SGI’s ENCOAL plant sale in doubt

LA JOLLA, Calif., Sept. 28, 2001 — The utility considering the purchase of SGI International’s ENCOAL Demonstration plant has backed out of the deal, SGI said today.

The reason given for terminating negotiations was the project was not part of the utility’s core business and its opportunity to derive significant income is too far in the future. The utility did indicate it had no question the Liquids From Coal (LFC) technology would work and is very valuable.

In that there has been no significant change in the technical and economic fundamentals of the project since the utility entered into a Memorandum of Understanding with SGI in July of 2000 and began negotiating and drafting agreements over a period of 16 months, SGI believes there may be some misunderstanding as to the investment criteria used to arrive at this decision. SGI is therefore attempting to revive negotiations and complete the transaction as well as engage substitute investors who could take the utility’s place.

The complexity of this deal, which includes several parties with related interests, dictated that negotiations could logically only be undertaken with one investor at a time. While this decision by the utility is unexpected SGI believes that there are other parties who have an interest and can be engaged in a short time.

Michael L. Rose, SGI Chairman/CEO stated: “We are absolutely astonished this utility has indicated its intent to terminate negotiations after 16 months with nearly all of the substantive terms of the agreements accepted by all parties. We met their investment criteria when negotiations started in July 2000 and their due diligence confirmed the value of LFC to be what we represented at that time. If there has been a change in their investment criteria, we were never informed.

“While we attempt to communicate with this utility we are also concurrently attempting to obtain a substitute investor who could enter into the written agreements already in place. Further, the November 11th tragedy at the World Trade Center which impacted investor’s decisions on investing in equity of small companies has also made our cash position critical and thus we are working to obtain additional funding.”

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