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
APRIL 28, 2000
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, June 2, 2000, in La Jolla, California. The meeting will
begin promptly at 9:30 a.m. local time at St. James Hall, 7776 Eads Avenue, La
Jolla, California 92037. Directions are as follows: from Interstate 5 North or
52 West, use the Ardath Road Exit, follow Ardath Road to Torrey Pines, turn
right on Prospect, turn onto Eads Avenue. From Interstate 5 South, exit at La
Jolla Village Drive and turn right (west), turn left onto Torrey Pines Road,
turn right on Prospect, turn onto Eads Avenue. Parking is available on Eads,
Silverado, and surrounding streets.
The official Notice of the 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 (858) 551-1090. We look forward to
meeting you personally, should you be able to attend.
Sincerely,
/s/ MICHAEL L. ROSE
MICHAEL L. ROSE
Chairman of the Board
<PAGE>
[LOGO]
SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, California 92037
Notice of Annual Meeting of Shareholders
To be Held June 2, 2000
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, June
2, 2000, at 9:30 a.m. local time, at St. James Hall, 7776 Eads Avenue, La Jolla,
California 92037, to:
1) ELECT DIRECTORS. To consider and act upon the election to the Board of
Directors: one director to serve for a term of one year until 2001; and
three directors to serve a term of three years until 2003. 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) RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANTS. To consider and act upon the
ratification of the appointment by the Board of Directors of J.H. Cohn LLP,
Independent Public Accountants, as auditors of the Company for the 2000
fiscal year; and
3) OTHER BUSINESS. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
Only shareholders of record at the close of business on April 13, 2000,
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 1999 accompanies this notice.
By Order of the Board of Directors,
/s/ MICHAEL L. ROSE
MICHAEL L. ROSE
Chairman of the Board
La Jolla, California
APRIL 28, 2000
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
PROXY STATEMENT AND ANNUAL MEETING
The enclosed proxy is solicited by the Board of Directors on behalf 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 St. James Hall,
located at 7776 Eads Avenue, La Jolla, California 92037, on June 2, 2000, at
9:30 a.m. local time, or any adjournments thereof. Only shareholders of record
at the close of business on April 13, 2000 (the "Record Date"), will be entitled
to receive notice of, and to vote at, the meeting. On April 13, 2000, there were
issued and outstanding 61,470,976 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. There are no rights which will accrue to
stockholders dissenting in any matter known to the Company to be raised at the
meeting.
VOTING BY PROXY
The Proxy Statement, the enclosed form of proxy and the Annual Report are being
mailed to shareholders on or about April 28, 2000. 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.
IF YOUR SHARES ARE HELD IN "STREET NAME" THROUGH A BROKER, BANK OR
OTHER HOLDER OF RECORD, YOU WILL RECEIVE INSTRUCTIONS FROM THE REGISTERED
HOLDER THAT YOU MUST FOLLOW IN ORDER FOR YOUR SHARES TO BE VOTED FOR YOU BY
SUCH RECORD HOLDER.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before its exercise at the Annual Meeting
by: (a) giving written notice of revocation to the Secretary of the Company, (b)
executing and delivering a later-dated proxy, or (c) voting in person at the
Annual Meeting. All written notices of revocation or other communications with
respect to revocation of proxies should be addressed as follows: SGI
International, 1200 Prospect Street, Suite 325, La Jolla, California 92037,
Attention: John R. Taylor, Secretary.
QUORUM
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.
MATTERS RAISED AT THE ANNUAL MEETING
The Company's management does not expect any matters to be acted upon at the
Annual Meeting other than those presented in this Proxy Statement under "Actions
to be Taken Under Proxy". If any other matters were to be properly presented,
however, the persons designated as proxies would have the discretion to vote on
those matters for you. Under the Company's Bylaws, a shareholder may submit a
matter for a vote of the Company's shareholders at a meeting by giving adequate
notice to the Secretary of the Company. To be adequate, the notice must set
forth certain information specified in our Bylaws (which will be provided upon
written request) about the shareholder and the proposal and be
SGI INTERNATIONAL 1
<PAGE>
delivered to the Secretary prior to December 31 of each year. Alternatively,
shareholder proposals may be submitted for a vote of the Company's shareholders
under rules adopted under the Securities Exchange Act of 1934, which procedure
is described herein under "Future Proposals of Shareholders."
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 2001 and 2003, 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 2000; 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.
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 27, 2000, (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) by the four most
highly compensated executive officers other than the Chief Executive Officer
("named executive officers"), (iv) by director nominees, and (v) by all named
executive officers and directors as a group.
<TABLE>
AMOUNT PERCENT
NAME BENEFICIALLY OWNED (1,5) OF CLASS
=================================================================================================
<S> <C> <C>
Richard B. Bein 5,500 *
Edward D. Doherty - *
George E. Donlou 220,000(2) *
Ernest P. Esztergar 548,647(3) *
John W. Hart 80,000(4) *
William A. Kerr 543,613(4) *
James W. Mahler 234,613(4) *
Ben W. Reppond 1,992,966 3.30
Michael L. Rose 287,613(4) *
Joseph A. Savoca 690,000(4) 1.13
Jeffrey L. Smith 890,000(4) 1.47
John R. Taylor 445,500(4) *
Officers and Directors as a group (12 persons) 3,940,446 9.48
=================================================================================================
</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 355,000 common shares under warrant and options.
(4) Includes outstanding and exercisable warrants and options to purchase the
number of common shares of SGI International Common Stock as follows: Mr.
Hart 50,000; Mr. Kerr 105,000; Mr. Mahler 120,000; Mr. Rose 175,000, Mr.
Taylor 413,000; Mr. Savoca 640,000, Dr. Smith 125,324.
(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.
2 SGI INTERNATIONAL
<PAGE>
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 and each class is elected
to serve a three-year term ending in successive years. Mr. Savoca resigned from
the Board of Directors in February of 2000 and Mr. Grant has decided not to
stand for re-election when his term expires at this years Annual Meeting.
Messrs. Reppond, Doherty, and Bein have been nominated for election to the Board
of Directors for a term expiring at the annual shareholders' meeting in the year
2003. Mr. William Kerr, whose current term expires at this year's Annual
Meeting, has been nominated for election to the Board of Directors to fill the
vacancy created by Mr. Harris' earlier resignation for a term expiring in 2001.
These directors will serve on the Board of Directors until their successors have
been duly elected or appointed. The terms of Messrs. Esztergar and Taylor expire
at the annual shareholders' meeting in 2001, or until their successors have been
duly elected or appointed. The terms of Messrs. Mahler, Rose and Smith expire at
the annual shareholders' meeting in 2002, 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.
Richard B. Bein, 60 years old, is President and Chief Executive Officer of
RBCOR, LLC and BEINCOR, Ltd. which he formed in 1985. These entities import
and distribute products to the printing and packaging industries in the
Americas.
Edward D. Doherty, 64 years old, is Chairman of the Board and Chief
Executive Officer of Kaneb Pipeline Partners, LP, a refined product pipeline
and terminaling partnership since 1989. Preceding his employment with Kaneb,
Mr. Doherty was President/Chief Executive Officer of Northlea Corporation
and Chairman of Alyth Associates, Inc. which provides restructuring services to
troubled companies.
George E. Donlou, CPA, 41 years old, joined SGI in 1997 as Controller. In
April of 1999 Mr. Donlou was appointed Vice President Finance, in addition to
his responsibilities as Controller. Prior to joining SGI, Mr. Donlou served as
Accounting Manager and Manager of Business Administration for the landfill gas
to energy division of Pacific Energy, formerly the alternative energy division
of Pacific Enterprises. From 1983 to 1988 Mr. Donlou was employed by KPMG Peat
Marwick (known now as KPMG, LLP), a major international accounting firm.
Ernest P. Esztergar, 68 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.
John W. Hart, 48 years old, Mr. Hart joined SGI in November 1998 as
Director of Marketing and was appointed Vice President of Marketing in July of
1999. Prior to joining the Company Mr. Hart served as Senior Manager Coal Sales
and as Manager Market Development with ARCO Coal Company, a division of Atlantic
Richfield Co., responsible for sales and the development of long-term markets to
the electric utility industry. Prior to joining ARCO Coal Company, Mr. Hart
spent nine years with NERCO Coal Company, a subsidiary of PaciCorp, as Regional
Account Manager and as Project Manager.
William A. Kerr, 85 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, 51 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
SGI INTERNATIONAL 3
<PAGE>
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.
Ben W. Reppond, 54 years old, is President and Chief Executive Officer of
The Reppond Company which he founded in 1981. The Reppond Company is in the
employee benefits brokerage industry.
Michael L. Rose, 61 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.
Jeffrey L. Smith, 57 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. Rosebud is the general partner of
Colstrip Energy Limited Partnership ("CELP"). CELP owns a 37 Mw power plant in
Colstrip, Montana. Dr. Smith also serves as Vice President and Director of
Billings Generation, Inc. which is the general partner of Yellowstone Energy
Limited Partnership ("YELP"). YELP owns a 57 Mw power plant in Billings Montana.
Prior to forming Rosebud in 1988 Dr. Smith was Vice President Finance for SGI
International.
John R. Taylor, 55 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 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, 1999, all Section 16(a) filing requirements applicable to Reporting
Persons were complied with, except that Dr. Smith did not file timely his
Initial Statement of Beneficial Ownership of Securities and Messrs. Donlou,
Esztergar, Mahler, Rose and Taylor did not file timely a Statement of Changes of
Beneficial Ownership of Securities.
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, 1999, 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 Healy, Alaska.
In 1999 the Company issued 524,790 shares of restricted common stock to
Dr. Smith in return for $85,000 in cash. In addition, during 1999, the Company
issued one 12% note payable with a face value of $25,000 and a warrant to
purchase 17,500 shares of common stock to Dr. Smith for $25,000. The note bears
simple interest which is payable quarterly, at the Company's option, in cash or
restricted common stock. In the event the Company elects to distribute common
stock, the price of the common stock used to determine the number of shares to
be issued will be the greater of (a) the average stock price for the last ten
trading days of each quarter or (b) $0.25 per share. The principal of the note
payable is due on April 23, 2001, in cash. The warrant is exercisable one year
from the date of grant at a price of $0.12 per share. The exercise price was not
lower than the closing bid price on the grant date and expires on December 31,
2004. In October, 1999, the Company issued 5,261 shares of restricted common
stock for interest on this note valued at $1,315.
4 SGI INTERNATIONAL
<PAGE>
During 1999, and prior to his nomination to the Board of Directors, the
Company issued Mr. Reppond a $250,000 12% note payable, due on demand.
Subsequently, Mr. Reppond exchanged the $250,000, 12% note payable plus
associated accrued interest of $12,625, for approximately 1.6 million restricted
common shares and an amended note payable valued at $100,000. The amended
$100,000 note payable bears interest at 12% and matures on November 1, 2000.
Upon maturity, both the principal amount and accrued interest thereon shall be
payable in restricted common stock of the Company, calculated at 75% of the
average closing bid price for the five trading days prior to maturity.
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.
Information Concerning Board of Directors
COMMITTEES AND MEETINGS
During 1999, the Board of Directors of the Company held six 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 authorized two committees: an Audit
Committee and Compensation Committee.
Audit Committee. 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. Due to a restructuring in the composition of the Board of Directors
the Audit Committee did not convene during 1999. Instead this function was
performed by the entire Board of Directors as a whole.
Compensation Committee. 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. Due to a restructuring in the composition of the
Board of Directors the Compensation Committee did not convene during 1999.
Instead, this function was performed by the entire Board of Directors as a whole
whose decisions were based on guidelines and policies previously established.
COMPENSATION OF DIRECTORS
Directors of the Company currently do not receive cash compensation for services
rendered. Independent (non-employee) directors are periodically granted
compensation in the form of warrants to purchase common stock of the Company
which is based in part on participation at board meetings and on such additional
services that the director performs for the Company at the request of the Chief
Executive Officer. Directors have been compensated largely in equity securities
in order to align their interest, with those of the Company's shareholders. In
1999, Messrs. Kerr and Smith were granted warrants to purchase an aggregate of
20,000 shares and 10,000 shares, respectively, at exercise prices between $0.125
and $0.143 per share.
Directors who are also employees of the Company receive no additional
compensation for serving as directors. All directors of the Company are entitled
to reimbursement of their reasonable out-of-pocket expenses in connection with
their travel to, and attendance at, meetings of the Board of Directors or
committees thereof.
EXECUTIVE COMPENSATION POLICIES
The Board of Directors (the "Board") as a whole or through the Compensation
Committee when fully constituted, will review executive compensation levels
annually and recommend for consideration an annual compensation package for each
executive officer, comprised of base salary, warrants and/or options. The Board
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 Board 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
SGI INTERNATIONAL 5
<PAGE>
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 Board 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 Board 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
Board believes the Company competes with such companies for executive talent.
Although the Board 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 Board will periodically recommend the grant of warrants and/or
options at market exercise prices to executives of the Company. Factors reviewed
by the Board 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 or the periodic deferral of salaries. The Board
believes that the level of common shares underlying option and warrant grants
must be sufficient in size and potential value to provide a strong incentive and
to affirm 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 Board 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 1999
Compensation paid to the Company's named executive officers for fiscal year 1999
consisted of a base salary, warrants and/or options awarded under the Company's
incentive stock plan. No cash bonuses were awarded to any named executive
officer during fiscal 1999. Further, the Board reviewed the base salary and
other compensation arrangements for all of its named executives and
notwithstanding the various accomplishments achieved, determined not to increase
the base salary for its named executive officers, except for Messrs. Donlou and
Hart whose increase in responsibilities and job duties merited such. In lieu of
any increase in an executive's base salary the Board granted options that offer
opportunities for its named executives to earn additional and potentially
significant compensation if shareholder value can be increased. Further, certain
named executive officers and the Chief Executive Officer voluntarily deferred
part or all of their base salary for the year. The Board, in recognition of such
deferral, granted these executives additional warrants.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Board recognized both Mr. Rose's and Mr. Savoca's leadership in guiding the
Company through this fiscal 1999, which proved to be extremely challenging.
Notwithstanding this, the Board did not increase the base salary of either Mr.
Rose or Mr. Savoca in 1999. During 1999, the Board awarded Messrs. Rose and
Savoca warrants and/or options to acquire 225,000 and 245,000 shares of common
stock, respectively, 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 Messrs. Rose and Savoca, the Board 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 Board 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 1999 and 1998 were determined by the Board 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 are properly excluded from the deduction
limit.
6 SGI INTERNATIONAL
<PAGE>
In fiscal 1999 neither the Chief Executive Officer or any other named
executive officer of the Company received cash compensation in excess of $1
million. Thus, in fiscal 1999, the deduction limit did not affect the Company,
and as a general matter, the Board 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 $1 million.
The Board will continue to monitor this matter and, if warranted and
consistent with compensation objectives, will consider modifications to the
Company's compensation policies to maximize the Company's compensation related
tax deductions.
BOARD OF DIRECTORS:
Ernest P. Esztergar Michael L. Rose
Norman A. Grant Joseph A. Savoca
William A. Kerr Jeffrey L. Smith
James W. Mahler John R. Taylor
Executive Compensation
Summary Compensation Table
The following table sets forth the compensation of the Chief Executive Officer
and four named executive officers of the Company for the three years ended
December 31, 1999.
<TABLE>
LONG-TERM COMPENSATION(3)
ANNUAL COMPENSATION(1) --------------------------
------------------------ SHARES UNDERLYING
NAME & PRINCIPAL POSITION YEAR SALARY ($) WARRANTS AND OPTIONS(4)
===============================================================================================================
<S> <C> <C> <C>
Michael L. Rose 1999 212,741(2) 225,000
Chairman of the Board,
President and Chief Executive Officer
Joseph A. Savoca 1999 200,905(2) 245,000
Former Chairman of the Board, 1998 275,000 155,000
President and Chief Executive Officer 1997 237,500 205,000
James W. Mahler 1999 194,100(2) 175,000
Executive Vice President, 1998 50,969 70,000
Director
John R. Taylor 1999 145,000(2) 213,000
Senior Vice President, 1998 150,000 80,000
General Counsel and Secretary 1997 130,000 140,000
George E. Donlou 1999 128,333(2) 55,000
Vice President Finance, 1998 115,000 55,000
Controller 1997 59,583 115,000
John W. Hart 1999 132,000 15,000
Vice President Marketing 1998 10,500 35,000
Ernest P. Esztergar 1999 108,333(2) 230,000
Sr. Vice President 1998 115,000 60,000
Technology and Director 1997 115,000 130,000
===============================================================================================================
</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 January
1999, Mr. Rose joined the Company at an annual salary of $225,000. 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 1997 Mr. Taylor's annual salary was increased, effective
January 1, 1998, from $130,000 to $150,000. In July 1997 Mr. Donlou joined
the Company at an annual salary of $125,000. In April of 1999, Mr. Donlou
was promoted to Vice President of Finance and his annual salary was
increased to $135,000. In late November of 1998 Mr. Hart joined the Company
at an annual salary of $126,000. In April of 1999, Mr. Hart was promoted to
Vice President of Marketing and his annual salary was increased to $138,000.
(2) Effective November 1, 1999, Messrs. Rose, Mahler, Taylor, Donlou and
Esztergar agreed to temporarily reduce their salaries to $175,000, $160,000,
120,000, 125,000 and $75,000 respectively. In addition, commencing in May
1999 Messrs. Rose, Mahler, Savoca and Esztergar have also voluntarily
deferred payment of their base salaries aggregating approximately $435,000.
(3) There were no cash bonuses, other annual compensation restricted stock
awards, long-term incentive plan awards or other compensation paid to
executive officers during the fiscal years ended December 31, 1999, 1998 or
1997.
(4) The number of common shares underlying warrants and options in 1997
represents the sum of all common shares underlying the grants of warrants
and options, and previously granted warrants repriced in that year. In 1999
and 1998, the Company did not adjust or amend the exercise price of stock
options or warrants previously granted to any of the named executive
officers.
SGI INTERNATIONAL 7
<PAGE>
Warrant and Stock Option Grants in Last Fiscal Year
The following table sets forth information concerning warrant or option grants
made in the fiscal year ended December 31, 1999, to the individuals named in the
Summary Compensation Table. There were no grants of SARs to said individuals
during the year.
<TABLE>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------
NUMBER OF SHARES % OF TOTAL
UNDERLYING WARRANTS/OPTIONS
WARRANTS/ GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR PRICE ($/SH)(1) DATE(2)
=================================================================================================
<S> <C> <C> <C> <C>
Michael L. Rose 75,000 5.14% 0.1250 04/04
150,000 10.29% 0.0880 12/04
Joseph A. Savoca 75,000 5.14% 0.1250 04/04
170,000 11.66% 0.1429 12/04
James W. Mahler 50,000 3.43% 0.1250 04/04
125,000 8.57% 0.0880 12/04
John R. Taylor 75,000 5.14% 0.1250 04/04
88,000 6.04% 0.1429 12/04
50,000 3.43% 0.0880 12/04
George E. Donlou 50,000 3.43% 0.1250 04/04
5,000 0.34% 0.0880 12/04
John W. Hart 15,000 1.03% 0.1250 04/04
=================================================================================================
</TABLE>
(1) 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.
(2) The incentive stock options and warrants were granted for a term between
five and seven years. All warrants granted in fiscal 1999 are fully
exercisable one year from the date of grant. 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.
SGI INTERNATIONAL 8
<PAGE>
Aggregated Warrant and 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 1999 and warrants and options held at
December 31, 1999, 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(1)
ACQUIRED VALUE ---------------------------------------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Michael L. Rose - - 100,000 225,000 - 10,050
Joseph A. Savoca - - 395,000 245,000 - 1,857
James W. Mahler - - 70,000 175,000 - 8,125
John R. Taylor - - 250,000 213,000 - 4,535
George E. Donlou - - 170,000 55,000 - 1,285
John W. Hart - - 35,000 15,000 - 300
Ernest P. Esztergar - - 225,000 230,000 - 6,868
=====================================================================================================================
</TABLE>
(1) 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, 1999
($0.145), minus the exercise price of "in-the-money" warrants and options.
At March 27, 2000, the closing bid price of SGI Common Stock was $0.37.
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, 1999. Services provided included the
examination of the consolidated financial statements and preparation of the tax
returns.
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, 2000, 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.
A representative of J.H. Cohn LLP is expected to attend the Annual
Meeting and will have the opportunity to make a statement on behalf of the firm
if desired. The representative is also expected to be available to respond to
appropriate questions from shareholders.
The Board of Directors recommends a vote "FOR" such ratification.
SGI INTERNATIONAL 9
<PAGE>
REPORT ON FORM 10-KSB
A copy of the Company's Report on Form 10-KSB for the period ended December 31,
1999, 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-KSB are available to shareholders without charge, upon
written request to the Company.
FUTURE PROPOSALS OF SHAREHOLDERS
Under Regulation Section 240.14a-8 adopted pursuant to Section 14(a) of the
Securities Exchange Act of 1934, shareholders who intend to submit proposals at
the 2001 Annual Meeting must submit such proposals to the Company no later than
December 31, 2000, in order for them to be included in the Proxy Statement and
the form of Proxy to be distributed by the Board in connection with that
meeting. If the 2001 Annual Meeting is held on a date which is not within 30
days of June 2, 2001, then such proposals must be submitted a reasonable time
before the Company begins to print and mail its proxy materials.
Alternatively, if a shareholder wishes to have a proposal considered at the
2001 Annual Meeting but does not utilize the process set forth in Regulation
Section 240.14a-8, the Company's Bylaws control the timely filing of such
proposals. Under the Company's Bylaws, a shareholder proposal is not timely
unless notice in writing to the Secretary of the Corporation is delivered to or
mailed and received at the executive offices of the Company not less than sixty
(60) days prior to the meeting. Notwithstanding this, all proposals of
shareholders intended to be presented at the Annual Meeting of shareholders to
be held in 2001 must be received by the Company not later than March 15, 2000,
to be considered timely by the Company 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/ MICHAEL L. ROSE
MICHAEL L. ROSE
Chairman of the Board
10 SGI INTERNATIONAL
<PAGE>
Logo SGI INTERNATIONAL
1200 Prospect Street, Suite 325
La Jolla, CA 92037
PROXY
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting of Shareholders on June 2, 2000
The undersigned, revoking all prior proxies, hereby appoints James W. Mahler and
Jeffrey L. Smith 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 13, 2000, at the Annual Meeting of Shareholders to be held on June 2,
2000, or any adjournment thereof.
1. Election of Directors
Nominees: 01 William A. Kerr 02 Richard B. Bein 03 Edward D. Doherty
04 Ben W. Reppond
[] 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 of 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.
