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>
[LOGO]
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
JUNE 16, 1999
Dear Shareholder:
On behalf of the Board of Directors and employees of SGI International,
I cordially invite you to attend the SGI International Annual Meeting of
Shareholders on Friday, July 30, 1999, in La Jolla, California.
The meeting will begin promptly at 10:00 a.m. local time at the Hyatt
Regency Hotel, 3777 La Jolla Village Drive, La Jolla, California 92122.
Directions are as follows: from Interstate 5 South, exit at La Jolla Village
Drive and turn left (east), turn right into the hotel driveway. From Interstate
5 North, exit La Jolla Village Drive and turn right (east), turn right 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
whether or not you plan to attend the meeting, please take the time to vote. As
explained in the proxy statement, you may withdraw your proxy at any time before
it is actually voted at the meeting. 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.
If you plan to attend the meeting in person, please remember to bring a
form of personal identification with you. If you need special assistance at the
meeting please contact Investor Relations at (619) 551-1090. We look forward to
meeting you personally, should you be able to attend.
Sincerely,
/s/ JOSEPH A. SAVOCA
JOSEPH A. SAVOCA
Chairman and
Chief Executive Officer
<PAGE>
[LOGO]
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 30, 1999
YOUR VOTE IS IMPORTANT
NOTICE is hereby given that the Annual Meeting of the Shareholders of SGI
International, a Utah Corporation (the "Company"), will be held on Friday, July
30, 1999, at 10:00 a.m. local time, at the Hyatt Regency Hotel located at 3777
La Jolla Village Drive, La Jolla, California 92122, for the purposes of:
1) electing to the Board of Directors: one director to serve for a term of one
year until 2000; one director to serve a term of two years until 2001; and
three directors to serve a term of three years until 2002. All such
directors, if elected, shall serve until the respective Annual Meeting of
Shareholders in which their term expires, 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 1999
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 29, 1999, will be
entitled to receive notice of, and to vote at, the meeting or any adjournments
thereof. The Board asks you to vote in favor of the director nominees and the
ratification of J.H. Cohn LLP as the Company's Independent Public Accountants.
A copy of the Company's Annual Report for 1998 accompanies this notice.
By Order of the Board of Directors,
/s/ JOSEPH A. SAVOCA
JOSEPH A. SAVOCA
Chairman, and
Chief Executive Officer
La Jolla, California
JUNE 16, 1999
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 Hyatt Regency Hotel located at 3777
La Jolla Village Drive, La Jolla, California 92122, on July 30, 1999, at 10:00
a.m. local time, or any adjournments thereof. Only shareholders of record at the
close of business on April 29, 1999 (the "Record Date"), will be entitled to
receive notice of, and to vote at, the meeting. On April 29, 1999, there were
issued and outstanding 30,306,543 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 June 16, 1999. 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.
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. The
cost of this solicitation will be borne by the Company. We encourage you to vote
promptly. Voting promptly may save SGI the expense of a second mailing.
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 years 2000, 2001 and 2002, 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 1999; 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 April 1, 1999, (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, (iii) named executive
officers, (iv) director nominees, and (v) by all officers and directors as a
group.
<TABLE>
Amount Percent
Name beneficially owned (1,5) of class
===========================================================================================================
<S> <C> <C>
Ernest P. Esztergar 498,647(3) 1.73
Richard J. Gibbens 165,000(2) *
Norman A. Grant 123,050(4) *
William R. Harris 45,025(4) *
William A. Kerr 495,863(4) 1.74
James W. Mahler 42,000(4) *
Michael L. Rose - *
Joseph A. Savoca 595,000(4) 2.05
Jeffrey L. Smith 329,884(4) 1.16
John R. Taylor 357,500(4) 1.24
Officers and Directors as a group (10 persons) 2,651,969 8.80
===========================================================================================================
</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 or options.
(3) Includes 50,000 common shares issuable upon conversion of 200 convertible
preferred shares and 305,000 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 67,250;
Mr. Harris 45,000; Mr. Kerr 57,250; Mr. Mahler 40,000; Mr. Taylor 325,000; Mr.
Savoca 545,000, Mr. Smith 97,824.
(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 nine.
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. Baus has resigned for
reasons of health. Mr. Michael L. Rose, Mr. Jeffrey L. Smith, and Mr. James W.
Mahler have been nominated for election to the Board of Directors for a term
expiring at the annual shareholders' meeting in the year 2002, Mr. John R.
Taylor has been nominated for election to the Board of Directors for a term
expiring in 2001. Mr. Joseph A. Savoca has been nominated for election to the
Board of Directors for a term expiring in 2000. These directors will serve on
the board 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. The terms of Dr.
Esztergar and Mr. Harris expire at the annual shareholders' meeting in 2001, 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.
2
<PAGE>
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.
Ernest P. Esztergar, 67 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.
Norman A. Grant, 83 years old, received a B.S. degree in Mining Engineering
from the University ofAlberta, 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, 77 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, 84 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.
James W. Mahler, 50 years old, has been Executive Vice
President since September 1998 and was appointed to the Board of Directors in
November 1998. Mr. Mahler was previously President of Americoal Development, a
wholly owned subsidiary of Zeigler Coal Holding Company "Zeigler" since 1992.
While with Americoal Development Mr. Mahler was responsible for and managed the
non-mining and business development activities of Zeigler, including its
investment in the LFC technology. Prior thereto, he was Vice President,
Administration for Zeigler, a position he held from 1990 to 1992.
Michael L. Rose, 60 years old, was appointed to the Board of Directors and
became President and Chief Operating Officer in January 1999. Mr. Rose
brings over 35 years of experience in the petrochemical
and petroleum industry with him and was previously Senior Vice President and
Chief Operating Officer of Energy Supply and Credit Corporation ("ESCO").
Preceding his employment with ESCO, Mr. Rose was President and Chief Operating
Officer of Peerless Petrochemicals Inc. immediately prior to its acquisition by
ESCO in 1989.
Joseph A. Savoca, 71 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.
Jeffrey L. Smith, 56 years old, was appointed to the
Board of Directors in February 1999. Dr. Smith is currently CFO and Director of
Rosebud Energy Corporation "Rosebud", prior to which he was Rosebud's President
since its inception in June 1988 until November 1993. Dr. Smith also serves as
Vice President and Director of Billings Generation, Inc. which is the general
partner of Yellowstone Energy Limited Partnership ("Yellowstone"). Yellowstone
owns a 57 MW power plant in Billings Montana. Prior to joining Rosebud in 1988
Dr. Smith was Vice President Finance for SGI International.
John R. Taylor, 54 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.
EMPLOYMENT AGREEMENTS
The Company's executive officers are all employed in accordance with standard
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
3
<PAGE>
defined in these agreements, the agreements automatically extend the term of
employment for two additional years 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 and
the Company 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, 1998, all Section 16(a) filing requirements applicable to Reporting
Persons were complied with, except that James W. Mahler did not file timely his
Initial Statement of Beneficial Ownership.
Certain Relationships and Related Transactions
Dr. Jeffrey L. Smith is CFO and Director of Rosebud Energy Corporation and was
appointed a Director of the Company in February 1999. Rosebud is owned by four
individuals one of whom is Dr. Smith. As of December 31, 1998, 8% notes payable
and interest thereon with a net carrying value of $150,000 were due the Company,
contingent upon certain events, from the four individuals who formed Rosebud.
These amounts represent monies due from the sale of the Company's interests in
two projects located in Colstrip, Montana, and Healy, Alaska.
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 and officers.
These provisions do not affect a director's or officer'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 in 1998 was composed of Messrs. Baus and 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.
Information Concerning Board of Directors
COMMITTEES AND MEETINGS
During 1998, 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 two standing committees: an Audit
Committee and Compensation Committee.
Audit Committee. The members of the Audit Committee, during 1998 were
Messrs. Grant, Kerr, and Savoca. During 1998, the Audit 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.
Compensation Committee. The members of the Compensation Committee
during 1998 were Messrs. Baus and Kerr (both outside or non-employee directors).
During 1998 the Compensation Committee held one meeting. The Compensation
Committee approves all of the Company's compensation plans, including the
awarding of warrants or incentive stock options (or "options") and the
compensation arrangements for all of the Company's senior management.
4
<PAGE>
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive cash compensation for services
rendered, but are reimbursed for certain ordinary business expenses incurred in
the performance of their duties. However, outside (non-employee) directors are
periodically granted compensation in the form of warrants to purchase common
stock of the Company. Directors have been compensated largely in equity
securities in order to align their interest, with those of the Company's
shareholders. 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. In 1998, Messrs.
Baus, Grant, Harris and Kerr were granted three warrants to purchase an
aggregate of 20,000 shares each between $0.265 per share to $0.8437.
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 options. The Committee will also periodically determine for each
executive officer appropriate levels of warrants and/or options or other
stock-based awards under the Company's Stock Incentive Plan. The Committee
believes stock-based awards better aligns executive management's interests with
those of the shareholders, providing incentives 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 growth and financial
performance 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 debt or 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
intends to meet its ultimate responsibility to its shareholders.
The Committee believes that the cash compensation being paid to the
executives is the amount the Company would be required to pay, to engage
suitable replacements for the current executive officers. In addition, the
Committee reviews compensation policies and practices of corporations in other
industries which are similar to the Company in terms of revenues and market
value, because the Committee believes the Company competes with such companies
for executive talent. Although the Committee reviews such information for
general guidance, it does not specifically target compensation of the executive
officers to compensation levels at other companies.
Total compensation available in the combined package for each executive
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. Base salaries of executive officers are usually adjusted annually
to reflect inflation, promotions and merit. However, the Company's performance
for the particular year and the Company's prospects are more significant factors
in determining compensation packages. Compensation packages are subject to
variances for a variety of subjective factors such as an individual's
experience, contribution to the performance of the Company and its affiliates,
in addition to the competitive considerations noted previously.
The Committee and Board of Directors will periodically recommend the
grant of warrants and/or options at market exercise prices to executives of the
Company. Factors reviewed by the Committee in determining whether to grant
options or warrants are generally the same factors considered in determining
salaries described above and the absence of annual cash bonuses. The Committee
believes that the level of common shares underlying option and
warrant grants must be sufficient in size and potential
5
<PAGE>
value to provide a strong incentive and to reinforce the individual's
commitment to the Company. The history of option and warrant
grants previously granted to an executive is also a factor in determining new
grants. Furthermore, the Committee may periodically evaluate additional and
different overall compensation plans, which may be utilized in the future to
attract and retain qualified personnel.
COMPENSATION FOR FISCAL YEAR 1998
Compensation paid to the Company's executive officers for fiscal year 1998
consisted of a base salary and options awarded under the Company's incentive
stock plan. Further, the Committee reviewed the base salary and other
compensation arrangements for all of its executives and notwithstanding the
various accomplishments achieved, determined not to increase the base salary for
any executive. In lieu of any increase in an executives base salary the
Committee and Board of Directors granted options that offer opportunities for
executives to earn additional and potentially significant compensation if
shareholder value can be increased.
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 during the year.
Notwithstanding this, the Committee, as noted previously, did not increase the
base salary of any executive in 1998. The Committee awarded Mr. Savoca options
to acquire 155,000 shares of common stock, with an exercise price equal to the
market price on the date the options were granted. In determining the number of
options and warrants awarded to Mr. Savoca, the Committee based its decision on
the same factors noted previously.
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 options for fiscal 1998 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
options granted under the Company's stock incentive plan will be excluded from
the deduction limit.
In fiscal 1998, the Company's highest-paid executive, Mr. Savoca,
received cash compensation totaling $275,000. Thus, in fiscal 1998, 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 $1
million.
The Committee will continue to monitor this matter and, if warranted
and consistent with compensation objectives, will consider modifications to the
Company's compensation policies to maximize the Company's compensation related
tax deductions.
COMPENSATION COMMITTEE:
Bernard V. Baus
William A. Kerr
6
<PAGE>
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation of the Chief Executive Officer
and four named executive officers of the Company for the three years ended
December 31, 1998.
<TABLE>
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION(2)
---------------------- -------------------------
SHARES UNDERLYING
NAME & PRINCIPAL POSITION YEAR SALARY ($) WARRANTS AND OPTIONS(3)
=============================================================================================
<S> <C> <C> <C>
Joseph A. Savoca 1998 275,000 155,000
Chairman of the Board, and 1997 237,500 205,000
Chief Executive Officer 1996 183,333 70,000
Ernest P. Esztergar 1998 115,000 60,000
Director, Sr. Vice 1997 115,000 130,000
President Technology 1996 115,000 75,000
Richard J. Gibbens 1998 100,000 65,000
Vice President 1997 90,000 100,000
Administration 1996 78,137 70,000
James W. Mahler 1998 50,969 70,000
Executive Vice President
John R. Taylor 1998 150,000 80,000
Senior Vice President, 1997 130,000 140,000
General Counsel & 1996 130,000 50,000
Secretary
=============================================================================================
</TABLE>
(1) Salary information is disclosed in the table on a calendar year basis.
Therefore, if an increase is granted in any year, the salary reported in the
table for that year is a blend of two different salary levels. In September
1998, Mr. Mahler joined the Company at an annual salary of $200,000. In 1997 Mr.
Savoca's annual salary was increased from $200,000 to $275,000. In 1996 his
salary was increased from $150,000 to $200,000. In 1997 Mr. Taylor's annual
salary was increased, effective January 1, 1998, from $130,000 to $150,000. In
1997 Mr. Gibbens was promoted to Vice President of Operations and his annual
salary was increased from $80,000 to $100,000. In 1996 Mr. Gibbens' annual
salary was increased from $72,550 to $80,000.
(2) There were no cash bonuses, other annual compensation restricted stock
awards, long-term incentive plan awards or other compensation paid to executive
officers during the fiscal years ended December 31, 1998, 1997 or 1996.
(3) The number of common shares underlying warrants and options in 1997
represents the sum of all common shares underlying the grants of warrants and
options, and previously granted warrants repriced in that year. In 1998 and
1996, the Company did not adjust or amend the exercise price of stock options
or warrants previously granted to any of the named executive officers.
7
<PAGE>
Warrant and Stock Option Grants in Last Fiscal Year
The following table sets forth information concerning warrant or option
grants made in the fiscal year ended December 31, 1998, to the individuals named
in the Summary Compensation Table. There were no grants of SARs to said
individuals during the year.
<TABLE>
Individual Grants Potential Realizable
---------------------------------------------------------------------------- Value at Assumed
Number of Shares % of Total Annual Rates of Stock
Underlying Warrants/Options Price Appreciation for
Warrants/ Granted to Employees Exercise Expiration Warrant/Option Term(1)
Name Options Granted(#) in Fiscal Year Price ($/Sh) Date 5% 10%
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Savoca 60,000 6,53% 0.8437 01/03 $14,178 $30,978
75,000 8.16% 0.6250 04/03 13,125 28,875
20,000 2.18% 0.2650 10/03 1,500 3,300
Ernest P. Esztergar 20,000 2.18% 0.8437 01/03 4,726 10,326
30,000 3.26% 0.6250 04/03 5,250 11,550
10,000 1.09% 0.2650 10/03 750 1,650
Richard J. Gibbens 30,000 3.26% 0.8437 01/03 7,089 15,489
25,000 2.72% 0.6250 04/03 4,375 9,625
10,000 1.09% 0.2650 10/03 750 1,650
James W. Mahler 40,000 4.35% 0.6250 04/03 7,000 15,400
30,000 3.26% 0.2650 10/03 2,250 4,950
John R. Taylor 30,000 3.26% 0.8437 01/03 7,089 15,489
35,000 3.81% 0.6250 04/03 6,125 13,475
15,000 1.63% 0.2650 10/03 1,125 2,475
============================================================================================================================
</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 or option 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) Incentive stock 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 incentive stock options and warrants were granted for a term
between five and seven years. All warrants as of December 31, 1998, are fully
exercisable. The options are exercisable only after the underlying stock is
registered or after the passage of one year. In the event of a merger, sale of
substantially all of the assets of the corporation or change in control all
outstanding options shall become fully vested and immediately exercisable, if
not assumed or in the event of a merger substituted by the successor entity.
8
<PAGE>
Aggregated Warrant or Option Exercises in Last Fiscal Year and
Fiscal Year-End Values
The following table sets forth information concerning the number and value
realized as to warrants exercised during 1998 and warrants and options held at
December 31, 1998, by the individuals named in the Summary Compensation Table
and the value of those warrants and options held at such date. The warrants and
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(3)
Acquired Value ------------------------------- ------------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
=================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Savoca - - 1,126,000(1) 155,000 - 1,300
Ernest P. Esztergar - - 1,105,000(1) 60,000 - 650
John R. Taylor - - 553,000(2) 80,000 - 975
Richard J. Gibbens - - 110,000 65,000 - 650
James W. Mahler - - - 70,000 - 1,950
=================================================================================================================
</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 at fiscal year-end based on the closing
sales price as reported on the OTC Bulletin Board on December 31, 1998 ($0.33),
minus the exercise price of "in-the-money" warrants and options. At April 1,
1999, the closing bid price of SGI Common Stock was $0.12.
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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
Among SGI International, the NASDAQ Stock Market (U.S. & Foreign) and a Peer
Group
<TABLE>
Cumulative Total Return
--------------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
========================================================
<S> <C> <C> <C> <C> <C> <C>
SGI INTERNATIONAL 100 30 2 9 3 1
PEER GROUP 100 73 111 122 133 139
NASDAQ STOCK MARKET (U.S. & FOREIGN) 100 97 136 167 204 282
=================================================================================================
</TABLE>
* $100 invested on 12/31/93 in stock or index - including reinvestment of
dividends. Fiscal year ending December 31.
9
<PAGE>
Proposal 2. Ratification of Selection of Independent Public Accounts
The accounting firm of J.H. Cohn LLP served as the independent auditors for the
Company for the year ended December 31, 1998. Services provided included the
examination of the consolidated financial statements and preparation of the tax
returns.
The Audit Committee and Board of Directors has selected J.H. Cohn LLP,
Independent Public Accountants, as the Company's independent auditors for the
year ending December 31, 1999, and has further directed that management submit
the selection of independent auditors for ratification by the shareholders at
the annual meeting. Stockholder ratification of the appointment is not required,
but the Board of Directors has decided to ascertain the position of the
stockholders on the appointment. The Board of Directors may reconsider the
appointment if it is not ratified. The affirmative vote of a majority of the
shares voted at the meeting is required for ratification.
Ernst & Young LLP had previously audited the Company's financial
statements, but was dismissed by the Board of Directors effective as of November
19, 1997, and replaced by J.H. Cohn LLP effective as of November 24, 1997.
During the 1997 fiscal year 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,
1998, as filed with the Securities and Exchange Commission (including related
financial statements) was mailed to shareholders of record along with this
Notice of Annual Meeting of Shareholders and Proxy Statement. Additional copies
of the Company's Form 10-K are 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 2000 must be received by the Company not later than
December 31, 1999, 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, and
Chief Executive Officer
10
<PAGE>
[LOGO] SGI INTERNATIONAL PROXY
1200 Prospect Street, Suite 325 This proxy is solicited on behalf of
La Jolla, CA 92037 the Board of Directors for the Annual
Meeting of Shareholders July 30, 1999
The undersigned, revoking all prior proxies, hereby appoints Ernest P. Esztergar
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 29, 1999, at the Annual Meeting of Shareholders to be held
on July 30, 1999, or any adjournment thereof.
1. Election of Directors
Nominees: 01 James W. Mahler 02 Michael L. Rose 03 Joseph A. Savoca
04 Jeffrey L. Smith 05 John R. Taylor
[] For all Nominees [] Withhold authority to vote for any individual Nominee
Write number(s) of Nominee(s) for which you are withholding authority __________
2. Ratification of appointment of J.H. Cohn, LLP, Independent Public Accountants
[] For [] Against [] Abstain
3. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the Annual Meeting of Shareholders or any
adjournment thereof.
[] For [] Against [] Abstain
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
All 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. Return promptly in the enclosed envelope.
