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 "SECURITIES ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE
AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS.
8% CONVERTIBLE PREFERRED STOCK
SUBSCRIPTION AGREEMENT
SGI INTERNATIONAL
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation S as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in
connection with the private placement of the 8% Convertible Preferred Stock
Series 00-X (xxxxxxxxxxx xxxxxxxx xx xx xxx "Xxxxxxxxx Xxxxx") xx XXX
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 of the Company (the "Common
Stock") and the other terms of the Preferred Stock are set forth in the Amended
Certificate of Secretary of the 8% Convertible Preferred Stock Series 97-G (the
"Amended Certificate of Secretary" annexed hereto as Exhibit A). In addition,
the Company will issue to the Subscriber (as defined below) a warrant (the
"Warrant") to purchase Ten Thousand 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 Common Stock Purchase Warrant annexed hereto as Exhibit B.
This Subscription and, if accepted by the Company, the offer and sale of the
Preferred Stock (the "Shares"), Warrants and the underlying Common Stock (the
"Underlying Shares", and collectively the "Securities"), are being made in
reliance upon the provisions of Regulation S under the Act.
The Closing Date shall be January __, 1998 (as determined in accordance with
Section 1.1 herein).
The undersigned SETTONDOWN CAPITAL INTERNATIONAL, LTD.,
located at Xxxxxxxxx Xxxxx, Xxxxxxxxx Xxxxxx, X.X. Xxx X. 0000, Xxxxxx Bahamas,
a corporation (limited liability company) organized under the laws of Bahamas, a
non-USA jurisdiction (hereinafter referred to as "Subscriber" or "Purchaser"),
hereby represents and warrants to, and agrees with the Company as follows:
Section 1. Agreement to Subscribe: Purchase Price.
1.1 Closing Date. The Company will issue and the Subscriber
will receive an aggregate of Fifty (50) shares of Preferred Stock and Warrant to
purchase Ten Thousand (10,000) shares of Common Stock of the Company as
consideration for subscription agent services, based on U.S.$1,000 per share of
Preferred Stock. Dividends will accrue and be paid at the rate of eight (8%)
percent on the outstanding principal amount of the Shares until the Shares have
been completely converted, provided, however, all dividends thereon shall only
be payable in common stock of the Company and not in cash. Dividends shall be
calculated at the Conversion Price on the Conversion Date (as such terms are
defined in the Amended Certificate of Secretary) when converted.
Section 2. Representation and Warranties of the Subscriber. Subscriber
acknowledges, represents, warrants and agrees as follows:
2.1 Organizations and Authorization. Subscriber is duly
incorporated or organized and validly existing in the country of its
incorporation or organization and has all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Subscriber, the performance by the Subscriber
of its obligations hereunder and the consummation by the Subscriber of the
transactions contemplated hereby have been duly authorized and requires no other
proceedings on the part of the Subscriber. The Undersigned's signatory has all
right, power and authority to execute and deliver this Agreement on behalf of
the Subscriber. This Agreement has been duly executed and delivered by the
Subscriber and, assuming the execution and delivery hereof and acceptance
thereof by the Company, will constitute the legal, valid and binding obligations
of the Subscriber, enforceable against the Subscriber in accordance with its
terms and the Subscriber can afford the complete loss of Subscriber's
investment.
2.2 Evaluation of Risks. Subscriber has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of, and bearing the economic risks entailed by, an investment
in the Company and of protecting its interests in connection with this
transaction. It recognizes that its investment in the Company involves a high
degree of risk and the Subscriber can afford the complete loss of Subscriber's
investment.
2.3 Independent Counsel. Subscriber acknowledges that it has
been advised to consult with its own attorney regarding legal matters concerning
the Company and to consult with its tax advisor regarding the tax consequences
of acquiring the Securities.
2.4 Disclosure Documentation. Subscriber has received and
reviewed copies of the Company's reports filed under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), including its 10-Ks, and 10-Qs, filed by
the Company since December 31, 1994 (collectively, the "Reports"). Except for
the Reports, Subscriber is not relying on any other information relating to the
offer and sale of the Securities. Subscriber acknowledges that the Company has
offered to make available any additional public information that the Subscriber
may reasonably request, including technical information, and other material
information about the Company and Subscriber has been offered Company's full and
unconditional cooperation in making such information available to Subscriber and
acknowledges that the Company has recommended that the Subscriber request and
review such information prior to making an investment decision. No oral or
written representations have been made, or oral or written information furnished
to the undersigned or its advisors, if any, in connection with the offering of
the Securities which were or are in any way inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Subscriber has had a
reasonable opportunity to ask questions of and receive answers from the Company
concerning the Company and the offering, and all such questions, if any, have
been answered to the full satisfaction of Subscriber.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to
Subscriber by (a) the Company or any agent, employee or affiliate of the Company
or (b) any other person, and in entering into this transaction Subscriber is not
relying upon any information, other than that contained in the Reports and the
results of independent investigation by Subscriber.
2.7 Subscriber is Accredited Investor. The undersigned is an "Accredited
Investor" as defined below who represents and warrants it is included within
one or more of the following categories of "Accredited Investors."
(i) Any bank as defined in Section 3(a)(2) of the
Act, or any savings and loan associated or other institution as defined
in Section 3(a)(5)A of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section
15 of the 1934 Act; any insurance company as defined in Section 2(13)
of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivision, for the
benefits of its employees if such plan has total assets in excess of
$5,000,000; any 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
hat 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 S promulgated under such
Act, and (ii) a similar exemption to the registration provisions of applicable
state securities laws. Subscriber understands that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Subscriber set forth herein in order to
determine the applicability of such exemptions and the suitability of Subscriber
to acquire the Securities. Subscriber will advise Company of the state of its
residence prior to executing this or any other agreement to enable the Company
to comply with applicable "blue sky" laws.
2.9 Investment Intent. Without limiting its ability to resell
the Securities pursuant to an effective registration statement, Subscriber is
acquiring the Securities solely for its own account and not with a view to the
distribution, assignment or resale to others. Subscriber understands and agrees
that it may bear the economic risk of its investment in the Securities for an
indefinite period of time. Subscriber does not now have any short position or
hedge position in the Company's Common Stock nor will the Subscriber make any
promissory notes and/or pledges to that effect on the Company's Common Stock.
2.10 No Advertisements. The Subscriber is not subscribing for
Securities as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, or presented at any seminar or meeting.
Section 3. Further Representations and Warranties of the Subscriber. Subscriber
further acknowledges, represents, warrants and agrees as follows:
3.1 Offering Outside the United States. The Subscriber is not
a "U.S. Person" as defined in Regulation S (as the same may be amended from time
to time) promulgated under the Act.1 At the time the buy order for this
transaction was originated, Subscriber was outside the United States and no
offer to purchase the Securities was made in the United States. Subscriber
agrees not to reoffer or sell the Securities, or to cause any transferee
permitted hereunder to reoffer or sell the Securities, within the United States,
or for the account or benefit of a U.S. Person, (i) as part of the distribution
of the Securities at any time, or (ii) otherwise, until at least forty (40) days
after the Securities are issued, and, in either case, only in a transaction
meeting the requirements of Regulation S under the Act, including without
limitation, where the offer (i) is not made to a person in the United States and
either (A) at the time the buy order is originated, the Buyer is outside the
United States or the Company and any person acting on its behalf reasonably
believe that the buyer is outside the United States, or (B) the transaction is
executed in, on or through the facilities of a designated offshore securities
market and neither the seller nor any person acting on its behalf knows that the
transaction has been pre-arranged with a buyer in the United States; and (ii) no
directed selling efforts shall be made in the United States by the buyer, an
affiliate or any person acting on their behalf, or in a transaction registered
under the Act or pursuant to an exemption from such registration.
3.2 Transfer Restrictions/Conversion Holding Period.
(i) The transaction restriction in connection with this offshore offer and sale
restricts Subscriber from offering and selling to U.S. Persons, or for the
account or benefit of a U.S. Person, for a period of time. Rule 903(c)(2) of
Regulation S sets forth a forty (40) day transaction restriction and is defined
herein as the "Restricted Period." The Preferred Stock is convertible into the
Underlying Shares, at the option of the Subscriber, at any time forty
one (41) days after the Closing Date (the "Holding Period").
(ii) A legend substantially in the form of Section 14 herein has been or will
be placed on any certificates or other documents evidencing the Securities so
as to restrict the resale, pledge, hypothecation or other transfer thereof in
accordance with the provisions hereof and the provisions of Regulation S
promulgated under the Act and the Holding Period.
3.3 Transfer Restrictions Regarding Securities. Upon
conversion of any part or all of the Preferred Stock at any time after the
Holding Period, if the holder of the Preferred Stock being converted makes the
certification, pursuant to the appropriate Notice of Conversion attached hereto
as Exhibits E and F, that such holder has complied with all of the requirements
of Regulation S and such other requirements as set forth herein, then the
Company shall cause the Transfer Agent to deliver the Underlying Shares upon
such conversion without a restrictive legend or stop transfer instructions, by
delivering a Regulation S opinion substantially in the form annexed hereto as
Exhibit G hereto, otherwise the Underlying Shares shall be considered restricted
securities and certificates representing such Underlying Shares shall contain
restrictive legends and stop transfer instructions will be placed with the
Company's transfer agent regarding such Underlying Shares.
The Subscriber understands that the Company is the issuer of the securities
which are the subject of this Agreement, and that, for purposes of Regulation S,
a "distributor" is any underwriter, dealer or other person who participates,
pursuant to a contractual arrangement, in the distribution of securities offered
or sold in reliance on Regulation S and that an "affiliate" is any partner,
officer, director or any person directly or indirectly controlling, controlled
by or under common control with the person in question. In this regard, the
Subscriber shall not, during the 40-day Restricted Period set forth under Rule
903(c)(2), act as a distributor, either
directly or through any affiliate, nor shall he sell, transfer, hypothecate or
otherwise convey the Securities or any interest therein, other than outside the
United States to a non-U.S. person.
Section 4. Representations and Warranties of the Company. For so long as any
Securities held by Subscriber remains outstanding, the Company acknowledges,
represents, warrants and agrees as follows:
4.1 Organization/Qualification. The Company is a corporation
duly organized and validly existing under the laws of the State of Utah and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
4.2 Accuracy of Reports and Information. To the best of its
knowledge, the Company is in compliance, to the extent applicable, with all
reporting obligations under either Section 12(b), 12(g) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company
has registered its Common Stock pursuant to Section 12 of the Exchange Act and
the Common Stock is listed and trades on the OTC Bulletin Board.
The Company has filed all material required to be filed
pursuant to all reporting obligations, under either Section 13(a) or 15(d) of
the Exchange Act for a period of at least twelve (12) months immediately
preceding the offer and sale of the Securities (or for such shorter period that
the Company has been required to file such material).
4.3 SEC Filings/Full Disclosure. For a period of at least
twelve (12) months immediately preceding this offer and sale, or such shorter
period that the Company has been required to file such Reports as defined
herein, to the best of the Company's knowledge (i) none of the Company's filings
with the Securities and Exchange Commission contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein in light of the circumstances under
which they were made, not misleading, and (ii) the Company has timely filed all
requisite forms, reports and exhibits thereto with the Securities and Exchange
Commission.
There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been publicly
disclosed by the Company or disclosed in writing to the Subscriber which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
4.4 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Shares and the
performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in this Agreement. Upon their issuance and delivery pursuant to this Agreement,
the Shares will be validly issued, fully paid and nonassessable and will be free
of any liens or encumbrances; provided, however, that the Shares are subject to
restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Shares will not give rise to any preemptive right or
right of first refusal or right of participation on behalf of any person.
4.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, Stockholders Agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would have a material adverse
effect on the Company's business and financial condition.
4.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since 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 circumstance has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
4.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement, including
the conversion provision of the Shares, will conflict with or result in the
breach or violation of any of the terms or provisions of, or constitute a
default or result in the creation or imposition of any lien or charge on any
assets or properties of the Company under, any material indenture, mortgage,
deed of trust or other material agreement applicable to the Company or
instrument to which the Company is a party or by which it is bound or any
statute or the Articles of the Company, or, to the best of the Company's
knowledge, any decree, judgment, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, or the Company's listing agreement for its Common Stock.
4.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no Event of Default, as defined in the respective
agreement to which the Company is a party, and no event which, with the giving
of notice or the passage of time or both, would become an Event of Default (as
so defined), has occurred and is continuing, which would have a material adverse
effect on the Company's business, properties, prospects, condition (financial or
otherwise) or results of operations.
4.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Shares, or the consummation of any other transaction contemplated hereby, except
as may be required by applicable securities laws.
4.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, neither the Company nor its products is
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and the Company is not aware of any claim being made against the Company
regarding any trademark, trade name, patent, copyright, license, trade secret or
other intellectual property right which could have a material adverse effect on
the business or financial condition of the Company.
4.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect the Company is not in material breach
or material default under any of such agreements.
4.12 Litigation. Except as disclosed in the Reports there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse change in the business, prospects,
conditions, affairs or operations of the Company. The Company is not a party to
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
4.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
4.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
4.15 Required Governmental Permits. To the best of the
Company's knowledge, the Company is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect.
4.16 Listing. The Company will use its best efforts to
maintain the listing of its Common Stock on the OTC Bulletin Board or other
organized United States market or quotation system. The Company has not received
any notice, oral or written, regarding continued listing and, as long as the
Preferred Shares and Warrants are outstanding, the Company will take no action
which would impact their continued listing or eligibility of the Company for
such listing.
4.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, and Addenda 1, there are no other
outstanding securities, debt or equity presently convertible into Common Stock.
Except as disclosed in the Reports, and herein, the Company has no outstanding
restricted shares, or shares of Common Stock sold under Regulation S, Regulation
D or outstanding under any other exemption from registration, which are
available for sale as unrestricted ("free trading") stock.
4.18 Registration Alternative. The Company covenants and
agrees that in the event the term of Regulation S are materially altered so that
the Subscriber is unable to convert the Preferred Stock immediately after the
Holding Period, (i) the Company agrees to use its best efforts to include the
Underlying Shares in any registration statement which is being prepared but not
yet filed, or in any registration statement which has been filed, but not yet
declared effective, at the time Regulation S is materially altered, or (ii) the
Subscriber may exercise its registration rights under the terms of the
Registration Rights Agreement, annexed hereto as Exhibit C. The Company and the
Subscriber shall provide to the Transfer Agent any and all papers necessary to
complete the transfer under Regulation S, including, but not limited to,
opinions of counsel to the Transfer Agent, (i) continue to file all material
required to be filed pursuant to Sections 13(a) or 15(d) of the Exchange Act,
and (ii) not knowingly engage in directed selling efforts in connection with the
resale of securities by Subscriber under Regulation S.
4.19 Reporting Issuer Company Status. The Company is a
"Reporting Issuer" as defined in Rule 902 of Regulation S. The Company is in
full compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and shall use its best efforts to maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the Exchange Act and the Common Stock trades on the OTC
Bulletin Board.
4.20 Capitalization. The authorized capital stock of the
Company consists of 75,000,000 shares of Common Stock, no par value per share,
and 20,000,000 shares of non-voting Preferred Stock, .01 par value,. All issued
and outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable.
4.21 Dilution. The Company is aware and acknowledges that conversion of the
Preferred Stock would cause dilution to existing shareholders and could
significantly increase the outstanding number of shares of Common Stock.
Section 5. Further Representations and Warranties of the Company. For so long
as any Securities held by the Subscriber remain outstanding, the Company
acknowledges, represents, warrants and agrees as follows:
(i) It will reserve from its authorized but unissued shares of Common Stock a
sufficient number of shares of Common Stock to permit the conversion in full
of the outstanding Securities.
(ii) It will use its best efforts to maintain the listing of its Common Stock
on the OTC Bulletin Board.
(iii) It will permit the Subscriber to exercise its
right to convert the Preferred Stock 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 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 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 Warrant 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
Notice of Exercise and Warrant(s) representing the portion of the
Shares converted and/or 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 upon exercise of the Warrants 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 Underlying Shares are not delivered, and for each
One Thousand (1000) 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 Underlying Shares 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 6. Opinion of Counsel. The Company shall have their
counsel provide, at the Company's expense, an opinion of counsel acceptable to
the transfer agent (if required) upon conversion of the Preferred Stock and/or
exercise of Warrants, upon receipt of Notice of Conversion and/or Notice of
Exercise from each.
Subscriber shall, upon the Closing, receive an opinion letter from counsel to
the Company subject to reasonable and customary limitations and qualifications
to the effect that:
(i) The Company is duly incorporated and validly existing under the laws and
jurisdiction of its incorporation. The Company and/or its subsidiaries are
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where the Company and/or its subsidiaries owns or leases
properties, maintains employees or conducts business, except for jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the Company, and has all requisite corporate power and authority to own its
properties and conduct its business.
(ii) Except as set forth in the Reports to the best of Counsel's knowledge
without an independent investigation, there is no action, proceeding or
investigation pending, or to such counsel's knowledge, threatened against the
Company which might result, either individually or in the aggregate, in any
material adverse change in the business or financial condition of the Company.
(iii) Except as set forth in the Reports to the best of counsel's knowledge
without an independent investigation, the Company is not a party to or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality.
(iv) Except as set forth in the Reports to the best
of counsel's knowledge without an independent investigation, there is
no action, suit, proceeding or investigation by the Company currently
pending, except for a lawsuit against Company's subsidiary, Automotive
& Assembly Manufacturing, Inc. ("AMS") for breach of contract, which
would not have a material adverse effect on Company.
(v) The Preferred Stock, which shall be issued at the closing, will be duly
authorized and validly issued under the laws of the Company's State of
Incorporation.
(vi) This Subscription Agreement, the issuance of the Shares and the issuance
of Common Stock, upon conversion of the Shares, have been duly approved by all
required corporate action and that all such securities, upon delivery, shall
be validly issued and outstanding, fully paid and nonassessable.
(vii) The issuance of the Shares will not violate the applicable listing
agreement between the Company and any securities exchange or market on which
the Company's securities are listed.
(viii) Assuming the accuracy of the representation and warranties of the
Company and the Subscriber set forth in this Subscription Agreement, the offer,
issuance and sale of the Preferred Stock, Warrants and Underlying Shares to
be issued upon conversion and exercise to the Subscriber 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 share.
(x) The Common Stock is registered pursuant to Section 12(b) or Section 12(g)
of the Securities Exchange Act of 1934, as amended, and to the best of
Counsel's knowledge without an independent investigation the Company has
timely filed
all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the
date hereof.
(xi) The Company has the requisite corporate power
and authority to enter into the Agreements and to sell and deliver the
Securities and the Common Stock to be issued upon the conversion of the
Securities as described in this Agreement; the Agreement has been duly
and validly authorized by all necessary corporate action by the
Company, to our knowledge, no approval of any governmental or other
body is required for the execution and delivery of each of the
Agreements by the Company or the consummation of the transactions
contemplated thereby; the Agreement has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and
binding agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general equitable
principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other laws affecting creditors rights
generally, and except as to compliance with federal, state and foreign
securities laws, as to which no opinion is expressed.
(xii) To the best of our knowledge without an
independent investigation, after due inquiry, the execution, delivery
and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a
default under or conflict with or violate any provision of (i) the
Company's Certificate of Incorporation or By-Laws, (ii) any indenture,
mortgage, deed of trust, agreement or other instrument to which the
Company is a party or by which it or any of its property is bound,
(iii) any applicable statute or regulation, (iv) or any judgment,
decree or other of any court or governmental body having jurisdiction
over the Company or any of its property.
Section 7. Opinion of Counsel Upon Conversion. The Company
will obtain for the Subscriber, at the Company's expense, any and all opinions
of counsel which may be reasonably required in order to convert the Preferred
Stock, including, but not limited to, obtaining for the Subscriber an opinion of
counsel (substantially in the form of Exhibit G annexed hereto), subject only to
receipt of a Notice of Conversion in the form of Exhibit D or Exhibit E and
receipt by Counsel of such representations, warranties, and documents as are
determined to be necessary to comply with applicable securities laws, duly
executed by the Subscriber which shall be satisfactory to the Transfer Agent,
directing the Transfer Agent to remove the legend from the certificate.
Section 8. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to use its best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at
all times after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the Exchange Act;
(ii) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company
under the Act and the 1934 Act;
(iii) to furnish to Purchaser forthwith upon request
a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144, and of the Act and the 1934
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the
Company as Purchaser may reasonably request in availing itself of any
rule or regulation of the SEC allowing Purchaser to sell any such
Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscriber. Each of Subscriber and the Company represent to the other the
following with respect to itself:
8.1 Subscription Agreement. The Subscription Agreement has
been duly authorized, validly executed and delivered on behalf of the Company
and Subscriber and is a valid and binding agreement in accordance with its
terms, subject to general principles of equity and to bankruptcy or other laws
affecting the enforcement of creditors' rights generally.
8.2 No-Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
Bylaws and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets.
8.3 Approvals. Neither the Company nor Subscriber is aware of
any authorization, approval or consent of any governmental body which is legally
required for the issuance and sale of the Securities.
8.4 Indemnification. Each of the Company and the Subscriber
agrees to indemnify the other and to hold the other harmless from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to the Amended
Certificate of Secretary (Exhibit A).
8.6 Demand Rights. The parties have entered into a Registration Rights
Agreement (Exhibit C).
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 Amended
Certificate of Secretary of the 8% Convertible Preferred Stock Series 97-G, for
any Preferred Stock for which a Notice of Conversion has not been sent. Upon
notice of its right to redeem the Preferred Stock, the Company shall wire
transfer the appropriate amount of funds into an escrow account mutually agreed
upon by both Company and Subscriber within three (3) business days of such
notice. Additionally, if after the passage of three (3) business days from the
receipt by the Subscriber of the notice of the Company's right to redeem the
Preferred Stock and the time funds are received by the escrow agent, the Company
has not deposited into escrow the appropriate amount of funds to redeem the
Preferred Stock, the Company shall pay to the Subscriber an amount equal to five
(5%) percent per month of the Liquidation Value of the Preferred Stock held by
Subscriber on a pro rata basis in cash. After the escrow agent is in receipt of
such funds, he shall notify the Subscriber to surrender the appropriate amount
of Preferred Stock. If after three (3) business days from the date the notice of
redemption is received by the Subscriber the funds have not been received by the
escrow agent, then the Subscriber shall again have the right to convert the
Preferred Stock and the Company shall have the right to redeem the Preferred
Stock but only upon simultaneously sending a notice of redemption to the
Subscriber and wire transferring the appropriate amount of funds.
Section 12. Mandatory Conversion. In the event the Shares have
not been converted two (2) years from the Closing Date, the Shares shall
automatically be converted as if the Subscriber voluntarily elected such
conversion in accordance with the procedure, terms and conditions set forth in
this Agreement.
Section 13. Registration or Exemption Requirements. Subscriber
acknowledges and understands that the Securities may not be resold or otherwise
transferred except in a transaction registered under the Act and any applicable
state securities laws or unless an exemption from such registration is
available. Subscriber understands that the Securities will be imprinted with a
legend that prohibits the transfer of the Securities unless (i) they are
registered or such registration is not required, and (ii) if the transfer is
pursuant to an exemption from registration other than Rule 144 under the Act
and, if the Company shall so request in writing, an opinion of counsel
reasonably satisfactory to the Company is obtained to the effect that the
transaction is so exempt.
Section 14. Legend. The certificates representing the Securities shall be
subject to a legend restricting transfer under the Act, such legend to be
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (TOGETHER WITH
THE REGULATIONS PROMULGATED THEREUNDER, THE "SECURITIES ACT"), AND MAY
NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED
WITHIN THE UNITED STATES (AS THAT TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE SECURITIES ACT) OR TO A U.S. PERSON (AS THAT TERM
IS DEFINED IN REGULATION S) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
The certificates representing the Securities, and each certificate issued in
transfer thereof, will also bear any legend required under any applicable state
securities law.
Upon receipt of the Notice of Conversion annexed hereto as Exhibit E the
Company shall forward to the Transfer Agent an opinion substantially in the
form annexed hereto as Exhibit G, to have the legend removed and the company
shall issue replacement certificates.
Section 15. Stock Delivery Instructions. The Preferred Stock Certificate and
Warrant Certificate shall be delivered to the Escrow Agent on a delivery versus
payment basis as set forth in the Escrow Agreement.
Section 16. Closing Date. The date the Escrow Agent receives
the Securities and Purchase Price, and the conditions set forth in Sections 17
and 18 and the terms and conditions of the Escrow Agreement (Exhibit F) herein
are satisfied or waived shall be the closing date (the "Closing Date"). The
Closing Date shall be mutually agreed upon as to time and place.
Section 17. Conditions to the Company's Obligation to Sell.
Subscriber understands that the Company's obligation to sell the Preferred Stock
and additional Restricted Shares are subject to the fulfillment or waiver as of
the Closing Date of the following conditions:
(i) The receipt and acceptance by the Company of this Subscription Agreement
and all duly executed Exhibits thereto by an authorized officer of the Company;
and
(ii) All representations and warranties of the Subscriber contained herein
shall be true when made and remain true and correct as of the Closing Date; and
(iii) 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, Restricted Shares and the proposed issuance
of the Common Stock underlying the Preferred Stock, Warrants and
Restricted Shares shall be legally permitted by all laws and
regulations to which the Subscriber and the Company are subject; and
(iv) The Amended Certificate of Secretary for the Preferred Stock shall have
been filed with the Utah Secretary of State; and
(v) The Subscriber shall have performed and complied with all agreements and
conditions herein agreed to be performed or complied with by him or her on or
before the Closing Date.
Section 18. Conditions to Subscriber's Obligation to Purchase.
The Company understands that Subscriber's obligation to purchase the Preferred
Stock and Warrants is subject to the fulfillment or waiver as of the Closing
Date of the following conditions:
(i) Acceptance by Subscriber of a satisfactory Subscription Agreement and all
duly executed Exhibits hereto for the sale of the Securities;
(ii) Delivery of the original Securities as described herein;
(iii) All representations and warranties of the Company contained herein shall
remain true and correct as of the Closing Date;
(iv) Receipt of opinion of counsel and filed Amended Certificate of Secretary;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock and Warrants shall be legally permitted by all laws and
regulations to which the Company and Subscriber are subject;
(vi) The Subscriber shall have performed and complied with all agreements and c
conditions herein agreed to be performed or complied with by him or her on or
before the Closing Date; and
(vii) Receipt of a draft Regulation S opinion of counsel, which shall be
satisfactory to Subscriber (which satisfaction shall not be unreasonably
withheld), substantially in the form of Exhibit G annexed hereto.
Section 19. Miscellaneous.
19.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the State of New
York or the state courts of the State of New York in connection with any dispute
arising under this Agreement and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens, to
the bringing of any such proceeding in such jurisdictions. Each party hereby
agrees that if another party to this Agreement obtains a judgment against it in
such a proceeding, the party which obtained such judgment may enforce same by
summary judgment in the courts of any country having jurisdiction over the party
against whom such judgment was obtained, and each party hereby waives any
defenses available to it under local law and agrees to the enforcement of such a
judgment. Each party to this Agreement irrevocably consents to the service of
process in any such proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any other
manner permitted by law.
19.2 Confidentiality. If for any reason the transactions
contemplated by this Agreement are not consummated, each of the parties hereto
shall keep confidential any information obtained from any other party (except
information publicly available or in such party's domain prior to the date
hereof, and except as required by court order) and shall promptly return to the
other parties all schedules, documents, instruments, work papers or other
written information, without retaining copies thereof, previously furnished by
it as a result of this Agreement or in connection herewith.
19.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document. This
Agreement and Exhibits hereto constitute the entire agreement between the
Subscriber and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by all parties.
19.4 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
19.5 Entire Agreement. This Agreement and Exhibits hereto
constitute the entire agreement between the Subscriber and the Company with
respect to the subject matter hereof. This Agreement may be amended only by a
writing executed by all parties.
19.6 Reliance by Company. The Subscriber represents to the
Company that the representations and warranties of the Subscriber contained
herein are complete and accurate and may be relied upon by the Company in
determining the availability of an exemption from registration under federal and
state securities laws in connection with a private offering of securities.
19.7 Confidentiality. Each of the Company and the Subscriber
agrees to keep confidential and not to disclose to or use for the benefit of any
third party the terms of this Agreement or any other information which at any
time is communicated by the other party as being confidential without the prior
written approval of the other party; provided, however, that this provision
shall not apply to information which, at the time of disclosure, is already part
of the public domain (except by breach of this Agreement) and information which
is required to be disclosed by law.
19.8 Fees. Except as referenced in the Escrow Agreement, each
of the parties shall pay its own fees and expenses (including the fees of any
attorneys, accountants, appraisers or others engaged by such party) in
connection with this Agreement and the transactions contemplated hereby.
19.9 Authorization. Each of the parties hereto represents that
the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first written
below.
SETTONDOWN CAPITAL
INITERNATIONAL, LTD.
By /s/ Xxxxx Xxxxxxx
-----------------------
Name: Xxxxx Xxxxxxx
Title: Director
Executed this ____ day of January, 1998
Agreed to and Accepted on
this ____ day of January 0000
XXX INTERNATIONAL
By: /s/ Xxxx X. Xxxxxx
---------------------------
Title: Senior Vice President
FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME: Settondown Capital International, Ltd.
ADDRESS: Xxxxxxxxx Xxxxx
Xxxxxxxxx Xxxxxx
P.O. Box N. 9204
Nassau, Bahamas
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL
INSTRUCTIONS:
