EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THIS SUBSCRIPTION AGREEMENT SHALL NOT CONSTITUTE AN
OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM
REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS.
6% CONVERTIBLE PREFERRED STOCK SERIES 98-C
SUBSCRIPTION AGREEMENT
SGI INTERNATIONAL
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in
connection with the private placement of the 6% Convertible Preferred Stock
Series 98-C (hereinafter referred to as the "Preferred Stock") of SGI
INTERNATIONAL (OTC Bulletin Board symbol "SGII"), located at 1200 Prospect
Street, Suite 325, La Jolla, CA 92037, a corporation organized under the laws of
Utah, USA (hereinafter referred to as the "Company"). The terms on which the
Preferred Stock may be converted into Common Stock and the other terms of the
Preferred Stock are set forth in the Certificate of Secretary of the 6%
Convertible Preferred Stock Series 98-C (the "Certificate of Secretary" annexed
hereto as Exhibit A). In addition, the Company will sell to the Subscribers
warrants (individually the "Warrant" and collectively the "Warrants") to
purchase an aggregate of 50,000 shares of Common Stock of the Company for a
period of five years from the Closing Date (as defined herein), as per the terms
of a separate Stock Purchase Warrant (Exhibit B annexed hereto) per Million
($1,000,000) Dollars funded to the Company pursuant to the terms of this
Agreement. This Subscription and, if accepted by the Company, the offer and sale
of the Preferred Stock, Warrants and the Common Stock underlying the Warrant and
Preferred Stock (collectively the "Securities"), are being made in reliance upon
the provisions of Regulation D under the Act. The term "Agreement" when used
throughout this document shall be deemed to include this agreement and all
agreements and documents annexed hereto.
The Closing Date shall be determined in accordance with Sections 1.1
and 14 herein.
The "Subscribers" (collectively GCA Strategic Investment Fund
Limited, Manchester Asset Management, Ltd., Gilston Corporation, Ltd., and
Avalon Capital, Ltd., with Manchester Asset Management, Ltd., Gilston
Corporation, Ltd., and Avalon Capital, Ltd. included in the definition of
Subscribers, but also collectively referred to as the "Note Subscribers"),
hereby represent and warrant to, and agree with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell, and the Subscribers will
buy, on the Closing Date, up to an aggregate of 2,000 shares of Preferred Stock
for an aggregate purchase price of up to Two Million ($2,000,000) U.S. Dollars
(the "Purchase Price") based on U.S.$1,000 per share, and Warrants to purchase
50,000 shares of Common Stock of the Company per One Million ($1,000,000)
Dollars funded to the Company hereunder, and Warrants to purchase a pro rata
number of shares of Common Stock based upon the dollar amount funded to the
Company in excess of One Million ($1,000,000) Dollars. Dividends on the
Preferred Stock will accrue and be paid at the rate of six (6%) percent as per
the terms of the Certificate of Secretary. The Preferred Stock shall be issued
in increments of not greater than 50 shares per Preferred Stock certificate if
so requested by any Subscriber. Each Subscriber may close their portion of this
transaction on one or more occasions, however, the "Closing Date" as defined
below, shall be as of the payment to the Company of Five Hundred Thousand
($500,000) Dollars and cancellation of the Notes.
1.2 Form of Payment. Subscribers (except for the Note
Subscribers) shall pay their portion of the Purchase Price by delivering good
funds in United States Dollars by wire transfer to Goldstein, Goldstein & Reis,
LLP, hereinafter referred to as the "Escrow Agent", against delivery of the
original shares of Preferred Stock and Warrants by the Company. The Note
Subscribers shall pay their portion of the Purchase Price by returning the
promissory note dated September 9, 1998 in the principal amount of $250,000, and
the promissory note dated October 9, 1998 in the principal amount of $100,000
(both of the aforementioned promissory notes are hereinafter referred to as the
"Notes"), to the Company marked "Paid" for cancellation, in exchange for that
number of shares of Preferred Stock equal to the aggregate principal amount of
the Notes being exchanged hereby. The parties have entered into an Escrow
Agreement annexed hereto as Exhibit C and the delivery of the Securities and the
Purchase Price therefor shall be governed by the terms of such Escrow Agreement.
1.3 Wire Instructions. Wire instructions for Goldstein, Goldstein &
Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
Section 2. Representations and Warranties of the Subscribers.
Subscribers acknowledge, represent, warrant and agree as follows:
2.1 Organization and Authorization. Each of the Subscribers is
duly incorporated or organized and validly existing in the state or country of
its incorporation or organization and has all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by each of the Subscribers, the performance by each
of the Subscribers of its obligations hereunder and the consummation by each of
the Subscribers of the transactions contemplated hereby have been duly
authorized and requires no other proceedings on the part of each of the
Subscribers. Each of the undersigned's signatory has all right, power and
authority to execute and deliver this Agreement on behalf of each of the
Subscribers. This Agreement has been duly executed and delivered by each of the
Subscribers and, assuming the execution and delivery hereof and acceptance
thereof by the Company, will constitute the legal, valid and binding obligations
of each of the Subscribers, enforceable against each of the Subscribers in
accordance with its terms and each of the Subscribers can afford the complete
loss of its investment.
2.2 Evaluation of Risks. Each of the Subscribers 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. They recognize that their investment in the Company involves a
high degree of risk.
2.3 Independent Counsel. Each of the Subscribers 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. Each of the Subscribers has
received and reviewed copies of the Company's reports filed under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the Act, including its
10-K's, 10-Q's, 8-K's, registration statements, and other publicly available
documents filed by the Company since December 31, 1997, (collectively, the
"Reports"). Except for the Reports, the Subscribers are not relying on any other
information relating to the offer and sale of the Securities. Each of the
Subscribers acknowledges that the Company has offered to make available any
additional public information that such Subscriber may reasonably request,
including technical information, and other material information about the
Company, and each of the Subscribers has been offered Company's full and
unconditional cooperation in making such information available to each of the
Subscribers, and each of the Subscribers acknowledges that the Company has
recommended that each of the Subscribers 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. Each of the Subscribers 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 each of the Subscribers.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to any of
the Subscribers by (a) the Company or any agent, employee or affiliate of the
Company, or (b) any other person, and in entering into this transaction the
Subscribers are not relying upon any information, other than that contained in
the Reports and the results of independent investigation by each of the
Subscribers.
2.7 Each of the Subscribers are Accredited Investors. Each of
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. Each of the
Subscribers 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. Each of the Subscribers 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. Each of the Subscribers
understands that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
each Subscriber set forth herein in order to determine the applicability of such
exemptions and the suitability of each of the Subscribers to acquire the
Securities. Each of the Subscribers will advise the Company of the state of its
residence, upon request of the Company, to enable the Company to comply with
applicable "blue sky" laws.
2.9 Investment Intent. Without limiting their ability to
resell the Securities pursuant to an effective registration statement, each of
the Subscribers is acquiring the Securities solely for its own account and not
with a view to the distribution, assignment or resale to others. Each of the
Subscribers understands and agrees that it may bear the economic risk of its
investment in the Securities for an indefinite period of time. None of the
Subscribers now have any short position or hedge position in the Company's
Common Stock, nor will any of the Subscribers make any promissory notes and/or
pledges to that effect on the Company's Common Stock.
2.10 No Advertisements. The Subscribers are not subscribing
for the Securities as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
2.11 Registration Rights. The parties have entered into a Registration
Rights Agreement (Exhibit D).
2.12 Payment of Liquidated Damages Pursuant to Section (g) of
the Certificate of Secretary. The Company's obligation to pay the liquidated
damages as provided in Section (g) of the Certificate of Secretary is subject to
the Company's receipt of the original Preferred Stock certificate which is the
subject of such payment of liquidated damages.
2.13 Ownership of Notes. The Note Subscribers represent that
they have not pledged, hypothecated or otherwise granted a security interest or
lien with respect to any portion of the Notes.
Section 3. Representations and Warranties of the Company. For
so long as any Securities held by any of the Subscribers remain outstanding, the
Company acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company and each of its
subsidiaries is a corporation (or other legal entity) 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 and each of its material subsidiaries is qualified to do
business as a foreign corporation and is in good standing 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 (i) have a
material adverse effect on the condition (financial or otherwise), operations,
results of operations, or on earnings, business affairs, properties or assets of
the Company, or (ii) materially and adversely affect the ability of the Company
to perform its obligations pursuant to this Agreement.
3.2 SEC Filings/Full Disclosure. To the best of its knowledge,
the Company is in compliance, to the extent applicable, with all reporting
obligations under either Section 12(b), 12(g) or 15(d) of the 1934 Act, and
shall use its best efforts to maintain such status on a timely basis. The
Company has registered its Common Stock pursuant to Section 12 of the 1934 Act
and the Common Stock is listed and trades on the OTC Bulletin Board. The Company
has filed all material required to be filed pursuant to all reporting
obligations, under either Section 13(a) or 15(d) of the 1934 Act for a period of
at least twelve (12) months immediately preceding the offer and sale of the
Securities (or for such shorter period that the Company has been required to
file such material). 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 Subscribers which (i)
could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise) or on earnings, business affairs, properties or assets
of the Company, or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations pursuant to this
Agreement.
3.3 Accuracy of Reports and Information. For a period of at
least twelve (12) months immediately preceding this offer and sale, to the best
of the Company's knowledge (i) none of the Company's filings with the SEC
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 SEC.
3.4 Authorization. The Company has all requisite corporate
right, power and authority to execute and deliver this Agreement, and all
agreements related hereto, and to consummate the transactions contemplated
hereby. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement by the Company, the authorization, sale, issuance
and delivery of the Securities and the performance of the Company's obligations
hereunder has been taken, and no further consent or authorization of the
Company, its board of directors or its shareholders is required. This Agreement
has been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company enforceable in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to the indemnification provisions set forth in this
Agreement. Upon their issuance and delivery pursuant to this Agreement, the
Securities will be validly issued, fully paid and nonassessable and will be free
of any liens or encumbrances; provided, however, that the Securities are subject
to restrictions on transfer under state and/or federal securities laws. The
issuance and sale of the Securities will not give rise to any preemptive right
or right of first refusal or right of participation on behalf of any person.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any material obligation or
to a loss of a material benefit, under, any provision of the Articles of
Incorporation, and any amendments thereto, Bylaws, stockholders agreements and
any amendments thereto of the Company or any material mortgage, indenture, lease
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree statute, law, ordinance, rule or regulation applicable
to the Company, its properties or assets and which would (i) have a material
adverse effect on the condition (financial or otherwise) or on earnings,
business affairs, properties or assets of the Company, or (ii) reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
3.6 No Undisclosed Liabilities or Events. The Company has no
material 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, 1998, and which individually or in the aggregate, do not
or would not (i) 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) reasonably be expected to materially and
adversely affect the ability of the Company to perform its obligations pursuant
to this Agreement. 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 publicly announced or disclosed.
3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement, including
the conversion or exercise provision of the Preferred Stock and Warrants, will
conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound or any statute or the Articles of the Company, or any decree,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or its properties, or the Company's listing
agreement for its Common Stock.
3.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement, no Event of Default, as defined in the respective
agreements to which the Company is a party or as defined below, and no event
which, with the giving of notice or the passage of time or both, would become an
Event of Default (as so defined), has occurred and is continuing, which would
have a material adverse effect on the Company's business, properties, prospects,
condition (financial or otherwise) or results of operations.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. To the Company's knowledge, neither the Company nor its products is
infringing or will infringe any trademark, trade name, patent right, copyright,
license, trade secret or other similar right of others currently in existence;
and there is no claim being made against the Company regarding any trademark,
trade name, patent, copyright, license, trade secret or other intellectual
property right which (i) could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise) or on earnings, business
affairs, properties or assets of the Company, or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement.
3.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect, and the Company is not in material
breach or material default under any of such agreements.
3.12 Litigation. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any (i) material adverse effect on the condition (financial or
otherwise) or on earnings, business affairs, properties or assets of the
Company, or (ii) material and adverse affect the ability of the Company to
perform its obligations pursuant to this Agreement.. The Company is not a party
to or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business, all of
which are valid and in full force and effect.
3.16 Listing. The Company will use its best efforts to
maintain the listing of its Common Stock on the OTC Bulletin Board or other
organized United States market or quotation system. The Company has not received
any notice, oral or written, regarding continued listing and, as long as the
Preferred Stock and Warrants are outstanding, the Company will take no action
which would impact their continued listing or eligibility of the Company for
such listing.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available for
sale as unrestricted ("free trading") stock.
3.18 Registration Alternative. The Company covenants and
agrees that for so long as any of the shares remain outstanding and continue to
be "restricted securities" within the meaning of Rule 144 under the Act, the
Company shall permit resales of the underlying Common Stock pursuant to Rule 144
under the Act. The Company and the Subscribers shall provide the Transfer Agent
any and all papers necessary to complete the transfer under Rule 144, including,
but not limited to, opinions of counsel to the Transfer Agent, and the Company
shall continue to file all material required to be filed pursuant to Sections
13(a) or 15(d) of the 1934 Act.
3.19 Capitalization. The authorized capital stock of the
Company consists of 75,000,000 shares of Common Stock, no par value per share,
20,000,000 shares of non-voting Preferred Stock, $0.01 par value. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
3.20 Dilution. The Company is aware and acknowledges that
conversion of the Preferred Stock, and/or exercise of the Warrant, would cause
dilution to existing shareholders and could significantly increase the
outstanding number of shares of Common Stock.
3.21 Use of Proceeds. The proceeds from the issuance and sale
of the Securities by the Company shall be used to finance the Company's current
operations and for other working capital purposes. None of the proceeds from the
issuance and sale of the Securities by the Company pursuant to this Agreement
will be used directly or indirectly for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any "margin stock" within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System.
3.22 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the full conversion and exercise of the outstanding Securities and
issuance of the shares of Common Stock underlying the Preferred Stock (the
"Conversion Shares") and Warrants (the "Warrant Shares") (based on the
conversion price of the Preferred Stock in effect from time to time) and the
exercise in full of the Warrants and the issuance of the Warrant Shares (based
on the exercise price of the Warrants) (collectively, the "Reserved Amount").
The Company shall not reduce the Reserved Amount without the prior written
consent of each Subscriber. With respect to all Securities which contain an
indeterminate number or shares of Common Stock issuable in connection therewith
(such as the Preferred Stock), the Company shall include in the Reserved Amount,
no less than two (2) times the number of shares that is then actually issuable
upon conversion or exercise of such Securities. If at any time the number of
shares of Common Stock authorized and reserved for issuance is below the number
of Conversion Shares issued or issuable upon conversion of the Preferred Stock
and exercise of the Warrants, the Company will promptly take all corporate
action reasonably necessary to authorize and reserve a sufficient number of
shares, including, without limitation, either (x) calling a special meeting of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares, or (y) in lieu of (x) above, consummating the
immediate redemption of the Preferred Stock (pursuant to the provisions of the
Certificate of Secretary) as permitted under the laws of the State of Utah.
(b) The Company shall promptly file all listing applications
and secure the listing of the Conversion Shares and Warrant Shares upon any
national securities exchange or automated quotation system, if any, upon which
the shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Conversion Shares and Warrant Shares from time
to time issuable upon conversion or exercise of the Preferred Stock and
Warrants. The Company will use its best efforts to maintain the listing and
trading of its Common Stock on the OTC Bulletin Board, and in the event the
Common Stock, at some later date becomes listed on the NASDAQ National Market,
the NASDAQ Small Cap Market, the New York Stock Exchange, Inc., or the American
Stock Exchange Inc. The Company shall use its best efforts to maintain the
listing of the Common Stock thereon, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers, Inc. (the "NASD") and such
exchanges, as applicable. The Company shall promptly provide to each Subscriber
copies of any notices it receives regarding the continued eligibility of the
Common Stock for listing. In the event the Common Stock is delisted from the OTC
Bulletin Board the Company will immediately apply to have the Common Stock
listed on the "Pink Sheets". In the event the Common Stock is, at a later date,
during the time that the Securities are owned by the Subscribers, traded on
another exchange or market beside the OTC Bulletin Board or Pink Sheets, and is
later delisted from such exchange or market, the Company agrees to immediately
apply for listing of the Common Stock on the OTC Bulletin Board.
3.23 Irrevocable Instructions. Upon receipt of a Notice of
Conversion (in the form annexed hereto as Exhibit E) or Notice of Exercise (in
the form annexed as Exhibit A to the Warrant), as applicable, the Company shall
in accordance with the Certificate of Secretary and Warrant, immediately issue
irrevocable instructions to its transfer agent to issue Common Stock
certificates, registered in the name of each Subscriber or its nominee, for the
Conversion Shares or Warrant Shares, as applicable, in such amounts as specified
from time to time by each Subscriber to the Company upon proper conversion of
the Preferred Stock and/or exercise of the Warrants. Upon conversion of any
share of Preferred Stock in accordance with their terms and/or exercise of any
Warrants in accordance with their terms, the Company will, and will cause its
transfer agent to issue one or more certificates representing shares of Common
Stock in such name or names and in such denominations specified by a Subscriber
in a Notice of Conversion and/or Notice of Exercise, as the case may be. As long
as the Registration Statement contemplated by the Registration Rights Agreement
shall remain effective with the SEC and in the applicable states, the shares of
Common Stock issuable upon conversion of any Preferred Stock or exercise of any
Warrants shall be issued to any transferee of such shares from a Subscriber
without any restrictive legend. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section shall affect in any way a Subscriber's
obligation to comply with all securities laws applicable to such Subscriber upon
resale of such shares of Common Stock, including any prospectus delivery
requirements.
3.24 Merger or Consolidation. During the time that the
Securities are outstanding, the Company will not, in a single transaction or a
series of related transactions, (i) consolidate with, or merge with, or into any
other person or entity, or (ii) permit any other person or entity to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation, and (x) immediately before and immediately after giving effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no default or Event of Default (as
defined below) shall have occurred and be continuing; (y) the surviving entity
expressly assumes the obligations contained in this Agreement, and (z) the
Company has delivered to the Subscribers an Officer's certificate stating that
such consolidation, merger or transfer complies with this Agreement, and that
all conditions precedent in this Agreement relating to such transaction have
been justified.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by the Subscribers 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 and exercise 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 each Subscriber to exercise its
right to convert the Preferred Stock and/or exercise the Warrants, and
be subject to the liquidated damage provisions set forth in the
Certificate of Secretary and Warrant.
Section 5. Opinion of Counsel at Closing. Subscribers shall,
upon the Closing, receive an opinion letter from counsel to the Company in the
form annexed hereto as Exhibit F.
Section 6. Opinion of Counsel Upon Conversion and/or Exercise.
The Company shall have their counsel provide, at the Company's expense, an
opinion of counsel acceptable to the transfer agent (if required) in order to
perfect conversion of the Preferred Stock and/or exercise of Warrants, upon
receipt of Notice of Conversion and/or Notice of Exercise, 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
Subscribers which shall be satisfactory to the Transfer Agent, directing the
Transfer Agent to remove any restrictive legend that is contained on the
underlying Common Stock certificate.
Section 7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration, the
Company agrees to use its best efforts to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at
all times after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the 1934 Act;
(ii) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company
under the Act and the 1934 Act;
(iii) to furnish to each Subscriber 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 such Subscriber may reasonably request in availing itself of
any rule or regulation of the SEC allowing such Subscriber to sell any
such Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscriber. Each of the Subscribers on the one hand, and the Company on the
other, represent to the other the following with respect to itself:
8.1 Subscription Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of the Company and each
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 any 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 on the one hand, and
each of the Subscribers on the other, agrees to indemnify the other and to hold
the other harmless from and against any and all losses, damages, liabilities,
costs and expenses (including reasonable attorneys' fees) which the other may
sustain or incur in connection with the breach by the indemnifying party of any
representation, warranty or covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to
Certificate of Secretary (Exhibit A).
8.6 Conversions. Notwithstanding anything to the contrary set
forth herein, upon conversion of a portion of the Preferred Stock in accordance
with the terms contained in the Certificate of Secretary, the holder shall not
be required to physically surrender the original Preferred Stock certificate to
the Company. Rather, only upon full conversion of each Preferred Stock
certificate issued at the Closing shall the holder thereof be required to
physically surrender the original Preferred Stock certificate to the Company.
8.7 Laws and Regulations. Each party hereto shall comply with all
laws and regulations applicable to them and this transaction.
Section 9. Restrictions on Conversion and Exercise. Each
Subscriber agrees that it shall not convert any portion of the Preferred Stock,
and/or exercise any portion of the Warrants, which would result in such
Subscriber being deemed the owner, at any specific point in time, more than
4.99% of the then outstanding shares of Common Stock. The preceding sentence
shall not interfere with such Subscriber's right over time, to convert the full
face value of the Preferred Stock, and/or exercise any portion of the Warrants
into more than 4.99% of the then outstanding shares of Common Stock in the
aggregate. In no event shall the aforementioned 4.99% restriction apply in the
event an Event of Default (as described in Section 18 below) has occurred and
remains uncured for ten business days.
Section 10. [Intentionally left blank]
Section 11. Registration or Exemption Requirements. Each
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. Each Subscriber understands that the Preferred Stock and Warrant
certificates 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 12. Legend. The certificates representing the Preferred Stock
and Warrants shall be subject to a legend restricting transfer under the Act,
such legend to be substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT WHICH, EXCEPT IN
THE CASE OF AN EXEMPTION PURSUANT TO RULE 144 UNDER SAID ACT, IS
CONFIRMED IN A LEGAL OPINION SATISFACTORY TO THE COMPANY."
The certificates representing the Securities, and each
certificate issued in transfer thereof, will also bear any legend required under
any applicable state securities law.
Section 13. Stock Delivery Instructions. The original Preferred Stock
and Warrants shall be delivered to the Subscribers on a delivery versus payment
basis as set forth in the Escrow Agreement.
Section 14. Closing Date. The date the Escrow Agent receives
the original Preferred Stock and Warrants being purchased by the Subscribers and
the appropriate Purchase Price therefor, and each of the conditions set forth in
Sections 15 and 16 herein and the terms and conditions of the Escrow Agreement
(Exhibit C) herein are satisfied or waived shall constitute the Closing (the
"Closing Date"), and all acts, deliveries and confirmations comprising the
Closing Date regardless of chronological sequence, shall be deemed to occur
contemporaneously and simultaneously upon the occurrence of the last act,
delivery, or confirmation of the Closing Date, and such acts, deliveries, or
confirmations shall not be effective unless and until the last of same shall
have occurred, and as shall be mutually agreed upon as to time and place.
Section 15. Conditions to the Company's Obligation to Sell.
Each Subscriber understands that the Company's obligation to sell the Preferred
Stock and Warrants are conditioned upon:
(i) The receipt and acceptance by the Company of this
Subscription Agreement and all duly executed Exhibits thereto by an
authorized officer of the Company;
(ii) Delivery into escrow by wire to the Escrow Agent
by the Subscribers of good cleared funds (in an amount of not less than
Five Hundred Thousand ($500,000) Dollars), and the original Notes
marked canceled, as payment for the corresponding aggregate principal
amount of Preferred Stock and Warrants;
(iii) All representations and warranties of the
Subscribers contained herein shall be true and correct as of the date
when made and remain true and correct as of the Closing Date as though
made at such time (except for representations and warranties that speak
as of a specific date) and the Subscribers shall have performed,
satisfied and complied with all covenants, agreements and conditions
required by such agreements to be performed, satisfied or complied with
by them at or prior to the Closing Date;
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Preferred Stock and Warrants, or shall have the availability of
exemptions therefrom. At the Closing Date, the sale and issuance of the
Preferred Stock, Warrants, and the proposed issuance of the Common
Stock underlying the Preferred Stock, and Warrants shall be legally
permitted by all laws and regulations to which the Subscribers and the
Company are subject;
(v) The Subscribers shall have received all
governmental, Board of Directors members, managers, partners,
shareholders and third-party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities,
and the entering into of this Agreement and the agreements referenced
herein;
(vi) No law or regulation shall have been imposed or
enacted that, in the reasonable judgment of the Company could
materially and adversely affect the transactions set forth herein or in
the other agreements annexed hereto, and no law or regulation shall
have been proposed that in the reasonable judgment of the Company could
reasonably have any such effect;
(vii) There shall exist no action, suit,
investigation, litigation or proceeding pending or threatened in any
court or before any arbitrator or governmental instrumentality that
challenges the validity of or purports to affect this Agreement or any
other agreement annexed hereto, or other transaction contemplated
hereby or thereby or that could reasonably be expected to have a any
material adverse effect on the enforceability of this agreement or any
other agreement annexed hereto, or the Securities or the rights of the
holders of the Securities or the Subscribers hereunder; and
(viii) The Certificate of Secretary for the Preferred
Stock shall have been filed with the Utah Secretary of State.
Section 16. Conditions to Subscriber's Obligation to Purchase.
The Company understands that Subscriber's obligation to purchase the Preferred
Stock, and Warrants is conditioned upon the satisfaction, on or before the
Closing Date, of each of the following:
(i) The Company shall have executed this Agreement and all agreements
annexed hereto and delivered same to the Subscribers;
(ii) Acceptance by Subscribers of a satisfactory Subscription
Agreement and all duly executed Exhibits hereto for the sale of the Securities;
(iii) Delivery of the original Preferred Stock and Warrants as
described herein;
(iv) All representations and warranties of the
Company contained herein shall remain true and correct as of the date
when made and as of the Closing Date as though made at such time
(except for representations and warranties that speak as of a specified
date) and the Company shall have performed, satisfied and complied with
all covenants, agreements and conditions required by such agreements to
be performed, satisfied or complied with by it at or prior to the
Closing Date. The Subscribers shall have received an Officer's
Certificate (in the form annexed hereto as Exhibit G) executed by the
chief executive officer of the Company dated as of the Closing Date, to
the foregoing effect and as to such other matters as may be reasonably
requested by the Subscribers, including, but not limited to,
certificates with respect to the corporate documents (the "Corporate
Documents", including, but not limited to, the charter, bylaws, and
Certificate of Incorporation), resolutions relating to the transactions
contemplated hereby and the incumbencies of certain officers and
directors of the Company;
(v) The Company shall have received all governmental,
Board of Directors members, shareholders and third-party consents and
approvals necessary or desirable in connection with the issuance and
sale of the Securities, and the entering into of this Agreement and the
agreements referenced herein, except for SEC approval and review of the
registration of the Securities;
(vi) All applicable waiting periods in respect to the
issuance and sale of the Securities shall have expired without any
action having been taken by any competent authority that could
restrain, prevent or impose any materially adverse conditions thereon
or that could seek or threaten any of the foregoing;
(vii) No law or regulation shall have been imposed or
enacted that, in the reasonable judgment of the Subscribers could
materially and adversely affect the transactions set forth herein or in
the other agreements annexed hereto, and no law or regulation shall
have been proposed that in the reasonable judgment of Subscribers could
reasonably have any such effect;
(viii) All fees and expenses due and payable by the
Company relating to the Securities on or prior to the Closing Date
shall have been paid;
(ix) The Company's Corporate Documents and any of the
Company's subsidiaries Corporate Documents, if any, shall be in full
force and effect and no material term or condition thereof shall have
been amended, waived or otherwise modified without the prior written
consent of the Subscribers;
(x) There shall have occurred no material adverse
change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or any subsidiary
that has not been disclosed in the Reports;
(xi) There shall exist no action, suit,
investigation, litigation or proceeding pending or threatened in any
court or before any arbitrator or governmental instrumentality that
challenges the validity of or purports to affect this Agreement or any
other agreement annexed hereto, or other transaction contemplated
hereby or thereby or that could reasonably be expected to have a
material adverse effect or any material adverse effect on the
enforceability of this agreement or any other agreement annexed hereto,
or the Securities or the rights of the holders of the Securities or the
Subscribers hereunder;
(xii) Since October 7, 1998 there shall not have
occurred any material disruption or material adverse change in the
United States financial or capital markets generally, or in the market
for the Common Stock (including but not limited to any suspension or
delisting), which the Subscribers reasonably deem materially adverse in
connection with the purchase of the Securities;
(xiii) The Subscribers shall have received all other
opinions, resolutions, certificates, instruments, agreements or other
documents as they shall reasonably request;
(xiv) Receipt of opinion of counsel dated as of the
Closing Date, in the form annexed hereto as Exhibit F, and proof that
the Certificate of Secretary has been filed with the Utah Secretary of
State; and
(xv) 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 Subscribers are subject.
Section 17. Affirmative Covenants. The Company hereby agrees
that, from and after the date hereof for so long as any of the Securities remain
outstanding and for the benefit of the Subscribers, the Company will deliver the
following to each holder of the Securities:
(i) promptly upon the filing thereof, copies of (a)
all registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), and (b) all
reports on Forms 10-K, 10-Q and 8-K (or their equivalent) which the
Company or any subsidiary has filed with the SEC;
(ii) simultaneously with the delivery of each item
referred to in clause (i) above, a certificate from an officer of the
Company stating that no default of this Agreement or Event of Default
(as defined below) has occurred and is continuing, or, if as of the
date of such delivery a default shall have occurred and be continuing,
a certificate from the Company setting forth the details of such
default or Event of Default and the action which the Company is taking
or proposes to take with respect thereto;
(iii) within two (2) business days after any officer
of the Company obtains knowledge of a default or Event of Default (as
defined below), or that any person has given any notice or taken any
action with respect to a claimed default hereunder, a certificate of an
officer of the Company setting forth the details thereof and the action
which the Company is taking or proposes to take with respect thereto;
(iv) promptly upon the mailing thereof to the
shareholders of the Company generally, copies of all financial
statements, reports and proxy statements so mailed and any other
document generally distributed to shareholders; and
(v) promptly following the commencement thereof,
notice and a description in reasonable detail of any litigation or
proceeding to which the Company or any subsidiary is a party in which
the amount involved is $250,000 or more and not covered by insurance or
in which injunctive or similar relief is sought or which the Company is
required to disclose in its SEC Reports.
Section 18. Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(i) failure on the part of the Company to observe or
perform any material covenant contained in this Agreement or any
Exhibit annexed hereto for 30 calendar days from the date of such
occurrence;
(ii) the trading in the Common Stock shall have been
suspended by the SEC or by the OTC Bulletin Board (or if the Common
Stock is then listed and approved for trading on either the New York
Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market's
Small Cap Stock Market, or the NASDAQ Stock Market's National Market
and then have been so suspended, and has not within ten trading days
after such suspension been listed on the OTC Bulletin Board) except for
any suspension or trading of limited duration solely to permit
dissemination of material information regarding the Company and except
if, at the time there is any suspension, the Common Stock is then
listed and approved for trading on either the OTC Bulletin Board, the
New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock
Market's Small Cap Stock Market, or the NASDAQ Stock Market's National
Market within ten (10) trading days thereof;
(iii) failure of the Company to file listing
applications within twenty (20) business days of the Company being
required to do so by the market or exchange in which the Common Stock
is then so listed, which failure is not cured within five (5) business
days of such failure;
(iv) the Company shall have its Common Stock delisted
from the OTC Bulletin Board for at least ten (10) consecutive trading
days and is unable to obtain a listing on either the New York Stock
Exchange, the American Stock Exchange, the NASDAQ Stock Market's Small
Cap Stock Market or the NASDAQ Stock Market's National Market within
such ten (10) trading days;
(v) the Registration Statement shall not have been
declared effective by the SEC within 180 calendar days after the
Closing Date,, or such effectiveness shall not be maintained until (i)
the date that all of the shares of Common Stock underlying the Series
98-C Preferred Stock have been sold pursuant to the Registration
Statement, (ii) the date that the shares of Common Stock underlying the
Series 98-C Preferred Stock may be sold under the provisions of Rule
144, without volume limitation, or (iii) two (2) years after the
effective date of the Registration Statement;
(vi) the Company or any material subsidiary has
commenced a voluntary case or other proceeding seeking liquidation,
winding-up, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency, moratorium or other similar
law now or hereafter in effect of seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or has consented to any such relief
or to the appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against it, or has
made a general assignment for the benefit of creditors, or has failed
generally to pay its material debts as they become due, or has taken
any corporate action or has taken any corporate action to authorize any
of the foregoing;
(vii) an involuntary case or other proceeding has
been commenced against the Company or any material subsidiary seeking
liquidation, winding-up, reorganization or other relief with respect to
it or its debts under any bankruptcy, insolvency, moratorium or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, and such involuntary case
or other proceeding shall remain undismissed and unstayed for a period
of 60 calendar days, or an order for relief has been entered against
the Company or any subsidiary under the federal bankruptcy laws as now
or hereafter in effect;
(viii) default in any material provision (including
payment) of any agreement governing the terms of any debt of the
Company or any subsidiary in excess of $1,000,000, which has not been
cured, extended, or otherwise agreed to, within any applicable period
of grace associated therewith;
(ix) judgments or orders for the payment of money
which in the aggregate at any one time exceed $1,000,000 and are not
covered by insurance have been rendered against the Company or any
subsidiary by a court of competent jurisdiction and such judgments or
orders shall continue unsatisfied and unstayed for a period of 60
calendar days; or
(x) any material representation, warranty,
certification or statement made by the Company in any agreement entered
into between the Company and any of the Subscribers, or which is
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with any such agreement
shall prove to have been untrue in any material respect when made.
Then, and in every such occurrence, any Subscriber may, by written
notice to the Company, declare the Company in default of this Agreement, and the
redemption provision in the Certificate of Secretary shall become immediately
due and payable with respect to such Subscriber; provided that in the case of
any of the Events of Default specified in paragraph (viii) or (ix) above with
respect the Company or any subsidiary, then, without any notice to the Company
or any other act by any Subscriber may proceed to protect and enforce the rights
of such Subscriber by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in the Certificate of Secretary, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise, and provided
further, in the case of any Event of Default, the amount declared due and
payable on the Preferred Stock shall be the Redemption Price (as defined in the
Certificate of Secretary) thereof.
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 in connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Agreement obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of any
state or country having jurisdiction over the party against whom such judgment
was obtained, and each party hereby waives any defenses available to it under
local law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
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 the Exhibits annexed hereto constitute the entire agreement
between the Subscribers 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 Reliance by Company. The Subscribers represent to the
Company that the representations and warranties of the Subscribers 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.
19.6 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 (including any Exhibit annexed hereto)
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.
19.7 Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby except that the Company shall (i) pay
one (1%) percent of the Purchase Price minus $2,500, out of escrow, to
Goldstein, Goldstein & Reis, LLP for legal, administrative and escrow fees; and
(ii) issue to Settondown Capital International, Ltd., as placement agent, for
services rendered in connection with this transaction, that number of shares of
Preferred Stock equal to ten percent of the total number of shares of Preferred
Stock sold to the Subscribers pursuant to this Agreement, and Warrants to
purchase fifty thousand (50,000) shares of Common Stock per $1,000,000 principal
amount of Securities sold to the Subscribers pursuant to this Agreement.
19.8 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 Subscription Agreement was duly
executed on the date first written below.
Agreed to and Accepted on
this 3rd day of November 1998
SGI INTERNATIONAL
/s/ JOSEPH A. SAVOCA
By____________________________
Name: Joseph A. Savoca
Title: Chairman/CEO
MANCHESTER ASSET MANAGEMENT
/s/ DAWN E. DAVIES
By__________________________________
Name: Dawn E. Davies
Title: Director
Executed this 3rd day of November 1998
GILSTON CORPORATION, LTD.
/s/ DAWN E. DAVIES
By__________________________________
Name: Dawn E. Davies
Title: Director
Executed this 3rd day of November 1998
AVALON CAPITAL, LTD.
/s/ GLORA LAVIE
By___________________________
Name: Glora Lavie
Title: Attorney-In-Fact
Executed this 3rd day of November 1998
GCA STRATEGIC INVESTMENT FUND LIMITED
/s/ MICHAEL S. BROWN
By___________________________
Name: Michael S. Brown
Title: Director
Executed this 3rd day of November 1998
SCHEDULE A
1. Manchester Asset Management, Ltd.
Investment Amount: $150,000
2. Gilston Corporation, Ltd.
Investment Amount: $100,000
3. Avalon Capital, Ltd.
Investment Amount: $100,000
4. GCA Strategic Investment Fund Limited c/o Prime Management Limited
Mechanics Building 12 Church Street Hamilton HM 11, Bermuda
Investment Amount: $500,000