SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SGI INTERNATIONAL
- - -----------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- - -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
May 12, 1998
Dear Shareholder:
You are cordially invited to attend the SGI International Annual Meeting of
Shareholders on Friday, June 19, 1998, in La Jolla, California.
The meeting will begin promptly at 10:00 a.m. local time at the Sheraton Grande
Torrey Pines, 10950 North Torrey Pines Road, La Jolla, California 92037.
Directions are as follows: from Interstate 5 South, exit at Genesee Avenue and
turn right (west), stay on Genesee Avenue, it will curve to the right (North)
and become North Torrey Pines Road. At Science Park Road, turn left into the
hotel driveway. From Interstate 5 North, exit Genesee Avenue and turn left
(west), stay on Genesee Avenue, it will curve to the right (North) and become
North Torrey Pines Road. At Science Park Road, turn left into the hotel
driveway.
The official Notice of Annual Meeting, Proxy Statement and Proxy Card are
included with this letter. The vote of every shareholder is important. Your
cooperation in promptly signing, dating and mailing your Proxy Card, will be
greatly appreciated. Please note that mailing your completed proxy will not
prevent you from voting in person at the meeting, if you wish to do so.
We look forward to meeting you personally, should you be able to attend the
annual meeting.
Sincerely,
/s/ Joseph A. Savoca
JOSEPH A. SAVOCA
Chairman, President and
Chief Executive Officer
<PAGE>
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 19, 1998
NOTICE is hereby given that the Annual Meeting of the Shareholders of SGI
International, a Utah Corporation (the "Company"), will be held on Friday, June
19, 1998, at 10:00 a.m. local time, at the Sheraton Grande Torrey Pines, 10950
North Torrey Pines Road, La Jolla, California 92037, for the purposes of:
(1) electing two directors to the Board of Directors to serve for a term of
three years until the 2001 Annual Meeting of Shareholders, or until
their respective successors have been duly elected and qualified;
(2) ratifying the selection by the Board of Directors of J.H. Cohn LLP,
Independent Public Accountants, as auditors of the Company for the 1998
fiscal year; and
(3) transacting such other business as properly may come before the Annual
Meeting or any adjournments thereof.
Shareholders of record at the close of business on April 30, 1998, will be
entitled to receive notice of, and to vote at, the meeting or any adjournments
thereof.
A copy of the Company's Annual Report for 1997 accompanies this notice.
By Order of the Board of Directors,
/s/ Joseph A. Savoca
JOSEPH A. SAVOCA
Chairman, President and
Chief Executive Officer
La Jolla, California
May 12, 1998
Whether or not you intend to be present at the Annual Meeting, please promptly
mark, sign, date and return the accompanying proxy. A return addressed envelope
is enclosed for your convenience.
<PAGE>
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
PROXY STATEMENT
SOLICITATION OF PROXIES
The enclosed proxy is solicited by the Board of Directors of SGI International,
a Utah corporation ("SGI" or the "Company"), for use at the annual meeting of
the Company's shareholders to be held at the Sheraton Grande Torrey Pines, 10950
North Torrey Pines Road, La Jolla, California 92037, on June 19, 1998, at 10:00
a.m. local time, or any adjournments thereof. Only shareholders of record at the
close of business on April 30, 1998 (the "Record Date"), will be entitled to
receive notice of, and to vote at, the meeting. On April 30, 1998, there were
issued and outstanding 12,967,349 shares of Common Stock. The holders of shares
of Common Stock issued and outstanding on the Record Date are entitled to cast
one vote per share on all matters voted on at the annual meeting. Whether or not
you expect to attend the meeting in person, please return your executed proxy
in the enclosed envelope and the shares represented thereby will be voted in
accordance with your wishes. Each shareholder of record is entitled to one vote
for each share held as of the Record Date.
The Proxy Statement, the enclosed form of proxy and the Annual Report are being
mailed to shareholders on or about May 12, 1998. If, after sending in your
proxy, you decide to vote in person or desire to change the voting instructions
on your proxy or revoke your proxy, you may do so by notifying the Secretary of
the Company in writing of such revocation at any time prior to the voting of
the proxy, by submitting a later-dated proxy or by attending the meeting and
voting in person.
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of common stock issued and outstanding on the Record
Date. Abstentions will be treated as shares that are present and entitled to a
vote for purposes of determining the presence of a quorum, but as unvoted for
purposes of determining the approval of any matter submitted for a vote of the
shareholders. If a broker indicates on the proxy that the broker does not have
discretionary authority to vote on a particular matter as to certain shares,
those shares will be counted for general quorum purposes, but will not be
considered as present and entitled to vote with respect to that matter.
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, proxies may also be solicited by certain of the Company's
officers, directors and regular employees without additional compensation,
personally or by telephone, telefax or telegram.
ACTION TO BE TAKEN UNDER PROXY
Shares will be voted as instructed in the accompanying proxy on each matter
submitted to the vote of shareholders. If any duly executed proxy is returned
without voting instructions, the persons named as proxies thereon intend to vote
all shares represented by such proxy as follows:
(1) FOR the election of the persons named herein as nominees for Directors
of the Company to hold office until the annual meeting of the Company's
shareholders in the year 2001, or until their successors have been duly
elected and qualified;
(2) FOR the ratification of J.H. Cohn LLP, Independent Public Accountants, as
auditors of the Company for 1998; and,
(3) according to their best judgment on the transaction of such other business
as properly may come before the meeting or any adjournments thereof.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of March 2, 1998, (i) by each person
who is known by the Company to own beneficially more than 5% of the Company's
common stock, (ii) by each of the Company's directors, and (iii) by all officers
and directors as a group.
<TABLE>
Amount Percent
Name Beneficially Owned(1,5) of Class
- ----------------------------------------------------------------------
<S> <C> <C>
Bernard V. Baus 20,000(2) *
Ernest P. Esztergar 352,192(3) 3.09
Richard J. Gibbens 80,000(2) *
Norman A. Grant 50,750(4) *
William R. Harris 20,025(4) *
William A. Kerr 341,463(4) 3.05
Joseph A. Savoca 325,000(2) 2.83
John R. Taylor 208,000(4) 1.83
Larry L. Wiese 19,345(4) *
Officers and Directors
as a Group (9 persons) 1,416,775 11.66
- ----------------------------------------------------------------------
</TABLE>
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject
to warrants and convertible preferred stock currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage of the person holding such
securities but are not deemed outstanding for computing the percentage of
any other person or for any other purpose. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
(2) Represents common shares under warrant.
(3) Includes 50,000 common shares issuable upon conversion of 200 convertible
preferred shares and 200,000 common shares under warrant.
(4) Includes outstanding and exercisable warrants to purchase the number of
common shares of SGI International Common Stock as follows: Mr. Grant 42,250;
Mr. Harris 20,000; Mr. Kerr 42,250; Mr. Taylor 205,000; Mr. Wiese 15,000.
(5) There are no arrangements known to the Company, including the pledge by any
person of securities of SGI, the operation of which may at a subsequent date,
result in a change of control of SGI.
PROPOSAL 1. ELECTION OF DIRECTORS
The Company's bylaws provide that the Board of Directors shall consist of not
less than three directors nor more than nine directors, with the number to be
determined from time to time by the Board of Directors. The Board of Directors
has currently fixed the number of directors at six.
The Directors are divided into three classes. Currently, there are two
Directors in each class, each class is elected to serve a three-year term, and
the term of each class ends in successive years. Dr. Esztergar and Mr. Harris
have been nominated for election to the Board of Directors for a term expiring
at the annual shareholders' meeting in the year 2001, or until their successors
have been duly elected or appointed. The terms of Dr. Baus and Mr. Savoca expire
at the annual shareholders' meeting in 1999, or until their successors have been
duly elected or appointed. The terms of Messrs. Grant and Kerr expire at the
annual shareholders' meeting in 2000, or until their successors have been duly
elected or appointed.
Directors are elected by a majority of votes cast. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for
the election of the nominees. Each person nominated for election has agreed to
serve if elected. In the event that any nominee should be unavailable for
election as a result of an unexpected occurrence, such shares will be voted for
the election of such substitute nominee as the Board of Directors may propose.
The Board of Directors is not aware of any reason that might cause any nominee
to be unavailable.
The Board of Directors recommends a vote "FOR" the election of all of the
listed nominees.
INFORMATION ABOUT DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following states each director's, nominee's and executive officer's age,
principal occupation, present position with the Company and the year in which
each director or nominee first was elected as a director (each serving
continuously since first elected except as set forth otherwise). Unless
indicated otherwise, each individual has held his or her present position for at
least five years.
Bernard V. Baus, 72 years old, is currently President of Industrial Chemicals
Corporation, the only manufacturer of basic inorganic chemicals in Puerto Rico,
and President of Puerto Rico Alum Corporation, which is a joint venture with a
Venezuelan oil/chemical company. Dr. Baus has been a Director since 1996.
Ernest P. Esztergar, 66 years old, was a co-founder, Director, President and
Technical Director of Synfuel Genesis Incorporated, the predecessor corporation,
from its formation in July 1980 until it was merged into the Company in June
1985. Dr. Esztergar has been a Director since 1985 and Senior Vice President
Technology since March 1996.
2
<PAGE>
Richard J. Gibbens, 51 years old, has been Vice President Operations since
August 1997, Manager of Operations since July 1995, and joined SGI in January
1993. Mr. Gibbens was with the U.S. Navy from 1969-1992 as a Surface Warfare
Officer with a specialty in Marine Engineering.
Norman A. Grant, 82 years old, received a B.S. degree in Mining Engineering from
the University of Alberta, Canada. Since 1978, he has served as a consultant to
coal companies and energy development firms and has engaged in financial and
engineering evaluation of long-range energy development programs. Mr. Grant was
a Director in 1985 and 1986 and has been a Director since 1992.
William R. Harris, 76 years old, obtained his Bachelor of Chemical Engineering
degree from Ohio State, and is a graduate of the MIT Business School. He worked
for PPG Industries for 43 years starting as a chemical engineer, and rose
through the ranks to become Works Manager of PPG's largest chemical plant in
Barberton, Ohio. Later he was Vice President of various PPG Chemical Divisions,
then Group Vice President, Chemicals, and retired as Senior Vice President
International, PPG Industries. Mr. Harris has been a Director since 1996.
William A. Kerr, 83 years old, was Chairman of the Board, Chief Executive
Officer, President, and Chief Operating Officer of Kerr Glass Manufacturing
Corporation, working for that company from 1957-1984. Mr. Kerr has been a
Director since 1992.
Joseph A. Savoca, 70 years old, has been Chairman of the Board and Chief
Executive Officer since June 1995. He received his Bachelor of Chemical
Engineering degree from the University of South Carolina. From 1954 to 1976, Mr.
Savoca worked with various petrochemical and petroleum companies in research and
development, marketing, and held numerous executive positions. Mr. Savoca has
been a Director since 1995.
John R. Taylor, 53 years old, has been Senior Vice President since March 1996,
Corporate Secretary since June 1995, and General Counsel since December 1994.
Mr. Taylor held various positions in Pacific Enterprises and its affiliates from
1977 to 1994, including Director of Contract Administration, Special Counsel,
Secretary and House Counsel.
Larry L. Wiese, 52 years old, was Vice President-Business Development from April
1997 to December1997. Prior to joining SGI, Dr. Wiese was President and Chief
Executive Officer of WIN Ventures from 1987 to 1997.
EMPLOYMENT AGREEMENTS
The Company's executive officers are all employed in accordance with written
employment agreements that have a specific term, usually two years or less. In
the event of a change in control of the Company, as defined in these agreements,
the agreements automatically extend the term of employment for one additional
year with no other benefits being provided to any employee on a change of
control or on termination. Termination of employment is only for "cause."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Compliance with Section 16(a) of the Securities Exchange Act of 1934 requires
directors, executive officers and 10% or greater shareholders of the Company
("Reporting Persons") to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. To the Company's knowledge, based solely on its
review of the copies of such reports furnished to the Company and written
representations that certain reports were not required, during the year ended
December 31, 1997, all Section 16(a) filing requirements applicable to Reporting
Persons were complied with.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's bylaws currently provide for the limitation of director liability
and for indemnification of employees and agents, including officers and
directors, to the fullest extent permitted by Utah law. The Company has entered
into Indemnification Agreements with all of its directors. These provisions do
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws. The Company also
has Director and Officer liability insurance covering its officers and
directors.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
The Compensation Committee is currently composed of Bernard V. Baus and William
A. Kerr, neither of whom was an officer or an employee of the Company or any of
its subsidiaries during the last fiscal year or in any prior fiscal year. There
are no interlocking relationships between any executive officer of the Company
and any entity whose directors or executive officers serve on the Company's
Board of Directors or on the Compensation Committee.
3
<PAGE>
INFORMATION CONCERNING BOARD OF DIRECTORS
COMMITTEES AND MEETINGS
During 1997, the Board of Directors of the Company held four meetings. Each
director attended at least 75% of the meetings of the Board of Directors and
committees on which such director served. The Board of Directors does not have a
Nominating Committee, as such function is performed by the entire Board of
Directors.
The Board of Directors has a standing Audit Committee, consisting of
Messrs. Grant, Kerr, and Savoca and a Compensation Committee consisting of
Messrs. Kerr and Baus (all outside or non-employee directors). During 1997, the
Audit Committee held one meeting and the Compensation Committee held one
meeting. The Audit Committee performs the following functions: (a) review of
periodic financial statements, (b) communication with independent accountants,
(c) review of the Company's internal accounting controls, and (d) recommendation
to the Board of Directors as to selection of independent accountants. The
Compensation Committee approves all of the Company's compensation plans,
including the awarding of warrants or stock options and the compensation
arrangements for all of the Company's senior management.
COMPENSATION OF DIRECTORS
The outside (non-employee) Directors of the Company currently do not receive
cash compensation, but are reimbursed for certain expenses incurred, and are
granted warrants periodically. During 1995, Messrs. Grant and Kerr were each
granted warrants to purchase 20,000 shares at $1.125 to $1.25 per share. In
December 1995, the Board reduced the exercise price of all warrants previously
granted to the outside directors to $0.60 per share. During 1996, Messrs. Baus,
Grant, Harris and Kerr were each granted warrants to purchase 20,000 shares at
$1.72 to $5.125 per share. During 1997, Messrs. Baus, Grant, and Harris were
each granted warrants to purchase 10,000 shares at $2.00 per share. In September
1997, the Board reduced the exercise price of certain warrants granted during
1996 and 1997 to officers and employees of SGI International and OCET Corp., to
the then market price of $1.03 per share. The warrants granted expire through
December 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION POLICIES
The Compensation Committee (the "Committee") is composed entirely of
non-employee directors. The Committee will review executive compensation levels
annually and recommend for Board of Directors consideration an annual
compensation package for each executive officer comprised of base salary,
warrants and/or stock options. The Committee will also determine annually for
each executive officer appropriate levels of warrants and/or stock options or
other stock-based awards under the Company's Stock Incentive Plan. The Committee
believes the stock-based awards provide incentives for executive management to
promote intermediate-term and long-term shareholder value.
The Company's executive compensation policies are designed to provide a
competitive compensation program that will enable the Company to attract,
motivate, reward and retain executives who have the skills, experience and
talents required to promote the short-term and long-term financial performance
and growth of the Company. The compensation policies are influenced by the fact
that the Company's technologies and technological investments currently produce
insignificant revenues; the Company operates at a net loss; and, except for the
operations of AMS, the Company primarily utilizes equity capital to finance
operations. The compensation policies are based on the principle that the
financial rewards to the executives must be aligned with the financial interests
of the shareholders of the Company. In this manner, the Company will meet its
ultimate responsibility to its shareholders.
The Committee believes that the cash compensation being paid to the
executives is at or below the amount the Company would be required to pay to
engage suitable replacements for the current executive officers. Further, the
Committee believes the base salary and other compensation arrangements for
certain of its executives should be increased. However, based on the Company's
financial condition, the Committee and Board of Directors have deferred any
increases in cash compensation to Company executives and will periodically
recommend the grant of warrants and/or stock options at market exercise prices.
The Committee will evaluate additional and different overall compensation plans,
which may be utilized in the future to attract and retain qualified personnel.
Total compensation available in the combined package for each officer will
generally be set based on the Company's performance objectives correlated to the
Company's business plan and comparisons to the preceding year's level of
compensation. In setting compensation, the Committee considers compensation
levels of comparable or similar companies given due consideration to the
experience and accomplishments of individual officers.
4
<PAGE>
COMPENSATION FOR FISCAL YEAR 1997
Compensation paid to the Company's executive officers for fiscal year 1997
consisted of a base salary, warrants and/or stock options awarded under the
Company's incentive stock plan.
For fiscal 1997, the Committee also awarded warrants and/or stock options that
provide long-term and intermediate-term incentives and that offer opportunities
for officers to earn additional and significant compensation if shareholder
value can be increased. Warrants and stock options, which provide long-term
incentives, were awarded on a basis similar to prior years.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee recognizes Mr. Savoca's leadership in guiding the Company to
surmount a number of major difficulties that were present when he assumed the
position of CEO from his predecessor. At that time, Mr. Savoca restructured and
extended the due date of long-term debt then shortly due. He then negotiated and
structured a financing in 1997 to pay off such debt. When that financing became
unavailable, at the last moment, he again managed to obtain a further extension
of such debt for one year. In recognition of these and other significant
accomplishments of 1996 and 1997, as well as his continuing contribution to the
Company, the Committee increased Mr. Savoca's compensation in July of 1997 by an
additional $75,000 on an annual basis, but deferred that increase until 1998.
The Committee also awarded Mr. Savoca warrants and stock options to acquire
135,000 shares of common stock, with an exercise price equal to the market price
on the date the warrants and options were granted. In determining the number of
options and warrants awarded to Mr. Savoca, the Committee based its decision on
Mr. Savoca's performance.
DISCUSSION OF CORPORATE TAX DEDUCTION
FOR COMPENSATION IN EXCESS OF $1 MILLION A YEAR
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), precludes a
public corporation from taking a tax deduction in any year for compensation in
excess of $1 million paid to its chief executive officer or any of its four
other highest-paid executive officers. The $1 million annual deduction limit
does not apply, however, to "performance-based compensation" as that term is
defined in Code Section 162(m)(4)(C) and regulations promulgated thereunder.
The Committee believes that Company and executive performance are the most
determinative factors with respect to all components of executive compensation
other than base salaries. The current incentive stock plan and grants of
warrants for fiscal 1996 and 1997 were determined by the Committee based on
performance criteria. However, none of these compensation components meets the
technical performance-based criteria required by Code Section 162(m) for
exclusion from the deduction limit. Compensation expenses in respect of stock
options granted under the Company's stock incentive plan will be excluded
from the deduction limit.
In fiscal 1997, the Company's highest-paid executive, Mr. Savoca, received cash
compensation totaling $150,000. As of December 31, 1997, Mr. Savoca had
deferred and unpaid compensation of approximately $121,000. Thus, in fiscal
1997, the deduction limit did not affect the Company, and as a general matter,
the Committee does not anticipate that cash compensation paid to any of the
five highest-paid executive officers in any year in the near future will
approach $1 million.
The Committee will continue to monitor this matter and, if warranted and
consistent with compensation objectives, will consider modifications to the
Company's compensation policies to maximize the Company's compensation related
tax deductions.
COMPENSATION COMMITTEE
Bernard V. Baus
William A. Kerr
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The Securities and Exchange Commission requires a comparison on an indexed basis
of cumulative total shareholder return for the Company, a relevant broad equity
market index and a published industry or line-of-business index. Cumulative
total shareholder return represents share value appreciation assuming dividend
reinvestment. The following graph compares cumulative five-year shareholder
returns on an indexed basis for the Nasdaq Stock Market (U.S. and Foreign
companies), and a peer group made up of the current publicly traded members of
SIC codes 8730 through 8739. These benchmarks are included for comparative
purposes only and do not necessarily reflect management's opinion that such
indices are an appropriate measure of the relative performance of the stock
involved, and are not intended to forecast or be indicative of possible future
performance of the Common Stock. These calculations were prepared by Research
Data Group, Inc.
5
<PAGE>
Comparison of Five Year Cumulative Total Return*
<TABLE>
Cumulative Total Return ($)
-----------------------------------------------------------
12/92 12/93 12/94 12/95 12/96 12/97
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SGI International 100.00 56.28 17.04 0.88 5.02 1.59
Peer Group 100.00 91.04 67.23 98.61 108.14 117.19
Nasdaq Stock Market (U.S. & Foreign) 100.00 115.76 112.28 157.69 193.09 236.22
- -------------------------------------------------------------------------------------------------
</TABLE>
*$100 invested on 12/31/92 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the named executive officers
of the Company for the three years ended December 31, 1997.
<TABLE>
Long-Term Compensation(1)
----------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ---------------------------- ---------
Other Shares All
Annual Restricted Underlying LTIP Other
Compen- Stock Warrants Payouts Compen-
Name & Principal Position Year Salary ($) Bonus ($) sation ($) Awards ($) and Options(2) ($) sation ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph A. Savoca 1997 237,500 - - - 205,000 - -
Chairman of the Board, 1996 183,333 - - - 70,000 - -
President & 1995 85,000 - - - 205,000 - -
Chief Executive Officer
Ernest P. Esztergar 1997 115,000 - - - 130,000 - -
Director, Sr. Vice 1996 115,000 - - - 75,000 - -
President Technology 1995 90,000 - - - 125,000 - -
John R. Taylor 1997 130,000 - - - 140,000 - -
Senior Vice President, 1996 130,000 - - - 50,000 - -
General Counsel & 1995 130,000 - - - 124,000 - -
Secretary
Richard J. Gibbens 1997 90,000 - - - 100,000 - -
Vice President 1996 78,137 - - - 70,000 - -
Operations 1995 72,500 - - - 47,250 - -
Larry L. Wiese 1997 110,833 - - - 40,000 - -
Former Vice President, New 1996 - - - - 15,000 - -
Business Development 1995 - - - - - - -
William M. Owens 1995 37,375 - - - 70,000 - -
Former Chief
Executive Officer
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There were no Restricted Stock Awards or Long-Term Incentive Plan Awards
or Payouts for Executive Officers during the fiscal years ended December 31,
1997, 1996 or 1995.
(2) Represents the sum of all common shares underlying current year grants of
warrants and options, and previously granted warrants repriced in the current
fiscal year.
6
<PAGE>
WARRANT AND STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning warrant and stock option
grants made in the fiscal year ended December 31, 1997, to the individuals
named in the Summary Compensation Table. There were no grants of SARs to said
individuals during the year.
<TABLE>
Potential Realizable
Individual Grants Value at Assumed
------------------------------------------------------------------------- Annual Rates of Stock
Number of Shares % of Total Price Appreciation for
Underlying Warrants/Options Warrant/Option Term (1)
Warrants/ Granted to Employees Exercise Expiration --------------------------
Name Options Granted(#) in Fiscal Year Price ($/Sh) Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Savoca 35,000 2.93% 1.03 12/01 $ 11,900 $ 26,950
35,000 2.93% 1.03 12/01 10,850 24,500
50,000 4.18% 1.03 12/01 13,500 30,000
35,000 2.93% 1.03 12/01 9,100 19,950
50,000 4.18% 1.03 09/07 32,500 82,000
Ernest P. Esztergar 25,000 2.09% 1.03 12/01 7,750 17,500
25,000 2.09% 1.03 12/01 8,500 19,250
25,000 2.09% 1.03 12/02 9,000 20,250
25,000 2.09% 1.03 12/01 6,500 14,250
30,000 2.51% 1.03 09/07 19,500 49,200
John R. Taylor 25,000 2.09% 1.03 12/01 8,500 19,250
25,000 2.09% 1.03 12/01 7,750 17,500
35,000 2.93% 1.03 12/01 9,450 21,000
25,000 2.09% 1.03 12/01 6,500 14,250
30,000 2.51% 1.03 09/07 19,500 49,200
Richard J. Gibbens 20,000 1.67% 1.03 12/01 6,800 15,400
15,000 1.25% 1.03 12/02 5,400 12,150
15,000 1.25% 1.03 12/01 4,650 10,500
15,000 1.25% 1.03 12/01 3,900 8,550
15,000 1.25% 1.03 09/07 9,750 24,600
Larry L. Wiese 15,000 1.25% 1.03 12/02 5,400 12,150
25,000 2.09% 1.03 12/01 6,500 14,250
20,000 1.67% 1.03 09/07 13,000 32,800
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Potential realizable value is based on an assumption that the common stock
price appreciates at the annual rate shown (compounded annually) from the date
of grant until the warrant expires. These numbers are calculated based on the
requirements of the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price performance.
(2) Options and Warrants were granted at an exercise price equal to the fair
market value of SGI Common Stock, reported on the OTC Bulletin Board on the
date of grant.
(3)The Options and Warrants were granted for a term of five years. All Warrants
are fully exercisable. The Options are exercisable only after the underlying
stock is registered or after the passage of one year.
7
<PAGE>
AGGREGATED WARRANT EXERCISES IN LAST FISCAL YEAR AND FY-END WARRANT VALUES
The following table sets forth information concerning the number and value
realized as to warrants exercised during 1997 and warrants and stock options
held at December 31, 1997, by the individuals named in the Summary Compensation
Table and the value of those warrants and stock options held at such date. The
warrants and stock options exercised were not exercised as SARs and no SARs
were held at year end.
<TABLE>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Warrants
Warrants and Options at and Options at
Shares Fiscal Year-End Fiscal Year-End(4)
Acquired Value --------------------------------------------------------------
Name on Exercise Realized(3) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Savoca - - 1,125,000(1) 135,000 $ 174,418 $ 42,350
Ernest P. Esztergar - - 1,050,000(1) 55,000 116,490 17,254
John R. Taylor 2,000 9,050 463,000(2) 90,000 104,929 28,233
Richard J. Gibbens 15,000 39,359 80,000 30,000 29,396 9,411
Larry L. Wiese - - 15,000 45,000 4,706 14,117
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes warrant to purchase 850,000 common shares of OCET Corporation, an
SGI Subsidiary, at $1.00 per share.
(2) Includes warrant to purchase 293,000 common shares of OCET Corporation, an
SGI Subsidiary, at $1.00 per share.
(3) Market value of SGI Common Stock based on the closing bid price as reported
on the OTC Bulletin Board at the exercise date minus the exercise price.
(4) Market value of SGI Common Stock at fiscal year-end based on the closing
sales price as reported on the OTC Bulletin Board on December 31, 1997 ($1.34),
minus the exercise price of "in-the-money" warrants and options. At March 2,
1998, the closing bid price of SGI Common Stock was $1.09.
BOARD OF DIRECTORS REPORT ON TEN YEAR WARRANT AND OPTION REPRICING
During the fiscal year ended December 31, 1997, the Board of Directors
determined to reprice certain Warrants and certain Options previously granted to
Messrs. Savoca, Esztergar, Taylor, Gibbens and Wiese as set forth in the
following table. The Company repriced the Warrant and Stock Options to the
market price on the date of repricing, because the exercise prices for these
individuals were generally substantially above the market price of the
underlying common stock of the Company on the date the repricings were approved.
Therefore, the Board of Directors determined that the individuals were unlikely
to exercise their warrants and Stock Options which could have an affect on their
decision to remain as executive officers, and that it was in the best interest
of the Company to reprice the Warrants and Stock Options to assist in retaining
these individuals as valued employees. Further, the Board of Directors believes
that repricing these Warrants and Stock Options provides an alternate method of
compensation to these individuals without increasing their cash compensation or
the number of shares of Common Stock of the Company underlying the Warrants and
Stock Options. The Board of Directors believes that stock-based awards of
Warrants and Options provides incentives for Officers to promote intermediate
and log-term shareholder value for the Company, and that repricing these
Warrants and Options assists in promoting this strategy. The repricing of these
Warrants and Stock Options benefited only two members of the six member Board of
Directors of the Company as the outside Directors did not have their Warrants or
Stock Options repriced in 1997. The Board of Directors did not seek, nor did it
receive a report from a disinterested third party about whether these repricings
were in the best interest of the stockholders.
Board of Directors:
Bernard V. Baus
Ernest P. Esztergar
Norman A. Grant
William R. Harris
William A. Kerr
Joseph A. Savoca
8
<PAGE>
TEN-YEAR WARRANT AND OPTION REPRICING
The following table sets forth information concerning the repricing of warrants
and stock options held by the individuals named in the Summary Compensation
Table during the prior ten years. The Board of Directors elects to reprice
warrants or stock options as a method of rewarding and retaining the individuals
without increasing their cash compensation or the number of warrants or options
outstanding.
<TABLE>
Length of Original
Number of Market Price of Exercise Warrant/Options
Warrants/Options Stock at Time Price at Time New Exercise Term Remaining
Name & Date Repriced (#) of Repricing ($) of Repricing ($) Price ($) at date of Repricing
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Joseph A. Savoca,
Chairman of the Board,
President &
Chief Executive Officer
07/26/95 150,000 1.12500 3.0625 1.125 53 mos.
09/05/95 170,000 0.87500 1.1250 0.875 52 mos.
12/12/95 170,000 0.65625 0.8750 0.660 48 mos.
12/12/95 35,000 0.65625 1.2500 0.660 60 mos.
12/22/95 170,000 0.59375 0.6600 0.600 48 mos.
12/22/95 35,000 0.59375 0.6600 0.600 60 mos.
09/11/97 50,000 1.03120 4.2500 1.030 52 mos.
09/11/97 35,000 1.03120 1.7200 1.030 52 mos.
09/11/97 35,000 1.03120 2.0000 1.030 52 mos.
09/11/97 35,000 1.03120 4.3750 1.030 52 mos.
Ernest P. Esztergar,
Director, Sr. Vice
President Technology
12/28/94 10,000 15.00000 54.0000 15.000 36 mos.
06/02/95 10,000 1.37500 3.1250 1.375 55 mos.
06/02/95 60,000 1.37500 3.0625 1.375 55 mos.
07/26/95 70,000 1.12500 1.3750 1.125 53 mos.
09/05/95 90,000 0.87500 1.1250 0.875 52 mos.
12/12/95 90,000 0.65625 0.8750 0.660 48 mos.
12/12/95 35,000 0.65625 1.2500 0.660 60 mos.
12/22/95 90,000 0.59375 0.6600 0.600 48 mos.
12/22/95 35,000 0.59375 0.6600 0.600 60 mos.
09/11/97 25,000 1.03120 1.7200 1.030 52 mos.
09/11/97 25,000 1.03120 2.0000 1.030 52 mos.
09/11/97 25,000 1.03120 4.3750 1.030 52 mos.
09/11/97 25,000 1.03120 4.3750 1.030 64 mos.
John R. Taylor,
Sr. Vice President,
General Counsel &
Secretary
06/02/95 6,000 1.37500 3.1250 1.375 55 mos.
06/02/95 48,000 1.37500 3.0625 1.375 55 mos.
07/26/95 54,000 1.12500 1.3750 1.125 53 mos.
09/05/95 74,000 0.87500 1.1250 0.875 52 mos.
12/12/95 74,000 0.65625 0.8750 0.660 48 mos.
12/12/95 30,000 0.65625 1.2500 0.660 60 mos.
12/22/95 74,000 0.59375 0.6600 0.600 48 mos.
12/22/95 20,000 0.59375 0.8750 0.600 48 mos.
12/22/95 30,000 0.59375 0.6600 0.600 60 mos.
09/11/97 35,000 1.03120 4.2500 1.030 52 mos.
09/11/97 25,000 1.03120 1.7200 1.030 52 mos.
09/11/97 25,000 1.03120 2.0000 1.030 52 mos.
09/11/97 25,000 1.03120 4.3750 1.030 52 mos.
Richard J. Gibbens,
Vice President Operations
06/02/95 2,250 1.37500 3.1250 1.375 55 mos.
07/26/95 2,250 1.12500 1.3750 1.125 53 mos.
09/05/95 22,250 0.87500 1.1250 0.875 52 mos.
12/12/95 22,250 0.65625 0.8750 0.660 48 mos.
12/12/95 25,000 0.65625 1.2500 0.660 60 mos.
12/22/95 22,250 0.59375 0.6600 0.600 48 mos.
12/22/95 25,000 0.59375 0.6600 0.600 60 mos.
09/11/97 20,000 1.03120 1.7200 1.030 52 mos.
09/11/97 15,000 1.03120 2.0000 1.030 52 mos.
09/11/97 15,000 1.03120 4.3750 1.030 52 mos.
09/11/97 15,000 1.03120 4.3750 1.030 64 mos.
Larry L. Wiese,
Former Vice President,
New Business Development
09/11/97 25,000 1.03120 2.0000 1.030 52 mos.
09/11/97 15,000 1.03120 4.3750 1.030 64 mos.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
PROPOSAL 2. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected J.H. Cohn LLP, Independent Public
Accountants, as the Company's independent auditors for the year ending December
31, 1998, and has further directed that management submit the selection of
independent auditors for ratification by the shareholders at the annual meeting.
The Board recommends that the shareholders ratify the selection of J.H. Cohn LLP
as auditors for SGI for the fiscal year 1998. Ernst & Young LLP had previously
audited the Company's financial statements, but was dismissed by the Board of
Directors of Company effective as of November 19, 1997, and replaced by J.H.
Cohn LLP effective as of November 24, 1997. During the last two fiscal years and
in the subsequent interim period to November 19, 1997, there were no
disagreements between the Company and Ernst & Young LLP relative to accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Ernst
&Young LLP would have caused it to make reference to the subject matter of the
disagreements in connection with its reports. J.H. Cohn LLP is expected to have
a representative present at the annual meeting and will have an opportunity to
make a statement if they desire to do so and will also be available to respond
to appropriate questions.
The Board of Directors recommends a vote "FOR" such ratification.
REPORT ON FORM 10-K
A copy of the Company's Report on Form 10-K for the period ended December 31,
1997, filed with the Securities and Exchange Commission (including related
financial statements) is available to shareholders without charge, upon written
request to the Company.
FUTURE PROPOSALS OF SHAREHOLDERS
All proposals of Shareholders intended to be presented at the Annual Meeting of
shareholders to be held in 1999 must be received by the Company not later than
December 31, 1998, for inclusion in the Company's proxy statement and form of
proxy relating to that Annual Meeting. Upon timely receipt of any such proposal,
the Company will determine whether or not to include such proposal in the proxy
statement and proxy in accordance with applicable regulations and provisions
governing the solicitation of proxies.
OTHER BUSINESS
The Company knows of no business to be brought before the annual meeting other
than as set forth above. As to other business that may properly come before the
meeting, proxies will be voted in accordance with the best judgment of the
persons voting such proxies.
By Order of the Board of Directors,
/s/ Joseph A. Savoca
JOSEPH A. SAVOCA
Chairman, President and
Chief Executive Officer
10
<PAGE>
SGI INTERNATIONAL PROXY
1200 Prospect Street, Suite 325 This proxy is solicited on behalf
La Jolla, Ca 92037 of the Board of Directors for the
Annual Meeting of Shareholders
June 19, 1998
The undersigned hereby appoints Joseph A. Savoca and William A. Kerr as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of common stock of
SGI International held of record by the undersigned on April 30, 1998, at the
annual meeting of shareholders to be held on June 19, 1998, or any adjournment
thereof.
Item 1. Election of Directors Nominees: 01 Ernest P. Esztergar
02 William R. Harris
[ ] For both Nominees
[ ] Withhold authority to vote for any individual Nominee
Write numbers(s) of Nominee(s) for which you are withholding authority_________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Item 2. Appointment of J.H. Cohn, LLP, Independent Public Accountants
[ ] For [ ] Against [ ] Abstain
IN THEIR DISCRETION, UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
SHAREHOLDERS WHO ATTEND THE MEETING MAY VOTE IN PERSON EVEN THOUGH THEY HAVE
PREVIOUSLY MAILED THEIR PROXY.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
BOTH Nominees for Director, and FOR Item 2. Please sign exactly as your name
appears. When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a Partnership, please sign name by authorized
person.
______________________________________________________________________________
SIGNATURE DATE
______________________________________________________________________________
2nd SIGNATURE IF HELD JOINTLY DATE
IMPORTANT: Please date this Proxy and sign exactly as your name(s) appears
hereon.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
11
