UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 2-93124
SGI International
(Exact name of registrant as specified in its charter)
Utah 33-0119035
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Prospect Street, Suite 325, La Jolla, California 92037
(Address of principal executive offices)
(619) 551-1090
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
[ X ] Yes [ ] No
The number of shares of Common Stock, no par value, outstanding as of October
31, 1997, was 8,087,163.
<PAGE>
TABLE OF CONTENTS
FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statement of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview 9
Results of Operations 10
Liquidity and Capital Resources 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
PART III. SIGNATURES 15
<PAGE>
SGI INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
<TABLE>
September 30, December 31,
1997 1996
____________________________________
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 147,813 $ 740,018
Time deposit 402,500 402,500
Receivable from
TEK-KOL Partnership 53,960 24,431
Trade accounts receivable 952,977 888,254
Costs and estimated earnings in
excess of billings on contracts 87,406 113,130
Inventories 66,459 68,289
Prepaid expenses and other
current assets 338,319 58,545
___________________________________
Total current assets 2,049,434 2,295,167
LFC Process related assets:
Notes receivable 304,903 304,903
Royalty rights, net 1,649,813 1,885,500
LFC Cogeneration project, net 447,458 526,421
Investment in TEK-KOL Partnership 456,203 464,163
Australia LFC project, net 123,076 144,795
Other technological assets 32,507 27,742
___________________________________
3,013,960 3,353,524
Property and equipment, net 719,142 548,601
Goodwill, net 395,437 431,386
___________________________________
$ 6,177,973 $ 6,628,678
===================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 610,338 $ 444,436
Borrowings on line-of-credit 400,000 300,000
Billings in excess of costs and
estimated earnings on contracts 201,220 387,892
Current maturities of long-term
notes payable 4,194,875 4,216,500
Accrued salaries, benefits
and related taxes 343,256 124,942
Payable to TEK-KOL Partnership 200,000 83,252
Interest payable 654,212 529,183
Other accrued expenses 422,284 224,149
___________________________________
Total current liabilities 7,026,185 6,310,354
Long-term notes payable,
less current maturities 116,625 123,750
Stockholders' equity
Convertible preferred stock 893 887
Common stock 38,770,056 36,118,231
Paid-in capital 7,011,360 6,494,585
Imputed dividend (381,073) -
Accumulated deficit (46,366,073) (42,419,129)
___________________________________
Total stockholders' equity (964,837) 194,574
___________________________________
$ 6,177,973 $ 6,628,678
===================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
SGI INTERNATIONAL
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three months Nine months
ended September 30, ended September 30,
________________________ _________________________
1997 1996 1997 1996
________________________ _________________________
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 1,195,745 $ 659,471 $ 3,779,897 $ 2,906,415
Other 10,239 55,714 29,753 278,234
________________________ _________________________
1,205,984 715,185 3,809,650 3,184,649
Income (loss) from
investment in TEK-KOL (326,212) (272,098) (657,960) (219,120)
Cost and expenses:
Cost of sales 888,226 805,086 2,893,349 2,551,285
Research and development 388,178 273,720 939,479 531,054
Selling, general and
administrative 719,698 499,661 1,874,244 1,497,365
Legal and accounting 106,064 147,557 411,137 760,722
Depreciation and
amortization 198,943 127,803 550,624 436,855
Interest 160,858 154,374 429,801 397,759
________________________ _________________________
2,461,967 2,008,201 7,098,634 6,175,040
________________________ _________________________
Net loss $(1,582,195) $(1,565,114) $(3,946,944) $(3,209,511)
Preferred stock dividends:
Imputed dividends for
Series 97B 8%
Convertible Preferred
Stock 236,419 - 236,419 -
Imputed dividends for
Series 97D 7%
Convertible Preferred
Stock 144,654 - 144,654 -
________________________ _________________________
Net loss applicable to
common stock $(1,963,268) - (4,328,017) -
======================== =========================
Net loss per share $ (0.26) $ (0.27) $ (0.63) $ (0.63)
________________________ _________________________
Weighted average common
shares outstanding 7,472,958 5,829,019 6,851,470 5,115,776
======================== =========================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
SGI INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
Convertible
preferred stock Common stock
Shares Amount Shares Amount
__________________________________________________
<S> <C> <C> <C> <C>
Balances at
December 31, 1996 88,732 $ 887 6,094,605 $ 36,118,231
Issuance of common
stock for cash - - 552,328 1,029,735
Exercise of warrants
for cash - - 145,000 136,235
Issuance of common
stock for services - - 176,207 249,401
Conversion of
preferred stock (1,029) (10) 1,033,902 1,236,454
Issuance of preferred
stock for cash 1,550 16 - -
Issuance of preferred
stock for debt 1 - - -
Imputed dividend - - - -
Net loss - - - -
__________________________________________________
Balances at
September 30, 1997 89,254 $ 893 8,002,042 $ 38,770,056
==================================================
</TABLE>
<TABLE>
Total
Accumulated stockholders'
Paid-in capital deficit equity
__________________________________________________
<S> <C> <C> <C>
Balances at
December 31, 1996 $ 6,494,585 $ (42,419,129) $ 194,574
Issuance of common
stock for cash - - 1,029,735
Exercise of warrants
for cash - - 136,235
Issuance of common
stock for services - - 249,401
Conversion of
preferred stock (1,236,444) - -
Issuance of preferred
stock for cash 1,359,398 - 1,359,414
Issuance of preferred
stock for debt 12,748 - 12,748
Imputed dividend 381,073 (381,073) -
Net loss - (3,946,944) (3,946,944)
__________________________________________________
Balances at
September 30, 1997 $ 7,011,360 $ (46,747,146) $ (964,837)
==================================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
SGI INTERNATIONAL
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
Nine months
ended September 30,
1997 1996
______________________________
<S> <C> <C>
Operating activities
Net loss $ (3,946,944) $ (3,209,511)
Adjustments to reconcile net loss to net
cash flows used for operating activities:
Depreciation and amortization 570,885 511,189
Stock and warrants issued for interest,
services, and notes receivable 249,401 710,800
Changes in assets and liabilities:
Receivable from TEK-KOL Partnership (29,529) -
Trade accounts receivable (38,999) (221,811)
Inventories 1,830 (13,718)
Other current assets (279,774) 48,768
Accounts payable 165,902 2,152
Billings in excess of costs and
estimated earnings on contracts (186,672) 139,285
Accrued salaries, benefits and
related taxes 218,314 (42,371)
Royalty payable to related party - (141,790)
Payable to TEK-KOL Partnership 116,748 (236,476)
Interest payable 125,029 127,845
Other accrued expenses 198,135 651
______________________________
Net cash flows used for
operating activities (2,835,674) (2,324,987)
Investing activities
LFC Process related assets:
Collection of notes receivable
and interest - 400,000
Other technical assets (4,765) (1,302)
Investment in TEK-KOL Partnership 7,960 88,620
Purchase of property and equipment (369,108) (134,710)
Other assets - 12,876
Redemption of preferred stock - (41,222)
______________________________
Net cash flows used for
investing activities (365,913) 324,262
Financing activities Borrowings
on line-of-credit 100,000 -
Proceeds from issuance of notes payable - 215,000
Payments of notes payable (28,750) (96,875)
Proceeds from issuance of common stock 1,165,970 2,836,220
Proceeds from issuance of preferred stock 1,372,162 -
Collection of notes receivable - 194,517
______________________________
Net cash flows provided by
financing activities 2,609,381 3,148,862
______________________________
Net increase (decrease) in cash (592,205) 1,148,137
Cash at beginning of period 740,018 74,154
______________________________
Cash at end of period $ 147,813 $ 1,222,291
==============================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
SGI INTERNATIONAL
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
(1) Basis of Presentation
The accompanying condensed consolidated financial statements of SGI
International (the "Company") for the three and nine months ended September 30,
1997, and 1996, are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions to Form 10-Q. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. These financial statements reflect all
adjustments, consisting of only normal recurring adjustments which, in the
opinion of management, are necessary for a fair statement of the consolidated
financial position as of September 30, 1997, and the consolidated results of
operations for the three and nine months ended September 30, 1997, and 1996.
The results of operations for the three and nine months ended September 30,
1997, are not necessarily indicative of the results to be expected for the year
ending December 31, 1997. For more complete financial information, these
financial statements, and the notes thereto, should be read in conjunction with
the consolidated audited financial statements for the year ended December 31,
1996, included in the Company's Form 10-K filed with the Securities and
Exchange Commission.
(2) Organization and Business
The principal businesses of the Company are developing, commercializing, and
licensing new energy technologies; and manufacturing automated assembly
equipment.
The recovery of amounts invested in the Company's principal assets, the LFC
Process related assets, is dependent upon the Company's ability to adequately
fund its capital contributions to the TEK-KOL Partnership and TEK-KOL's ability
to successfully attract sufficient additional equity, debt or other third party
financing to complete the commercialization of the LFC Process technology.
The Company is engaged in continuing negotiations to secure additional capital
and financing, and while management believes these negotiations will be
successful, there is no assurance thereof.
(3) Equity Transactions
On July 15, 1997, the Company converted one $10,000 note payable with accrued
interest of $2,748 by issuing one share of Series 97C convertible preferred
stock. The convertible preferred share has no voting rights, has a preference
in liquidation of $10,000 and is convertible into 13,500 shares of common stock
on or after August 30, 1998, without further payment.
On August 12, 1997, the Company issued 550 shares of $.01 par value, 7%
Preferred Series 97D and six warrants for an aggregate value of $550,000.
These shares have a liquidation preference of $1,000 per share. The number of
common shares to be issued upon conversion of the preferred shares will be
determined by dividing the amount invested by the lesser of (a) the average of
closing bid price for the five trading days preceding the closing date or (b)
the product of 77.5% multiplied by the average of the closing bid price for the
five trading days preceding the conversion date. The six warrants can be
exercised at the average of the closing bid price for the five trading days
preceding the closing date. Three warrants representing 205,128 each of common
stock expiring respectively 60 days, 120 days and 180 days subsequent to the
effective date of registration with the Securities and Exchange Commission, but
no later than 545 days from closing date. Another three warrants representing
20,513 shares each of common stock, expiring respectively 60 days, 120 days and
180 days subsequent to the effective date of registration with the Securities
and Exchange Commission, but no later than 545 days from closing date.
On September 11, 1997, the Company issued 236,000 stock options to employees
pursuant to its 1996 Omnibus Stock Plan. The exercise price was not lower
than the closing bid price on the grant date.
(4) Net Loss per Share
Net loss per share is computed based on the weighted average number of common
shares outstanding and includes preferred stock dividends. Shares issuable
upon conversion of preferred stock and upon exercise of outstanding stock
options and warrants are not included since the effects would be anti-dilutive.
For purposes of computing net loss per share, preferred stock dividends include
"imputed dividends" for preferred stock issued with a non-detachable beneficial
conversion feature near the date of issuance. Imputed dividends represent the
aggregate difference between conversion price and the fair market value of the
common stock as of the date of issuance of the preferred stock, without regard
to the actual date on which the preferred stock may be converted.
(5) Recent Accounting Pronouncements
Recent pronouncements of the Financial Accounting Standards Board ("FASB"),
which are not required to be adopted at this date include, Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information"; SFAS No. 130, "Reporting
Comprehensive Income"; and SFAS No. 128, "Earnings per Share".
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces Accounting Principles Board Opinion
("APB") No. 15 and simplifies the computation of earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities
that could share in the earnings of the Company, similar to fully diluted EPS
under APB No. 15. The Statement requires dual presentation of basic and
diluted EPS by entities with complex capital structures. The Company will
adopt SFAS No. 128 effective January 1, 1998.
SFAS No. 130, "Reporting Comprehensive Income" is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company is evaluating the Statement's
provisions to conclude how it will present comprehensive income in its
financial statements, and has not yet determined the amounts to be disclosed.
The Company will adopt SFAS No. 130 effective January 1, 1998.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to stockholders. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. The Company is
evaluating the new Statement's provisions to determine the additional
disclosures required in its financial statements, if any. The Company will
adopt SFAS No. 131 for the fiscal year ended December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTORY NOTE
This Quarterly Report on form 10-Q contains statements relative to (i)
projections, (ii) estimates, (iii) future research plans and expenditures, (iv)
potential collaborative arrangements, (v) opinions of management and (vi) the
need for and availability of additional financing which may be considered
"forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. These forward-
looking statements are based on assumptions regarding the Company's business
and technology, which involve judgments with respect to, among other things,
future scientific, economic and competitive conditions, and future business
decisions, as well as risk factors detailed from time to time in the Company's
Securities and Exchange Commission reports including this form 10-Q, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the results contemplated will be realized and actual results may
differ materially.
Readers are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business. Therefore,
historical results and percentage relationships will not necessarily be
indicative of the operating results of any future period.
The Company undertakes no obligation to publicly update or revise any forward-
looking statements, to reflect new information, events or circumstances,
reflect the occurrence or non-occurrence of unanticipated events after the date
hereof.
Overview
The development of the first commercial LFC Plant in the Powder River Basin of
Wyoming continues to progress. The project is currently in the permitting
phase with the land quality permit being the only major permit not yet issued.
The engineers at NuCoal, a wholly owned subsidiary of Zeigler, have reduced the
estimated cost of the project from approximately $460,000,000 to approximately
$406,000,000. While the Engineering, Procurement, and Construction contract
(the "EPCC"), which was signed on December 30, 1996, by a Zeigler subsidiary
and Mitsubishi International, has been terminated, work continues with
Mitsubishi Heavy Industries to further optimize the cost estimate for the
project.
A Memorandum of Understanding ("MOU") between TEK-KOL (a partnership between
the Company and a unit of Zeigler Coal Holding Company) and a group of Russian
private and public entities was executed in the second quarter of 1997. The
Russian Central government and the regional government in Kemerovo have
approved a Phase II study to analyze the economic and technical feasibility
of an LFC project in Russia's Kuzbass Region. Under the protocol issued by the
Russian parties, should the Phase II feasibility study results prove positive,
the protocol agreement states that the project will be included in the Central
Government's 1998 Coal Renovation Program for the Kuzbass Region. The Phase II
study is underway and is expected to be complete and delivered in January of
1998 in Russia to representatives of the public and private consortium.
A MOU was executed between TEK-KOL and PTBA (the Indonesian state owned coal
company) to perform additional tasks necessary to develop and finance an LFC
project at PTBA's coal reserve in the Tanjung Enim area of South Sumatra. The
United States Trade and Development Agency (the "USTDA") provided funding for
the Phase II study, and the USTDA has completed its due diligence relative to
another grant for the additional tasks necessary to develop and finance an LFC
project. The USTDA has indicated that it is willing to make the $200,000 grant
conditional on PTBA doing some additional work on their coal reserves. TEK-KOL
and PTBA continue to discuss as to when that additional work can be scheduled.
TEK-KOL continues to look for other potential projects in Indonesia and is in
discussion with approximately six separate Indonesian entities about performing
feasibility studies with respect to their coal properties.
The OCET process's capability to remove asphaltenes and substantially reduce
catalyst-fouling nickel and vanadium metal content from a variety of oil field
crudes and resids has been successfully demonstrated using bench-scale
continuous processing equipment. Samples of several types of heavy crudes and
resids have been processed to produce high yields of deasphalted oil and
substantial reductions of catalyst-fouling metals.
Based on these results and progress in developing methods to monitor, control
process yields and product quality, in response to continually changing
feedstocks, OCET has commenced construction of the second generation,
continuous process, stainless steel Process Development Unit (the "PDU"), which
is expected to be operational prior to year end.
A Cooperative Research and Development Agreement was executed with the U.S.
Department of Energy ("DOE") in support of the OCET development program. A
report of work to date in the development of the process will be
submitted to the DOE in the fourth quarter, which describes the status of the
process and potential joint objectives. Additionally, contacts have been made
with several potential strategic partners capable of further accelerating the
Company's commercialization efforts.
Additional resources are being deployed to increase sales at AMS, SGI's
automated assembly subsidiary. Sales for 1997 are expected to exceed 1996
levels. AMS assisted in designing and constructing certain portions of OCET's
second generation PDU.
The continuing need to fund Company operations with equity-based financing is
causing dilution. However, Management is committed to accelerating
commercialization of the LFC and OCET technologies and increasing cash flows
from AMS's operations so that equity-based financing can be minimized. The
Company is also analyzing other strategies to reduce the effects of dilution
while continuing to fund the Company's operations.
The report of the Company's independent auditors for the year ended December
31, 1996, contains an emphasis paragraph as to the Company's ability to
continue as a going concern. As discussed in Liquidity and Capital Resources,
the Company has short-term and long-term liquidity deficiencies. The Company's
ability to continue as a going concern is dependent upon successful financing
of its immediate working capital requirements and successful commercialization
of the LFC and OCET technologies. The Company is engaged in license marketing
activities and negotiations to secure additional financing. If immediate
working capital requirements are not successfully financed and/or the LFC and
OCET technologies cannot be successfully commercialized, then the adverse
impact on the business and operations of the Company could be material.
Results of Operations
Sales and Cost of Sales
Sales and cost of sales for the three months ended September 30, 1997,
increased 81% ($536,000) and 10% ($83,000), respectively, over the same prior
year period. Sales and cost of sales are primarily attributable to AMS and are
recorded using the percentage of completion method. Sales and Cost of Sales
increased 30% ($873,000) and 13% ($342,000) for the nine month period ended
September 30, 1997, compared to the same prior year period. The Company
attributes the increase in sales to increased marketing and sales activities.
Cost of sales as a percentage of sales, compared to the prior year period
decreased approximately 48% as a result of a job overrun in the prior year
period.
Other Income
Other income for the three months ended September 30, 1997, decreased 82%
($45,000) from the same prior year period. The prior year period included the
reversal of certain accrued expenses totaling $35,000. Other income for the
nine months ended September 30, 1997, decreased 89% ($248,000) from the same
prior year period. The decrease is related to the forgiveness of certain
royalty obligations by a related party totaling $142,000 and the reversal of
certain accrued expenses totaling $110,000.
Loss on Investment in TEK-KOL
The Company's share of the TEK-KOL loss for the three months ended September
30, 1997, increased 20% ($54,000) over the same prior year period. The
increase is the result of TEK-KOL's efforts to increase the economic
value of CDL and thereby improve the entire economics of an LFC plant.
Management believes current results of the CDL enhancement program are positive
and work continues to optimize the CDL process. The Company's share of the
TEK-KOL loss for the nine months ended September 30, 1997, increased 200%
($439,000) compared to the same prior year period. In addition to the CDL
enhancement program costs TEK-KOL received certain non-recurring payments under
an agreement with Mitsubishi Heavy Industries during the prior year period.
Research and Development Expenses
The Company's Research and development expenses for the three months ended
September 30, 1997, increased 42% ($114,000) over the same prior year period.
For the nine months ended September 30, 1997, research and development costs
increased 77% ($408,000) from the same prior year period. The increase for
both the three and nine month periods relates to the Company's heightened
efforts to develop the OCET process.
Selling, General and Administrative Expenses
Selling, general and administrative expense for the three months ended
September 30, 1997, increased 44% ($220,000) from the same prior year period.
Selling, general and administrative expenses for the nine months ended
September 30, 1997, increased 40% ($535,000) from the same prior year period
after adjusting for non-recurring non-cash charge of $158,000. The increase
for both the three month and nine month periods relates primarily to the
continued expansion of the Company's sales and marketing efforts at AMS, as
well as public relations fees and financial consulting fees.
Legal and Accounting Expenses
The Company's legal and accounting expenses for the three month period ended
September 30, 1997, decreased 28% ($41,000) from the same prior year period.
The decrease is due to cost reduction activities in these areas. The Company's
legal and accounting expenses for the nine month period ended September 30,
1997, decreased 8% ($34,000) from the same prior year period after adjusting
for non-recurring non-cash charges of $316,000.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the three months ended September 30,
1997, increased by 56% ($71,000) from the same prior year period. Depreciation
and amortization expense for the nine months ended September 30, 1997,
increased 26% ($114,000) from the same prior year period. The increases for
both the three and nine month periods was due primarily to purchases and
construction of additional equipment at the Company's OCET laboratory.
Interest Expense
Interest expense for the three months ended September 30, 1997, increased 4%
($6,000) and as is materially consistent over the same prior year period.
Interest expense for the nine months ended September 30, 1997, increased 8%
($32,000) over the same prior year period. The increase is due primarily to
increased borrowing on the line of credit as compared to the prior year.
Liquidity and Capital Resources
As of September 30, 1997, the Company had assets totaling $6.2 million,
including cash of $148,000, and a working capital deficit of $5.0 million. The
Company anticipates continued operating losses over the next twelve months and
has both short-term and long-term liquidity deficiencies as of September 30,
1997. Short-term liquidity requirements are expected to be satisfied from
existing cash balances and proceeds from the sale of equity securities (See
Note 3 to the Financial Statements in Item 1 of Part 1 of this Quarterly Report
of Form 10-Q). In the event that the Company is unable to finance operations
at the current level, various administrative activities would be curtailed and
certain research and development efforts would be reduced. The Company will
not be able to sustain operations if it is unsuccessful in securing sufficient
financing and/or generating revenues from operations.
The Company's Form 10-K for the year ended December 31, 1996, disclosed the
execution of two funding agreements in April 1997 which provided gross proceeds
of $2 million through the sale of equity securities. As previously reported,
funding for an additional $2 million was subject to certain minimum levels of
price and trading volume of the Company's common stock. The contingencies were
not met and the additional funding did not close.
The Company's investing activities increased during the nine months ended
September 30, 1997, as equipment was purchased and built for the OCET
laboratory. The amount of funds used for investing activities in a given
period are directly related to development requirements and funds availability.
The Company does not have material commitments for capital expenditures as of
September 30, 1997.
The Company had notes payable and associated accrued interest of approximately
$4.8 million due September 30, 1997. The Company satisfied these liabilities
subsequent to September 30, 1997, by its 97E private placement offering which
extended the due date of these liabilities to September 30, 1998, in exchange
for primarily debt and equity securities.
The Company's financing activities raised approximately $2.7 million and $3.1
million during the nine months ended September 30, 1997, and 1996,
respectively. These funds were raised primarily through the private placement
of equity securities and borrowings on the line-of-credit. The amount of money
raised during a given period is dependent upon financial market conditions,
technological progress, and the Company's projected funding requirements. The
Company anticipates that future financing activities will be influenced by the
aforementioned factors. Significant future financing activities will be
required to fund future operating and investing activities and to maintain debt
service. The Company is engaged in continuing negotiations to secure
additional capital and financing, and while management believes these
negotiations will be successful, there is no assurance thereof.
Additional capital contributions to the TEK-KOL Partnership are expected to be
required from time to time prior to profitable operations. The Company is
required to contribute one-half of any such required capital contributions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, various claims are asserted against the
Company and its subsidiaries. However, except for a complaint against AMS
relating to activities that occurred prior to its acquisition by the Company, no
claims asserted against the Company have resulted in litigation. Management's
opinion is that, based on the facts presently known to management, the ultimate
resolution of any and all claims, including the claim against AMS, will not
have a material effect on the Company's financial position, results of
operations or liquidity.
ITEM 2. CHANGES IN SECURITIES
On July 15, 1997, the Company converted one $10,000 note payable and associated
accrued interest of $2,748 into equity by issuing one share of Series 97C
convertible preferred stock to a single Purchaser in reliance on the private
placement exemption of Section 4(2) of the Securities Act. The Purchaser
represented that it was an accredited investor, acquiring the share for its own
account for investment purposes as a principal and without a view towards
immediate resale on distribution. The shares were not offered to the Purchaser
through any general solicitation. The convertible preferred share is fully
paid and non assessable, has no voting rights, has a preference in liquidation
of $10,000 and is convertible into 13,500 shares of common stock on or after
August 30, 1998, without further payment.
On August 12, 1997, the Company issued 550 shares of $.01 par value, 7%
Convertible Preferred Stock Series 97D ("97D Preferred Shares") and six
warrants, to two Purchasers for $1,000 per share for an aggregate purchase
price of $550,000 in reliance on the private placement exemption of Section
3(b) or 4(2) of the Securities Act and Regulation D. The Purchasers
represented that they were accredited investors, acquiring the shares of 97D
Preferred Shares and warrants for their own account, for investment purposes,
as principals and without a view towards immediate resale or distribution. In
accordance with the conditions of sale the Company has the obligation to
register the actual number of shares of common stock underlying the warrants
and 230% of the common stock underlying the 97D Preferred Shares. The number
of shares to be registered shall be determined as the average closing bid price
for the five trading days preceding the closing date two days prior to the date
of filing the registration statement with the Securities and Exchange
Commission. The shares were not offered through any general solicitation.
In connection with the sale of the 97D Preferred Shares, the Company paid an
unaffiliated placement agent a cash fee of $27,500. Additionally, the Company
incurred approximately $18,000 in costs related to the issuance of the 97D
Preferred Shares. Also see Note 3 to the Financial Statements in Item 1 of
Part 1 of this Quarterly Report of Form 10-Q.
During the three month period ended September 30, 1997, all 1,000 shares of the
97B convertible preferred stock were converted into 756,006 shares of common
stock.
As provided in related service or consulting agreements, the Company granted
five warrants to purchase 150,000 common shares, to one employee and three
consultants for services rendered during the three month period ended September
30, 1997, pursuant to Reg. D. The exercise prices were not lower than the
closing bid price on the grant date and expire on December 31, 2001. The
warrants are exercisable one year from the grant date with two warrants for
100,000 shares of common stock exercisable at $1.03, and the other three
warrants for 50,000 shares of common stock exercisable at $2.34 per share.
During the quarter ended September 30, 1997, the Company issued 13,701
restricted common shares to three domestic individuals pursuant to Reg. D
for services rendered.
ITEM 5. OTHER INFORMATION
Subsequent to the quarter's end, the Company on November 6, 1997, issued 1,750
shares of $.01 par value 8% Convertible Preferred Stock Series 97F ("Preferred
Shares") to certain foreign investors and five warrants, to five Purchasers for
$1,000 per share at an aggregate purchase price of $1,750,000 in reliance on
the private placement exemption of Section 3(b) or Section 4(2), Regulation D
and Regulation S of the Securities Act of 1933. The Purchasers represented
that they were accredited investors, acquiring the shares of 8% Convertible
Preferred Stock Series 97F and warrants for their own account, for investment
purposes, as principals and without a view towards immediate resale or
distribution. In addition, the Purchasers have also represented, in the event
they elect the option provided after certain conditions precedent have
occurred, to rely upon a Regulation S exemption, that they are not U.S. persons
as defined by Regulation S of the Securities Act of 1933 and meet all
requirements as stated therein. The number of shares of common stock
underlying the 97F Preferred shares and warrants are subject to a Registration
Rights Agreement which entitles the Purchasers to demand registration upon
written notice to the Company. The Company is required to register 200% of the
number of shares that would be required if all of the 97F Preferred Shares were
converted, assuming a conversion date 5 days prior to the filing of the
registration statement with the Securities and Exchange Commission. The number
of common shares to be issued upon conversion of the 97F Preferred Shares will
be determined by dividing the amount invested by the lesser of (a) the average
closing bid price for the five trading days preceding the closing date or (b)
by the product of 75% multiplied by the average of the closing bid price for
the five trading days preceding the conversion date. The five warrants which
are convertible into 70,000 shares of common stock, contain a conversion price
equal to 110% of the average closing bid price for the five trading days
preceding the closing date. The warrants all expire on November 6, 2002.
The 97F Preferred Shares accrue dividends at a rate of 8% per annum and are
cumulative. The dividend is only payable in common stock of the Company. The
97F Preferred Shares have a liquidation preference of $1,000 per share and are
convertible at the earlier of (i) the date the registration statement is
declared effective or (ii) sixty one days from the closing date (November 6,
1997). If the registration statement is not declared effective by the
Securities and Exchange Commission by the 61st day following the date of the
demand registration, the Purchasers, at their option may either (a) convert up
to 50% of their investment in the 97F Preferred Shares, pursuant to Regulation
S or (b) if the Company qualifies to register the Securities under a S-3 form,
require the Company to pay certain specified damages in cash. Furthermore, if
the Company qualifies to file under a form S-2b and the registration statement
is not declared effective by the Securities and Exchange Commission by the
121st day following the date of the demand registration the Purchasers, at
their option may either (a) convert all or part of their remaining investment
in the 97F Preferred Shares, pursuant to Regulation S and/or (b) require the
Company to pay certain specified damages in cash. The 97F Preferred Shares are
callable by the Company at 130% of the Liquidation Value upon certain
conditions precedent.
In connection with the sale of the 97F Preferred Shares, the Company paid two
unaffiliated placement agents, Settendown Capital and Ganesh Asset Management,
Ltd., fees consisting of $70,000 in cash, 105 shares of 97F Preferred Shares
having a value of $105,000, and warrants to purchase 35,000 shares of common
stock as compensation for placement. The warrants contain a conversion price
equal to 110% of the average closing bid price for the five trading days
preceding Novemebr 6, 1997. The warrants all expire on November 6, 2002. In
addition, the Company paid $8,750 in cash for legal and escrow fees incurred in
connection with this transaction. The net proceeds to the Company of
$1,671,250 will be used for working capital and the continuous research and
development of its OCET and LFC processes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits
4.1 Form of 8% Convertible Preferred Stock - Series 97F(1)
4.2 Form of 7% Convertible Preferred Stock - Series 97D(1)
4.3 Form of Warrants - Series 97F(1)
4.4 Form of Warrants - Series 97D(1)
4.5 Form of Warrants - Placement Agents(1)
10.1 Form of Registration Rights Agreement - Series 97D(1)
10.2 Form of Registration Rights Agreement - Series 97F(1)
10.3 Form of Subscription Agreement - Series 97F(1)
10.4 Form of Stock Purchase Agreement - Series 97D(1)
10.5 1996 Omnibus Stock Plan(1)
27.0 Financial Data Schedule(1)
(1) Filed herewith.
2. Reports on Form 8-K - None
<PAGE>
PART III. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SGI INTERNATIONAL
/s/ November 13, 1997
__________________________________________________
Joseph A. Savoca,
Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ November 13, 1997
__________________________________________________
Joseph A. Savoca,
Chief Executive Officer and Chairman of the Board
<PAGE>
Index to Exhibits Page
4.1 Form of 8% Convertible Preferred Stock - Series 97F 1-3
4.2 Form of 7% Convertible Preferred Stock - Series 97D 4-6
4.3 Form of Warrants - Series 97F 7-14
4.4 Form of Warrants - Series 97D 15-22
4.5 Form of Warrants - Placement Agents 23-30
10.1 Form of Registration Rights Agreement - Series 97D 31-38
10.2 Form of Registration Rights Agreement - Series 97F 39-47
10.3 Form of Subscription Agreement - Series 97F 48-68
10.4 Form of Stock Purchase Agreement - Series 97D 69-80
10.5 1996 Omnibus Stock Plan 81-96
27.0 Financial Data Schedule 97
EXHIBIT 4.1
SERIES 97-F PREFERRED SHARE CERTIFICATE
Incorporated Under the Laws of Utah
Number Shares
97-F-000 ***000***
This certifies that: [HOLDER]
is the registered Holder of [NUMBER OF SHARES]
FULLY PAID AND NON-ASSESSABLE
SERIES 97-F PREFERRED SHARE(S),
$.01 PAR VALUE,
OF
=================== SGI INTERNATIONAL ===================
1. Each Series 97-F Preferred Share evidenced by this Certificate is
transferrable on the books of the Corporation by the Holder hereof, in person
or by duly authorized attorney, upon surrender of this Certificate properly
endorsed.
2. A statement of the rights, preferences, privileges and restrictions granted
to or imposed on the respective classes and series of shares of the
Corporation, the holders of those shares, and the authority of the Board of
Directors to determine variations for any existing or future class or series
may be obtained by any shareholder, on request and without charge from the
secretary of the Corporation at SGI International, 1200 Prospect Street, Suite
325, La Jolla, CA 92037.
3. Series 97-F Preferred Shares have no voting rights.
4. Series 97-F Preferred Shares and the Common Stock into which they are
convertible will, upon issuance, be fully paid and non-assessable.
5. THE SERIES 97-F PREFERRED SHARE(S) REPRESENTED BY THIS CERTIFICATE AND THE
COMMON STOCK INTO WHICH THEY ARE CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THE SHARE(S) HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, OR A
PRIOR OPINION OF COUNSEL SATISFACTORY TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED UNDER THAT ACT.
In witness whereof the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be affixed
hereto this ___th day of October, 1997.
___________________________ ___________________________
CHAIRMAN OF THE BOARD SECRETARY
<PAGE>
The following abbreviations, when used in the inscription on the fact
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________ hereby sell, assign and transfer unto
Please insert Social Security or other
identifying number of assignee _________ _______
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
_____________________________________________________________Shares of capital
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
__________________________________________________________Attorney to transfer
the said stock on the books of the within named Corporation with full power of
substitution in the premises.
DATED: ___________________
_____________________________________________________________
NOTICE: The signature to this assignment must correspond with
the name as written upon the face of the certificate in every
particular, without alteration or enlargement or any change whatever.
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the 8% Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert the Preferred Stock
Certificate No. _________ into Shares of Common Stock of SGI INTERNATIONAL (the
"Company") according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of
Common Stock issuable to the undersigned upon conversion of the Preferred Stock
shall be made pursuant to an exemption from registration under the Act, or
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the "Act"), subject to any restrictions on sale or transfer set
forth in the Subscription Agreement between the Company and the original holder
of the Preferred Stock submitted herewith for conversion;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own or deemed to beneficially own (within the meaning of
the 1934 Act) 4.99% or more of the then issued and outstanding shares of the
Company.
_______________________ ______________________________
Date of Conversion Applicable Conversion Price
_______________________________________ _________________________________
Number of Common Shares upon Conversion $ Amount of Conversion
_______________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
* This original Preferred Stock and Notice of Conversion must be received by
the Company by the third business day following the Date of Conversion.
<PAGE>
REGULATION S NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Convertible Preferred Stock)
The undersigned hereby irrevocably elects to convert the above Preferred Stock
No. ____ into Shares of common stock of SGI INTERNATIONAL (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents and warrants that
(i) The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made in compliance with Regulation
S, pursuant to an exemption from registration under the Act, or pursuant to
registration of the Common Stock under the Securities Act of 1933, as amended
(the "Securities Act"), subject to any restrictions on sale or transfer set
forth in the Securities Subscription Agreement between the Company and the
original holder of the Preferred Stock submitted herewith for conversion.
(ii) The undersigned has not engaged in any transaction or series of
transactions that is a part of or a plan or scheme to evade the registration
requirements of the Securities Act.
(iii) Upon conversion pursuant to this Notice of Conversion, the undersigned
will not own or deemed to beneficially own (within the meaning of the
Securities Exchange Act of 1934) 4.99% or more of the then issued and
outstanding shares of the Company.
(iv) All of Subscriber's representations, warranties and covenants set forth in
the Agreement are true and correct as of the date hereof.
_______________________ ______________________________
Date of Conversion Applicable Conversion Price
_______________________________________ _________________________________
Number of Common Shares upon Conversion $ Amount of Conversion
_______________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
* The original Preferred Stock Certificate and Notice of Conversion must be
received by the Company by the third business day following the Date of
Conversion.
- -------------------------------
1Pursuant to Regulation S, a "U.S. Person" means: (i) any natural
person resident in the United States, (ii) any partnership or corporation
organized or incorporated under the laws of the United States, (iii) any 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) any agency or branch of a foreign
entity located in the United States, (vi) any 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) any 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), or (viii) any partnership or corporation if organized under the
laws of any foreign jurisdiction and formed by any U.S. Person principally for
the purpose of investing in securities not registered under the Act, unless its
organized or incorporated and owned by accredited investors (as defined in Rule
501(a) under the Act) who are not natural persons, estates or trusts.
EXHIBIT 4.2
Incorporated Under the Laws of Utah
Number Shares
97D-000 ***00***
This certifies that: [HOLDER]
is the registered Holder of [NUMBER OF SHARES]
FULLY PAID AND NON-ASSESSABLE
SERIES 97-D CONVERTIBLE PREFERRED SHARE(S),
$.01 PAR VALUE,
OF
=================== SGI INTERNATIONAL ===================
1. Each Series 97-D Convertible Preferred Share evidenced by this Certificate
is transferrable on the books of the Corporation by the Holder hereof, in
person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed.
2. A statement of the rights, preferences, privileges and restrictions granted
to or imposed on the respective classes and series of shares of the
Corporation, the Holders of those shares, and the authority of the Board of
Directors to determine variations for any existing or future class or series
may be obtained by any shareholder, on request and without charge from the
Secretary of the Corporation at SGI International, 1200 Prospect Street, Suite
325, La Jolla, CA 92037.
3. Series 97-D Convertible Preferred Shares have no voting rights.
4. Series 97-D Convertible Preferred Shares and the Common Stock into which
they are convertible will, upon issuance, be fully paid and non-assessable.
5. "THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR ANY EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN
EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION
SATISFACTORY TO THE COMPANY".
In witness whereof the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be affixed
hereto this day of August, 1997.
__________________________ _________________________
CHAIRMAN OF THE BOARD SECRETARY
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
Please insert Social Security or other
identifying number of assignee
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(Please print or typewrite name and address, including zip code, of assignee)
_____________________________Shares
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
DATED: ______________________________________
______________________________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
EXHIBIT 4.3
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT,
IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
STOCK PURCHASE WARRANT
To Purchase ______ Shares of Common Stock of
SGI INTERNATIONAL
THIS CERTIFIES that, for value received, _____________ (the "Investor"),
is entitled, upon the terms and subject to the conditions hereinafter set
forth, at any time on or after ten days after the date hereof and on or prior
to __________, 2002 (the "Termination Date") but not thereafter,
to subscribe for and purchase from SGI INTERNATIONAL, a Utah corporation (the
"Company"), ____________ (______) shares of Common Stock (the "Warrant
Shares"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be One Hundred Ten (110%) percent of the
average closing bid price on the OTC BULLETIN BOARD, over the five (5) day
trading period prior to October ___, 1997 (the "Closing Date"). The Exercise
Price and the number of shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. This Warrant is being issued in
connection with the 8% Convertible Preferred Stock Agreement dated on or about
October ___, 1997, in the amount of ___________ ($_________) Dollars (the
"Agreement") between the Company and Investor and is subject to its terms. In
the event of any conflict between the terms of this Warrant and the Agreement,
the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable,
in whole or in part, at the office or agency of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, upon exercise of the rights represented by
this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times one day after the
date hereof, in whole or in part, before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 12 below, by the surrender of this Warrant and the
Subscription Form annexed hereto duly executed, at the office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within five business days after the date on which this
Warrant shall have been exercised as aforesaid. Payment of the Exercise Price
of the shares may be by certified check or cashier's check or by wire transfer
to an account designated by the Company in an amount equal to the Exercise
Price multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Restrictions on Transfer. (a) This Warrant and any Warrant Shares may not
be sold, transferred, pledged, hypothecated or otherwise disposed
of except as follows: (i) to a person who, in the opinion of counsel to the
Company, is a person to whom this Warrant or the Warrant Shares may legally be
transferred without registration and without the delivery of a current
prospectus under the Act with respect thereto, and then only against receipt of
an agreement of such person to comply with the provisions of this Section 6(a)
with respect to any resale or other disposition of such securities; or (ii) to
any person upon delivery of a prospectus then meeting the requirements of the
Act relating to such securities and the offering thereof for such sale or
disposition, and thereafter to all successive assignees.
(b) Unless the Warrant Shares have been registered under the
Act, upon exercise of any of the Warrant and the issuance of any of the Warrant
Shares, all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR
TO U.S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144
UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the Warrant is being
purchased for the holder's own account, for investment purposes only, and not
for the account of any other person, and not with a view to distribution,
assignment, pledge or resale to others or to fractionalization in whole or in
part. The holder further represents, warrants and agrees as follows:
no other person has or will have a direct or indirect beneficial interest in
this Warrant and the holder will not sell, hypothecate or otherwise transfer
the Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its shareholder books or
records in any manner which interferes with the timely exercise of this
Warrant.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred
except (i) in a transaction registered under the Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents
and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like tenor
and dated as of such cancellation, in lieu of this Warrant or stock
certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken
or such right may be exercised on the next succeeding day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all or
substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is
disposed of (collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction
in which the consideration to be received by the Company or its shareholders
consists in part of consideration other than cash, the holder of this Warrant
shall have the right thereafter to purchase, by exercise of this Warrant and
payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which
it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) "Piggy-Back" Registration. The Holder of this Warrant shall have the right
to include all of the shares of Common Stock underlying this Warrant (the
"Registrable Securities") as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8) and must be notified
in writing of such filing; provided, however, that the holder of this Warrant
agrees it shall not have any piggy-back registration rights pursuant to this
Section 12(c) if the shares of Common Stock underlying this Warrant are freely
tradable in the United States pursuant to the provisions of Regulation D.
Holder shall have five (5) business days to notify the Company in writing as to
whether the Company is to include Holder or not include Holder as part of the
registration; provided, however, that if any registration pursuant to this
Section shall be underwritten, in whole or in part, the Company may require
that the Registrable Securities requested for inclusion pursuant to this
Section be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If in the good
faith judgment of the underwriter evidenced in writing of such offering only a
limited number of Registrable Securities should be included in such offering,
or no such shares should be included, the Holder, and all other selling
stockholders, shall be limited to registering such proportion of their
respective shares as shall equal the proportion that the number of shares of
selling stockholders permitted to be registered by the underwriter in such
offering bears to the total number of all shares then held by all selling
stockholders desiring to participate in such offering. Those Registrable
Securities which are excluded from an underwritten offering pursuant to the
foregoing provisions of this Section (and all other Registrable Securities held
by the selling stockholders) shall be withheld from the market by the Holders
thereof for a period, not to exceed one hundred eighty (180) days, which the
underwriter may reasonably determine is necessary in order to effect such
underwritten offering. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 12(c) prior to the
effectiveness of such registration whether or not any Warrant holder elected to
include securities in such registration. All registration expenses incurred by
the Company in complying with this Section 12(c) shall be paid by the Company,
exclusive of underwriting discounts, commissions and legal fees and expenses
for counsel to the holders of the Warrants.
13. Adjustments of Exercise Price and Number of Warrant Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. The Company may at its discretion, at
any time during the term of this Warrant, reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth computation by which
such adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common Stock upon
the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
shares of Common Stock may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the NASDAQ National
Market System or any domestic securities exchange upon which the Common Stock
may be listed.
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws and jurisdictions of New York and for all purposes
shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Common Stock
acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may
be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted
to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized.
Dated: October ___, 1997 SGI INTERNATIONAL
By:__________________________
Title:_______________________
<PAGE>
NOTICE OF EXERCISE
To: SGI INTERNATIONAL
(1) The undersigned hereby elects to purchase shares of Common
Stock of SGI INTERNATIONAL pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) By signing below, the undersigned hereby certifies that it
is not a U.S. Person as defined in Section 3.1 of the 8% Convertible Preferred
Stock Subscription Agreement, and that this Warrant is not being exercised on
behalf of a U.S. Person. In lieu of this certification, the undersigned has
attached hereto an opinion of its United States counsel, acceptable to the
Company, stating that the shares of Common Stock to be issued upon exercise of
this Warrant have been registered under the Securities Act of 1933 (the "Act"),
or that an exemption from registration under the Act is available for such
shares of Common Stock.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name
as is specified below:
_________________________________________
(Name)
_________________________________________
(Address)
_________________________________________
Dated:
______________________________________
Signature
NOTE: Signature must conform in all respects to holder's name as specified
on the face of the attached warrant.
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
__________________________________________________________ whose address is
____________________________________________________________________________
____________________________________________________________________________
Dated: ______________, 1997
Holder's Signature: _____________________________
Holder's Address: _______________________________
_______________________________
Signature Guaranteed: __________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT 4.4
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AS AMENDED, PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER REGULATION D PROMULGATED UNDER THE ACT, OR QUALIFIED UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION, OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY.
WARRANT CERTIFICATE NO. 97FA-00
TO PURCHASE SHARES OF COMMON STOCK OF
SGI INTERNATIONAL
THIS STOCK PURCHASE WARRANT ("Warrant") CERTIFIES that, for value received,
(the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from SGI INTERNATIONAL, a
Utah corporation (the "Company"), ( ) shares of Common Stock of the Company
("Warrant Shares") which number of shares equals the result obtained by
dividing fifty thousand dollars ($50,000) by the Exercise Price as defined in
this paragraph. The purchase price of one share of Common Stock of the Company
(the "Exercise Price") under this Warrant shall be $2.4375, which is the
average closing bid price of the shares of Common Stock of the Company over the
five (5) day trading period prior to the Closing Date as is defined in the
Series 97-D Preferred Stock Purchase Agreement by and between SGI International
and the Investor dated August 12, 1997 (the "Stock Purchase Agreement"). This
Warrant may be exercised any time on or after ten (10) days after the Closing
Date and on or prior to the earlier of the Termination Date defined as: (i)
five hundred and forty-five (545) days from the Closing Date; or (ii) sixty
(60) days after the date a registration statement is declared effective by the
Securities and Exchange Commission for the Common Stock of the Company
underlying this Warrant but not thereafter. This Warrant is being issued in
connection with the Stock Purchase Agreement. Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Stock Purchase Agreement. In the event of any conflict between the terms of
this Warrant and the Stock Purchase Agreement, the Stock Purchase Agreement
shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable,
in whole or in part, at the office or agency of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made at any time or times ten (10) days after the Closing Date,
in whole or in part, before the close of business on the Termination Date,
or such earlier date on which this Warrant may terminate as provided in
paragraph 12 below, by the surrender of this Warrant and the Notice of Exercise
annexed hereto duly executed, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books
of the Company) and upon payment of the Exercise Price of the shares thereby
purchased; whereupon the holder of this Warrant shall be entitled to receive a
certificate for the number of shares of Common Stock so purchased. If this
Warrant should be exercised in part only, the Company shall, upon surrender of
this Warrant certificate for cancellation, execute and deliver a new Warrant
certificate evidencing the rights of the holder of the Warrant to purchase the
balance of the shares of Common Stock purchasable hereunder. Certificates for
shares purchased hereunder shall be delivered to the holder hereof within five
business days after the date on which the Company receives: (1) the Notice of
Exercise of the Warrant, (2) delivery of payment and, (3) the Warrant (the date
on which the last of these three items is received by the Company is hereby
defined as (the "Receipt Exercise Date"). In the event that common stock
issuable upon exercise of the Warrant is not delivered within five (5) business
days of the Receipt Exercise Date, the Company shall pay to the Investor, in
immediately available funds, upon demand, as liquidated damages for such
failure and not as a penalty, for each $100,000 in value of the Warrant (pro
rated for larger or smaller amounts), which value is based on the Exercise
Price for the Warrant sought to be exercised, $500 for each of the first ten
(10) days and 1,000 per day thereafter that the shares of Common Stock issuable
upon exercise of the Warrant are not delivered, which liquidated damages shall
run from the sixth business day after the Receipt Exercise Date. Any and all
payments required pursuant to this paragraph shall be payable only in shares of
Common Stock and not in cash. The number of shares shall be determined by
dividing the total sum payable by the Exercise Price. Payment of the Exercise
Price of the shares shall be by certified check or cashier's check or by wire
transfer to an account designated by the Company in an amount equal to the
Exercise Price multiplied by the number of shares being purchased.
4. Fractional Shares. Any fractional shares issuable upon exercise of this
Warrant shall be rounded to the nearest whole share or, at the election of the
Company, the Company shall pay the holder thereof an amount in cash equal to
the closing bid price thereof.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the holder of this Warrant or in such name or names as may be directed by
the holder of this Warrant; provided, however, that in the event certificates
for shares of Common Stock are to be issued in a name other than the name of
the holder of this Warrant, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the holder
hereof; and provided further, that upon any transfer involved in the issuance
or delivery of any certificates for shares of Common Stock, the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse
it for any transfer tax incidental thereto.
6. Restrictions on Transfer.
(a) This Warrant and any Warrant Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (i) to a person who,
in the opinion of counsel to the Company, is a person to whom this Warrant or
the Warrant Shares may legally be transferred without registration and without
the delivery of a current prospectus under the Act with respect thereto, and
then only against receipt of an agreement of such person to comply with the
provisions of this Section 6(a) with respect to any resale or other disposition
of such securities; or (ii) to any person upon delivery of a prospectus then
meeting the requirements of the Act relating to such securities and the
offering thereof for such sale or disposition, and thereafter to all successive
assignees.
(b) Unless the Warrant Shares have been registered under the Act, upon
exercise of any of the Warrant and the issuance of any of the Warrant Shares,
all certificates representing Warrant Shares shall bear on the face thereof
substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN
EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION
SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the Warrant is being
purchased for the holder's own account, for investment purposes only, and not
for the account of any other person, and not with a view to distribution,
assignment, pledge or resale to others or to fractionalization in whole or in
part. The holder further represents, warrants and agrees as follows: no other
person has or will have a direct or indirect beneficial interest in this
Warrant and the holder will not sell, hypothecate or otherwise transfer the
Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its shareholder books
or records in any manner which interferes with the timely exercise of this
Warrant.
8. No Rights as Shareholder. No holder of this Warrant, as such, shall be
entitled to vote or receive dividends or be considered a shareholder of the
Company for any purpose, nor shall anything in this Warrant be construed to
confer on any holder of this Warrant, as such, any rights of a shareholder of
the Company or any right to vote, to give or withhold consent to corporate
action, to receive notice of meetings of shareholders, or to receive dividends
or subscription rights or otherwise.
9. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except:
(i) in a transaction registered under the Act; or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents
and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or stock certificate, and in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and upon reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the Company
will make and deliver a new Warrant or stock certificate of like tenor and
dated as of such cancellation, in lieu of this Warrant or stock certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken
or such right may be exercised on the next succeeding day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes: (i) to sell or otherwise convey all
or substantially all of its assets; or (ii) to effect a transaction (by merger
or otherwise) in which more than 50% of the voting power of the Company is
disposed of (collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Company or its shareholders consists solely
of cash, the Company shall give the holder of this Warrant thirty (30) days'
notice of the proposed effective date of the transaction specifying that the
Warrant shall terminate if the Warrant has not been exercised by the effective
date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction
in which the consideration to be received by the Company or its shareholders
consists in part of consideration other than cash, the holder of this Warrant
shall have the right thereafter to purchase, by exercise of this Warrant and
payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which
it would have owned or have been entitled to receive after the happening of
such transaction had this Warrant been exercised immediately prior thereto.
(c) Registration Rights. This Warrant is issued in connection with the Stock
Purchase Agreement. The Stock Purchase Agreement grants each holder of a
Warrant registration rights in accordance with the Registration Rights
Agreement in the form attached to the Stock Purchase Agreement as Exhibit D,
which is incorporated by this reference.
(d) Restrictions on Exercise of Warrants. The Investor or any subsequent
holder of this Warrant shall be prohibited from exercising any portion of the
Warrant which would result in the Investor being deemed the beneficial owner,
in accordance with the provisions of Rule 13d-3 of the 1934 Act, as amended, of
4.99% or more of the then issued and outstanding Common Stock of the Company.
13. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall: (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock; (ii) subdivide its outstanding shares of Common
Stock; (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. While it is under no obligation to
do so, the Company may in its sole discretion, at any time during the term of
this Warrant, reduce the then current Exercise Price to any amount and for any
period of time deemed appropriate by the Board of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant Shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of the OTC Bulletin Board or any domestic securities exchange upon which the
Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date, Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the Closing Date. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws and jurisdictions of New York and for all
purposes shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Warrant Shares
acquired upon the exercise of this Warrant, if not registered, may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted to
be given or delivered to the holders hereof of the Company shall be delivered
or shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized.
Dated: August ___, 1997 SGI INTERNATIONAL
By:__________________________________
Title:_______________________________
<PAGE>
NOTICE OF EXERCISE
To: SGI INTERNATIONAL
(1) The undersigned hereby elects to purchase ________ shares of Common Stock
of SGI INTERNATIONAL pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
______________________________________________
(Name)
______________________________________________
(Address)
______________________________________________
Dated:________________________________________
______________________________________________
Signature
NOTE: Signature must conform in all respects to holder's name as specified on
the face of the attached warrant.
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
_______________________________________________ whose address is
________________________________________________________________
________________________________________________________________
Dated: ______________, 1997
Holder's Signature: _____________________________
Holder's Address:________________________________
________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT 4.5
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH SECURITIES MAY
NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT,
IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY.
STOCK PURCHASE WARRANT 97FA-000
To Purchase _________ Shares of Common Stock of
SGI INTERNATIONAL
THIS CERTIFIES that, for value received, _______ (the "Investor"), is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
on or after ten days after the date hereof and on or prior to November 6, 2002
(the "Termination Date") but not thereafter, to subscribe for and purchase from
SGI INTERNATIONAL, a Utah corporation (the "Company"), _________ (______)
shares of Common Stock (the "Warrant Shares"). The purchase price of one share
of Common Stock (the "Exercise Price") under this Warrant shall be One Hundred
Ten (110%) percent of the average closing bid price on the OTC BULLETIN BOARD,
over the five (5) day trading period prior to November 6, 1997 (the "Closing
Date"). The Exercise Price and the number of shares for which the Warrant is
exercisable shall be subject to adjustment as provided herein. This Warrant is
being issued in connection with the 8% Convertible Preferred Stock Agreement
dated on or about November 6, 1997, between the Company and Investor and is
subject to its terms. In the event of any conflict between the terms of this
Warrant and the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable,
in whole or in part, at the office or agency of the Company by the holder
hereof in person or by duly authorized attorney, upon surrender of this Warrant
together with the Assignment Form annexed hereto properly endorsed.
2. Authorization of Shares. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant. Exercise of the purchase rights
represented by this Warrant may be made at any time or times one day after the
date hereof, in whole or in part, before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in paragraph 12 below, by the surrender of this Warrant and the
Subscription Form annexed hereto duly executed, at the office of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. Certificates for shares purchased hereunder shall be delivered to
the holder hereof within five business days after the date on which this
Warrant shall have been exercised as aforesaid. Payment of the Exercise Price
of the shares may be by certified check or cashier's check or by wire transfer
to an account designated by the Company in an amount equal to the Exercise
Price multiplied by the number of shares being purchased.
4. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
6. Restrictions on Transfer.
(a) This Warrant and any Warrant Shares may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except as follows: (i) to a person who,
in the opinion of counsel to the Company, is a person to whom this Warrant or
the Warrant Shares may legally be transferred without registration and without
the delivery of a current prospectus under the Act with respect thereto, and
then only against receipt of an agreement of such person to comply with the
provisions of this Section 6(a) with respect to any resale or other disposition
of such securities; or (ii) to any person upon delivery of a prospectus then
meeting the requirements of the Act relating to such securities and the
offering thereof for such sale or disposition, and thereafter to all successive
assignees.
(b) Unless the Warrant Shares have been registered under the
Act, upon exercise of any of the Warrant and the issuance of any of the Warrant
Shares, all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR
TO U.S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144
UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The holder of the Warrant agrees and acknowledges that the Warrant is being
purchased for the holder's own account, for investment purposes only, and not
for the account of any other person, and not with a view to distribution,
assignment, pledge or resale to others or to fractionalization in whole or in
part. The holder further represents, warrants and agrees as follows:
no other person has or will have a direct or indirect beneficial interest in
this Warrant and the holder will not sell, hypothecate or otherwise transfer
the Warrant except in accordance with the Act thereunder and applicable state
securities laws or unless, in the opinion of counsel for the holder acceptable
to the Company, an exemption from the registration requirements of the Act and
such laws is available.
7. Closing of Books. The Company will at no time close its shareholder books
or records in any manner which interferes with the timely exercise of this
Warrant.
8. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. If, however, at the
time of the surrender of this Warrant and purchase the holder hereof shall be
entitled to exercise this Warrant, the shares so purchased shall be and be
deemed to be issued to such holder as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been exercised.
9. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly executed
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the registered holder hereof at the
address of such holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred
except (i) in a transaction registered under the Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the holder of this Warrant to the effect that the
transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company represents
and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant or stock certificate, and in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like tenor
and dated as of such cancellation, in lieu of this Warrant or stock
certificate.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken
or such right may be exercised on the next succeeding day not a legal holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all or
substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is
disposed of (collectively, a "Sale or Merger Transaction"), in which the
consideration to be received by the Company or its shareholders
consists solely of cash, the Company shall give the holder of this Warrant
thirty (30) days' notice of the proposed effective date of the transaction
specifying that the Warrant shall terminate if the Warrant has not been
exercised by the effective date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger Transaction
in which the consideration to be received by the Company or its shareholders
consists in part of consideration other than cash, the holder of this Warrant
shall have the right thereafter to purchase, by exercise of this Warrant and
payment of the aggregate Exercise Price in effect immediately prior to such
action, the kind and amount of shares and other securities and property which
it would have owned or have been entitled to receive after the happening
of such transaction had this Warrant been exercised immediately prior thereto.
(c) "Piggy-Back" Registration. The Holder of this Warrant shall have the
right to include all of the shares of Common Stock underlying this Warrant (the
"Registrable Securities") as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8) and must be notified
in writing of such filing; provided, however, that the holder of this Warrant
agrees it shall not have any piggy-back registration rights pursuant to this
Section 12(c) if the shares of Common Stock underlying this Warrant are freely
tradable in the United States pursuant to the provisions of Regulation D.
Holder shall have five (5) business days to notify the Company in writing as to
whether the Company is to include Holder or not include Holder as part of the
registration; provided, however, that if any registration pursuant to this
Section shall be underwritten, in whole or in part, the Company may require
that the Registrable Securities requested for inclusion pursuant to this
Section be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If in the good
faith judgment of the underwriter evidenced in writing of such offering only a
limited number of Registrable Securities should be included in such offering,
or no such shares should be included, the Holder, and all other selling
stockholders, shall be limited to registering such proportion of their
respective shares as shall equal the proportion that the number of shares of
selling stockholders permitted to be registered by the underwriter in such
offering bears to the total number of all shares then held by all selling
stockholders desiring to participate in such offering. Those Registrable
Securities which are excluded from an underwritten offering pursuant to the
foregoing provisions of this Section (and all other Registrable Securities held
by the selling stockholders) shall be withheld from the market by the Holders
thereof for a period, not to exceed one hundred eighty (180) days, which the
underwriter may reasonably determine is necessary in order to effect such
underwritten offering. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 12(c) prior to the
effectiveness of such registration whether or not any Warrant holder elected to
include securities in such registration. All registration expenses incurred by
the Company in complying with this Section 12(c) shall be paid by the Company,
exclusive of underwriting discounts, commissions and legal fees and expenses
for counsel to the holders of the Warrants.
13. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of any of the following.
In case the Company shall (i) declare or pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issue any shares of its capital stock
in a reclassification of the Common Stock, the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
14. Voluntary Adjustment by the Company. The Company may at its discretion,
at any time during the term of this Warrant, reduce the then current Exercise
Price to any amount and for any period of time deemed appropriate by the Board
of Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant shares or number or
kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall promptly mail by registered or certified mail, return receipt requested,
to the holder of this Warrant notice of such adjustment or adjustments setting
forth the number of Warrant Shares (and other securities or property)
purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth computation by which
such adjustment was made. Such notice, in absence of manifest error, shall be
conclusive evidence of the correctness of such adjustment.
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of the purchase rights under this
Warrant. The Company will take all such reasonable action as may be necessary
to assure that such shares of Common Stock may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements
of the NASDAQ National Market System or any domestic securities exchange upon
which the Common Stock may be listed.
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued
and delivered by the Company on the date hereof. This Warrant shall be binding
upon any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws and jurisdictions of New York and for all purposes
shall be construed in accordance with and governed by the laws of said
state without regard to its conflict of law, principles or rules.
(b) Restrictions. The holder hereof acknowledges that the Common Stock
acquired upon the exercise of this Warrant, if not registered, may
have restrictions upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may
be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted
to be given or delivered to the holders hereof of the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized.
Dated: October ___, 1997 SGI INTERNATIONAL
By:__________________________
Title:_______________________
<PAGE>
NOTICE OF EXERCISE
To: SGI INTERNATIONAL
(1) The undersigned hereby elects to purchase shares of Common
Stock of SGI INTERNATIONAL pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) By signing below, the undersigned hereby certifies that it
is not a U.S. Person as defined in Section 3.1 of the 8% Convertible Preferred
Stock Subscription Agreement, and that this Warrant is not being exercised on
behalf of a U.S. Person. In lieu of this certification, the undersigned has
attached hereto an opinion of its United States counsel, acceptable to the
Company, stating that the shares of Common Stock to be issued upon exercise of
this Warrant have been registered under the Securities Act of 1933 (the "Act"),
or that an exemption from registration under the Act is available for such
shares of Common Stock.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name
as is specified below:
_________________________________________
(Name)
_________________________________________
(Address)
_________________________________________
Dated:
______________________________________
Signature
NOTE: Signature must conform in all respects to holder's name as specified
on the face of the attached warrant.
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are
hereby assigned to
__________________________________________________________ whose address is
____________________________________________________________________________
____________________________________________________________________________
Dated: ______________, 1997
Holder's Signature: _____________________________
Holder's Address: _______________________________
_______________________________
Signature Guaranteed: __________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated
the ____ day of August 1997, between ____________________________ (the "Holder"
or "Holders") issued pursuant to the Series 97-D Preferred Stock Purchase
Agreement (the "Stock Purchase Agreement") of even date herewith, and SGI
INTERNATIONAL, a Utah corporation having its principal place of business at
1200 Prospect Street, Suite 325, La Jolla, CA 92037 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement, the
Holders are purchasing from the Company, pursuant to the Stock Purchase
Agreement, the Series 97-D Preferred Stock (the "Preferred Stock") and three
(3) Warrants ("the Warrants"). The Common Stock of the Company into which such
Preferred Stock is convertible, and the Common Stock of the Company underlying
the Warrants are collectively referred to as the "Stock" or
"Securities" of SGI International.
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the Securities.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Securities; provided, however, that
with respect to any particular Registrable Security, such security shall cease
to be a Registrable Security when, as of the date of determination, (i) it has
been effectively registered under the Securities Act of 1933, as amended (the
"Act") and disposed of pursuant thereto, (ii) registration under the Act is no
longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144, or (iii) it has ceased to be outstanding.
The term "Registrable Securities" means any and/or all of the securities
falling within the foregoing definition of a "Registrable Security". In the
event of any merger, reorganization, consolidation, recapitalization or other
change in corporate structure affecting the Common Stock, such adjustment shall
be made in the definition of "Registrable Security" as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant to this
Section 1.
Section 2(a). Restrictions on Transfer. The Holder acknowledges
and understands that prior to the registration of the Securities as
provided herein, the Securities are "restricted securities" as defined in Rule
144 promulgated under the Act. The Holder understands that no disposition or
transfer of the Securities may be made by Holder in the absence of (i) an
opinion of counsel reasonably satisfactory to the Company that such transfer
may be made or (ii) a registration statement under the Act ("Registration
Statement") is then in effect with respect thereto. Each Holder will cause any
proposed purchaser, assignee, transferee or pledgee of the Securities held by a
Holder to agree to take and hold such securities subject to the provisions of
this Agreement.
Section 2(b). Restrictive Legend. Each certificate
representing: (i) the Securities including the Common Stock of the Company
issued or issuable upon conversion of the Preferred Stock and the Common Stock
issued or issuable upon exercise of the Warrants; (ii) any other securities
issued in respect of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted by the provisions of Section 2(c) below) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF THESE
SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
Each Holder consents to the Company making a notation on its records
and giving instructions to any transfer agent of the Securities in order
to implement the restrictions on transfer established in this Section 2.
Section 2(c) Notice of Proposed Transfers. The Holder of each
certificate representing Registrable Securities, by acceptance thereof, agrees
to comply in all respects with the provisions of this Agreement. Prior to any
proposed sale, assignment, transfer or pledge of any Registrable Securities
other than: (i) transfers not involving a change in beneficial ownership; or
(ii) transactions involving the distribution without consideration of
Registrable Securities by any of the Holders to any of their partners, or
retired partners, or to the estate of any of their partners or retired
partners, unless there is in effect a Registration Statement under the Act
covering the proposed transfer, the Holder thereof shall give written notice
to the Company of such Holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such Holder's expense by
either: (i) an unqualified written opinion of legal counsel who shall be, and
whose legal opinion shall be, reasonably satisfactory to the Company and
addressed to the Company, to the effect that the proposed transfer of the
Registrable Securities may be effected without registration under the Act; or
(ii) a "no action" letter from the Securities and Exchange Commission ("SEC")
to the effect that the transfer of such securities without registration will
not result in a recommendation by the staff of the SEC that action be taken
with respect thereto, whereupon the Holder of such Registrable Securities
shall be entitled to transfer such Registrable Securities in accordance with
the terms of the notice delivered by the Holder to the Company. Each
certificate evidencing the Registrable Securities transferred as above provided
shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 2(b) above, except that
such certificate shall not bear such restrictive legend if in the opinion of
counsel for such Holder and the Company such legend is not required in order
to establish compliance with any provision of the Act.
Section 3. Registration Rights.
(a) Within a reasonable time period after the date hereof the Company
will prepare and file with the SEC a Registration Statement, on one occasion,
at the sole expense of the Company (except as provided in Section 3(c)
hereof), in respect of all Holders of Registrable Securities, and to use its
best efforts to cause such Registration Statement to be declared effective by
the SEC. The Company shall register a number of shares of Common Stock equal
to: 1) the actual number of shares of Common Stock underlying the Warrants,
plus 2) a number of shares of Common Stock underlying the Preferred Stock (the
"Conversion Shares") multiplied by 2.3 (the "Registered Shares"). This original
calculation of Conversion Shares will be performed assuming conversion of the
Preferred Stock in accordance with the Certificate of Designation and assuming
a conversion date two days prior to the filing of the Registration Statement.
Upon receipt of written notice of demand by all Holders then owning Preferred
Stock, the Company agrees to file one amendment to the effective Registration
Statement (the "Amendment") to increase the amount of Registered Shares (this
increase shall be defined as the "Additional Shares"). The Company shall comply
with such demand unless:
1) such demand is received 300 days after Closing, or
2) such demand is received from Holder(s) collectively owning less than fifty
(50) shares of Preferred Stock, or
3) the amount of Remaining Registered Shares (defined as the Registered Shares
not issued to Holders as of the demand date) is greater than 90% of the amount
of Remaining Conversion Shares (defined as the number of shares of Common Stock
underlying the outstanding Preferred Stock assuming conversion on the demand
date, in accordance with the Certificate of Designation).
The Additional Shares to be included in the Amendment will be determined on the
demand date by multiplying the Remaining Conversion Shares by 2.3, less the
Remaining Registered Shares. The Company shall not be obligated to take any
action to effect any such registration qualification or compliance pursuant to
this Section 3(a), in any particular jurisdiction, in which the Company would
be required to execute a general consent to service of process in effecting
such registration, qualification or compliance other than New York, unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Act;
(b) The Company will promptly give written notice of the
proposed registration or qualification to all other Holders. The Company will
use its best efforts to maintain any Registration Statement or post-effective
amendment filed under this Section 3 hereof current under the Act until the
earlier of (i) the date that all of the Registrable Securities have been sold
pursuant to the Registration Statement, (ii) the date the Holders thereof
receive an opinion of counsel that the Registrable Securities may be sold under
the provisions of Rule 144, or (iii) the second anniversary of the effective
date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and
costs incurred by the Company in connection with the preparation and filing of
any Registration Statement under subparagraph 3(a) and in complying with
applicable securities and Blue Sky laws (including, without limitation, all
attorneys' fees) shall be borne by the Company. The Holder shall bear the cost
of underwriting discounts and commissions, if any, applicable to the
Registrable Securities being registered and the fees and expenses of its
counsel. The Company shall use its best efforts to qualify any of the
Securities for sale in New York and such states as such Holder reasonably
designates and do any and all other acts and things, which may be necessary or
desirable to enable the Holder to consummate the public sale or other
disposition of the Registrable Securities, all at no expense to the Holder,
except as set forth herein, and shall furnish indemnification in the manner
provided in Section 9 hereof. The Company at its expense will supply the Holder
with copies of such Registration Statement and the prospectus or offering
circular included therein and other related documents in such quantities as
may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to include a Holder's
Registrable Securities in any Registration Statement, which is to be filed if,
in the opinion of counsel for both the Holder and the Company
(or, should they not agree, in the opinion of another counsel experienced in
securities law matters acceptable to counsel for the Holder and the Company),
the proposed offering or other transfer as to which such registration is
requested is exempt from applicable federal and state securities laws and would
result in all purchasers or transferees obtaining securities which are not
"restricted securities", as defined in Rule 144 under the Act.
(e) In the event the Registration Statement to be filed by the
Company pursuant to Section 3(a) above is not declared effective by the SEC
within one hundred fifty (150) days of the Closing Date, then the Company will
pay Holder by wire transfer, as liquidated damages for such failure and not as
a penalty, one and one-half percent (1.5%) of the principal amount of the
Securities for every thirty day period beginning 150 days from the Closing
Date, until the earlier to occur of: (i) the effective date of the Registration
Statement, or (ii) one year from the Closing Date. Such one and one-half
percent (-1.5%) penalty shall be prorated for periods of time which are less
than 30 days beginning 150 days after the Closing Date. If the Company does not
remit the damages to the Holder within three (3) business days of each thirty
(30) day period as set forth above, the Company will pay the Holder reasonable
costs of collection, including attorneys fees, in addition to the liquidated
damages. Such payment shall be made to the Holder immediately if the
registration of the Securities are not effected; provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The
registration of the Securities pursuant to this provision shall not affect or
limit Holder's other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company from
selling or registering securities pursuant to any registration statement in
which it is required to include Registrable Securities pursuant to this Section
3.
Section 4. Cooperation with Company. Holders will cooperate
with the Company in all respects in connection with this Agreement, including,
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible:
(a) prepare and file with the Commission such amendments and supplements
to such Registration Statement and the Prospectus used in connection therewith
and use its best efforts as may be necessary to keep such Registration
Statement effective for at least one hundred eighty (180) days or until the
distribution described in the Registration Statement has been completed if
longer, and to comply with the provisions of the Act with respect to the sale
or other disposition of all Securities covered by such Registration Statement
when the Holder or Holders of such Securities shall desire to sell or otherwise
dispose of the same (including prospectus supplements with respect to the sales
of securities from time to time in connection with a Registration Statement
pursuant to Rule 415 of the Commission);
(b) furnish to each Holder such reasonable numbers of copies
of a summary prospectus or other prospectus, including a preliminary prospectus
or any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the Securities owned by such Holder;
(c) use its best efforts to register and qualify the Securities
covered by such Registration Statement under such other securities or
blue sky laws of New York and such jurisdictions as the Holder shall reasonably
request, and do any and all other acts and things which may be necessary or
advisable to enable each Holder to consummate the public sale or other
disposition of the Registerable Securities in such jurisdictions , all at no
expense to the Holder except as set forth in Section 3(c), provided, that the
Company shall not for any such purpose be required to qualify to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
(d) use its best efforts to list such Securities on the OTC Bulletin
Board or any securities exchange on which any securities of the Company
are then listed, if the listing of such securities is then permitted under the
rules of such exchange or OTC Bulletin Board;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such Registration Statement, at any time when a prospectus relating thereto
covered by such Registration Statement is required to be delivered under the
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such Registration Statement, as then in
effect, includes an 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 in the light of the circumstances then existing.
Section 6. Information by Holder. Each Holder of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
6.
Section 7. Assignment. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. In the event of a transfer of
the rights granted under this Agreement, the Holders agree that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company, including without limitation that the assignee
or transferee is reasonably acceptable to the Company, that written notice of
such assignment is promptly given to the Company, that such assignee agrees to
be bound by the provisions of this Agreement, and that such transfer or
assignment is effected in accordance with applicable securities laws. This
Agreement is binding upon and inures to the benefit of the parties hereto and
their respective heirs, successors and permitted assigns.
Section 8. Termination of Registration Rights. The rights
granted pursuant to this Agreement shall terminate as to each Holder (and
permitted transferee under Section 7 above) upon the occurrence of any of the
following:
(a) all such Holder's Securities subject to this Agreement have been
registered, and the effectiveness of such Registration has been maintained
for one (1) year from the Closing; or
(b) such Holder's Securities subject to this Agreement may be
sold without such registration pursuant to Rule 144, Rule 144(A), or Reg S
promulgated by the SEC pursuant to the Act; or
(c) such Holder's Securities subject to this Agreement can be sold pursuant
to Rule 144(k).
Section 9. Indemnification.
(a) In the event of the filing of any Registration Statement with respect
to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Act ("Distributing Holders")
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Distributing Holders may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement of any material fact
contained in any such Registration Statement, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission made
in such Registration Statement, preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the Company by
the Distributing Holders, specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof); arise out of or are based upon any untrue statement of any
material fact contained in a Registration Statement requested by such
Distributing Holder, or any related preliminary prospectus, final prospectus,
offering circular, notification or amendment or supplement thereto, or arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement or
omission was made in such Registration Statement, preliminary prospectus, final
prospectus, offering circular, notification or amendment or supplement thereto
in reliance upon, and in conformity with, written information furnished to the
Company by such Distributing Holder, specifically for use in the preparation
thereof. This indemnity agreement will be in addition to any liability which
the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject to
the provisions herein stated and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is the Distributing Holder, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 10. Lockup Agreement. Each Holder of Registrable
Securities and each transferee pursuant to Section 7 hereof agrees, in
connection with any registration of the Company's Securities, upon request of
the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriter, as the case may be, for such period
of time (not to exceed 150 days) from the effective date of such registration
as the Company or the underwriters may specify. The Holders of Registrable
Securities agree that the Company may instruct its transfer agent to place
stop-transfer notations in its records to enforce the provisions of this
Section 10.
Section 11. Notices. Any notice pursuant to this Agreement by the Company
or by the Holder shall be in writing and shall be deemed to have been duly
given if delivered by (i) hand, (ii) by facsimile and followed by mail delivery
or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) if to the Holder, to its, his or her address set forth on the signature
page of this Agreement, with a copy to the person designated in the Agreement;
(b) if to the Company, at the address set forth herein, or to such other
address as any such party may designate by notice to the other party.
Notices shall be deemed given at the time they are delivered personally or five
(5) days after they are mailed in the manner set forth above. If notice is
delivered by facsimile, excepting a notice of conversion, to the Company and
followed by mail, delivery shall be deemed given two (2) days after such
facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 14. Governing Law, Venue. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of New York,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State of New York
or the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state in the U.S. having jurisdiction
over the party against whom such judgment was obtained, and each party hereby
waives any defenses available to it under local law and agrees to the
enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 15. Severability/Defined Terms. If any provision of
this Agreement shall for any reason be held invalid or unenforceable, such
invalidity or unenforceablity shall not affect any other provision hereof and
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the Stock Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, on the day and year first above written.
Attest: SGI INTERNATIONAL
By:______________________ By:__________________________
Name: Name:
Title:_____________________ Title:________________________
PURCHASER:
______________________________
By:_________________________
Name:
Title:________________________
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated the __ day of
October, 1997, between ____________ (the "Purchaser", "Holder" or "Holders")
issued pursuant to the 8% Convertible Preferred Stock Subscription Agreement of
even date herewith, and SGI INTERNATIONAL, a Utah corporation having its
principal place of business at 1200 Prospect Street, Suite 325, La Jolla, CA
92037 (the "Issuer" or "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement, the
Holders are purchasing from the Company, pursuant to a 8% Convertible Preferred
Stock Subscription Agreement dated the date hereof, upon conversion thereof, an
aggregate of up to Two Million ($2,000,000) Dollars principal amount of Shares
of Common Stock and Warrants (hereinafter collectively referred to as the
"Stock" or "Securities" of SGI International); and
WHEREAS, the Company desires to grant to the Holders the registration rights
set forth herein with respect to the Securities.
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein the term
"Registrable Security" means each of the Securities; provided, however, that
with respect to any particular Registrable Security, such security shall cease
to be a Registrable Security when, as of the date of determination, (i) it has
been effectively registered under the Securities Act of 1933, as amended (the
"Act") and disposed of pursuant thereto, (ii) registration under the Act is no
longer required for the immediate public distribution of such security as a
result of the provisions of Rule 144 or Regulation S, or (iii) it has ceased to
be outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 1.
Section 2. Restrictions on Transfer. The Holder acknowledges
and understands that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Act. The Holder understands that no disposition or
transfer of the Securities may be made by Holder in the absence of (i) an
opinion of counsel reasonably satisfactory to the Company that such transfer
may be made or (ii) a registration statement under the Act is then in effect
with respect thereto.
Section 3. Registration Rights.
(a) At any time commencing after the date hereof, any Holder
or Holders of the Securities as defined in the Agreement, shall have the right,
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and
Exchange Commission ("SEC"), on one occasion a registration statement (the
"Registration Statement"), at the sole expense of the Company (except as
provided in Section 3(c) hereof), in respect of all holders of Registrable
Securities, so as to permit a non-underwritten public offering and sale of the
Registrable Securities under the Act, provided, the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 3(a) in any jurisdiction in which the
Company would be required to qualify as a dealer in Securities, under the
Securities or blue sky laws of such jurisdiction. The number of Conversion
Shares to be registered shall be two hundred (200%) percent of the number of
such shares that would be required, if all of the Securities were converted in
accordance with the Certificate of Designation and assuming a conversion date 5
days prior to the filing of the Registration Statement
(b) The Company will use its best efforts to maintain any Registration
Statement or post-effective amendment filed under this Section 3 hereof current
under the Act until the earlier of (i) the date that all of the Registrable
Securities have been sold pursuant to the Registration Statement, (ii) the date
the holders thereof receive an opinion of counsel that the Registrable
Securities may be sold under the provisions of Rule 144, or (iii) the first
anniversary of the effective date of the Registration Statement.
(c) All fees, disbursements and out-of-pocket expenses and costs incurred by
the Company in connection with the preparation and filing of any Registration
Statement under subparagraph 3(a) and in complying with applicable securities
and Blue Sky laws (including, without limitation, all attorneys' fees) shall be
borne by the Company. The Holder shall bear the cost of underwriting discounts
and commissions, if any, applicable to the Registrable Securities being
registered and the fees and expenses of its counsel. The Company shall use its
best efforts to qualify any of the securities for sale in such states as such
Holder reasonably designates and shall furnish indemnification in the manner
provided in Section 9 hereof. However, the Company shall not be required to
qualify in any state which will require an escrow or other restriction relating
to the Company and/or the sellers. The Company at its expense will supply the
Holder with copies of such Registration Statement and the prospectus or
offering circular included therein and other related documents in such
quantities as may be reasonably requested by the Holder.
(d) The Company shall not be required by this Section 3 to include a Holder's
Registrable Securities in any Registration Statement which is to be filed if,
in the opinion of counsel for both the Holder and the Company (or, should they
not agree, in the opinion of another counsel experienced in securities law
matters acceptable to counsel for the Holder and the Company) the proposed
offering or other transfer as to which such registration is requested is exempt
from applicable federal and state securities laws and would result in all
purchasers or transferees obtaining securities which are not "restricted
securities", as defined in Rule 144 under the Act.
(e) From the date of the Demand Registration Request, the Company will use its
best efforts to cause the registration statement to become effective within
sixty (60) days from such demand. If the registration statement is not
declared effective by the SEC by the sixty first (61st) day following the date
the Demand Registration Request is received by the Company, the Holder of the
Series 97-F Preferred Stock has the option of either (a) converting up to fifty
(50%) percent of the Series 97-F Preferred Stock pursuant to the provisions of
Regulation S and/or (to the extent that the Holder converts less than fifty
(50%) percent of the Series 97-F Preferred Stock pursuant to the provisions of
Regulation S, then the following liquidated damages shall be pro rated) (b)
notwithstanding any contrary or different provisions in any other agreement or
document, after the ninety-first (91st) day following the Demand Registration
Request by the Holder of the Series 97-F Preferred Stock requiring the Company
to pay to the Holder thereof liquidated damages, in cash, at the rate of one
and one-half (1.5%) percent of the Liquidation Value (as defined in the
Certificate of Designation) for the first month, and three (3%) percent of the
Liquidation Value for each month thereafter until the Registration Statement is
declared effective by the SEC.
If a form S-3 Registration Statement is not available to the Company, and the
Company shall file a Form SB-2 Registration Statement or other registration
statement, the period of time during which the Registration Statement must be
declared effective after the date the Demand Registration Request is received
by the Company for the purpose of determining liquidated damages shall increase
from sixty one (61) days to one-hundred and twenty one (121) days.
Notwithstanding the proceeding sentence, if the Registration Statement for the
common stock underlying the Series 97-F Preferred Stock is not declared
effective by the one-hundred and twenty first (121st) day following the date
the Demand Registration Request is received by the Company, the holder of the
Series 97-F Preferred Stock has the option of either (a) converting any portion
of the remaining shares of Common Stock underlying the Series 97-F Preferred
Stock pursuant to the provisions of Regulation S and/or (to the extent that the
Holder converts less than its position of the Series 97-F Preferred Stock
pursuant to the provisions of Regulation S, then the following liquidated
damages shall be pro rated) (b) in the event the Holder does not exercise this
option, or exercise this option in part, then the Company shall pay to the
Holder thereof liquidated damages, in cash, at the rate of one and one-half
(1.5%) percent of the Liquidation Value (as defined in the Certificate of
Designation) for the first month, and three (3%) percent of the Liquidation
Value for each month thereafter until the Registration Statement is declared
effective by the SEC.
If the Company does not remit the damages to the Purchaser as set forth above,
the Company will pay the Purchaser reasonable costs of collection, including
attorneys fees, in addition to the liquidated damages. Such payment shall be
made to the Purchaser immediately if the registration of the Securities are not
effected; provided, however, that the payment of such liquidated damages shall
not relieve the Company from its obligations to use its best efforts register
the Securities pursuant to this Section. Except as set forth herein, the
registration of the Securities pursuant to this provision shall not affect or
limit Purchaser's other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the Company from selling
securities pursuant to any Registration Statement in which it is required to
include Registrable Securities pursuant to this Section 3.
Section 4. Cooperation with Company. Holders will cooperate with the Company
in all respects in connection with this Agreement, including, timely supplying
all information reasonably requested by the Company and executing and returning
all documents reasonably requested in connection with the registration and sale
of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the Company is required
by any of the provisions of this Agreement to effect the registration of any of
the Registrable Securities under the Act, the Company shall (except as
otherwise provided in this Agreement), as expeditiously as possible:
(a) prepare and file with the Commission such amendments and supplements to
such registration statement and the Prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Act with respect to the sale or other disposition
of all securities covered by such registration statement when the Holder or
Holders of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities
from time to time in connection with a registration statement pursuant to Rule
415 of the Commission);
(b) furnish to each Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
(c) use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or blue sky laws of
such jurisdictions as the Holder, shall reasonably request, and do any and all
other acts and things which may be necessary or advisable to enable each Holder
to consummate the public sale or other disposition in such jurisdiction of the
securities owned by such Holder, except that the Company shall not for any such
purpose be required to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified or to file therein any general
consent to service of process;
(d) use its best efforts to maintain its listing on the OTC Bulletin Board or
any securities exchange on which any securities of the Company
is then listed, if the listing of such securities is then permitted under the
rules of such exchange;
(e) enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
(f) notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in
effect, includes an 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 in the light of the circumstances then existing.
Section 6. Information by Holder. Each Holder of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this Section
6.
Section 7. Assignment. The rights granted the Holders under this Agreement
shall not be assigned without the written consent of the Company,
which consent shall not be unreasonably withheld. In the event of a transfer of
the rights granted under this Agreement, the Holders agree that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company. This Agreement is binding upon and inures to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
Section 8. Termination of Registration Rights. The rights
granted pursuant to this Agreement shall terminate as to each Investor (and
permitted transferee under Section 7 above) upon the occurrence of any of the
following:
(a) all such Holder's securities subject to this Agreement have been
registered;
(b) such Holder's securities subject to this Agreement may be
sold without such registration pursuant to Rule 144 or Reg S promulgated by the
SEC pursuant to the Act;
(c) such Holder's securities subject to this Agreement can be
sold pursuant to Rule 144(k); or
(d) one years from the issuance of the Registrable Security.
Section 9. Indemnification.
(a) In the event of the filing of any Registration Statement with respect
to Registrable Securities pursuant to Section 3 hereof, the Company
agrees to indemnify and hold harmless the Holder and each person, if any, who
controls the Holder within the meaning of the Act ("Distributing Holders")
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Distributing Holders may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such Registration Statement, or any
related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement, preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by the Distributing Holders, specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Distributing Holder agrees that it will indemnify and
hold harmless the Company, and each officer, director of the Company or person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
officer, director or controlling person may become subject under the Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof); arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in a Registration
Statement requested by such Distributing Holder, or any related preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such Registration Statement,
preliminary prospectus, final prospectus, offering circular, notification or
amendment or supplement thereto in reliance upon, and in conformity with,
written information furnished to the Company by such Distributing Holder,
specifically for use in the preparation thereof and, provided further, that the
indemnity agreement contained in this Section 9(b) shall not inure to the
benefit of the Company with respect to any person asserting such loss, claim,
damage or liability who purchased the Registrable Securities which are the
subject thereof if the Company failed to send or give (in violation of the Act
or the rules and regulations promulgated thereunder) a copy of the prospectus
contained in such Registration Statement to such person at or prior to the
written confirmation to such person of the sale of such Registrable Securities,
where the Company was obligated to do so under the Act or the rules and
regulations promulgated thereunder. This indemnity agreement will be in
addition to any liability which the Distributing Holders may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
the indemnifying party from any liability which it may have to any indemnified
party otherwise than as to the particular item as to which indemnification is
then being sought solely pursuant to this Section. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, assume the defense thereof, subject to
the provisions herein stated and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The indemnified party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall not be at the expense
of the indemnifying party if the indemnifying party has assumed the defense of
the action with counsel reasonably satisfactory to the indemnified party;
provided that if the indemnified party is the Distributing Holder, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf
of the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances, be liable only for the
reasonable fees and expenses of one separate firm of attorneys for the
Distributing Holder, which firm shall be designated in writing by the
Distributing Holder). No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld.
Section 10. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Distributing
Holder or the Company makes a claim for indemnification pursuant to Section 9
hereof but is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 9 hereof provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any Distributing Holder or the
Company, then the Company and the applicable Distributing Holder shall
contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all
attorneys' fees), in either such case (after contribution from others) on the
basis of relative fault as well as any other relevant equitable considerations.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the applicable Distributing Holder,
on the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Distributing Holder agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in this Section. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
Section 11. Notices. Any notice pursuant to this Agreement by the Company or
by the Holder shall be in writing and shall be deemed to have been duly given
if delivered by (i) hand, (ii) by facsimile and followed by mail delivery
or (iii) if mailed by certified mail, return receipt requested, postage
prepaid, addressed as follows:
(a) If to the Holder, to its, his or her address set forth on the signature
page of this Agreement, with a copy to the person designated in the Agreement.
(b) If to the Company, at the address set forth herein, or to such other
address as any such party may designate by notice to the other party. Notices
shall be deemed given at the time they are delivered personally or five (5)
days after they are mailed in the manner set forth above. If notice is
delivered by facsimile to the Company and followed by mail, delivery shall be
deemed given two (2) days after such facsimile is sent.
Section 12. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 13. Headings. The headings in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
Section 14. Governing Law, Venue. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of New York,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the State of New
York or the state courts of the State of New York in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions. Each
party hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
Section 15. Severability/Defined Terms. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such
invalidity or unenforceablity shall not affect any other provision hereof and
this Agreement shall be construed as if such invalid or unenforceable provision
had never been contained herein. Terms not otherwise defined herein shall be
defined in accordance with the 8% Convertible Preferred Stock Subscription
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, on the day and year first above written.
Attest: SGI INTERNATIONAL
By:__________________________ By:___________________________
Name: Name:
Title:_______________________ Title:________________________
PURCHASER:
______________________________
By:___________________________
Officer
EXHIBIT 10.3
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY
STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS
EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
8% CONVERTIBLE PREFERRED STOCK
SUBSCRIPTION AGREEMENT
SGI INTERNATIONAL
THIS AGREEMENT is executed in reliance upon the transaction exemption afforded
by Regulation D as promulgated by the Securities and Exchange Commission
("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in connection with the
private placement of the 8% Convertible Preferred Stock Series 97-F
(hereinafter referred to as the "Preferred Stock") of SGI INTERNATIONAL
(OTC Bulletin Board symbol "SGII"), located at 1200 Prospect Street, Suite 325,
La Jolla, CA 92037, a corporation organized under the laws of Utah, USA
(hereinafter referred to as the "Company"). The terms on which the Preferred
Stock may be converted into Common Stock and the other terms of the Preferred
Stock are set forth in the Certificate of Secretary of the 8% Convertible
Preferred Stock Series 97-F (Exhibit A annexed hereto). In addition, the
Company will sell to Subscriber Forty Thousand (40,000) Warrants per One
Million ($1,000,000) Dollars (such number of Warrants shall be pro rated as per
each subscription amount) to purchase Common Stock for a period of five (5)
years from the Closing Date (as defined herein), as per the terms of a separate
Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription and, if
accepted by the Company, the offer and sale of the Preferred Stock (the
"Shares"), Warrants and the underlying Common Stock (collectively the
"Securities"), are being made in reliance upon the provisions of Regulation D
under the Act.
The Closing Date shall be October __, 1997 (as determined in accordance with
Section 16 herein).
The undersigned, _____________, located at _____________________, a corporation
(limited liability company) organized under the laws of _______, a non-USA
jurisdiction (hereinafter referred to as "Subscriber" or "Purchaser"), hereby
represents and warrants to, and agrees with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 The Company will sell and the Subscriber will buy an aggregate of ________
(_____) shares of Preferred Stock for an aggregate purchase price of __________
($_________) U.S. Dollars (the "Purchase Price") based on U.S. $1,000 per
share. Interest will accrue and be paid quarterly at the rate of eight (8%)
percent on the outstanding principal amount of the Shares until the Shares have
been completely converted, provided, however, all interest thereon shall only
be payable in common stock of the Company and not in cash. The Company's
Agreements with each of the Subscribers are separate agreements, and the sales
of the Securities to each of the Subscribers is a separate sale.
1.2 Form of Payment. Subscriber shall pay the Purchase Price by delivering
good funds in United States Dollars by wire transfer to Sheldon E. Goldstein,
P.C., Escrow Agent, against delivery of the original Securities.
The parties have entered into an Escrow Agreement annexed hereto as Exhibit C.
1.3 Wire Instructions. Wire instructions for Sheldon E. Goldstein, P.C.
are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Sheldon E. Goldstein, P.C. Attorney Trust Account
Account No. 59-02347
Section 2. Representation and Warranties of the Subscriber. Each Subscriber
severally acknowledges, represents, warrants and agrees as follows:
2.1 Organizations and Authorization. Subscriber is duly incorporated or
organized and validly existing in the country of its incorporation or
organization and has all requisite power and authority to purchase and hold the
Securities. The decision to invest and the execution and delivery of this
Agreement by the Subscriber, the performance by the Subscriber of its
obligations hereunder and the consummation by the Subscriber of the
transactions contemplated hereby have been duly authorized and requires no
other proceedings on the part of the Subscriber. The Undersigned's signatory
has all right, power and authority to execute and deliver this Agreement on
behalf of the Subscriber. This Agreement has been duly executed and delivered
by the Subscriber and, assuming the execution and delivery hereof and
acceptance thereof by the Company, will constitute the legal, valid and binding
obligations of the Subscriber, enforceable against the Subscriber in accordance
with its terms and the Subscriber can afford the complete loss of Subscriber's
investment.
2.2 Evaluation of Risks. Subscriber has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this transaction.
It recognizes that its investment in the Company involves a high degree of risk
and the Subscriber can afford the complete loss of Subscriber's investment.
2.3 Independent Counsel. Subscriber acknowledges that it has been advised to
consult with its own attorney regarding legal matters concerning the Company
and to consult with its tax advisor regarding the tax consequences of acquiring
the Securities.
2.4 Disclosure Documentation. Subscriber has received and reviewed copies of
the Company's reports filed under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), including its 10-Ks, and 10-Qs, filed by the Company
since December 31, 1994 (collectively, the "Reports"). Except for the Reports,
Subscriber is not relying on any other information relating to the offer and
sale of the Securities. Subscriber acknowledges that the Company has offered
to make available any additional public information that the Subscriber may
reasonably request, including technical information, and other material
information about the Company and Subscriber has been offered Company's full
and unconditional cooperation in making such information available to
Subscriber and acknowledges that the Company has recommended that the
Subscriber request and review such information prior to making an investment
decision. No oral or written representations have been made, or oral or
written information furnished to the undersigned or its advisors, if any, in
connection with the offering of the Securities which were or are in any way
inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Subscriber has had a reasonable opportunity
to ask questions of and receive answers from the Company concerning the Company
and the offering, and all such questions, if any, have been answered to the
full satisfaction of Subscriber.
2.6 Reports Constitute Sole Representations. Except as set forth in
the Reports, no representations or warranties have been made to Subscriber by
(a) the Company or any agent, employee or affiliate of the Company or (b) any
other person, and in entering into this transaction Subscriber is not relying
upon any information, other than that contained in the Reports and the results
of independent investigation by Subscriber.
2.7 Subscriber is Accredited Investor. The undersigned is an "Accredited
Investor" as defined below who represents and warrants it is included within
one or more of the following categories of "Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the Act, or any savings and loan
associated or other institution as defined in Section 3(a)(5)A of the Act
whether acting in it individual or fiduciary capacity; any broker or dealer
registered pursuant to Section 15 of the 1934 Act; any insurance company as
defined in Section 2(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that Act; any Small Business Investment Company licensed
by the U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Act of 1958; any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivision, for the benefits of its employees if such plan has total
assets in excess of $5,000,000; and employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(ii) Any private business development company as defined in Section 202(a)(22)
of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(iv) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(v) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of $200,000 in
each of the two (2) most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation
of reaching that same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section 230.506(b)(2)(ii) of
Regulation D under the Act;
(viii) Any entity in which all of the equity owners are accredited investors;
and
(ix) Any self-directed employee benefit plan with investment decisions made
solely by persons that are accredited investors within the meaning of Rule 501
of Regulation D promulgated under the Act.
2.8 No Registration, Review or Approval. Subscriber acknowledges and
understands that the limited private offering and sale of Securities pursuant
to this Agreement has not been reviewed or approved by the SEC or by any state
securities commission, authority or agency, and is not registered under the Act
or under the securities or "blue sky" laws, rules or regulations of any state.
Subscriber acknowledges, understands and agrees that the Securities are being
offered and sold hereunder pursuant to (i) a private placement exemption to the
registration provisions of the Act pursuant to Section 3(b) or Section 4(2) of
such Act and Regulation D promulgated under such Act, and (ii) a similar
exemption to the registration provisions of applicable state securities laws.
Subscriber understands that the Company is relying upon the truth and accuracy
of the representations, warranties, agreements, acknowledgments and
understandings of Subscriber set forth herein in order to determine the
applicability of such exemptions and the suitability of Subscriber to acquire
the Securities. Subscriber will advise Company of the state of its residence
prior to executing this or any other agreement to enable the Company to comply
with applicable "blue sky" laws.
2.9 Investment Intent. Without limiting its ability to resell the Securities
pursuant to an effective registration statement, Subscriber is acquiring the
Securities solely for its own account and not with a view to the distribution,
assignment or resale to others. Subscriber understands and agrees that it may
bear the economic risk of its investment in the Securities for an indefinite
period of time. Subscriber does not now have any short position or hedge
position in the Company's Common Stock nor will the Subscriber make any
promissory notes and/or pledges to that effect on the Company's Common Stock.
2.10 No Advertisements. The Subscriber is not subscribing for Securities as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3. Further Representations and Warranties of the Subscriber. In the
event the registration as per Section 8.6 is not effective by the sixty-first
(61st) day after the Demand Registration Request as defined in the Registration
Rights Agreement (Exhibit D) and Subscriber elects the option to rely upon a
Regulation S exemption for up to fifty (50%) percent of Subscriber's
outstanding Securities position and, in the event the Registration Statement
has not been declared effective on the one hundred twenty-first (121st) day
from the Demand Registration Request and/or Subscriber elects the option to
rely upon a Regulation S exemption for the remainder of its outstanding
securities position, Subscriber further acknowledges, presents, warrants and
agrees as follows:
3.1 Offering Outside the United States. The Subscriber is not a "U.S. Person"
as defined in Regulation S (as the same may be amended from time to time)
promulgated under the Act(1). At the time the buy order for this transaction
was originated, Subscriber was outside the United States and no offer to
purchase the Securities was made in the United States. Subscriber agrees not
to reoffer or sell the Securities, or to cause any transferee permitted
hereunder to reoffer or sell the Securities, within the United States, or for
the account or benefit of a U.S. Person, (i) as part of the distribution of the
Securities at any time, or (ii) otherwise, until at least forty (40) days after
the Securities are issued, and, in either case, only in a transaction meeting
the requirements of Regulation S under the Act, including without limitation,
where the offer (i) is not made to a person in the United States and either (A)
at the time the buy order is originated, the Buyer is outside the United States
or the Company and any person acting on its behalf reasonably believe that the
buyer is outside the United States, or (B) the transaction is executed in, on
or through the facilities of a designated offshore securities market and
neither the seller nor any person acting on its behalf knows that the
transaction has been pre-arranged with a buyer in the United States; and (ii)
no directed selling efforts shall be made in the United States by the buyer, an
affiliate or any person acting on their behalf, or in a transaction registered
under the Act or pursuant to an exemption from such registration.
- ----------------------
(1) Pursuant to Regulation S, a "U.S. Person" means: (i) any natural person
resident in the United States, (ii) any partnership or corporation organized or
incorporated under the laws of the United States, (iii) any 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) any agency or branch of a foreign entity located in the
United States, (vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciaryfor the benefit or
account of a U.S. Person, (vii) any 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), or (viii) any
partnership or coporation if organized under the laws of any foreign
jurisdiction and formed by any U.S. Person principally for the purpose of
investing in securities not registered under the Act, unless it is organized or
incorporated and owned by accredited investors (as defined in Rule 501(a) under
the Act) who are not natural persons, estates or trust.
3.2 Transfer Restrictions/Conversion Holding Period.
(i) The transaction restriction in connection with this offshore offer and
sale restricts Subscriber from offering and selling to U.S. Persons, or for the
account or benefit of a U.S. Person, for a period of time. Rule 903(c)(2) of
Regulation S sets forth a forty (40) day transaction restriction and is defined
herein as the "Restricted Period." The Conversion Holding Period ("Holding
Period"), as is more specifically defined in the Certificate of Secretary
attached hereto as Exhibit A in connection with this offshore offer and sale
shall be sixty-one (61) days from the Demand Registration Request for up to
fifty (50%) percent of Subscriber's outstanding securities position, and one
hundred twenty-one (121) days after the Demand Registration Request after such
time up to one hundred (100%) percent of the Subscriber's outstanding
securities position shall be convertible into the Underlying Shares at the
option of the Subscriber.
The Preferred Stock shall be convertible into the Underlying Shares, at the
option of the Subscriber after such "Holding Period."
(ii) A legend substantially in the form of Section 14 herein has been or will
be placed on any certificates or other documents evidencing the Securities so
as to restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof and the provisions of Regulation S
promulgated under the Act and the Holding Period.
3.3 Transfer Restrictions Regarding Securities. Upon conversion of any part
or all of the Preferred Stock and/or Warrants at any time after the Holding
Period, if the holder of the Preferred Stock being converted makes the
certification, pursuant to the Notice of Conversion attached hereto as Exhibit
E, that such holder has complied with all of the requirements of Regulation S
and such other requirements as set forth herein, then the Company shall cause
the Transfer Agent to deliver the underlying Common Stock (the "Underlying
Shares") upon such conversion without a restrictive legend or stop transfer
instructions, otherwise the Underlying Shares shall be considered restricted
securities and certificates representing such Shares shall contain restrictive
legends and stop transfer instructions will be placed with the Company's
transfer agent regarding such Shares.
The Subscriber understands that the Company is the issuer of the securities
which are the subject of this Agreement, and that, for purposes of Regulation
S, a "distributor" is any underwriter, dealer or other person who participates,
pursuant to a contractual arrangement, in the distribution of securities
offered or sold in reliance on Regulation S and that an "affiliate" is any
partner, officer, director or any person directly or indirectly controlling,
controlled by or under common control with the person in question. In this
regard, the Subscriber shall not, during the 40-day restricted period set forth
under Rule 903(c)(2), act as a distributor, either directly or through any
affiliate, nor shall he sell, transfer, hypothecate or otherwise convey the
Securities or any interest therein, other than outside the United States to a
non-U.S. person.
Section 4. Representations and Warranties of the Company. For so long as any
Securities held by Subscriber remains outstanding, the Company acknowledges,
represents, warrants and agrees as follows:
4.1 Organization/Qualification. The Company is a corporation duly organized
and validly existing under the laws of the State of Utah and is in good
standing under such laws. The Company has all requisite corporate power and
authority to own, lease and operate its properties and assets, and to carry on
its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except
where failure to so qualify would not have a material adverse effect on the
Company.
4.2 Accuracy of Reports and Information. To the best of its knowledge, the
Company is in compliance, to the extent applicable, with all reporting
obligations under either Section 12(b), 12(g) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company has
registered its Common Stock pursuant to Section 12 of the Exchange Act and
the Common Stock is listed and trades on the OTC Bulletin Board.
The Company has filed all material required to be filed pursuant to all
reporting obligations, under either Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve (12) months immediately preceding the offer and
sale of the Securities (or for such shorter period that the Company has been
required to file such material).
4.3 SEC Filings/Full Disclosure. For a period of at least twelve (12) months
immediately preceding this offer and sale, or such shorter period that the
Company has been required to file such Reports as defined herein, to the best
of the Company's knowledge (i) none of the Company's filings with the
Securities and Exchange Commission contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
There is no fact known to the Company (other than general economic conditions
known to the public generally) that has not been publicly disclosed by the
Company or disclosed in writing to the Subscriber which (i) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) or on earnings, business affairs, properties or assets of the
Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
4.4 Authorization. The Company has all requisite corporate right, power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Shares and the performance of
the Company's obligations hereunder has been taken. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in this
Agreement. Upon their issuance and delivery pursuant to this Agreement, the
Shares will be validly issued, fully paid and nonassessable and will be free of
any liens or encumbrances; provided, however, that the Shares are subject to
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Shares will not give rise to any preemptive right or
right of first refusal or right of participation on behalf of any person.
4.5 No Conflict. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to a
loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture,
lease or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material
adverse effect on the Company's business and financial condition.
4.6 No Undisclosed Liabilities or Events. The Company has no liabilities or
obligations other than those disclosed in the Reports, this Agreement or those
incurred in the ordinary course of the Company's business since June 30, 1997,
and which individually or in the aggregate, do not or would not have a material
adverse effect on the properties, business, condition (financial or otherwise),
results of operations or prospects of the Company. No event or circumstances
has occurred or exists with respect to the Company or its properties, business,
condition (financial or otherwise), results of operations or prospects, which,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed.
4.7 No Default. The Company is not in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its
property is bound, and neither the execution, nor the delivery by the Company,
nor the performance by the Company of its obligations under this Agreement,
including the conversion provision of the Shares, will conflict with or result
in the breach or violation of any of the terms or provisions of, or constitute
a default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Articles of the Company, or any decree, judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or its properties, or the Company's listing agreement for its
Common Stock.
4.8 Absence of Events of Default. Except as set forth in the Reports and this
Agreement, no Event of Default, as defined in the respective agreement to which
the Company is a party, and no event which, with the giving of notice or the
passage of time or both, would become an Event of Default (as so defined), has
occurred and is continuing, which would have a material adverse effect on the
Company's business, properties, prospects, condition (financial or otherwise)
or results of operations.
4.9 Governmental Consent, etc. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement, or the offer, sale or issuance of the Shares, or the
consummation of any other transaction contemplated hereby, except as may be
required by applicable securities laws.
4.10 Intellectual Property Rights. Except as disclosed in the Reports, the
Company has sufficient trademarks, trade names, patent rights, copyrights and
licenses to conduct its business as presently conducted in the Reports. To the
Company's knowledge, neither the Company nor its products is infringing or will
infringe any trademark, trade name, patent right, copyright, license, trade
secret or other similar right of others currently in existence; and there is no
claim being made against the Company regarding any trademark, trade name,
patent, copyright, license, trade secret or other intellectual property right
which could have a material adverse effect on the business or financial
condition of the Company.
4.11 Material Contracts. Except as set forth in the Reports, the agreements
to which the Company is a party described in the Reports are valid agreements,
in full force and effect the Company is not in material breach or material
default under any of such agreements.
4.12 Litigation. Except as disclosed in the Reports, there is no action,
proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
4.13 Title to Assets. Except as set forth in Reports, the Company has
good and marketable title to all properties and material assets described in
the Reports as owned by it, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest other than such as are not
material to the business of the Company.
4.14 Subsidiaries. Except as disclosed in the Reports, the Company does
not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, association or other business entity.
4.15 Required Governmental Permits. The Company is in possession of and
operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities which are material to the conduct of its business, all of which are
valid and in full force and effect.
4.16 Listing. The Company will use its best efforts to maintain the
listing of its Common Stock on the OTC Bulletin Board or other organized United
States market or quotation system. The Company has not received any notice,
oral or written, regarding continued listing and, as long as the Debentures are
outstanding, the Company will take no action which would impact their continued
listing or eligibility of the Company for such listing.
4.17 Other Outstanding Securities/Financing Restrictions. Other than
warrants and options to acquire shares of Common Stock as disclosed in the
Reports, and 676,923 shares under Warrant at a strike price of $2.44 that would
now convert into 144 restricted stock there are no other outstanding
securities, debt or equity presently convertible into Common Stock. Except as
disclosed in the Reports, the Company has no outstanding restricted shares, or
shares of Common Stock sold under Regulation S, Regulation D or outstanding
under any other exemption from registration, which are available for sale as
unrestricted ("free trading") stock.
4.18 Regulation S Alternative. The Company covenants and agrees that
if the Company fails to register the Underlying Shares under the terms and
conditions of the Registration Rights Agreement attached hereto as Exhibit D,
that, for so long as any of the shares remain outstanding and continue to be
"restricted securities" within the meaning of Rule 144 under the Securities
Act, the Company shall permit resales of the underlying Common Stock pursuant
to Regulation S under the 1933 Act, if the Holder of the Shares being converted
makes a certification, pursuant to the Notice of Conversion attached hereto as
Exhibit F, then the Company shall direct the Transfer Agent to deliver the
Underlying Shares upon such conversion without a restrictive legend and stop
transfer instructions. The Company and the Subscriber shall provide to the
Transfer Agent any and all papers necessary to complete the transfer under
Regulation S, including, but not limited to, opinions of counsel to the
Transfer Agent, (i) continue to file all material required to be filed pursuant
to Sections 13(a) or 15(d) of the Exchange Act, and (ii) not knowingly engage
in directed selling efforts in connection with the resale of securities by
Subscriber under Regulation S.
4.19 Reporting Issuer Company Status. The Company is a "Reporting Issuer"
as defined in Rule 902 of Regulation S. The Company is in full
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and shall use its best efforts to maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the Exchange Act and the Common Stock trades on the OTC
Bulletin Board.
4.20 Capitalization. The authorized capital stock of the Company consists
of 75,000,000 shares of Common Stock, no par value per share, 20,000,000
shares of non-voting Preferred Stock, .01 par value,. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
4.21 Dilution. The Company is aware and acknowledges that conversion
of the Preferred Stock would cause dilution to existing Shareholders and
could significantly increase the outstanding number of shares of Common Stock.
Section 5. Further Representations and Warranties of the Company. For
so long as any Securities held by the Subscriber remain outstanding, the
Company acknowledges, represents, warrants and agrees as follows:
(i) It will reserve from its authorized but unissued shares of Common Stock
a sufficient number of shares of Common Stock to permit the conversion in full
of the outstanding Securities.
(ii) It will use its best efforts to maintain the listing of its Common Stock
on the OTC Bulletin Board.
(iii) It will permit the Subscriber to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion
to the Company and delivering the original Notice of Conversion and the
certificate representing the Preferred Stock to the Company by express courier.
Each business date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be
deemed a conversion date. The Company will use its best efforts to transmit
the certificates representing shares of Common Stock issuable upon conversion
of any Preferred Stock (together with the certificates representing the
Preferred Stock not so converted) to the Subscriber via express courier, by
electronic transfer or otherwise within three business days after the
conversion date if the Company has received the original Notice of Conversion
and Preferred Stock certificate being so converted by such date. In addition
to any other remedies which may be available to the Subscriber, in the event
that the Company fails to use its best efforts to effect delivery of such
shares of Common Stock within such three business day period, the Subscriber
will be entitled to revoke the relevant Notice of Conversion by delivering a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion. The Notice of Conversion and Preferred
Stock representing the portion of the Shares converted shall be delivered as
follows:
To the Company:
Controller
SGI International
1200 Prospect Street, Suite 325
La Jolla, CA 92037
Fax: (619) 551-0247
In the event that the Common Stock issuable upon conversion of the Preferred
Stock is not delivered, as a direct result of the negligence or action or
inaction of the Company only, within five (5) business days of receipt by the
Company of a valid Notice of Conversion and the Preferred Stock to be converted
(such date of receipt referred to as the "Conversion Date"), the Company shall
Pay to the Purchaser, in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, for each $100,000 of
Preferred Stock sought to be converted, $500 for each of the first ten (10)
days and $1,000 per day thereafter that the Conversion Shares are not
delivered, which liquidated damages shall run from the sixth business day after
the Conversion Date. Any and all payments required pursuant to this paragraph
shall be payable only in shares of Common Stock and not in cash. The number of
such shares shall be determined by dividing the total sum payable by the
Conversion Price.
Section 6. Opinion of Counsel. The Company shall have their counsel provide,
at the Company's expense, an opinion of counsel acceptable to the transfer
agent (if required) upon conversion of the Preferred Stock, upon receipt of
Notice of Conversion from each.
Subscriber shall, upon the Closing, receive an opinion letter from counsel to
the Company subject to reasonable and customary limitations and qualifications
to the effect that:
(i) The Company is duly incorporated and validly existing under the laws and
jurisdiction of its incorporation. The Company and/or its subsidiaries are
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where the Company and/or its subsidiaries owns or leases
properties, maintains employees or conducts business, except for jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the Company, and has all requisite corporate power and authority to own its
properties and conduct its business.
(ii) Except as set forth in the Reports to the best of Counsel's knowledge
without an independent investigation, there is no action, proceeding or
investigation pending, or to such counsel's knowledge, threatened against the
Company which might result, either individually or in the aggregate, in any
material adverse change in the business or financial condition of the Company.
(iii) Except as set forth in the Reports to the best of counsel's knowledge
without an independent investigation, the Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality.
(iv) Except as set forth in the Reports to the best of counsel's knowledge
without an independent investigation, there is no action, suit, proceeding or
investigation by the Company currently pending, except for a lawsuit against
company's subsidiary, Automotive & Assembly Manufacturing, Inc. ("AMS") for
breach of contract, which would not have a material adverse effect on Company.
(v) The Preferred Stock, which shall be issued at the closing, will be duly
authorized and validly issued under the laws of the Company's State of
Incorporation.
(vi) This Subscription Agreement, the issuance of the Shares and the issuance
of Common Stock, upon conversion of the Shares, have been duly approved by all
required corporate action and that all such securities, upon delivery, shall be
validly issued and outstanding, fully paid and nonassessable.
(vii) The issuance of the Shares will not violate the applicable listing
agreement between the Company and any securities exchange or market on which
the Company's securities are listed.
(viii) Assuming the accuracy of the representation and warranties of the
Company and the Subscriber set forth in this Subscription Agreement, the offer,
issuance and sale of the Preferred Stock and Conversion Shares to be issued
upon exercise to the Purchaser pursuant to this Agreement are exempt from the
registration requirements of the Act.
(ix) As more specifically described in the Reports, the authorized capital
stock of the Company consists of 75,000,000 shares of Common Stock, no par
value per share ("Common Stock") and 20,000,000 shares of Preferred Stock, par
value $.01 per shares.
(x) The Common Stock is registered pursuant to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934, as amended, and to the best of
Counsel's knowledge without an independent investigation the Company has timely
filed all the material required to be filed pursuant to Sections 13(a) or 15(d)
of such Act for a period of at least twelve months preceding the date hereof.
(xi) The Company has the requisite corporate power and authority to enter into
the Agreements and to sell and deliver the Securities and the Common Stock to
be issued upon the conversion of the Securities as described in this Agreement;
the Agreement has been duly and validly authorized by all necessary corporate
action by the Company to our knowledge, no approval of any governmental or
other body is required for the execution and delivery of each of the Agreements
by the Company or the consummation of the transactions contemplated thereby; of
the Agreement has been duly and validly executed and delivered by and on behalf
of the Company, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state and foreign
securities laws, as to which no opinion is expressed.
(xii) To the best of our knowledge without an independent investigation, after
due inquiry, the execution, delivery and performance of the Agreements by the
Company and the performance of its obligations thereunder do not and will not
constitute a breach or violation of any of the terms and provisions of, or
constitute a default under or conflict with or violate any provision of (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture,
mortgage, deed of trust, agreement or other instrument to which the Company is
a party or by which it or any of its property is bound, (iii) any applicable
statute or regulation, (iv) or any judgment, decree or other of any court or
governmental body having jurisdiction over the Company or any of its property.
Section 7. Opinion of Counsel Upon Conversion. The Company will obtain for
the Subscriber, at the Company's expense, any and all opinions of counsel which
may be reasonably required in order to convert the Preferred Stock, including,
but not limited to, obtaining for the Subscriber an opinion of counsel, subject
only to receipt of a Notice of Conversion in the form of Exhibit E or Exhibit F
and receipt by Counsel of such representations, warranties, and documents as
are determined to be necessary to comply with applicable securities laws, duly
executed by the Subscriber which shall be satisfactory to the Transfer Agent,
directing the Transfer Agent to remove the legend from the certificate.
Section 8. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the SEC which may at any time permit the
sale of the Securities to the public without registration, the Company agrees
to use its best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Act, at all times after the effective date on
which the Company becomes subject to the reporting requirements of the Act or
the Exchange Act;
(ii) use its best efforts to file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934 Act;
(iii) to furnish to Purchaser forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144, and of the Act and the 1934 Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as Purchaser may reasonably request in availing itself of any rule
or regulation of the SEC allowing Purchaser to sell any such Securities without
registration.
Section 8. Representations and Warranties of the Company and Subscriber. Each
of Subscriber and the Company represent to the other the following with respect
to itself:
8.1 Subscription Agreement. The Subscription Agreement has been duly
authorized, validly executed and delivered on behalf of the Company and
Subscriber and is a valid and binding agreement in accordance with its terms,
subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
8.2 No-Conflict. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with,
or result in any violation of, or default (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
8.3 Approvals. Neither the Company nor Subscriber is aware of any
authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the Securities.
8.4 Indemnification. Each of the Company and the Subscriber agrees to
indemnify the other and to hold the other harmless from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to Certificate of
Designation (Exhibit A).
8.6 Demand Rights. The parties have entered into a Registration Rights
Agreement (Exhibit D).
Section 9. Restrictions on Conversion of Preferred Stock. The Subscriber or
any subsequent holder of the Preferred Stock (the "Holder") shall be
prohibited from converting any portion of the Preferred Stock which would
result in the Subscriber or the Holder being deemed the beneficial owner, in
accordance with the provisions of Rule 13d-3 of the 1934 Act, as amended, of
4.99% or more of the then issued and outstanding Common Stock of the Company.
Section 10. Permissive Redemption. The Company has the right to redeem the
Preferred Stock, in whole or in part, in cash at one hundred thirty (130%)
percent of the Liquidation Value, as defined in the Certificate of Secretary
of the 8% Convertible Preferred Stock Series 97-F, for any Preferred Stock
For which a Notice of Conversion has not been sent. Upon notice of its right
to redeem the Preferred Stock, the Company shall wire transfer the appropriate
amount of funds into an escrow account mutually agreed upon by both Company
and Subscriber within three (3) business days of such notice. Additionally,
if after the passage of three (3) business days from the receipt by the
Subscriber of the notice of the Company's right to redeem the Preferred Stock
and the time funds are received by the escrow agent, the Company has not
deposited into escrow the appropriate amount of funds to redeem the Preferred
Stock, the Company shall pay to the Subscriber an amount equal to five (5%)
percent per month of the Liquidation Value of the Preferred Stock on a pro rata
basis in cash. After the escrow agent is in receipt of such funds, he shall
notify the Subscriber to surrender the appropriate amount of Preferred Stock.
If after three (3) business days from the date the notice of redemption is
received by the Subscriber the funds have not been received by the escrow
agent, then the Subscriber shall again have the right to convert the Preferred
Stock and the Company shall have the right to redeem the Preferred Stock but
only upon simultaneously sending a notice of redemption to the Subscriber and
wire transferring the appropriate amount of funds.
Section 12. Mandatory Conversion. In the event the Shares have not been
converted two (2) years from the Closing Date, the Shares shall automatically
be converted as if the Subscriber voluntarily elected such conversion in
accordance with the procedure, terms and conditions set forth in this
Agreement.
Section 13. Registration or Exemption Requirements. Subscriber acknowledges
and understands that the Securities may not be resold or otherwise transferred
except in a transaction registered under the Act and any applicable state
securities laws or unless an exemption from such registration is available.
Subscriber understands that the Securities will be imprinted with a legend that
prohibits the transfer of the Securities unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Act and, if the
Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is
so exempt.
Section 14. Legend. The certificates representing the Securities shall be
subject to a legend restricting transfer under the Act, such legend to be
substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN THE UNITED STATES OR
TO U.S. PERSONS IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN EXEMPTION PURSUANT TO RULE 144
UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The Securities shall also include any legends required by any applicable state
securities laws.
The legend(s) shall be removed and the Company shall issue replacement
certificates without such legend to the holder of such certificates if such
holder provides to the Company an opinion of counsel reasonably acceptable to
the Company, to the effect that a public sale, transfer or assignment of such
Securities may be made without registration.
Section 15. Stock Delivery Instructions. The Preferred Stock Certificate
shall be delivered to on a delivery versus payment basis as set forth in the
Escrow Agreement.
Section 16. Closing Date. The date Escrow Agent receives the Securities and
Purchaser Price, and the conditions set forth in Sections 17 and 18 and the
terms and conditions of the Escrow Agreement (Exhibit C) herein are satisfied
or waived (the "Closing Date") and as shall be mutually agreed upon as to time
and place.
Section 17. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Convertible Preferred
Stock are conditioned upon:
(i) The receipt and acceptance by the Company of this Subscription Agreement
and all duly executed Exhibits thereto by an authorized officer of the Company;
and
(ii) Delivery into escrow by Subscriber of good cleared funds as payment in
full for the purchase of the Securities; and
(iii) All representations and warranties of the Subscriber contain herein
shall remain true and correct as of the Closing Date.
(iv) The Company shall have obtained all permits and qualifications required
by any state for the offer and sale of the Preferred Stock and Warrants, or
shall have the availability of exemptions therefrom.
At the Closing Date, the sale and issuance of the Preferred Stock and Warrants
and the proposed issuance of the Common Stock underlying the Preferred Stock
and Warrants shall be legally permitted by all laws and regulations to which
the Subscriber and the Company are subject.
(v) The Certificate of Secretary for the Preferred Stock shall have been filed
with the Utah Secretary of State.
Section 18. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Convertible Preferred
Stock is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription Agreement and all
duly executed Exhibits hereto for the sale of the Securities;
(ii) Delivery of the original Securities as described herein;
(iii) All representations and warranties of the Company contained herein shall
remain true and correct as of the Closing Date; and
(iv) Receipt of opinion of counsel and filed Certificate of Secretary.
(v) The Company shall have obtained all permits and qualifications required by
any state for the offer and sale of the Preferred Stock and Warrants, or shall
have the availability of exemptions therefrom. At the Closing Date, the sale
and issuance of the Preferred Stock and Warrants shall be legally permitted by
all laws and regulations to which the Company and Subscriber are subject.
Section 19. Miscellaneous.
19.1 Governing Law/Jurisdiction. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of New York,
except for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State of New York or
the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens,
to the bringing of any such proceeding in such jurisdictions. Each party
hereby agrees that if another party to this Agreement obtains a judgment
against it in such a proceeding, the party which obtained such judgment may
enforce same by summary judgment in the courts of any country having
jurisdiction over the party against whom such judgment was obtained, and each
party hereby waives any defenses available to it under local law and agrees to
the enforcement of such a judgment. Each party to this Agreement irrevocably
consents to the service of process in any such proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address set forth herein. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
19.2 Confidentiality. If for any reason the transactions contemplated by this
Agreement are not consummated, each of the parties hereto shall keep
confidential any information obtained from any other party (except information
publicly available or in such party's domain prior to the date hereof, and
except as required by court order) and shall promptly return to the other
parties all schedules, documents, instruments, work papers or other written
information, without retaining copies thereof, previously furnished by it as a
result of this Agreement or in connection herewith.
19.3 Facsimile/Counterparts/Entire Agreement. Except as otherwise stated
herein, in lieu of the original, a facsimile transmission or copy of the
original shall be as effective and enforceable as the original. This Agreement
may be executed in counterparts which shall be considered an original document
and which together shall be considered a complete document. This Agreement and
Exhibits hereto constitute the entire agreement between the Subscriber and the
Company with respect to the subject matter hereof. This Agreement may be
amended only by a writing executed by all parties.
19.4 Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
19.5 Entire Agreement. This Agreement and Exhibits hereto constitute the
entire agreement between the Subscriber and the Company with respect to the
subject matter hereof. This Agreement may be amended only by a writing executed
byall parties.
19.6 Reliance by Company. The Subscriber represents to the Company that the
representations and warranties of the Subscriber contained herein are complete
and accurate and may be relied upon by the Company in determining the
availability of an exemption from registration under federal and state
securities laws in connection with a private offering of securities.
19.7 Confidentiality. Each of the Company and the Subscriber agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law.
19.8 Fees. Except as referenced in the Escrow Agreement, each of the parties
shall pay its own fees and expenses (including the fees of any attorneys,
accountants, appraisers or others engaged by such party) in connection with
this Agreement and the transactions contemplated hereby.
19.9 Authorization. Each of the parties hereto represents that the individual
executing this Agreement on its behalf has been duly and appropriately
authorized to execute the Agreement.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first written
below.
PURCHASER:
________________________________
By______________________________
Name:
Title:
Executed this ____ day of October, 1997
Agreed to and Accepted on
this ____ day of October 1997
SGI INTERNATIONAL
By____________________________
Title:
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT NAME:
SPECIAL
INSTRUCTIONS: __________________________________________________________
__________________________________________________________
__________________________________________________________
EXHIBIT 10.4
SGI INTERNATIONAL
SERIES 97-D PREFERRED
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of ___ day of August
1997, by and between SGI International, a Utah corporation (the "Company") and
the persons and entities listed on the Schedule of Investors attached hereto as
Exhibit A (the "Investors").
The Parties hereby agree as follows:
1. Authorization and Sale of Preferred Stock and Warrants.
(a) Authorization. The Company will authorize the sale and issuance of up to
550 shares ("Shares") of its Series 97-D Convertible Preferred Stock (the
"Preferred Stock", the form of which is included herein as Attachment A)
having the rights, preferences and preferences as set forth in the
Certificate of Designation to the Articles of Incorporation (the "Certificate")
in the form attached to this Agreement as Exhibit B. The Company will also
authorize the sale and issuance of three warrants ("Warrants") to each investor
to purchase common stock of the Company in connection with the purchase of the
Preferred Stock. Each Warrant will be for the number of shares of common stock
determined in accordance with Exhibit A.
(b) Sale of Preferred Stock and Warrants. Subject to the terms and conditions
hereof, the Company will severally issue and sell to each of such Investors,
and the Investors will severally buy from the Company at the Closing Date at a
price of $1,000 per Share of Preferred Stock the number of Shares of Preferred
Stock specified opposite such Investors name in the Schedule of Investors on
Exhibit A hereto. In addition, the Company will sell to each of the Investors
a total of three Warrants, with each Warrant exercisable for the number of
shares of common stock of the Company determined in accordance with Exhibit A.
The form of the Warrant is attached to this Agreement as Exhibit C. The
exercise price ("Exercise Price") for each Warrant will be equal to the average
of the closing bid price of the Company's common stock ("Common Stock") as
quoted on the OTC Bulletin Board for the five trading days preceding the
Closing Date. The Company's agreements with each of the Investors are separate
agreements, and the sale of the Preferred Stock and Warrants to each of the
Investors are separate sales.
2. Closing Dates, Delivery.
(a) Closing Dates. The Closing (the "Closing") shall be the date both parties
execute and date this Agreement. The closing of the purchase and sale of the
Preferred Stock and Warrants hereunder shall be the date ("Closing Date") the
Company confirms receipt of the full and complete purchase price for the
Preferred Stock and Warrants by Investors. The Company and the Investors shall
enter into a Registration Rights Agreement on or prior to the Closing, in the
form attached to this Agreement as Exhibit D (the "Registration Rights
Agreement").
(b) Delivery. At the Closing Date the Company will date and transmit to each
Investor a certificate or certificates in such Investors name as set forth on
the Schedule of Investors, representing the number of Shares of Preferred Stock
designated in the Schedule of Investors to be purchased by each Investor in
consideration for the payment of the purchase price therefore by cashiers check
payable to the Company or by wire transfer in immediately available, good
cleared funds, payable to the Company. Company shall concurrently send Stock
Purchase Warrant(s) in such Investor's name as set forth on the Schedule of
Investors, representing the number of shares of Common Stock to which such
Investor's purchase of Preferred Stock entitles such Investor in accordance
with Exhibit A.
3. Representation and Warranties of the Investor. Each Investor hereby
severally represents and warrants that:
(a) Organization and Authorization. Investor is duly incorporated or
organized and validly existing in the state of its incorporation or
organization and has all requisite power and authority to purchase and hold
the Securities. The decision to invest and the execution and delivery of this
Agreement by the Investor, the performance by the Investor of its obligations
hereunder and the consummation by the Investor of the transactions contemplated
hereby have been duly authorized and require no other proceedings on the part
of the Investor. The Investor's signatory has all right, power and authority
to execute and deliver this Agreement on behalf of the Investor. This
Agreement has been duly executed and delivered by the Investor and, assuming
the execution and delivery hereof and acceptance thereof by the Company, will
constitute the legal, valid and binding obligations of the Investor,
enforceable against the Investor in accordance with its terms.
(b) Evaluation of Risks. Investor has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of, and bearing the economic risks entailed by, an investment in the
Company and of protecting its interests in connection with this transaction.
It recognizes that its investment in the Company involves a high degree of risk
and the Investor can afford the complete loss of Investor's investment.
(c) Independent Counsel. Investor acknowledges that it has been advised to
consult with its own attorney regarding legal matters concerning the Company
and to consult with its tax advisor regarding the tax consequences of acquiring
the Securities.
(d) Disclosure Documentation. Investor has received and reviewed copies of
the Company's reports filed under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), including its December 31, 1996 and December 31, 1995
Form 10-Ks and Form 10-Q for the quarter ended March 31, 1997 (collectively,
the "SEC Filings"). Except for the SEC Filings, Investor is not relying on any
other information relating to the offer and sale of the Securities. Investor
acknowledges that the Company has offered to make available any additional
public information that the Investor may reasonably request, including
technical information, and other material information about the Company and
Investor has been offered Company's full and unconditional cooperation in
making such information available to Investor and acknowledges that the Company
has recommended that the Investor request and review such information prior to
making an investment decision. No oral or written representations have been
made, or oral or written information furnished to the undersigned or its
advisors, if any, in connection with the offering of the Securities which were
or are in any way inconsistent with the SEC Filings.
(e) Opportunity to Ask Questions. Investor has had a reasonable opportunity
to ask questions of and receive answers from the Company concerning the Company
and the offering, and all such questions, if any, have been answered to the
full satisfaction of Investor.
(f) SEC Filings Constitute Sole Representations. Except as set forth in the
SEC Filings, no representations or warranties have been made to Investor by (a)
the Company or any agent, employee or affiliate of the Company or (b) any other
person, and in entering into this transaction Investor is not relying upon any
information, other than that contained in the SEC Filings and the results of
independent investigation by Investor.
(g) Investor is Accredited Investor. The undersigned is an "Accredited
Investor" as defined below who represents and warrants it is included within
one or more of the following categories of "Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the Act, or any savings and
loan associated or other institution as defined in Section 3(a)(5)A of the Act
whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to Section 15 of the 1934 Act; any insurance company as
defined in Section 2(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or a business development company as defined
in Section 2(a)(48) of that Act; any Small Business Investment Company licensed
by the U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Act of 1958; any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state or its
political subdivision, for the benefit of its employees if such plan has total
assets in excess of $5,000,000; and an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974 if the
investment decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association, insurance
company, or registered investment advisor, or if the employee benefit plan has
total assets in excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are accredited investors;
(ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3) of the Internal Revenue
Code, corporation, Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000;
(iv) Any director, executive officer, or general partner of the issuer of the
securities being offered or sold, or any director, executive officer, or
general partner of a general partner of that issuer;
(v) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(vi) Any natural person who had an individual income in excess of $200,000
in each of the two (2) most recent years or joint income with that person's
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching that same income level in the current year;
(vii) Any trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Section 230.506(b)(2)(ii);
(viii) Any entity in which all of the equity owners are accredited investors;
and
(ix) Any self-directed employee benefit plan with investment decisions made
solely by persons that are accredited investors within the meaning of Rule 501
of Regulation D promulgated under the Act.
(h) No Registration, Review or Approval. Investor acknowledges and
understands that the limited private offering and sale of Securities (as
defined in the Registration Agreement) pursuant to this Agreement has not been
reviewed or approved by the SEC or by any state securities commission,
authority or agency, and is not registered under the Act or under the
securities or "blue sky" laws, rules or regulations of any state. Investor
acknowledges, understands and agrees that the Securities are being offered and
sold hereunder pursuant to (i) aprivate placement exemption to the registration
provisions of the Act pursuant to Section 3(b) or Section 4(2) of such Act and
Regulation D, including Rules 505 and/or 506, promulgated under such Act, and
(ii) a similar exemption to the registration provisions of applicable state
securities laws and are restricted securities as described in the Registration
Rights Agreement (Exhibit D) which is incorporated by this reference. Investor
understands that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of Investor to acquire the Securities. Investor
will advise the Company of the state of residence of each Investor prior to the
receipt of the purchase price for the Preferred Stock offered hereby or the
execution of this or any other agreement with the Company a reasonable time
prior thereto to enable the Company to comply with applicable blue-sky
securities laws.
(i) Investment Intent. Without limiting its ability to resell the Securities
pursuant to an effective registration statement, Investor is acquiring the
Securities solely for its own account and not with a view to the distribution,
assignment or resale to others. Investor understands and agrees that it may
bear the economic risk of its investment in the Securities for an indefinite
period of time. Investor does not now have any short position or hedge or
similar position in the Company's Common Stock nor will the Investor make any
promissory notes and/or pledges to that effect on the Company's Common Stock.
(j) Demand Rights. The parties shall have entered into a Registration Rights
Agreement (Exhibit D) prior to the Closing.
(k) No Advertisements. The Investor is not subscribing for Securities as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
4. Representations and Warranties of the Company. For so long as any
Securities held by Investor remains outstanding, the Company acknowledges,
represents, warrants and agrees as follows:
(a) Organization and Authorization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah and has all requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as currently conducted. The
Company is not in default or violation of any material term or provision of its
Articles of Incorporation, as amended, or By-laws nor will the consummation of
the transactions contemplated by this Agreement cause any such default or
violation. The Company has all requisite corporate power and authority to
enter into this Agreement, to sell the Securities hereunder and to carry out
and perform its obligations under the terms of this Agreement. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
effecting the rights of creditors generally and available equitable remedies.
(b) Reporting Issuer Company Status. To the best of its knowledge, the
Company is in full timely compliance, to the extent applicable, with all
reporting obligations under either Section 12(b), 12(g) or 15(d) of the
1934 Act, and shall use its best efforts to maintain such status on a timely
basis. The Company has registered its Common Stock pursuant to Section 12 of
the 1934 Act and the Common Stock currently trades on the OTC Bulletin Board.
(c) Further Representations and Warranties of the Company. For so long as any
Securities held by the Investor remain outstanding, the Company acknowledges,
represents, warrants and agrees as follows:
(i) It will reserve from its authorized but unissued shares of Common Stock
sufficient number of shares of Common Stock to permit the conversion in full
and the exercise of the outstanding Securities.
(ii) It will use its best efforts to maintain the listing of its Common Stock
on the OTC Bulletin Board, or on any major stock exchange to which it is
accepted.
(iii) It will permit the Investor to exercise its right to convert the
Preferred Stock by telecopying an executed and completed Notice of Conversion
(Attachment B hereto) to the Company and delivering the original Notice of
Conversion and the certificate representing the Preferred Stock to the Company
by express courier. Each business date on which a Notice of Conversion is
received by the Company in accordance with the provisions hereof shall be
deemed a conversion date ("Conversion Date"). The Company will use its best
efforts to transmit the certificates representing shares of Common Stock
issuable upon conversion of any Preferred Stock (together with the certificates
representing the Preferred Stock not so converted) to the Investor via express
courier, by electronic transfer or otherwise within three business days after
the conversion date if the Company has received the original Notice of
Conversion and Preferred Stock certificate being so converted by such date. In
addition to any other remedies which may be available to the Investor, in the
event that the Company fails to effect delivery of such shares of Common Stock
within such three business day period, the Investor will be entitled to revoke
the relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Investor shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Preferred Stock representing the
portion of the Shares converted shall be delivered as follows:
To the Company:
Attn: John Taylor, Esq.
SGI International
1200 Prospect Street, Suite 325
La Jolla, CA 92037
Fax: (619) 551-0247
In the event that the Common Stock issuable upon conversion of the Preferred
Stock is not delivered by the Company within five (5) business days of receipt
by the Company of a valid Conversion Notice and the Preferred Stock to be
converted, the Company shall pay to the Purchaser, in immediately available
funds, upon demand, as liquidated damages for such failure and not as a
penalty, for each $100,000 of Preferred Stock sought to be converted, $500 for
each of the first ten (10) days and $1,000 per day thereafter that the
Conversion Shares as defined in the Registration Agreement are not delivered,
which liquidated damages shall run from the sixth business day after the
Conversion Date. Any and all payments required pursuant to this paragraph shall
be payable only in shares of Common Stock and not in cash. The number of such
shares shall be determined by dividing the total sum payable by the Conversion
Price.
(d) Full Disclosure. There is no fact known to the Company (other than
general economic conditions known to the public generally) that has
not been disclosed in writing to the Investor that could reasonably be expected
to have a material adverse effect on the condition (financial or otherwise) or
on the earnings, business affairs, business prospects, properties or assets of
the Company.
(e) Opinion of Counsel. The Company shall have their counsel provide, at the
Company's expense, an opinion of counsel acceptable to the transfer agent (if
required) upon conversion of the 97-D Convertible Preferred Stock, upon receipt
of Notice of Conversion from each Investor, as well as upon exercise of the
Warrants.
Investor shall, upon the Closing, receive an opinion letter from counsel for
the Company to the effect that:
(i) The Company is duly incorporated and validly existing under the laws
and jurisdiction of its incorporation.
(ii) Except as set forth in the SEC Filings, to the best of Counsels'
knowledge, without an independent investigation, there is no action, proceeding
or investigation pending, or to such counsel's knowledge, threatened against
the Company which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, conditions, affairs or
operations of the Company.
(iii) Except as set forth in the SEC Filings, to the best of Counsels'
knowledge, without an independent investigation, the Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
(iv) Except as set forth in the SEC Filings, to the best of Counsels'
knowledge, without an independent investigation, there is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company currently intends to initiate.
(v) The Preferred Stock which shall be issued at the closing is properly
issued under the Company's state of incorporation.
(vi) The Stock Purchase Agreement, the issuance of the Preferred Stock,
Warrants and the issuance of Common Stock, upon conversion of the Preferred
Stock, have been duly approved by all required corporate action and that all
such securities, upon delivery, shall be validly issued and outstanding, fully
paid and nonassessable.
(vii) The issuance of the Preferred Stock will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed as of the date of this Agreement.
(f) That it will obtain for the Investor, at the Company's expense, any and
all opinions of counsel which may be reasonably required in order to convert
the Preferred Stock.
(g) Outstanding Debt or Equity Securities. Except as described in the
Company's Form 10-K Annual Reports, Form 10-Q Quarterly Reports, Form
8-Ks and all filings made to the SEC pursuant to the Act for the 1990-1996
fiscal years and the SEC filings, there are no other outstanding debt or equity
securities presently convertible into shares of Common Stock.
(h) Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Securities to the public without registration, the Company agrees to use
its best efforts to:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144 under the Act, at all times after the effective date on
which the Company becomes subject to the reporting requirements of the Act or
the Exchange Act;
(ii) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act;
(iii) to furnish to Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144,
and of the Act and the 1934 Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as Investor may reasonably request in availing itself of any rule or regulation
of the SEC allowing Investor to sell any such Securities without registration.
5. Representations and Warranties of the Company and Investor. Each of
the Investors and the Company represent to the other the following with respect
to itself:
(a) Stock Purchase Agreement. The Agreement has been duly authorized, validly
executed and delivered on behalf of the Company and Investor and is a valid and
binding agreement in accordance with its terms, subject to general principles
of equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally.
(b) Non-contravention. The execution and delivery of the Agreement and the
consummation of the issuance of the Securities and the transaction contemplated
by the Agreement do not and will not conflict with or result in a breach by the
Company or Investor of any of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or by-laws of the Company or
Investor, or any indenture, mortgage, deed of trust of other material agreement
or instrument to which the Company or Investor is a party or by which either of
them or any of their respective properties or assets are bound, or any
applicable decree, judgment or order of any court, Federal or State regulatory
body, administrative agency or other governmental body having jurisdiction over
the Company or Investor or any of their respective properties or assets.
(c) Approvals. Neither the Company nor Investor is aware of any
authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the Securities, except as may be required
by applicable blue-sky laws.
(d) Indemnification. Each of the Company and the Investor agrees to indemnify
the other and to hold the other harmless from and against any and all losses,
damages, liabilities, costs and expenses (including reasonable attorneys' fees)
which the other may sustain or incur in connection with the breach by the
indemnifying party of any representation, warranty or covenant made by it in
this Agreement.
(e) Favored Nations. In the event that during a one year period from the
Closing the Company enters into any third party convertible stock purchase
agreement with similar terms and conditions, in an aggregate amount of $550,000
or less in a single transaction, where the Conversion Price as defined in the
Certificate of Designation, provides a greater discount for such third party
conversion than for Holders herein, then Company shall make a payment to
Holders in an amount equal to the difference between one divided by the
discount for Holders and one divided by the discount for the third party
investor, multiplied by the amount of the Holders' investment. As an example,
assuming that a 25% discount on conversion was afforded the third party
investor then Company would pay Holders the difference of 4% (1.33-1.29)
multiplied by $550,000. A "third party" under this provision shall not
include employees, consultants, and Rule 145 and similar transactions.
6. Restrictions on Conversion of Preferred Stock. The Investor or any
subsequent holder of the Preferred Stock (the "Holder") shall be prohibited
from converting any portion of the Preferred Stock which would result in the
Investor or the Holder being deemed the beneficial owner, in accordance with
the provisions of Rule 13d-3 of the 1934 Act, as amended, of 4.99% or more of
the then issued and outstanding Common Stock of the Company.
7. Registration or Exemption Requirements. Investor acknowledges and
understands that the Securities may not be resold or otherwise transferred
except in a transaction registered under the Act and any applicable state
securities laws or unless an exemption from such registration is available.
Investor understands that the Securities will be imprinted with a legend that
prohibits the transfer of the Securities unless (i) they are registered or such
registration is not required, and (ii) if the transfer is pursuant to an
exemption from registration other than Rule 144 under the Act and, if the
Company shall so request in writing, an opinion of counsel reasonably
satisfactory to the Company is obtained to the effect that the transaction is
so exempt.
8 Legend. The certificates representing each of the Securities shall be
subject to a legend restricting transfer under the Act, such legend to be
substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN THE CASE OF AN
EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS CONFIRMED IN A LEGAL OPINION
SATISFACTORY TO THE COMPANY."
Each of the Securities shall also include any legends required by any
applicable state securities laws.
The legend(s) shall be removed and the Company shall issue replacement
certificates without such legend to the holder of such certificates if such
holder provides to the Company an opinion of counsel reasonably acceptable to
the Company, to the effect that a public sale, transfer or assignment of such
Securities may be made without registration.
9. Stock Delivery Instructions. The Preferred Stock Certificates and Warrants
shall be delivered to Investor upon confirmation of receipt of the purchase
price.
10. Conditions to the Obligations of the Company. The Company's obligation to
sell and issue the Preferred Stock and Warrants to each Investor at the Closing
Date, is at the option of the Company, subject to the fulfillment as of the
Closing Date of the following conditions:
(a) Representations. The representations and warranties made by the Investors
in Section 3 hereof shall be true and correct when made, and shall be true and
correct on the Closing.
(b) State Securities Laws, Legal Investment. The Company shall have obtained
all permits and qualifications required by any state for the offer and sale of
the Preferred Stock and Warrants, or shall have the availability of exemptions
therefrom. At the Closing Date, the sale and issuance of the Preferred Stock
and the Warrants, and the proposed issuance of the Common Stock underlying the
Preferred Stock and Warrants shall be legally permitted by all laws and
regulations to which the Investors and the Company are subject.
(c) Certificate of Secretary. The Certificate of Secretary for the Series
97-D Convertible Preferred Stock shall have been filed with the Utah Secretary
of State.
(d) Legal Matters. All material matters of a legal nature which pertain to
this Agreement, the Registration Rights Agreement, the Warrant, and the
transactions contemplated hereby and thereby, shall have been reasonably
approved by counsel to the Company.
(e) Minimum Investment. The Investors shall purchase at the Closing,
Preferred Stock and Warrants having an aggregate purchase price of not less
than $550,000.
(f) Performance of Obligations. The Investors shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by them on or before the Closing Date including payment of good
cleared funds in consideration for the issuance of the Preferred Stock and
Warrants to be transmitted to them in accordance with Section 2(b) hereof.
(g) Registration Rights Agreement. Each Investor and each holder of the
Preferred Stock and Warrants offered hereby shall have executed and delivered
the Registration Rights Agreement at Exhibit D hereof.
11. Conditions to the Obligations of the Investors. The Investors'
obligations to purchase the Preferred Stock and Warrants at the Closing are
subject to the fulfillment of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent in writing
thereto
(a) Representations. The representations and warranties made by the Company
in Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
(b) State Securities Laws, Legal Investment. The Company shall have obtained
all permits and qualifications required by any state for the offer and sale of
the Preferred Stock and Warrants, or shall have the availability of exemptions
therefrom. At the Closing Date, the sale and issuance of the Preferred Stock
and Warrants, and the proposed issuance of the Common Stock underlying the
Preferred Stock and Warrants shall be legally permitted by all laws and
regulations to which the Company and the Investors are subject.
(c) Certificate of Secretary. The Certificate of Secretary for the Series
97-D Convertible Preferred Stock shall have been filed by the Company with the
Utah Secretary of State.
(d) Legal Matters. All material matters of a legal nature which pertain to
this Agreement, the Registration Rights Agreement, the Warrant, and the
transactions contemplated hereby and thereby, shall have been reasonably
approved by counsel to the Investors.
(e) Minimum Investment. The Investors shall purchase at the Closing,
Preferred Stock and Warrants having an aggregate purchase price of not less
than $550,000.
(f) Performance of Obligations. The Company shall have performed and complied
with all agreements and conditions herein required to be performed or complied
with by it on or before the Closing, excepting that delivery of the Preferred
Stock and Warrants shall be in accordance with Section 2(b) hereof, which
delivery shall be made as soon as possible after receipt by Company of good,
cleared funds as full and complete payment for the Preferred Stock.
(g) Registration Rights Agreement. Each Investor, and the Company, and each
holder of the Preferred Stock and Warrants offered hereby shall have executed
and delivered the Registration Rights Agreement at Exhibit D hereof.
(h) Opinion of Counsel. The Investors shall have received from Fisher Thurber
LLP, counsel to the Company, an opinion dated the Closing Date, in form and
substance satisfactory to the Investors, in the form of Section 4(e) hereof.
12. Miscellaneous.
(a) Governing Law. This Agreement will be construed and enforced in
accordance with and governed by the laws of the State of New York, except for
matters arising under the Act, without reference to principles of conflicts of
law. Each of the parties consents to the jurisdiction of the federal courts
whose districts encompass any part of the State of New York or the state courts
of the State of New York in connection with any dispute arising under this
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such
a judgment. Each party to this Agreement irrevocably consents to the service
of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
(b) Transaction Not Consummated. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
(c) Counterparts. In lieu of the original, a facsimile transmission or copy
of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document.
(d) Entire Agreement. This Agreement, Exhibits, and Attachments referenced
herein constitute the entire agreement between the Investor and the Company
with respect to the subject matter hereof.
(e) Investor Representations and Warranties. The Investor represents to the
Company that the representations and warranties of the Investor contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal
and state securities laws in connection with a private offering of securities.
(f) Presumption. This Agreement or any section thereof shall not be construed
against any party due to the fact that said Agreement or any section thereof
was drafted by said party.
(g) Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
provided however, that the rights of an Investor to purchase the Preferred
Stock shall not be assignable without the consent of the Company.
(h) Attorney Fees. In the event an arbitration, suit or action is brought by
any party under this Agreement, or exhibits thereto including the Registration
Rights Agreement or the Certificate of Designation, to enforce any of its
terms, or in any appeal therefrom, it is agreed that the prevailing party shall
be entitled to reasonable attorney fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
(i) Notices. All notices, requests, demands, and other communications
required or permitted hereunder will be in writing and will be deemed to have
been duly given when delivered by hand or two days after being mailed by
certified or registered mail, return receipt requested, with postage prepaid,
if to the Company to:
Attn: John Taylor, Senior Vice President & General Counsel
SGI International
1200 Prospect St., Suite 325
La Jolla, CA 92037
If to one or more of the Investors, then to the address appearing on the
Schedule of Investors at Exhibit A hereto.
In any case, such notices shall be sent to such other addresses as the parties
furnishes to the Company or the other parties hereto pursuant to the above.
(j) Amendments and Waivers. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of more than 50% of the Common
Stock (that has not been sold to the public) issued or issuable upon conversion
of the Series 97-D Preferred Stock. Any amendment or waiver effected in
accordance with this Section 12(j) shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and the Company.
(k) Savings Clause. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
(l) Confidentiality. Each of the Company and the Investor agrees to keep
confidential and not to disclose to or use for the benefit of any third party
the terms of this Agreement or any other information which at any time is
communicated by the other party as being confidential without the prior written
approval of the other party; provided, however, that this provision shall not
apply to information which, at the time of disclosure, is already part of the
public domain (except by breach of this Agreement) and information which is
required to be disclosed by law.
(m) Finders Fee. Each party represents that the only finders fee or
commission payable to any party in connection with the transactions referenced
in this Agreement is a finders fee equal to five percent (5%) of the aggregate
purchase price of all the Preferred Stock sold by the Company to the Investors,
and payable to Steve Fycyk or his assigns or designee.
(n) Expenses. Each of the parties shall pay its own fees and expenses
(including the fees of any attorneys, accountants, appraisers or others
engaged by such party) in connection with this Agreement and the transactions
contemplated hereby.
IN WITNESS WHEREOF, this Stock Purchase Agreement was duly executed on the date
first written below.
INVESTOR:
________________________________
By___________________________
Title:_________________________
Executed this ____ day of August , 1997
Agreed to and Accepted on
this ____ day of August 1997
SGI INTERNATIONAL
a Utah Corporation
By:___________________________
Title:________________________
SGI INTERNATIONAL
1996 OMNIBUS STOCK PLAN
1. Purpose of the Plan. The purpose of the SGI International 1996 Omnibus
Stock Plan is to enable SGI International to provide an incentive to eligible
employees, consultants, advisors, Directors, and Officers whose present
and potential contributions are important to the continued success of the
Company, to afford these individuals the opportunity to acquire a proprietary
interest in the Company, and to enable the Company to enlist and retain in its
employment the best available talent for the successful conduct of its business.
It is intended that this purpose will be effected through the granting of (a)
incentive and nonqualified stock options, (b) stock purchase rights, (c) stock
appreciation rights, and (d) long-term performance awards.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under applicable securities laws, Utah
corporate law, and the Internal Revenue Code.
(b) "Board" means the Board of Directors of the Company. If one or more
Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committees.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
Section 5 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means SGI International, a Utah corporation.
(g) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(h) "Continuous Status as an Employee or Consultant" means that the employment
or consulting relationship is not interrupted or terminated by the Company, any
Parent or Subsidiary. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of: (i) any leave of absence approved by
the Company, including sick leave, military leave, or any other personal leave;
provided, however, that for purposes of Incentive Stock Options, any such leave
may not exceed ninety (90) days, unless reemployment upon the expiration of
such leave is guaranteed by contract (including certain Company policies) or
statute; or (ii) transfers between locations of the Company or between the
Company, its Parent, its Subsidiaries or its successor.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors, employed by
the Company or any Parent or Subsidiary of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system, including without limitation the National Market System
of the National Association of Securities Dealers, Inc., Automated Quotation
("NASDAQ") System, the Fair Market Value of a Share of common stock shall be
the closing bid price for such stock as quoted on such system or exchange (or
the exchange with the greatest volume of trading in Common Stock) on the last
market trading day prior to the day of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on the
National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Long-Term Performance Award" means an award under Section 10 below. A
Long-Term Performance Award shall permit the recipient to receive a cash or
stock bonus (as determined by the Board) upon satisfaction of such performance
factors as are set out in the recipient's individual grant. Long-term
Performance Awards will be based upon the achievement of Company, Subsidiary
and/or individual performance factors or upon such other criteria as the Board
may deem appropriate.
(p) "Long-Term Performance Award Agreement" means a written agreement between
the Company and an Optionee evidencing the terms and conditions of an
individual Long-Term Performance Award grant. The Long-Term Performance Award
Agreement is subject to the terms and conditions of the Plan.
(q) "Nonqualified Stock Option" means any Option that is not an Incentive
Stock Option.
(r) "Notice of Grant" means a written notice evidencing certain terms and
conditions of an individual Option, Stock Purchase Right, or Long-Term
Performance Award grant. The Notice of Grant is part of the Option Agreement,
and the Long-Term Performance Award Agreement.
(s) "Officer" means a person who is an Officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(v) "Option Exchange Program" means a program whereby outstanding options are
surrendered in exchange for options with a lower exercise price.
(w) "Optioned Stock" means the Common Stock underlying an Option or Right.
(x) "Optionee" means an Employee or Consultant who holds an outstanding Option
or Right.
(y) "Parent" means a "parent corporation," whether now or hereafter existing,
as defined in Section 424(e) of the Code.
(z) "Plan" means this 1996 Omnibus Stock Plan.
(aa) "Restricted Stock" means shares of Common Stock subject to a Restricted
Stock Purchase Agreement acquired pursuant to a grant of Stock Purchase Rights
under Section 9 below.
(bb) "Restricted Stock Purchase Agreement" means a written agreement between
the Company and the Optionee evidencing the terms and restrictions applying to
stock purchased under a Stock Purchase Right. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the Notice of
Grant.
(cc) "Right" means and includes Long-Term Performance Awards, Stock
Appreciation Rights, and Stock Purchase Rights granted pursuant to the Plan.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor rule
thereto, as in effect when discretion is being exercised with respect to the
Plan.
(ee) "SAR" means a stock appreciation right granted pursuant to Section 8 of
the Plan.
(ff) "SAR Agreement" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual SAR grant. The
SAR Agreement is subject to the terms and conditions of the Plan.
(gg) "Share" means a share of the Common Stock, as adjusted in accordance with
Section 12 of the Plan.
(hh) "Stock Purchase Right" means the right to purchase Common Stock pursuant
to Section 9 of the Plan, as evidenced by a Notice of Grant.
(ii) "Subsidiary" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
3. Eligibility. Nonqualified Stock Options and Rights may be granted to
Employees and Consultants. Incentive Stock Options may be granted only to
Employees. If otherwise eligible, an Employee or Consultant who has been
granted an Option or Right may be granted additional Options or Rights.
4. Stock Subject to the Plan.
(a) Shares Reserved. Subject to the provisions of Section 12 of the Plan, the
total number of Shares reserved and available for distribution under the Plan
is 2,000,000 Shares. Subject to Section 12 of the Plan, if any Shares that
have been optioned under an Option cease to be subject to such Option (other
than through exercise of the Option), or if any Option or Right granted
hereunder is forfeited or any such award otherwise terminates prior to the
issuance of Common Stock to the participant, the shares that were subject to
such Option or Right shall again be available for distribution in connection
with future Option or Right grants under the Plan; provided, however, that
Shares that have actually been issued under the Plan, whether upon exercise of
an Option or Right, shall not in any event be returned to the Plan and shall
not become available for future distribution under the Plan.
(b) No Fractional Shares. No fractional Shares may be issued under this Plan;
fractional Shares shall be rounded to the nearest whole Share.
(c) Conditional Issuances. If this Plan is amended at any time subject to
shareholder approval, then the Board may, in accordance with the terms and
conditions of this Plan, grant Options or Rights on a conditional basis,
subject to such approval by the shareholders of the Company not later
than the next annual meeting of the shareholders of the Company following the
date of such conditional grant. Any Options or Rights granted on a conditional
basis shall not be exercisable unless and until the amendment to this Plan is
approved by the shareholders of the Company. If such an amendment is not
approved by the shareholders at the next annual meeting of shareholders of the
Company following the conditional grant, then the conditional grant shall be
canceled.
5. Administration.
(a) Administration by the Board. The Plan shall be administered by the Board,
including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Option or Right shall be determined by the
Board, and such determinations shall be final and binding upon all persons
having an interest in the Plan or such Option or Right. Any Officer of a
Parent or Subsidiary shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election
which is the responsibility of or which is allocated to the Company herein,
provided the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
(b) Powers of the Board. Subject to the provisions of the Plan, and in the
case of a Committee, subject to the specific duties delegated by the Board to
such Committee, the Board shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in accordance with
Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options and Rights may be
granted hereunder;
(iii) to determine whether and to what extent Options and Rights or any
combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by each
Option and Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the terms of
the Plan, of any award granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or
Rights may be exercised (which may be based on performance criteria), any
vesting, acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Board, in its sole
discretion, shall determine;
(vii) to construe and interpret the terms of the Plan;
(viii) to prescribe, amend and rescind rules and regulations relating to the
Plan;
(ix) to determine whether and under what circumstances an Option or Right may
be settled in cash instead of Common Stock or Common Stock instead of cash;
(x) to reduce the exercise price of any Option or Right;
(xi) to modify or amend each Option or Right (subject to Section 14 of the
Plan);
(xii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Right previously
granted by the Board;
(xiii) to institute an Option Exchange Program;
(xiv) to determine the terms and restrictions applicable to Options and Rights
and any Restricted Stock; and
(xv) to make all other determinations deemed necessary or advisable for
administering the Plan.
(c) Effect of Board's Decision. The Board's decisions, determinations and
interpretations shall be final and binding on all Optionees and any other
holders of Options or Rights.
(d) Limitations on Grants. The following limitations will apply to grants of
Options and Rights under the Plan:
(i) no Employee or Consultant will be granted Options or Rights under the Plan
to receive more than 100,000 Shares in any one fiscal year; and
(ii) no Employee or Consultant will be granted Options or Rights under the
Plan to purchase more than 500,000 Shares over the term of the Plan, provided
that, if the number of Shares available for issuance under Paragraph 4 of the
Plan is increased, the maximum number of Options or Rights that any Employee or
Consultant may be granted will also increase by a pro rata amount for each
additional fiscal year in which Shares are allocated for issuance under the
Plan.
(e) Rule 16b-3 Compliance. It is the intent that this Plan and all Options
and Rights granted pursuant to it shall be administered, in the discretion of
the Board, so as to permit this Plan and the Options and Rights to comply with
Exchange Act Rule 16b-3. With respect to grants of Options and Rights to
Executive Officers and Directors, the Plan will be administered by the full
Board or a Committee to satisfy Rule 16b-3 to the extent the Board determines,
in its sole discretion, that compliance with Rule 16b-3 is necessary or
desirable. If any provision of this Plan or of any Options and Rights would
otherwise frustrate or conflict with the intent expressed in this Section 5
(e), that provision, to the extent the Board determines it possible, necessary,
or desirable, shall be interpreted and deemed amended in the manner determined
by the Board so as to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, the provision shall be deemed void as
applicable to Optionees who are then subject to the reporting requirements of
Section 16 of the Exchange Act to the extent permitted by law and in the manner
deemed advisable by the Committee.
6. Duration of the Plan. The Plan shall remain in effect until terminated by
the Board under the terms of the Plan, provided that in no event may Incentive
Stock Options be granted under the Plan later than 10 years from the date the
Plan was adopted by the Board.
7. Options.
(a) Options. The Board, in its discretion, may grant Options to eligible
participants and shall determine whether such Options shall be Incentive Stock
Options or Nonqualified Stock Options. Each Option shall be evidenced by a
Notice of Grant/Option Agreement which shall expressly identify the Options as
Incentive Stock Options or as Nonqualified Stock Options, and be in such form
and contain such provisions as the Board shall from time to time deem
appropriate. The Notice of Grant/Option Agreement shall govern each Optionee's
rights and obligations with respect to each such particular Option. Without
limiting the foregoing, the Board may at any time authorize the Company, with
the consent of the respective recipients, to issue new Options or Rights in
exchange for the surrender and cancellation of outstanding Options or Rights.
Option agreements shall contain the following terms and conditions:
(i) Exercise Price; Number of Shares. The per Share exercise price for the
Shares issuable pursuant to an Option shall be such price as is determined by
the Board; provided, however, that in the case of an Incentive Stock Option,
the price shall be no less than 100% of the Fair Market Value of the Common
Stock on the date the Option is granted, subject to any additional conditions
set out in Section 7(a)(iv) below. In the case of a Nonqualified Stock Option,
the per share exercise price for the Shares issuable pursuant to an Option
shall be such price as is determined by the Board; provided, however, the price
shall not be less than 100% of the Fair Market Value of the Common Stock on the
date the Option is granted.
(1) The Notice of Grant shall specify the number of Shares to which it
pertains.
(ii) Waiting Period and Exercise Dates. At the time an Option is granted,
the Board will determine the terms and conditions to be satisfied before Shares
may be purchased, including the dates on which Shares subject to the Option may
first be purchased. The Board may specify that an Option may not be exercised
until the completion of the service period specified at the time of grant.
(Any such period is referred to herein as the "waiting period.") At the time an
Option is granted, the Board shall fix the period within which the Option may
be exercised, which shall not be earlier than the end of the waiting period, if
any, nor, in the case of an Incentive Stock Option, later than ten (10) years,
from the date of grant.
(iii) Form of Payment. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board (and, in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of:
(1) cash;
(2) check;
(3) promissory note;
(4) other Shares which (a) in the case of Shares acquired upon exercise
of an option, have been owned by the Optionee for more than six months on the
date of surrender, unless otherwise permitted under Applicable Laws, including
Rule 16b-3 and Section 16(b) of the Exchange Act, and (b) have a Fair Market
Value on the date of surrender not greater than the aggregate exercise price of
the Shares as to which said Option shall be exercised;
(5) delivery of a properly executed exercise notice together with such
other documentation as the Board and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price, or the use of such other
procedures which shall effect a cashless exercise;
(6) any combination of the foregoing methods of payment; or
(7) such other consideration and method of payment for the issuance of
Shares to the extent permitted by Applicable Laws.
(iv) Special Incentive Stock Option Provisions. In addition to the foregoing,
Options granted under the Plan which are intended to be Incentive Stock Options
under Section 422 of the Code shall be subject to the following terms and
conditions:
(1) Dollar Limitation. To the extent that the aggregate Fair Market Value
of (a) the Shares with respect to which Options designated as Incentive Stock
Options plus (b) the shares of stock of the Company, Parent and any Subsidiary
with respect to which other incentive stock options are exercisable for the
first time by an Optionee during any calendar year under all plans of the
Company and any Parent and Subsidiary exceeds $100,000, such Options shall be
treated as Nonqualified Stock Options. For purposes of the preceding sentence,
(x) Options shall be taken into account in the order in which they were granted,
and (y) the Fair Market Value of the Shares shall be determined as of the time
the Option or other incentive stock option is granted.
(2) 10% Shareholder. If any Optionee to whom an Incentive Stock Option is
to be granted pursuant to the provisions of the Plan is, on the date of grant,
the owner of Common Stock (as determined under Section 424(d) of the Code)
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary of the Company, then the
following special provisions shall be applicable to the Option granted to such
individual:
(a) The per Share Option price of Shares subject to such Incentive Stock
Option shall not be less than 110% of the Fair Market Value of Common Stock on
the date of grant:
and
(b) The Option shall not have a term in excess of five (5) years from the
date of grant.
Except as modified by the preceding provisions of this subsection 7(a)(iv) and
except as otherwise limited by Section 422 of the Code, all of the provisions
of the Plan shall be applicable to the Incentive Stock Options granted
hereunder.
(v) Other Provisions. Each Option granted under the Plan may contain such
other terms, provisions, and conditions not inconsistent with the Plan as may
be determined by the Board.
(vi) Buyout Provisions. The Board may at any time offer to buy out for a
payment in cash or Shares, an Option previously granted, based on such terms
and conditions as the Board shall establish and communicate to the Optionee at
the time that such offer is made; provided, however, that buyout offers made to
Officers, Directors, and 10% shareholders may only be payable in cash and shall
comply with Rule 16b-3 to the extent deemed desirable or required by the Board.
(b) Method of Exercise.
(i) Procedure for Exercise, Rights as a Shareholder. Any Option or SAR
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board and as shall be permissible under the terms of the
Plan.
An Option or SAR shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option or SAR by the person entitled to exercise the Option or SAR and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Board (and, in
the case of an Incentive Stock Option, determined at the time of grant) and
permitted by the Option Agreement consist, of any consideration and method of
payment allowable under subsection 7(a)(iii) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares which thereafter shall be available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised. Exercise of an SAR in any manner shall, to the extent the SAR is
exercised, result in a decrease in the number of Shares which thereafter shall
be available for purposes of the Plan.
(ii) Rule 16b-3. Options and SARs granted to individuals subject to Section
16 of the Exchange Act ("Insiders") may, in the discretion of the Board, comply
with the applicable provisions of Rule 16b-3 and may contain such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
(iii) Termination of Employment or Consulting Relationship. In the event an
Optionee's Continuous Status as an Employee or Consultant terminates (other
than upon the Optionee's death or Disability), the Optionee may exercise his or
her Option or SAR, but only within such period of time as is determined by the
Board at the time of grant, not to exceed six (6) months, (three (3) months in
the case of an Incentive Stock Option) from the date of such termination, and
only to the extent that the Optionee was entitled to exercise it at the date of
such termination (but in no event later than the expiration of the term of such
Option or SAR as set forth in the SAR or Option Agreement). To the extent that
Optionee was not entitled to exercise an Option or SAR at the date of such
termination, and to the extent that the Optionee does not exercise such Option
or SAR (to the extent otherwise so entitled) within the time specified herein,
the Option or SAR shall terminate.
(iv) Disability of Optionee. In the event an Optionee's Continuous Status as
an Employee or Consultant terminates as a result of the Optionee's Disability,
the Optionee may exercise his or her Option or SAR, but only within six (6)
months from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option or SAR as set forth
in the Option or SAR Agreement). To the extent that Optionee was not entitled
to exercise an Option or SAR at the date of such termination, and to the extent
that the Optionee does not exercise such Option or SAR (to the extent otherwise
so entitled) within the time specified herein, the Option or SAR shall
terminate.
(v) Death of Optionee. In the event of an Optionee's death, the Optionee's
estate or a person who acquired the right to exercise the deceased Optionee's
Option or SAR by bequest or inheritance may exercise the Option or SAR, but
only within twelve (12) months following the date of death, and only to the
extent that the Optionee was entitled to exercise it at the date of death (but
in no event later than the expiration of the term of such Option or SAR as set
forth in the Option or SAR Agreement). To the extent that Optionee was not
entitled to exercise an Option or SAR at the date of death, and to the extent
that the Optionee's estate or a person who acquired the right to exercise such
Option or SAR does not exercise such Option or SAR (to the extent otherwise so
entitled) within the time specified herein, the Option or SAR shall terminate.
8. Stock Appreciation Rights
All Stock Appreciation Rights granted under the Plan shall comply with, and
the related SAR Agreement shall be deemed to include and be subject to, the
applicable terms and conditions set forth in this Section 8 and also the terms
and conditions set forth in Section 12 and Section 7(b) (iii), (iv), and (v);
provided, however, that the Committee may authorize an SAR Agreement related
to a Stock Appreciation Right that expressly contains terms and provisions that
differ from the terms and provisions set forth in Section 12 and any of the
terms and provisions of Section 7(b)(iii), (iv), or (v).
(a) Form of Right. A Stock Appreciation Right may be granted (i) in
connection with an Option, either at the time of grant or at any time
during the term of the Option, or (ii) without relation to an Option.
(b) Rights Related to Options. A Stock Appreciation Right granted pursuant
to an Option shall entitle the Optionee, upon exercise, to surrender that
Option or any portion thereof, to the extent unexercised, and to receive
payment of any amount computed pursuant to Section 8(b)(ii). That Option shall
then cease to be exercisable to the extent surrendered. Stock Appreciation
Rights granted in connection with an Option shall be subject to the terms of
the SAR Agreement governing the Option, which shall comply with the following
provisions in addition to those applicable to Options:
(i) Exercise and Transfer. Subject to Section 15, a Stock Appreciation Right
granted in connection with an Option shall be exercisable only at such time or
times and only to the extent that the related Option is exercised and shall not
be transferable except to the extent that the related Option is transferable.
To the extent that an Option has been exercised, the Stock Appreciation Rights
granted in connection with such Option shall terminate.
(ii) Value of Right. Upon the exercise of a Stock Appreciation Right related
to an Option, the Optionee shall be entitled to receive payment from the
Company of an amount determined by multiplying:
(a) The difference obtained by subtracting the exercise price of a Share
specified in the related Option from the Fair Market Value of a Share on the
date of exercise of the Stock Appreciation Right, by
(b) The number of Shares as to which that Stock Appreciation Right has
been exercised.
(c) Right Without Option. A Stock Appreciation Right granted without
relationship to an Option shall be exercisable as determined by the Board and
set forth in the SAR Agreement governing the Stock Appreciation Right, which
SAR Agreement shall comply with the following provisions:
(i) Number of Shares. Each SAR Agreement shall state the total number of
Shares to which the Stock Appreciation Right relates.
(ii) Vesting. Each SAR Agreement shall state the time or periods in which the
right to exercise the Stock Appreciation Right or a portion thereof shall vest
and the number of Shares for which the right to exercise the Stock Appreciation
Right shall vest at each such time or period.
(iii) Expiration of Rights. Each SAR Agreement shall state the date at which
the Stock Appreciation Rights shall expire if not previously exercised.
(iv) Value of Right. A Stock Appreciation Right granted without relationship
to an Option shall entitle the Optionee or holder of a SAR, upon exercise of
the Stock Appreciation Right, to receive payment of an amount determined by
multiplying:
(a) The difference obtained by subtracting the Fair Market Value of a
Share on the date the Stock Appreciation Right is granted from the Fair Market
Value of a Share on the date of exercise of that Stock Appreciation Right, by
(b) The number of rights as to which the Stock Appreciation Right has
been exercised.
(d) Limitations on Rights. Notwithstanding Section 8(b)(ii) and Section
8(c)(iv), the Board may limit the amount payable upon exercise of a
Stock Appreciation Right. Any such limitation must be determined on the date
of the Notice of Grant and be noted on the instrument evidencing the Optionee's
Stock Appreciation Right.
(e) Payment of Rights. Payment of the amount determined under
Section 8(b)(ii) or Section 8(c)(iv) and Section 8(d) may be made solely in
whole Shares valued at Fair Market Value on the date of exercise of the Stock
Appreciation Right or, in the sole discretion of the Board solely in cash or a
combination of cash and Shares. If the Board decides to make full payment in
Shares and the amount payable results in a fractional Share, payment for the
fractional Share shall be made in cash.
(f) Stockholder Privileges. No Employee or Consultant shall have any rights
as a stockholder with respect to any Shares covered by a Stock Appreciation
Right until the Employee or Consultant becomes the holder of record
of such Common Stock, and no adjustments shall be made for dividends or other
distributions or other rights as to which there is a record date preceding the
date such Employee or Consultant becomes the holder of record of such Common
Stock.
(g) Other Agreement Provisions. The SAR Agreements authorized
relating to Stock Appreciation Rights shall contain such provisions in addition
to those required by the Plan (including, without limitation, restrictions or
the removal of restrictions upon the exercise of the Stock Appreciation Right
and the retention or transfer of shares thereby acquired as the Board may deem
advisable.
9. Stock Purchase Rights.
(a) Grant of Restricted Stock. Subject to the terms and
provisions of the Plan, the Board, at any time and from time to time, may grant
Stock Purchase Rights to Employees and Consultants in such amounts as the Board
in its sole discretion shall determine.
(b) Restricted Stock Purchase Agreement. Each Restricted Stock
grant shall be evidenced by a Restricted Stock Purchase Agreement that shall
specify the period of time during which the transfer of Restricted Stock is
limited in some way, including the passage of time, achievement of performance
goals, or upon the occurrence of other events as determined by the Board in its
sole discretion ("Period of Restriction"), the number of Shares of Restricted
Stock granted, and such other provisions as the Board, in its sole discretion,
shall determine.
(c) Transferability. Except as provided in this Section 9(c), the Restricted
Stock granted herein may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Board and specified in the Restricted Stock
Purchase Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Board in its sole discretion and set forth in the Restricted
Stock Purchase Agreement. The Restricted Stock is subject to substantial risk
of forfeiture during the Period of Restriction.
(d) Other Restrictions. The Board shall impose such other restrictions
on any Restricted Stock granted pursuant to the Plan as it may deem advisable
including, without limitation, restrictions based upon the achievement
of specific performance goals (Company-wide, Subsidiary, and/or individual),
and/or restrictions under applicable Federal or state securities laws, and may
legend the certificate representing Restricted Stock to give appropriate notice
for such restrictions. The Restricted Stock shall be deposited in escrow with
the Company until the Restricted Stock is vested and the Period of Restriction
is terminated.
(e) Certificate Legend. In addition to any legends placed on
certificates pursuant to this Section 9(e) each certificate representing
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by this
Certificate, whether voluntary, involuntary, or by operation of law, is subject
to certain restrictions on transfer as set forth in the SGI International 1996
Omnibus Stock Plan and in a Restricted Stock Purchase Agreement dated November
7, 1996. A copy of the Plan and such Restricted Stock Purchase Agreement may
be obtained from the Chief Financial Officer of SGI International."
(f) Removal of Restrictions. Except as otherwise provided in
this Section 9, Restricted Stock covered by each Restricted Stock grant made
under the Plan shall become freely transferable by the participant after the
last day of the Period of Restriction. The Board, in its discretion, may
accelerate the time at which any restriction shall lapse and/or remove any
restrictions. Once the Shares are released from the restrictions, the Employee
or Consultant shall be entitled to have the legend required by Section 9(e)
removed from his or her Share certificate.
(g) Voting Rights. During the Period of Restriction, Employees or Consultants
holding Shares of Restricted Stock granted hereunder may exercise
full voting rights with respect to those Shares.
(h) Dividends and Other Distributions. During the Period of Restriction,
Employees or Consultants holding Shares of Restricted Stock granted hereunder
shall be entitled to receive all dividends and other distributions paid with
respect to those Shares while they are so held. If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Restricted Stock with
respect to which they were paid.
(i) Termination of Employment Due to Death, Disability, or Retirement. In the
event that an Employee or Consultant's employment with the Company is
terminated by reason of death or Disability, the restrictions on the Employee
or Consultant's Restricted Stock shall lapse as of the date of termination
(in the case of Disability, the restrictions shall lapse on the date
the Employee or Consultant's Disability is determined by the Board to be total
and permanent).
(j) Termination of Employment for Other Reasons. If the employment of the
Employee or Consultant shall terminate for any reason other than those reasons
described in Section 9(i), including termination for cause, all nonvested
Restricted Stock held by the Employee or Consultant at that time shall be
subject to the repurchase option of the Company, unless the Board determines
otherwise. However, with the exception of a termination of employment for
cause, the Board, in its sole discretion, shall have the right to provide
for lapsing of the restrictions on Restricted Stock following employment
termination, upon such terms and provisions as it deems proper.
(k) Rule 16b-3. If the Company has any class of equity security
registered pursuant to Section 12 of the Exchange Act, Stock Purchase
Rights granted to Insiders, and Shares purchased by Insiders in connection with
the Stock Purchase Rights, may be, in the discretion of the Board, subject to
any restrictions applicable thereto in compliance with Rule 16b-3. An Insider
may only purchase Shares pursuant to the grant of a Stock Purchase Right and
may only sell Shares purchased pursuant to the grant of a Stock Purchase Right,
during such time or times as are permitted by Rule 16b-3, unless waived in the
sole discretion of the Board.
10. Long-Term Performance Awards.
(a) Administration. Long-Term Performance Awards are cash or stock bonus
awards that may be granted either alone or in addition to other awards granted
under the Plan. Such awards shall be granted for no cash consideration. The
Board shall determine the nature, length and starting date of any performance
period (the "Performance Period") for each Long-Term Performance Award, and
shall determine the performance or employment factors, if any, to be used in
the determination of Long-Term Performance Awards and the extent to which such
Long-Term Performance Awards are valued or have been earned. Long-Term
Performance Awards may vary from participant to participant and between groups
of participants and shall be based upon the achievement of Company, Subsidiary,
Parent and/or individual performance factors or upon such other criteria as
the Board may deem appropriate. Performance Periods may overlap and
participants may participate simultaneously with respect to Long-Term
Performance Awards that are subject to different Performance Periods and
different performance factors and criteria. Long-Term Performance Awards shall
be confirmed by, and be subject to the terms of, a Long-Term Performance
Award agreement. The terms of such awards need not be the same with respect to
each participant.
At the beginning of each Performance Period, the Board may determine for each
Long-Term Performance Award subject to such Performance Period the range of
dollar values or number of shares of Common Stock to be awarded to the
participant at the end of the Performance Period if and to the extent that the
relevant measures of performance for such Long-Term Performance Award are met.
Such dollar values or number of shares of Common Stock may be fixed or may vary
in accordance with such performance or other criteria as may be determined by
the Board.
(b) Adjustment of Awards. The Board may adjust the performance
factors applicable to the Long-Term Performance Awards to take into account
changes in legal, accounting and tax rules and to make such adjustments as the
Board deems necessary or appropriate to reflect the inclusion or exclusion of
the impact of extraordinary or unusual items, events or circumstances in order
to avoid windfalls or hardships.
11. Non-Transferability of Options. Options and Rights may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Right, and the number of shares of Common Stock
which have been authorized for issuance under the Plan but as to which no
Options or Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Right, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or
any other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, to the extent that an Option or Right has not been
previously exercised, it will terminate immediately prior to the consummation
of such proposed action. The Board may, in the exercise of its sole discretion
in such instances, declare that any Option or Right shall terminate as of a
date fixed by the Board and give each Optionee the right to exercise his or her
Option or Right as to all or any part of the Optioned Stock, including Shares
as to which the Option or Right would not otherwise be exercisable.
(c) Merger or Asset Sale. Subject to the provisions of paragraph (d) hereof,
in the event of a merger of the Company with or into another corporation, or
the sale of substantially all of the assets of the Company, each outstanding
Option and Right shall be assumed, or an equivalent Option or Right
substituted, by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option or Right as to all or a portion of the
Optioned Stock, including Shares as to which it would not otherwise be
exercisable. If the Board makes an Option or Right exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Board shall notify the Optionee that the Option or Right shall be exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
or Right will terminate upon the expiration of such period. For the purposes
of this paragraph, the Option or Right shall be considered assumed if,
immediately following the merger or sale of assets, the Option or Right confers
the right to purchase, for each Share of Optioned Stock subject to the Option
or Right immediately prior to the merger or sale of assets, for the
consideration (whether stock, cash, or other securities or property) received
in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets was not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of the Option or Right, for each Share of Optioned
Stock subject to the Option or Right, to be solely common stock of the
successor corporation or its Parent equal in Fair Market Value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
(d) Change in Control. In the event of a "Change in Control" of the Company,
as defined in paragraph (e) below, then the following acceleration and
valuation provisions shall apply:
(i) Except as otherwise determined by the Board, in its discretion, prior to
the occurrence of a Change in Control, any Options and Rights outstanding on
the date such Change in Control is determined to have occurred that are not yet
exercisable and vested on such date shall become fully exercisable and vested;
(ii) Except as otherwise determined by the Board, in its discretion, prior to
the occurrence of a Change in Control, all outstanding Options and Rights, to
the extent they are exercisable and vested (including Options and Rights that
shall become exercisable and vested pursuant to subparagraph (i) above), shall
be terminated in exchange for a cash payment equal to the Change in Control
Price, (reduced by the exercise price, if any, applicable to such Options or
Rights). These cash proceeds shall be paid to the Optionee or, in the event of
death of an Optionee prior to payment, to the estate of the Optionee or to a
person who acquired the right to exercise the Option or Right by bequest or
inheritance.
(e) Definition of "Change in Control". For purposes of this
Section 12, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Section 13(d) and 14(d) of the
Exchange Act (other than the Company, a Subsidiary or a Company employee
benefit plan, including any trustee of such plan acting as trustee) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote generally in the election of directors;
or
(ii) A merger or consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least fifty percent (50%) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, or
the shareholders of the Company approve an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets; or
(iii) A change in the composition of the Board of Directors of the Company
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors.
"Incumbent Directors" shall mean directors who either (x) are directors of the
Company as of the date the Plan is approved by the Board or the shareholders,
whichever shall first occur, or (y) are elected, or nominated for election, to
the Board of the Company with the affirmative votes of at least a majority
of the Incumbent Directors at the time of such election or nomination (but
shall not include an individual whose election or nomination is in connection
with an actual or threatened proxy contest relating to the election of
directors to the Company).
(f) Change in Control Price. For purposes of this Section 12, "Change in
Control Price" shall be, as determined by the Board, (i) the highest Fair
Market Value of a Share within the 60-day period immediately preceding the date
of determination of the Change in Control Price by the Board (the "60--Day
Period"), or (ii) the highest price paid or offered per Share, as determined by
the Board, in any bona fide transaction or bona fide offer related to the
Change in Control of the Company, at any time within the 60-Day Period, or
(iii) such lower price as the Board, in its discretion, determines to be a
reasonable estimate of the fair market value of a Share.
13. Date of Grant. The date of grant of an Option or Right shall be,
for all purposes, the date on which the Board makes the determination granting
such Option or Right, or such other later date as is determined by the Board.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan for any reason.
(b) Shareholder Approval. The Company shall obtain shareholder approval
of any Plan amendment to the extent requested by Applicable Law, rule or
regulation, including the requirements of any exchange or quotation system on
which the Common Stock is listed or quoted. Such shareholder approval, if
required, shall be obtained in such a manner and to such a degree as is
required by the Applicable Laws, rules or regulations.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension
or termination of the Plan shall impair the rights of any Optionee, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company unless such
amendment, alteration, suspension or termination is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any Applicable Laws or government
regulations.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of
an Option or Right unless the exercise of such Option or Right and the issuance
and delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933 ("Securities Act"),
as amended, the Exchange Act, the securities laws of applicable states, the
rules and regulations promulgated thereunder, Applicable Laws, and the
requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations Re: Federal Securities Laws.
The Shares underlying these Options and Rights, as of the date hereof, have not
been registered under the Securities Act. The Optionee represents that if
Options or Rights are exercised in whole or in part at a time when there is not
in effect, under the Securities Act, a registration statement applicable to the
Shares issuable upon exercise, then the purchase of such Shares is expressly
conditioned upon the following representations, warranties and covenants:
(i) Investment Intent. Optionee is acquiring the Shares for its own account,
not as a nominee or agent, and not with a view to their resale or distribution
and is prepared to hold the Shares for an indefinite period and has no present
intention to sell, distribute, or grant any participating interests in the
Shares. Optionee acknowledges the Shares have not been registered under the
Securities Act or the securities laws of any other state, province or country
(collectively, with the 1933 Act, the "Securities Laws"), and that the Company
is issuing the Shares to it in reliance on its representations made herein.
(ii) Restricted Securities. Optionee hereby confirms it has been informed
that the Shares may not be resold or transferred unless such Shares are first
registered under the applicable Securities Laws or unless an exemption from
such registration is available. Accordingly, Optionee acknowledges it is
prepared to hold the Shares for an indefinite period.
(iii) Investment Experience. In connection with the investment
representations made herein, Optionee represents that it is able to fend for
itself in the transactions contemplated by this Plan, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, has the ability to bear the economic risks
of its investment, and has been furnished with and has had access to such
information as is normally made available in the form of a registration
statement, together with such additional information as is necessary to verify
the accuracy of the information supplied and to have all questions answered by
the Company.
(iv) Disposition of Shares. Optionee agrees that it shall make no disposition
of the Shares, unless and until:
(a) Optionee shall have complied with all requirements of this Agreement and
any stock exchange on which such Shares (or any substituted securities) may be
listed;
(b) Optionee shall have notified the Company of the proposed disposition and
furnished it with a written summary of the terms and conditions of the proposed
disposition; and
(c) Optionee shall have provided an opinion to the Company's counsel (at
optionee's expense), in form and substance reasonably satisfactory to
the Company, that (x) the proposed disposition does not require
registration of the Shares under the applicable Securities Laws or (y)
all appropriate action necessary for compliance with the registration
requirements of the applicable Securities Laws or of any exemption from
registration available under the applicable Securities Laws has been
taken.
16. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option or Right exceeds, as of the date of grant, the number of Shares which
may be issued under the Plan without additional shareholder approval, such
Option or Right shall be void with respect to such excess Optioned Stock,
unless shareholder approval of an amendment sufficiently increasing the number
of Shares subject to the Plan is timely obtained in accordance with Section
14(b) of the Plan.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Provision of Information. At least annually, copies of the Company's
annual report or Form 10-K for the just completed fiscal year shall be
made available to each Optionee and purchaser of Shares upon exercise of an
Option or Right. The Company shall not be required to provide such information
to persons whose duties in connection with the Company assure them access to
equivalent information.
19. Plan Does Not Affect Employment Status.
(a) Status as an Employee or Consultant shall not be construed
as a commitment that any Option or Right will be made under the Plan to such
Employee or Consultant or to eligible Employees or Consultants generally.
(b) Nothing in the Plan or in any Agreement or related documents shall
confer upon any Employee or Consultant or Optionee any right to continue
in the employment of the Company or any Parent or Subsidiary or constitute
any contract of employment or affect any right which the Company or any Parent
or Subsidiary may have to change such person's compensation, other benefits,
job responsibilities, or title, or to terminate the employment of such
person with or without cause.
20. Unfunded Plan. The Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Options
or Rights under the Plan. Neither the Company, its Parent or Subsidiary,
nor the Board shall be deemed to be a trustee of any amounts to be paid under
the Plan, nor shall anything contained in the Plan or any action taken pursuant
to its provisions create or be construed to create a fiduciary relationship
between the Company and/or its Parent or Subsidiary and an Optionee. To the
extent any person acquires a right to receive an Option or Right under the
Plan, such right shall be no greater than the right of an unsecured general
creditor of the Company.
21. Indemnification. In addition to such other rights of indemnification as
they may have as members of the Board or Officers or employees of the Company
and any Parent or Subsidiary, members of the Board and any Officers or
employees of the Company and any Parent or Subsidiary to whom authority to act
for the Board is delegated shall be indemnified by the Company against all
reasonable expenses, including attorneys= fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or
in connection with any appeal therein, to which they or any of them may be a
party by reason of any action taken or failure to act under or in connection
with the Plan, or any right granted hereunder, and against all amounts paid by
them in settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Company) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
person is liable for gross negligence, bad faith or intentional misconduct in
duties; provided, however, that within sixty (60) days after the institution of
such action, suit or proceeding, such person shall offer to the Company, in
writing, the opportunity at its own expense to handle and defend the same.
22. Stock Withholding to Satisfy Withholding Tax Obligations
(a) Ability to Use Stock to Satisfy Withholding. At the discretion of the
Company, Optionees may satisfy withholding obligations as provided in this
Section 22. When an Optionee incurs tax liability in connection with the
award, vesting or exercise of an Option or Right, which tax liability is
subject to tax withholding under applicable tax laws (including federal, state
and local laws), the Optionee may satisfy the withholding tax obligation (up
to an amount calculated by applying such Optionee's maximum marginal tax rate)
by electing to have the Company withhold from the Shares to be issued upon
award, vesting or exercise of the Option or Right, that number of Shares, or by
delivering to the Company that number of previously owned Shares, having a Fair
Market Value (as defined in the Plan) equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld or delivered, as
the case may be, shall be determined on the date that the amount of tax to be
withheld is determined (the "Tax Date").
(b) Election to Have Shares Withheld. All elections by an
Optionee to have Shares withheld or to deliver previously owned Shares pursuant
to this Section 22 shall be made in writing in a form acceptable to the Company
and shall be subject to the following restrictions:
(i) the election must be made on or prior to the application Tax Date;
(ii) all elections shall be subject to the consent or disapproval of the
Company; and
(iii) if the Optionee is subject to Section 16 of the Securities Act, the
election shall, to the extent practicable, desirable, or as determined by the
Board, comply with the applicable provisions of Rule 16b-3 and may be subject
to such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
(c) Section 83(b) Elections. In the event that (i) an election to have the
Shares withheld is made by an Optionee, (ii) no election is filed under
Section 83(b) of the Internal Revenue Code by such Optionee, and (iii) the Tax
Date is deferred under Section 83 of the Internal Revenue Code, the Optionee
shall receive the full number of Shares with respect to which the Option or
Right has been awarded, has vested or has been exercised, as the case may be,
but such Optionee shall be unconditionally obligated to tender back to the
Company the proper number of Shares on the Tax Date.
23. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months after the
date the Plan is adopted. Such shareholder approval shall be obtained in the
manner and to the degree required under applicable federal and state law.
Adopted by the Board of Directors on November 7, 1996
ATTEST:
SGI International
By: ___________________________
John R. Taylor, General Councel
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 147,813
<SECURITIES> 0
<RECEIVABLES> 1,094,343
<ALLOWANCES> 0
<INVENTORY> 66,459
<CURRENT-ASSETS> 2,049,434
<PP&E> 1,278,168
<DEPRECIATION> 559,026
<TOTAL-ASSETS> 6,177,973
<CURRENT-LIABILITIES> 7,026,185
<BONDS> 0
0
893
<COMMON> 38,770,056
<OTHER-SE> (39,735,786)
<TOTAL-LIABILITY-AND-EQUITY> 6,177,973
<SALES> 3,779,897
<TOTAL-REVENUES> 3,809,650
<CGS> 2,893,349
<TOTAL-COSTS> 2,893,349
<OTHER-EXPENSES> 3,775,484
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429,801
<INCOME-PRETAX> (3,946,944)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,946,944)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,946,944)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
