EXHIBIT 10.3
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.
8% CONVERTIBLE PREFERRED STOCK
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 8% Convertible Preferred Stock Series 97-F
(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 8% Convertible
Preferred Stock Series 97-F (Exhibit A annexed hereto). In addition, the
Company will sell to Subscriber Forty Thousand (40,000) Warrants per One
Million ($1,000,000) Dollars (such number of Warrants shall be pro rated as per
each subscription amount) to purchase Common Stock for a period of five (5)
years from the Closing Date (as defined herein), as per the terms of a separate
Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription and, if
accepted by the Company, the offer and sale of the Preferred Stock (the
"Shares"), Warrants and the underlying Common Stock (collectively the
"Securities"), are being made in reliance upon the provisions of Regulation D
under the Act.
The Closing Date shall be October __, 1997 (as determined in accordance with
Section 16 herein).
The undersigned, _____________, located at _____________________, a corporation
(limited liability company) organized under the laws of _______, a non-USA
jurisdiction (hereinafter referred to as "Subscriber" or "Purchaser"), hereby
represents and warrants to, and agrees with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 The Company will sell and the Subscriber will buy an aggregate of ________
(_____) shares of Preferred Stock for an aggregate purchase price of __________
($_________) U.S. Dollars (the "Purchase Price") based on U.S. $1,000 per
share. Interest will accrue and be paid quarterly 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 interest thereon shall only
be payable in common stock of the Company and not in cash. The Company's
Agreements with each of the Subscribers are separate agreements, and the sales
of the Securities to each of the Subscribers is a separate sale.
1.2 Form of Payment. Subscriber shall pay the Purchase Price by delivering
good funds in United States Dollars by wire transfer to Xxxxxxx X. Xxxxxxxxx,
P.C., 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 Xxxxxxx X. Xxxxxxxxx, P.C.
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:
Xxxxxxx X. Xxxxxxxxx, P.C. Attorney Trust Account
Account No. 59-02347
Section 2. Representation and Warranties of the Subscriber. Each Subscriber
severally 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 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.
Section 3. Further Representations and Warranties of the Subscriber. In the
event the registration as per Section 8.6 is not effective by the sixty-first
(61st) day after the Demand Registration Request as defined in the Registration
Rights Agreement (Exhibit D) and Subscriber elects the option to rely upon a
Regulation S exemption for up to fifty (50%) percent of Subscriber's
outstanding Securities position and, in the event the Registration Statement
has not been declared effective on the one hundred twenty-first (121st) day
from the Demand Registration Request and/or Subscriber elects the option to
rely upon a Regulation S exemption for the remainder of its outstanding
securities position, Subscriber further acknowledges, presents, 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.
----------------------
(1) Pursuant to Regulation S, a "U.S. Person" means: (i) any natural person
resident in the United States, (ii) any partnership or corporation organized or
incorporated under the laws of the United States, (iii) any estate of which any
executor or administrator is a U.S. Person, (iv) any trust of which any trustee
is a U.S. Person, (v) any agency or branch of a foreign entity located in the
United States, (vi) any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciaryfor the benefit or
account of a U.S. Person, (vii) any discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary organized,
incorporated or (if an individual resident in the United States), or (viii) any
partnership or coporation if organized under the laws of any foreign
jurisdiction and formed by any U.S. Person principally for the purpose of
investing in securities not registered under the Act, unless it is organized or
incorporated and owned by accredited investors (as defined in Rule 501(a) under
the Act) who are not natural persons, estates or trust.
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 Conversion Holding Period ("Holding
Period"), as is more specifically defined in the Certificate of Secretary
attached hereto as Exhibit A in connection with this offshore offer and sale
shall be sixty-one (61) days from the Demand Registration Request for up to
fifty (50%) percent of Subscriber's outstanding securities position, and one
hundred twenty-one (121) days after the Demand Registration Request after such
time up to one hundred (100%) percent of the Subscriber's outstanding
securities position shall be convertible into the Underlying Shares at the
option of the Subscriber.
The Preferred Stock shall be convertible into the Underlying Shares, at the
option of the Subscriber after such "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 and/or Warrants at any time after the Holding
Period, if the holder of the Preferred Stock being converted makes the
certification, pursuant to the Notice of Conversion attached hereto as Exhibit
E, 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 Common Stock (the "Underlying
Shares") upon such conversion without a restrictive legend or stop transfer
instructions, otherwise the Underlying Shares shall be considered restricted
securities and certificates representing such Shares shall contain restrictive
legends and stop transfer instructions will be placed with the Company's
transfer agent regarding such 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 June 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.
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 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 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.
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. 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 Debentures 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. Other than
warrants and options to acquire shares of Common Stock as disclosed in the
Reports, and 676,923 shares under Warrant at a strike price of $2.44 that would
now convert into 144 restricted stock there are no other outstanding
securities, debt or equity presently convertible into Common Stock. 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.
4.18 Regulation S Alternative. The Company covenants and agrees that
if the Company fails to register the Underlying Shares under the terms and
conditions of the Registration Rights Agreement attached hereto as Exhibit D,
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 Securities
Act, the Company shall permit resales of the underlying Common Stock pursuant
to Regulation S under the 1933 Act, if the Holder of the Shares being converted
makes a certification, pursuant to the Notice of Conversion attached hereto as
Exhibit F, then the Company shall direct the Transfer Agent to deliver the
Underlying Shares upon such conversion without a restrictive legend and stop
transfer instructions. 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, 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 by telecopying an executed and completed Notice of Conversion
to the Company and delivering the original Notice of Conversion and the
certificate representing the Preferred Stock to the Company by express courier.
Each business date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be
deemed a conversion date. The Company will use its best efforts to transmit
the certificates representing shares of Common Stock issuable upon conversion
of any Preferred Stock (together with the certificates representing the
Preferred Stock not so converted) to the Subscriber via express courier, by
electronic transfer or otherwise within three business days after the
conversion date if the Company has received the original Notice of Conversion
and Preferred Stock certificate being so converted 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 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. The Notice of Conversion and Preferred
Stock representing the portion of the Shares converted 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 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
(such date of receipt referred to as the "Conversion 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, which liquidated damages shall run from the sixth business day after
the Conversion 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.
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, upon receipt of
Notice of Conversion 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 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 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; of
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, subject
only to receipt of a Notice of Conversion in the form of Exhibit E or Exhibit F
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 Certificate of
Designation (Exhibit A).
8.6 Demand Rights. The parties have entered into a Registration Rights
Agreement (Exhibit D).
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 8% Convertible Preferred Stock Series 97-F, 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 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:
"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 Securities shall also include any legends required by any applicable state
securities laws.
The legend(s) shall be removed and the Company shall issue replacement
certificates without such legend to the holder of such certificates if such
holder provides to the Company an opinion of counsel reasonably acceptable to
the Company, to the effect that a public sale, transfer or assignment of such
Securities may be made without registration.
Section 15. Stock Delivery Instructions. The Preferred Stock Certificate
shall be delivered to on a delivery versus payment basis as set forth in the
Escrow Agreement.
Section 16. Closing Date. The date Escrow Agent receives the Securities and
Purchaser Price, and the conditions set forth in Sections 17 and 18 and the
terms and conditions of the Escrow Agreement (Exhibit C) herein are satisfied
or waived (the "Closing Date") and as 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 Convertible Preferred
Stock 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;
and
(ii) Delivery into escrow by Subscriber of good cleared funds as payment in
full for the purchase of the Securities; and
(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 and 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.
(v) The Certificate of Secretary for the Preferred Stock shall have been filed
with the Utah Secretary of State.
Section 18. Conditions to Subscriber's Obligation to Purchase. The Company
understands that Subscriber's obligation to purchase the Convertible Preferred
Stock 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 Date; and
(iv) Receipt of opinion of counsel and filed 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.
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
xxxxx 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.
PURCHASER:
________________________________
By______________________________
Name:
Title:
Executed this ____ day of October, 1997
Agreed to and Accepted on
this ____ day of October 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: __________________________________________________________
__________________________________________________________
__________________________________________________________
