THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN
OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS.
6% CONVERTIBLE PREFERRED STOCK SERIES 98-A
SUBSCRIPTION AGREEMENT
SGI INTERNATIONAL
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in
connection with the private placement of the 6% Convertible Preferred Stock
Series 98-A (hereinafter referred to as the "Preferred Stock") of SGI
INTERNATIONAL (OTC Bulletin Board symbol "SGII"), located at 0000 Xxxxxxxx
Xxxxxx, Xxxxx 000, Xx Xxxxx, XX 00000, a corporation organized under the laws of
Utah, USA (hereinafter referred to as the "Company"). The terms on which the
Preferred Stock may be converted into Common Stock and the other terms of the
Preferred Stock are set forth in the Certificate of Secretary of the 6%
Convertible Preferred Stock Series 98-A (Exhibit A annexed hereto). In addition,
the Company will sell to Subscriber a warrant (the "Warrant") to purchase Fifty
Thousand (50,000) shares of Common Stock of the Company for a period of five (5)
years from the Closing Date (as defined herein), as per the terms of a separate
Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription and, if
accepted by the Company, the offer and sale of the Preferred Stock, Warrants and
the Common Stock underlying the Warrant and Preferred Stock (collectively the
"Securities"), are being made in reliance upon the provisions of Regulation D
under the Act.
The Closing Date shall be determined in accordance with
Sections 1.1 and 15 herein.
The undersigned, Sovereign Partners, L.P., located c/o South
Ridge Capital Management, LLC, Executive Pavilion, 00 Xxxxx Xxxxxx, Xx. 0,
Xxxxxxxxxx, XX 00000, a limited partnership organized under the laws of the
State of Delaware (hereinafter referred to as "Subscriber" or "Purchaser"),
hereby represents and warrants to, and agrees with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell, and the Subscriber will
buy, on the Closing Date, an aggregate of Two Thousand (2,000) shares of
Preferred Stock for an aggregate purchase price of Two Million ($2,000,000) U.S.
Dollars (the "Purchase Price") based on U.S.$1,000 per share, and a Warrant to
purchase Fifty Thousand (50,000) shares of Common Stock of the Company.
Dividends will accrue and be paid at the rate of six (6%) percent on the
outstanding principal amount of the Preferred Stock until the Preferred Stock
has been completely converted, provided, however, all interest thereon shall
only be payable in common stock of the Company and not in cash at the time of
conversion. Dividends shall be calculated at the Conversion Price on the
Conversion Date when converted.
1.2 Form of Payment. Subscriber shall pay the Purchase Price
by delivering good funds in United States Dollars by wire transfer to Xxxxxxxxx,
Xxxxxxxxx & Xxxx, LLP, Escrow Agent, against delivery of the original
Securities. The parties have entered into an Escrow Agreement annexed hereto as
Exhibit C.
1.3 Wire Instructions. Wire instructions for Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP
are as follows:
Chase Manhattan Bank, N.A.
ABA No. 000000000
For the Account of:
United States Trust Company of New York
Account No. 000-0-000000
In favor of:
Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP Attorney Escrow Account
Account No. 59-01383
Section 2. Representations and Warranties of the Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organization and Authorization. Subscriber is duly
incorporated or organized and validly existing in the state or country of its
incorporation or organization and has all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Subscriber, the performance by the Subscriber
of its obligations hereunder and the consummation by the Subscriber of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Subscriber. The Undersigned's signatory has all
right, power and authority to execute and deliver this Agreement on behalf of
the Subscriber. This Agreement has been duly executed and delivered by the
Subscriber and, assuming the execution and delivery hereof and acceptance
thereof by the Company, will constitute the legal, valid and binding obligations
of the Subscriber, enforceable against the Subscriber in accordance with its
terms and the Subscriber can afford the complete loss of Subscriber's
investment.
2.2 Evaluation of Risks. Subscriber has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. It recognizes that its investment in the Company involves a high
degree of risk and the Subscriber can afford the complete loss of Subscriber's
investment.
2.3 Independent Counsel. Subscriber acknowledges that it has
been advised to consult with its own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the Securities.
2.4 Disclosure Documentation. Subscriber has received and
reviewed copies of the Company's reports filed under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the Act, including its 10-Ks, 10-Qs,
8-K's, and registration statements, filed by the Company since December 31,
1996, (collectively, the "Reports"). Except for the Reports, Subscriber is not
relying on any other information relating to the offer and sale of the
Securities. Subscriber acknowledges that the Company has offered to make
available any additional public information that the Subscriber may reasonably
request, including technical information, and other material information about
the Company and Subscriber has been offered Company's full and unconditional
cooperation in making such information available to Subscriber and acknowledges
that the Company has recommended that the Subscriber request and review such
information prior to making an investment decision. No oral or written
representations have been made, or oral or written information furnished to the
undersigned or its advisors, if any, in connection with the offering of the
Securities which were or are in any way inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Subscriber has had a
reasonable opportunity to ask questions of and receive answers from the Company
concerning the Company and the offering, and all such questions, if any, have
been answered to the full satisfaction of Subscriber.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to
Subscriber by (a) the Company or any agent, employee or affiliate of the Company
or (b) any other person, and in entering into this transaction Subscriber is not
relying upon any information, other than that contained in the Reports and the
results of independent investigation by Subscriber.
2.7 Subscriber is Accredited Investor. The undersigned is an "Accredited
Investor" as defined below who represents and warrants it is included within
one or more of the following categories of "Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the
Act, or any savings and loan associated or other institution as defined
in Section 3(a)(5)A of the Act whether acting in it individual or
fiduciary capacity; any broker or dealer registered pursuant to Section
15 of the 1934 Act; any insurance company as defined in Section 2(13)
of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivision, for the
benefits of its employees if such plan has total assets in excess of
$5,000,000; and employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons
that are accredited investors;
(ii) Any private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(iv) Any director, executive officer, or general
partner of the issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general partner of
that issuer;
(v) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $1,000,000;
(vi) Any natural person who had an individual income
in excess of $200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching that same income
level in the current year;
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii) of Regulation D under
the Act;
(viii) Any entity in which all of the equity owners
are accredited investors; and
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D promulgated
under the Act.
2.8 No Registration, Review or Approval. Subscriber
acknowledges and understands that the limited private offering and sale of
Securities pursuant to this Agreement has not been reviewed or approved by the
SEC or by any state securities commission, authority or agency, and is not
registered under the Act or under the securities or "blue sky" laws, rules or
regulations of any state. Subscriber acknowledges, understands and agrees that
the Securities are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 3(b) or Section 4(2) of such Act and Regulation D promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws. Subscriber understands that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Subscriber set forth herein in order to
determine the applicability of such exemptions and the suitability of Subscriber
to acquire the Securities. Subscriber will advise Company of the state of its
residence prior to executing this or any other agreement to enable the Company
to comply with applicable "blue sky" laws.
2.9 Investment Intent. Without limiting its ability to resell
the Securities pursuant to an effective registration statement, Subscriber is
acquiring the Securities solely for its own account and not with a view to the
distribution, assignment or resale to others. Subscriber understands and agrees
that it may bear the economic risk of its investment in the Securities for an
indefinite period of time. Subscriber does not now have any short position or
hedge position in the Company's Common Stock nor will the Subscriber make any
promissory notes and/or pledges to that effect on the Company's Common Stock.
2.10 No Advertisements. The Subscriber is not subscribing for
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
2.11 Registration Rights. The parties have entered into a Registration Rights
Agreement (Exhibit E).
Section 3. Representations and Warranties of the Company. For
so long as any Securities held by Subscriber remain outstanding, the Company
acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation
duly organized and validly existing under the laws of the State of Utah and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of ts
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
3.2 Accuracy of Reports and Information. To the best of its
knowledge, the Company is in compliance, to the extent applicable, with all
reporting obligations under either Section 12(b), 12(g) or 15(d) of the 1934
Act, and shall use its best efforts to maintain such status on a timely basis.
The Company has registered its Common Stock pursuant to Section 12 of the 1934
Act and the Common Stock is listed and trades on the OTC Bulletin Board.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the 1934 Act for a period of at least twelve (12) months immediately preceding
the offer and sale of the Securities (or for such shorter period that the
Company has been required to file such material).
3.3 SEC Filings/Full Disclosure. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, to the best of the Company's knowledge (i) none of the Company's filings
with the Securities and Exchange Commission contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been publicly
disclosed by the Company or disclosed in writing to the Subscriber which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
3.4 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Securities and
the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in this Agreement. Upon their issuance and delivery pursuant to this Agreement,
the Securities will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances; provided, however, that the Securities are
subject to restrictions on transfer under state and/or federal securities laws.
The issuance and sale of the Securities will not give rise to any preemptive
right or right of first refusal or right of participation on behalf of any
person.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
3.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since September 30, 1997, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), results of operations or prospects of the Company. No
event or circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement, including
the conversion or exercise provision of the Securities, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, any material indenture,
mortgage, deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Articles of the Company, or any decree, judgment, order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or its properties, or the Company's listing agreement for its Common
Stock.
3.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's business, properties, prospects, condition (financial or
otherwise) or results of operations.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, neither the Company nor its products is
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which could have a material adverse effect on the business or
financial condition of the Company.
3.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect, and the Company is not in material
breach or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to
maintain the listing of its Common Stock on the OTC Bulletin Board or other
organized United States market or quotation system. The Company has not received
any notice, oral or written, regarding continued listing and, as long as the
Preferred Stock and Warrants are outstanding, the Company will take no action
which would impact their continued listing or eligibility of the Company for
such listing.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available for
sale as unrestricted ("free trading") stock.
3.18 Registration Alternative. The Company covenants and
agrees that for so long as any of the shares remain outstanding and continue to
be "restricted securities" within the meaning of Rule 144 under the Act, the
Company shall permit resales of the underlying Common Stock pursuant to Rule 144
under the Act. The Company and the Subscriber shall provide the Transfer Agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent, and the Company
shall continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the 0000 Xxx.
3.19 Capitalization. The authorized capital stock of the
Company consists of 75,000,000 shares of Common Stock, no par value per share,
20,000,000 shares of non-voting Preferred Stock, $0.01 par value. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
3.20 Dilution. The Company is aware and acknowledges that
conversion of the Preferred Stock, and/or exercise of the Warrant, would cause
dilution to existing Shareholders and could significantly increase the
outstanding number of shares of Common Stock.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by the Subscriber remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
(i) It will reserve from its authorized but unissued
shares of Common Stock a sufficient number of shares of Common Stock to
permit the conversion in full of the outstanding Securities.
(ii) It will use its best efforts to maintain the
listing of its Common Stock on the OTC Bulletin Board.
(iii) It will permit the Subscriber to exercise its
right to convert the Preferred Stock and/or exercise the Warrants by
telecopying an executed and completed Notice of Conversion and/or
Notice of Exercise to the Company and delivering the original Notice of
Conversion and/or original Notice of Exercise and the certificate
representing the Preferred Stock and/or the original Warrant to the
Company by express courier. Each business date on which a Notice of
Conversion and/or Notice of Exercise is telecopied to and received by
the Company in accordance with the provisions hereof shall be deemed a
conversion date and/or exercise date. The Company will use its best
efforts to transmit the certificates representing shares of Common
Stock issuable upon conversion of any Preferred Stock and/or exercise
of any Warrants (together with the certificates representing the
Preferred Stock not so converted) and/or Warrants not so exercised to
the Subscriber via express courier, by electronic transfer or otherwise
within three business days after the conversion and/or exercise date if
the Company has received the original Notice of Conversion and
Preferred Stock certificate being so converted and/or original Notice
of Exercise and Warrants by such date. In addition to any other
remedies which may be available to the Subscriber, in the event that
the Company fails to use its best efforts to effect delivery of such
shares of Common Stock within such three business day period, the
Subscriber will be entitled to revoke the relevant Notice of Conversion
and/or Notice of Exercise by delivering a notice to such effect to the
Company whereupon the Company and the Subscriber shall each be restored
to their respective positions immediately prior to delivery of such
Notice of Conversion and/or Notice of Exercise. The Notice of
Conversion and Preferred Stock and/or the Notice of Exercise and
Warrant representing the portion of the Preferred Stock converted
and/or Warrant exercised shall be delivered as follows:
To the Company:
Controller
SGI International
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xx Xxxxx, XX 00000
Fax: (000) 000-0000
In the event that the Common Stock issuable upon conversion of
the Preferred Stock and/or exercise of the Warrants is not delivered, as a
direct result of the negligence or action or inaction of the Company only,
within five (5) business days of receipt by the Company of a valid Notice of
Conversion and the Preferred Stock to be converted and/or Notice of Exercise and
Warrants to be exercised (such date of receipt referred to as the "Conversion
Date" and/or "Exercise Date"), the Company shall pay to the Purchaser, in
immediately available funds, upon demand, as liquidated damages for such failure
and not as a penalty, for each $100,000 of Preferred Stock sought to be
converted, $500 for each of the first ten (10) days and $1,000 per day
thereafter that the Conversion Shares are not delivered, and for each thousand
(1,000) shares of Common Stock sought to be exercised under the Warrant, $7.50
for each of the first ten (10) days and $15 per day thereafter that the shares
of Common Stock underlying the Warrant are not delivered, which liquidated
damages shall run from the sixth business day after the Conversion Date and/or
Exercise Date. Any and all payments required pursuant to this paragraph shall be
payable only in shares of Common Stock and not in cash. The number of such
shares shall be determined by dividing the total sum payable by the Conversion
Price and/or Exercise Price.
Section 5. Opinion of Counsel. The Company shall have their
counsel provide, at the Company's expense, an opinion of counsel acceptable to
the transfer agent (if required) in order to perfect conversion of the Preferred
Stock and/or exercise of Warrants, upon receipt of Notice of Conversion and/or
Notice of Exercise.
Subscriber shall, upon the Closing, receive an opinion letter
from counsel to the Company subject to reasonable and customary limitations and
qualifications to the effect that:
(i) The Company is duly incorporated and validly
existing under the laws and jurisdiction of its incorporation. The
Company and/or its subsidiaries are duly qualified to do business as a
foreign corporation and is in good standing in all jurisdictions where
the Company and/or its subsidiaries owns or leases properties,
maintains employees or conducts business, except for jurisdictions in
which the failure to so qualify would not have a material adverse
effect on the Company, and has all requisite corporate power and
authority to own its properties and conduct its business.
(ii) Except as set forth in the Reports to the best
of Counsel's knowledge without an independent investigation, there is
no action, proceeding or investigation pending, or to such counsel's
knowledge, threatened against the Company which might result, either
individually or in the aggregate, in any material adverse change in the
business or financial condition of the Company.
(iii) Except as set forth in the Reports to the best
of counsel's knowledge without an independent investigation, the
Company is not a party to or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency
or instrumentality.
(iv) Except as set forth in the Reports to the best
of counsel's knowledge without an independent investigation, there is
no action, suit, proceeding or investigation by the Company currently
pending, except for a lawsuit against Company's subsidiary, Automative
& Assembly Manufacturing, Inc.
(v) The Preferred Stock, which shall be issued at the
Closing, will be duly authorized and validly issued under the laws of
the Company's State of Incorporation.
(vi) This Subscription Agreement, the issuance of the
Securities and the issuance of Common Stock, upon conversion of the
Securities, have been duly approved by all required corporate action
and that all such securities, upon delivery, shall be validly issued
and outstanding, fully paid and nonassessable.
(vii) The issuance of the Securities will not violate
the applicable listing agreement between the Company and any securities
exchange or market on which the Company's securities are listed.
(viii) Assuming the accuracy of the representation
and warranties of the Company and the Subscriber set forth in this
Subscription Agreement, the offer, issuance and sale of the Preferred
Stock and Conversion Shares to be issued upon exercise to the Purchaser
pursuant to this Agreement are exempt from the registration
requirements of the Act.
(ix) As more specifically described in the Reports,
the authorized capital stock of the Company consists of 75,000,000
shares of Common Stock, no par value per share ("Common Stock") and
20,000,000 shares of Preferred Stock, par value $.01 per shares.
(x) The Common Stock is registered pursuant to
Section 12(b) or Section 12(g) of the 1934 Act and to the best of
Counsel's knowledge without an independent investigation the Company
has timely filed all the material required to be filed pursuant to
Sections 13(a) or 15(d) of such Act for a period of at least twelve
months preceding the date hereof.
(xi) The Company has the requisite corporate power
and authority to enter into the Agreements and to sell and deliver the
Securities and the Common Stock to be issued upon the conversion of the
Securities as described in this Agreement; the Agreement has been duly
and validly authorized by all necessary corporate action by the
Company, to the best of our knowledge, no approval of any governmental
or other body is required for the execution and delivery of each of the
Agreements by the Company or the consummation of the transactions
contemplated thereby; the Agreement has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and
binding agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state and foreign
securities laws, as to which no opinion is expressed.
(xii) To the best of our knowledge without an
independent investigation, after due inquiry, the execution, delivery
and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a
default under or conflict with or violate any provision of (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture,
mortgage, deed of trust, agreement or other instrument to which the
Company is a party or by which it or any of its property is bound,
(iii) any applicable statute or regulation, (iv) or any judgment,
decree or other of any court or governmental body having jurisdiction
over the Company or any of its property.
Section 6. Opinion of Counsel Upon Conversion. The Company
will obtain for the Subscriber, at the Company's expense, any and all opinions
of counsel which may be reasonably required in order to convert the Preferred
Stock, including, but not limited to, obtaining for the Subscriber an opinion of
counsel, subject only to receipt of a Notice of Conversion in the form of
Exhibit D and receipt by Counsel of such representations, warranties, and
documents as are determined to be necessary to comply with applicable securities
laws, duly executed by the Subscriber which shall be satisfactory to the
Transfer Agent, directing the Transfer Agent to remove the legend from the
certificate.
Section 7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to use its best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at
all times after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the 1934 Act;
(ii) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company
under the Act and the 1934 Act;
(iii) to furnish to Purchaser forthwith upon request
a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144, and of the Act and the 1934
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the
Company as Purchaser may reasonably request in availing itself of any
rule or regulation of the SEC allowing Purchaser to sell any such
Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscriber. Each of Subscriber and the Company represent to the other the
following with respect to itself:
8.1 Subscription Agreement. The Subscription Agreement has
been duly authorized, validly executed and delivered on behalf of the Company
and Subscriber and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
8.2 No-Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
8.3 Approvals. Neither the Company nor Subscriber is aware of
any authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the Securities.
8.4 Indemnification. Each of the Company and the Subscriber
agrees to indemnify the other and to hold the other harmless from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to Certificate of
Secretary (Exhibit A).
Section 9. Restrictions on Conversion of Preferred Stock. The
Subscriber or any subsequent holder of the Preferred Stock (the "Holder") shall
be prohibited from converting any portion of the Preferred Stock which would
result in the Subscriber or the Holder being deemed the beneficial owner, in
accordance with the provisions of Rule 13d-3 of the 1934 Act, as amended, of
4.99% or more of the then issued and outstanding Common Stock of the Company.
Section 10. Permissive Redemption. The Company has the right
to redeem the Preferred Stock, in whole or in part, in cash at one hundred
thirty (130%) percent of the Liquidation Value, as defined in the Certificate of
Secretary of the 6% Convertible Preferred Stock Series 98-A, plus accrued and
unpaid dividends (the "Redemption Price"), for any Preferred Stock for which a
Notice of Conversion has not been sent. Upon receipt by Subscriber of notice by
the Company (the "Redemption Notice") of its right to redeem the Preferred Stock
(the "Redemption Date"), the Company shall wire transfer the appropriate amount
of funds into an escrow account mutually agreed upon by both the Company and
Subscriber within three (3) business days of the Redemption Date. Additionally,
if the Company has not deposited into escrow the Redemption Price for the
benefit of the Subscriber, within three (3) business days after the Redemption
Date, the Company shall pay to the Subscriber an amount equal to five (5%)
percent per month thereafter of the Liquidation Value of the Preferred Stock
being redeemed on a pro rata basis in cash. After the escrow agent is in receipt
of the Redemption Price, he shall notify the Subscriber to surrender the
appropriate number of shares of Preferred Stock. If the escrow agent has not
received the Redemption Funds within three (3) business days from the Redemption
Date, the Subscriber shall again have the right to convert the Preferred Stock,
and thereafter the Company shall only have the right to redeem the Preferred
Stock by sending a Redemption Notice to the Subscriber and simultaneously wire
transferring the Redemption Price.
Section 11. Mandatory Conversion. In the event the Preferred
Stock has not been converted two (2) years from the Closing Date, the Preferred
Stock shall automatically be converted as if the Subscriber voluntarily elected
such conversion in accordance with the procedure, terms and conditions set forth
in this Agreement.
Section 12. Registration or Exemption Requirements. Subscriber
acknowledges and understands that the Securities may not be resold or otherwise
transferred except in a transaction registered under the Act and any applicable
state securities laws or unless an exemption from such registration is
available. Subscriber understands that the Securities will be imprinted with a
legend that prohibits the transfer of the Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the Act
and, if the Company shall so request in writing, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
Section 13. Legend. The certificates representing the Securities shall be
subject to a legend restricting transfer under the Act, such legend to be
substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates representing the Securities, and each
certificate issued in transfer thereof, will also bear any legend required under
any applicable state securities law.
Section 14. Stock Delivery Instructions. The Preferred Stock Certificate shall
be delivered to Subscriber on a delivery versus payment basis as set forth in
the Escrow Agreement.
Section 15. Closing Date. The date Escrow Agent receives the
Securities and Purchase Price, and both the conditions set forth in Sections 16
and 17 and the terms and conditions of the Escrow Agreement (Exhibit C) herein
are satisfied or waived shall be the Closing (the "Closing Date"), and all acts,
deliveries and confirmations comprising the Closing Date regardless of
chronological sequence, shall be deemed to occur contemporaneously and
simultaneously upon the occurrence of the last act, delivery, or confirmation of
the Closing Date, and such acts, deliveries, or confirmations shall not be
effective unless and until the last of same shall have occurred, and as shall be
mutually agreed upon as to time and place.
Section 16. Conditions to the Company's Obligation to Sell. Subscriber
understands that the Company's obligation to sell the Preferred Stock, Warrants
are conditioned upon:
(i) The receipt and acceptance by the Company of this
Subscription Agreement and all duly executed Exhibits thereto by an
authorized officer of the Company;
(ii) Delivery into escrow by Subscriber of good
cleared funds as payment in full for the purchase of the Securities;
(iii) All representations and warranties of the
Subscriber contain herein shall remain true and correct as of the
Closing Date;
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock, Warrants, and the proposed issuance of the Common
Stock underlying the Preferred Stock, and Warrants shall be legally
permitted by all laws and regulations to which the Subscriber and the
Company are subject; and
(v) The Certificate of Secretary for the Preferred
Stock shall have been filed with the Utah Secretary of State.
Section 17. Conditions to Subscriber's Obligation to Purchase.
The Company understands that Subscriber's obligation to purchase the Convertible
Preferred Stock, and Warrants is conditioned upon:
(i) Acceptance by Subscriber of a satisfactory Subscription Agreement and all
duly executed Exhibits hereto for the sale of the Securities;
(ii) Delivery of the original Securities as described herein;
(iii) All representations and warranties of the
Company contained herein shall remain true and correct as of the
Closing Dates;
(iv) Receipt of opinion of counsel and proof of a filed Certificate of
Secretary; and
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock, and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock, and Warrants shall be legally permitted by all laws
and regulations to which the Company and Subscriber are subject.
Section 18. Miscellaneous.
18.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the State of New
York or the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any state or country having jurisdiction over
the party against whom such judgment was obtained, and each party hereby waives
any defenses available to it under local law and agrees to the enforcement of
such a judgment. Each party to this Agreement irrevocably consents to the
service of process in any such proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to such party at its address set
forth herein. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law.
18.2 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
18.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document. This
Agreement and Exhibits hereto constitute the entire agreement between the
Subscriber and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by all parties.
18.4 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
18.5 Entire Agreement. This Agreement and Exhibits hereto
constitute the entire agreement between the Subscriber and the Company with
respect to the subject matter hereof. This Agreement may be amended only by a
writing executed by all parties.
18.6 Reliance by Company. The Subscriber represents to the
Company that the representations and warranties of the Subscriber contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal and
state securities laws in connection with a private offering of securities.
18.7 Confidentiality. Each of the Company and the Subscriber
agrees to keep confidential and not to disclose to or use for the benefit of any
third party the terms of this Agreement or any other information which at any
time is communicated by the other party as being confidential without the prior
written approval of the other party; provided, however, that this provision
shall not apply to information which, at the time of disclosure, is already part
of the public domain (except by breach of this Agreement) and information which
is required to be disclosed by law.
18.8 Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby except that the Company shall (i) pay
one (1%) percent of the Purchase Price to Xxxxxxxxx, Xxxxxxxxx & Xxxx, LLP for
legal, administrative and escrow fees; and (ii) issue to Settondown Capital
International, Ltd., as placement agent, for services rendered in connection
with this transaction, two hundred (200) shares of Preferred Stock, and a
Warrant to purchase forty thousand (40,000) shares of Common Stock.
18.9 Authorization. Each of the parties hereto represents that
the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first written
below.
PURCHASER:
By___________________________
Name:
Title:
Executed this ____ day of March , 1998
Agreed to and Accepted on
this ____ day of March 0000
XXX INTERNATIONAL
By____________________________
Title:
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL
INSTRUCTIONS: ____________________________________________________
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