares are a suitable investment for the Subscriber and that at this time the Subscriber could bear a complete loss of such investment. (f) The Subscriber is not relying on CCA, or its affiliates with respect to economic considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with only those persons, if any, who have acted as Purchaser Representative(s) to the Subscriber. Each Purchaser Representative is capable of evaluating the merits and risks of an investment in the CCA Shares on the terms and conditions set forth herein and in the Stock Purchase Agreement, and each Purchaser Representative has disclosed to the Subscriber in writing (a copy of which is annexed to this Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between himself and CCA or any affiliate or subsidiary thereof. (g) The Subscriber represents, warrants and agrees that he will not sell or otherwise transfer the CCA Shares without registration under the Securities Act or an exemption therefrom and fully understands and agrees that he must bear the economic risk of his, her or its purchase because, among other reasons, the CCA Shares have not been registered under the Securities Act or under the securities laws of any state of the United States or any other jurisdiction and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and -6- under the applicable securities laws of such states or an exemption from such registration is available. In particular, the Subscriber is aware that the CCA Shares will be "restricted securities," as such term is defined in Rule 144 promulgated under the Securities Act ("Rule 144"), and they may not be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The Subscriber also understands that, except as otherwise provided herein or in the Stock Purchase Agreement, CCA is under no obligation to register the CCA Shares on his, her or its behalf or to assist the Subscriber in complying with any exemption from registration under the Securities Act or applicable state securities laws. The Subscriber further understands that sales or transfers of the CCA Shares are further restricted by applicable securities laws of the various states of the United States and other jurisdictions. (h) No representations or warranties have been made to the Subscriber by CCA, or any officer, employee, agent, affiliate or subsidiary of CCA, other than the representations of CCA contained herein or in the Stock Purchase Agreement, and in subscribing for the CCA Shares the Subscriber is not relying upon any representations other than those contained herein or in the Stock Purchase Agreement. (i) Any information which the Subscriber has heretofore furnished to CCA with respect to his, her or its financial position and business experience is correct and complete as of the date of this Agreement and if there should be any material change in such information, he will immediately furnish such revised or corrected information to CCA. (j) The Subscriber consents to the placing of legends and stop-transfer orders with the transfer agent of CCA's securities with respect to any CCA Shares that may be registered in the name of the Subscriber or beneficially owned by the Subscriber. 4. Recognising that CCA is and will be relying on his, her or its representations and warranties set forth herein, the Subscriber hereby further represents and warrants that: (a) In subscribing for the CCA Shares, the Subscriber has relied solely upon (i) an independent investigation of CCA and CCA's business (whether such investigation has been conducted directly or indirectly through the Subscriber's business advisers), (ii) such independent investment, legal, tax and accounting advisers as he, she or it may have elected to use, and (iii) such other matters relating to this transaction as the Subscriber deemed to be appropriate, and the Subscriber is not acting upon the basis of any representations or warranties of CCA other than those contained in the Stock Purchase Agreement. -7- (b) Neither the Subscriber nor any person with a beneficial interest in the CCA Shares is a "U.S. Person", which term shall mean for the purposes of this Agreement (i) a natural person resident in the United States; (ii) a partnership or corporation organized or incorporated under the laws of the United States; (iii) an estate of which any executor or administrator is a U.S. Person; (iv) any trust of which any trustee is a U.S. Person; (v) an agency or branch of a foreign entity located in the United States; (vi) a non-discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. Person; (vii) a discretionary account or similar account (other than an estate or trust) held by a dealer or other fiduciary organized, incorporated, or (if an individual) resident in the United States; and (viii) any partnership or corporation if it is both (A) organized or incorporated under the laws of any foreign jurisdiction and (B) formed by a U.S. Person principally for the purpose of investing in securities not registered under the Securities Act, unless it is organized or incorporated, and owned, by accredited investors (as defined in Rule 501(a) under the Securities Act and referred to in Section 3(d) above) who are not natural persons, estates or trusts. (c) If the Subscriber is an individual, he or she is over 21 years of age; if the Subscriber is a company or trust, it is authorized and has full power under its governing laws and is otherwise duly qualified to transfer the SGTI Shares to CCA and hold title to the CCA Shares. (d) No representation or warranty by the Subscriber contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading with respect to matters contained herein and arising under this Agreement. The Subscriber does not have of his, her or its personal knowledge any information which would cause him, her or it to believe that any representation or warranty given by SGTI or the Directors in the Stock Purchase Agreement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading, and such representations and warranties contain all the information related to SGTI, the Subsidiary (as defined in the Stock Purchase Agreement) and their affairs that a reasonable investor would consider important in making a decision to acquire the SGTI Shares. The Subscriber agrees to furnish to CCA such documentary and other information as CCA may reasonably require to enable CCA to satisfy itself as to the accuracy of the foregoing representations and warranties. All such information shall constitute a representation and warranty under this Agreement and shall be kept confidential by CCA. -8- 5. (a) The Subscriber undertakes that he, she or it shall not for a period of one year from the Closing Date (as defined in the Stock Purchase Agreement) voluntarily or involuntarily, directly or indirectly, (i) offer, sell, contract to sell, grant a right to purchase, exchange, mortgage, pledge, hypothecate, give, bequeath, transfer, assign, encumber, alienate or in any other way whatsoever dispose of (hereinafter collectively called "transfer") any of the CCA Shares, including any options, warrants or rights with respect to the CCA Shares received by way of dividend or upon an increase, reduction, substitution or reclassification or combination of stock of CCA or upon any reorganisation or CCA, as applicable, or (ii) enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the CCA Shares or other securities of CCA whether any of the foregoing transactions is to be settled by the delivery of CCA Shares, common stock or other securities of CCA, in cash or otherwise. Notwithstanding any of the foregoing, a corporate Subscriber may transfer the CCA Shares to any wholly-owned subsidiary of such Subscriber, subject to the transferee agreeing in writing to be similarly bound and subject to CCA's consent, which consent shall not be unreasonably withheld. Each corporate Subscriber agrees not to indirectly transfer CCA Shares as described in clauses (i) and (ii) of the previous sentence by changing the shareholders of the corporate Subscriber or otherwise transferring any interest in such corporate Subscriber for the one-year period described in the previous sentence. (b) So long as this Agreement is in effect stop transfer instructions shall be issued to CCA's transfer agent, if any, or, if CCA transfers its own securities, a notation shall be made in the appropriate records of CCA with respect to CCA Shares, and so long as required, the certificate(s) representing the CCA Shares shall bear substantially the following legend: The securities represented by this certificate are subject to restrictions on transfer and may not (nor may any interest therein), directly or indirectly, voluntarily or involuntarily, be sold, exchanged, mortgaged, pledged, hypothecated, given, bequeathed, transferred, assigned, encumbered, alienated, or in any other way whatsoever be disposed of except in accordance with and subject to all the terms and conditions of a certain Stock Purchase Agreement dated as of 24th October 1997, and a Subscription Agreement relating to these securities, copies of which are on file at the principal office of Conserver Corporation of America. (c) The Subscriber understands and agrees that the CCA Shares shall bear substantially the following legend until: (i) such securities shall have been registered under -9- the Securities Act and effectively been disposed of in accordance with the registration statement; or (ii) in the opinion of counsel reasonably acceptable to CCA such securities may be sold without registration under the Securities Act as well as any applicable "Blue Sky" or similar securities laws: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW." (d) Notwithstanding the foregoing, in the event of the Subscriber being liable to satisfy a warranty or indemnity claim by CCA under this Agreement, the Subscriber may transfer all or part of the CCA Shares to CCA or to another single purchaser provided that (i) CCA shall have consented in writing to such transfer, which consent shall not be unreasonably withheld, and (ii) CCA shall have received an opinion of counsel reasonably acceptable to CCA to the effect that such transfer may be made without registration under the Securities Act and such transfer is consistent with all applicable provisions of the Securities Act as well as any applicable "Blue Sky" or similar securities law of any applicable jurisdiction. 6. The Subscriber hereby agrees to indemnify and hold harmless CCA, its directors, officers or agents for any losses, claims, actions, liabilities, costs or other damages CCA may sustain (including reasonable lawyers' fees and costs) (collectively, "losses") by reason of, or arising out of, any misrepresentation in this Agreement by the Subscriber, any breach of the representations and warranties contained herein and in the Stock Purchase Agreement, or any other breach of this Agreement by the Subscriber, provided that: (a) the Subscriber shall not be liable to CCA for any claim based upon a misrepresentation, breach of representation or warranty or nonfulfillment of any covenant or agreement contained herein for which the Subscriber has not received written notice prior to one year from the date of issuance of the CCA Shares, except for any representations or warranties made by the Subscriber which were not true when -10- made and which were made by such party fraudulently or with intent to defraud or mislead, which representations and warranties shall survive without limitation as to time; (b) in the event of any loss or award of damages in favor of CCA against the Subscriber arising from a claim by CCA against the Subscriber for which CCA has been indemnified by the Subscriber hereunder, CCA shall have the right to require (by simple notice to the Subscriber but without any requirement on CCA to give the Subscriber any formal notice, demand or protest) the Subscriber to transfer to CCA that number of CCA Shares at the then market value of the CCA Shares, as quoted by Nasdaq on the date of such award, as would satisfy such award, it being understood and agreed that such action would constitute full and final satisfaction of such monetary award; and (c) the Subscriber's liability computed otherwise in accordance with this section shall be limited to the after-tax consequence to the indemnified party (or the affiliated group of which such indemnified party is a member) of any such damage, loss, liability, deficiency cost or expense suffered or incurred by such indemnified party, and shall not exceed the lesser of (a) $6.50 per share for all of the Subscriber's CCA Shares or (b) the mid-market value of the CCA Shares on the date when liability under this Article is finally determined or admitted. 7. (a) This Agreement shall be construed and enforced in accordance with the law of the State of New York, without giving effect to its conflict of laws principles; any dispute arising under this Agreement shall be resolved by arbitration conducted in accordance with Article 13 of the Stock Purchase Agreement and the Arbitration Agreement contained Schedule 13.1 attached thereto. The Subscriber expressly authorizes Messrs. Cairns and Horgan to appoint an arbitrator on his, her or its behalf in connection with any arbitration commenced under said Article 13 and Schedule 13.1. (b) This Agreement and the Stock Purchase Agreement, including any additional documentation provided hereunder, contain the entire agreement between the Subscriber and CCA, and the provisions of this Agreement may be amended, supplemented, or terminated only by a written instrument duly executed by the Subscriber and CCA. (c) This Agreement and the rights, powers and duties set forth herein shall, except as set forth herein, bind and inure to the benefit of the heirs, beneficiaries, executors, administrators, legal representatives, successors in interest of the Subscriber and CCA. (d) All notices, demands or other communications hereunder shall be given or made in writing and shall be delivered personally, or sent by certified or registered airmail or by air courier, with return receipt requested, if to CCA, to the address set out at the head of this Agreement, and if to the Subscriber, at the address set forth below, or to such other address as may be designated by notice from either party to the other. Any notice, demand or other communication given or made in the manner prescribed in this paragraph shall be deemed to have been received as of the date on the receipt reflecting delivery. IN WITNESS WHEREOF, the Subscriber has executed and delivered this Agreement personally or by its duly authorized representative this day of , 1997. Witness: - ------------------------- --------------------------- Signature of Witness Signature of Subscriber - ------------------------- --------------------------- Name of Witness Full Name of Subscriber Address of Witness Address of Subscriber: - ------------------------- --------------------------- - ------------------------- --------------------------- - ------------------------- --------------------------- Subscriber's fax: ______ ACCEPTED: CONSERVER CORPORATION OF AMERICA By:_____________________________ Title: Date: EX-6.1.2 7 MINUTES OF THE BOARD OF DIRECTORS OF SGTI Exhibit 6.1.2 SAKHALIN GENERAL TRADING AND INVESTMENTS LIMITED ("the Company") MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY, HELD ON THE , 1997 AT PRESENT: Mr. William Stephen Cairns - Director Mr. John Byrne Horgan - Director ....................... - On behalf of TOTALSERVE MANAGEMENT LIMITED Secretary MINUTES 1. The minutes of the previous meeting are read and confirmed. TRANSFER 2. Mr. William Cairns lays before the Board instruments of OF SHARES Transfer of shares for the following transfer of shares: 147829 shares nos. ...... from Messrs Weighbridge Trust Ltd to Messrs Conserver Corporation of America 15000 shares nos. ...... from Messrs Aldersgate Nominees Ltd to Messrs Conserver Corporation of America 6325 shares nos. ...... from Messrs Beechwirth Pty Ltd to Messrs Conserver Corporation of America 10000 shares nos. ...... from Messrs Gilpin Park Pty Ltd to Messrs Conserver Corporation of America 45500 shares nos. ...... from Messrs Holbrook Properties Ltd to Messrs Conserver Corporation of America 5000 shares nos. ...... from Messrs Toxford Corporation to Messrs Conserver Corporation of America 1 share no. ...... from Messrs Weighbridge Trust Administration Ltd to .................... for and on behalf of Messrs Conserver Corporation of America The Board unanimously APPROVES the above transfer of shares and AUTHORIZES Messrs Andreas Neocleous & Co., to draft and file an application with the Central Bank of Cyprus requesting its permission to effect the above transfers of shares pursuant to the Cypriot Exchange Control Laws, INSTRUCTS the Secretary to issue the new Share Certificates, ANNOTATE the Register of Members accordingly, and FILE the necessary returns with the Registrar of Companies. There being no other matter, the Meeting is concluded at .................... THE SECRETARY THE DIRECTORS -----END PRIVACY-ENHANCED MESSAGE-----