SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
METALCLAD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2368719
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 Corporate Plaza, Suite 125, Newport Beach, California 92660
(949) 719-1234
(Address and telephone number of Registrant s
principal executive offices)
Grant S. Kesler, Chief Executive Officer
METALCLAD CORPORATION
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
(949) 719-1234
(Name, address, and phone number of agent for service)
Copies to:
Bruce H. Haglund, Esq.
Gibson, Haglund & Johnson
2 Park Plaza, Suite 450
Irvine, California 92614
(949) 752-1100
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as practicable after the Registration Statement becomes effective.<PAGE>
If the securities being registered on this Form are being offered pursuant
to dividend or interest
reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box [X]
CALCULATION OF REGISTRATION FEE
<TABLE><S> <C> <C> <C> <C>
Title of Each Class of Amount Proposed Proposed Maximum Amount of
Securities To Be to be Maximum Offering Aggregate Registration
Registered Registered(1) Price Per Unit(2) Offering Price(2) Fee(3)
-----------------------------------------------------------------------------------------------------------------
Common Stock 2,050,000 $1.25 $2,562,500.00 $868.64
=================================================================================================================
(1) Includes: (i) shares of Common Stock reserved for issuance upon the conversion of 7% Convertible Debentures Due July 1,
2001 issued by the Company (the Debentures ); (ii) shares of Common Stock that have been issued or are reserved for
issuance on the exercise of Common Stock Purchase Warrants to be issued in connection with the issuance of the Debentures
(the Debenture Warrants ). Estimated solely for the purpose of calculating the registration fee.
(2) The amount included herein represents the registration of 2,050,000 shares at $1.25 per share.
(3) Calculated based on a price of $1.25 per share.
</TABLE>
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.<PAGE>
METALCLAD CORPORATION
Cross-Reference Sheet Showing Location in Prospectus of Information
required by items of the Registration Statement on Form S-3.
Registration Statement
Items and Headings captions in Prospectus
<TABLE><S><C> <C>
1. Forepart of the Registration Statement and Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page of
Cover Pages of Prospectus Prospectus; Available Information
3. Summary Information, Risk Factors and Cover Page of Prospectus; Risk Factors,
Ratio of Earnings to Fixed Charges Incorporation of Certain Documents by
Reference; Table of Contents
4. Use of Proceeds Cover Page of Prospectus; Use of
Proceeds
5. Determination of Offering Price Cover Page of Prospectus
6. Dilution Risk Factors
7. Selling Security Holders Selling Shareholders and Plan of
Distribution
8. Plan of Distribution Cover Page of Prospectus; Selling
Shareholders and Plan of Distribution
9. Description of Securities to be Registered Incorporation of Certain Documents
by Reference
10. Interest of Named Experts and Counsel Experts; Legal Opinion
11. Material Changes Incorporation of Certain Documents
by Reference
12. Incorporation of Certain Incorporation of Certain Documents
Information by Reference by Reference
13. Disclosure of Commission Position Indemnification of Officers and on
Indemnification for Securities Directors
Act Liabilities
/TABLE
<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an order to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED __________, 1998
2,050,000 Shares
METALCLAD CORPORATION
Common Stock
This Prospectus relates to the sale of up to approximately 2,050,000
shares of common stock, par value $.10 per share (the common stock are
generally referred to hereafter as the Common Stock ), of Metalclad
Corporation (the Company ) offered for the account of certain
stockholders of the Company (the Selling Stockholders ). These
2,050,000 shares of Common Stock (the Shares ) include (i) shares of
Common Stock that have been issued or are reserved for issuance upon the
conversion of 7% Convertible Debentures Due July 1, 2001 issued by the
Company (the Debentures ), based on the trading prices of the Common
Stock prior to November 30, 1998; and (ii) 50,000 shares of Common Stock
that are reserved for issuance on the exercise of Common Stock Purchase
Warrants issued in connection with the Debentures (the Warrants ). The
actual number of shares of Common Stock issued or issuable upon
conversion of the Debentures is subject to adjustment and could be
materially less or more than the above estimated amount, depending upon
factors that cannot be predicted by the Company at this time, including,
among others, the future market price of the Common Stock. See Risk
Factors-Potential Volatility of Stock Price.
The Shares may be offered by the Selling Stockholders from time to
time in transactions (which may include block transactions) on the Nasdaq
SmallCap Market, in negotiated transactions, through a combination of
such methods of sale, or otherwise, at fixed prices that may be changed,
at market prices prevailing at the time of sale, or at negotiated prices.
The Selling Stockholders may effect such transactions by selling the
Shares to or through broker-dealers, who may receive compensation in the
form of discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of the Shares for whom such broker-
dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess
of customary commissions).
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders other than upon exercise of the<PAGE>
Warrants. If all of the Warrants are exercised, the proceeds to the
Company will be $____, less the expenses of this offering. The Company
has agreed to bear all expenses of registration of the Shares, but all
selling and other expenses incurred by the Selling Stockholders will be
borne by the Selling Stockholders. The Company will receive as proceeds
from the offering only the price per share paid to it by the Selling
Shareholders upon exercise of any of the Warrants. See Use of Proceeds
and Selling Shareholders and Plan of Distribution.
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be underwriters within the meaning of the
Securities Act of 1933, as amended (the Securities Act ), and any
commissions paid or any discounts or concessions allowed to any such
persons, and any profits received on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under
the Securities Act. See Selling Stockholders and Plan of
Distribution.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE SUBJECT TO VARIOUS RISKS.
SEE RISK FACTORS ON PAGE 2 FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT
IN THE SHARES OFFERED HEREBY AND IN THE COMPANY.
On September 23, 1998 the closing bid quotation of the Company s
Common Stock, as reported on the Nasdaq Small Cap Market, was $1.125 per
share. Such price represents interdealer quotations without adjustment
for retail markup, markdown or commission, and does not necessarily
represent actual transactions. The price of the Company s Common Stock
has been susceptible to volatility which might not occur in securities
which are more widely held and more actively traded.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement
on Form S-3 (together with all amendments and exhibits thereto, the
Registration Statement ) under the Securities Act of 1933, as amended
(the Securities Act ), with respect to the securities offered by this
Prospectus. This Prospectus, filed as part of such Registration
Statement, does not contain all of the information set forth in, or
annexed as exhibits to, the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and
this offering, reference is made to the Registration Statement including
the exhibits filed therewith. The Registration Statement may be
inspected and copies may be obtained from the Public Reference Section at
the Commission s principal office, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the New York Regional Office, 7
World Trade Center, New York, New York 10048, upon payment of the fees
prescribed by the Commission. Statements contained in this Prospectus as
to the contents of any contract or other document are not necessarily
complete and where the contract or other document has been filed as an
exhibit to the Registration Statement, each such statement is qualified
in all respects by such reference to the applicable document filed with
the Commission.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act ), and in accordance
therewith is required to file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; at
its New York Regional Office, 7 World Trade Center, New York, New York
10048; and at its Pacific Regional Office, 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648, and copies of such material
can be obtained from the Commission s Public Reference Section at the
prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file
electronically.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company s Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, filed pursuant to Section 13 of the Exchange Act.
(b) The Company s Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998, filed pursuant to Section 13 of the Exchange
Act.
(c) The Company s Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998, filed pursuant to Section 13 of the Exchange
Act.
PART I-1<PAGE>
(d) The Company s Registration of Securities on Form 8-A dated June
17, 1988.
In addition, all reports and other documents filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior
to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all
securities offered hereby then remaining unsold, shall be deemed to be
incorporated by reference herein and shall be deemed to be a part hereof
from the date of the filing of each such report or document.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or
all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
into the information incorporated herein by reference. Requests should be
addressed to the Company s principal executive offices: Metalclad
Corporation, 2 Corporate Plaza, Suite 125, Newport Beach, California
92660. The Company s telephone number is (714) 719-1234.
RISK FACTORS
An investment in the shares offered hereby is speculative in nature
and involves a high degree of risk of loss. Prospective investors should
read the entire Prospectus and consider very carefully the following
investment considerations, among others, before purchasing Shares.
General Risks
History of Losses. The Company, which has a December 31st fiscal
year end, experienced a net loss of $4,610,000 during the 12-month period
ended December 31, 1997, a net loss of 3,280,000 for the seven months
ended December 31, 1996 and net losses for the fiscal years ended May 31,
1996 and 1995 of $6,780,000 and $15,399,000, respectively. While the
losses related primarily to start-up expenses associated with the
Company s development of the industrial and hazardous waste business in
Mexico, there can be no assurance that the Company will operate profitably
in the future.
Risk of Future Working Capital Deficits; Potential Inability to
Obtain Financing Necessary to Pursue Business Strategy. The development
of the Company s Mexican business has resulted in a steady increase in its
capital requirements. At December 31, 1997, the Company s working capital
was approximately $1,702,000 compared to $2,719,000 at December 31, 1996.
At March 31, 1998, the Company s working capital was approximately
$430,800 compared to $1,971,000 at March 31, 1997. The Company will need
to obtain additional capital for the Mexican business. See Management s
Discussion and Analysis of Financial Condition and Results of Operations.
The proceeds from this Offering are intended to provide capital for
development costs and working capital for general corporate purposes to
PART I-2<PAGE>
enable the Company to continue the development of the Aguascalientes
facility. Although the management of the Company believes that debt
financing for the Aguascalientes facility will be available, there can be
no assurance that the Company will be successful in attracting all the
capital necessary to finance the construction of the facility or that such
financing, if acquired, will be on terms that will enable the Company to
achieve profitable operations. If the Company is unable to secure
additional financing in the future, its ability to pursue its business
strategy, its financial position, and its results of operations for future
periods may be adversely impacted. See Use of Proceeds.
Shares Available for Future Sale. A substantial number of
outstanding shares of Common Stock, and shares of Common Stock issuable
upon the conversion of outstanding indebtedness and the exercise of
outstanding warrants and options, will become eligible for sale in the
public market at prescribed times in the future. Moreover, it is expected
that a significant number of shares of Common Stock, and securities
convertible or exercisable to acquire Common Stock, will be issued in the
future as the Company pursues development of hazardous waste treatment
facilities. Sales of significant amounts of Common Stock in the public
market following this and other potential offerings could adversely affect
prevailing market prices for the Common Stock. See Price Range of Common
Stock and Description of Securities - Shares Eligible for Future Sale.
Listing and Maintenance Criteria for Nasdaq Securities. The Company s
Common Stock is quoted on the Nasdaq SmallCap Market. To maintain its
listing on the Nasdaq SmallCap Market, the Company must continue, among
other things, to have net tangible assets of $4,000,000, a market
capitalization of $50,000, or net income of $500,000 for the most recently
completed fiscal year or in two of the last three most recently completed
fiscal years. Further, the minimum bid price of the Company s Common
Stock must be $1.00 or higher. If the Company s Common Stock fails to
maintain Nasdaq Small-Cap Market, the market value of the Common Stock
likely would decline and purchasers in this Offering would likely find it
more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock into which the Debentures are
convertible. See the Financial Statements included in the 1997 Annual
Report and the 1st Quarter Report and Price Range of Common Stock.
Potential Impediments to Attempted Changes of Control. The Company s
Certificate of Incorporation and Bylaws contain certain provisions which
may delay or prevent a tender offer or non-negotiated takeover attempt
that a stockholder may consider in such stockholder s best interest,
including takeover attempts that might result in a premium over the market
price for shares held by such stockholder. In addition, the severance
provisions of employment agreements with senior management could impede an
attempted change of control of the Company. See Management - Employment
Agreements and Description of Securities - Preferred Stock.
Risks Associated with Insulation Business
No Guaranty of Profitable Operations. Although the Company
experienced income from insulation operations for the year ending December
31, 1997 of $108,000, there can be no assurance that the Company s
PART I-3<PAGE>
insulation business will operate profitably in the future. See
Management s Discussion and Analysis of Financial Condition and Results
of Operations and Consolidated Financial Statements.
Competition in Existing Insulation Contracting Business. Competition
in the industrial insulation contracting services and insulation material
sales business is intense and is expected to remain intense in the
foreseeable future. Competition in these areas involves a few national
and regional companies which provide integrated services and many regional
and local companies which provide insulation and specialty contracting
services. Most of the national and regional competitors providing
integrated services are well established and have substantially greater
marketing, financial and technological resources than the Company. The
regional and local specialty contracting companies which compete with the
Company either provide one service or they provide integrated services by
subcontracting part of their services to other companies. See Business -
Insulation Business - Competition.
Potential Liability and Insurance. Insulation contracting operations
may expose the Company s employees and others to potentially dangerous
quantities of asbestos, a known carcinogen. Although the Company takes
precautions to minimize exposure of its workers and others to asbestos,
there can be no assurance that the Company can avoid liability to persons
who contract diseases which are related to asbestos exposure emanating
from projects involving the Company. Consistent with industry trends, the
Company has found it difficult to obtain adequate insurance coverage for
liability related to asbestos exposure and has been forced to rely largely
on the minimal protection afforded by workmen s compensation coverage for
its employees. The Company s asbestos and general liability insurance
policy, which provides coverage of $1,000,000 per occurrence and excess
liability coverage up to $10,000,000, expires in September 1999. There
can be no assurance that all possible types of liabilities that may be
incurred by the Company as a result of its activities are covered by its
insurance or that the dollar amount of such liabilities will not exceed
the Company s policy limits. A partially or completely uninsured claim,
if successful and of sufficient magnitude, could have a material adverse
effect on the Company s financial condition. See Business - Insulation
Business - Legal Proceedings.
Government Regulation. The Company is subject to extensive,
stringent and frequently changing regulation by federal, state and local
governmental authorities regarding the asbestos abatement industry,
including regulations by the United States Occupational Safety and Health
Administration ( OSHA ) and the Environmental Protection Agency (the
EPA ). In general, OSHA regulations provide maximum asbestos fiber
exposure levels applicable to employees and the EPA regulations provide
asbestos fiber emission control standards. In addition, a number of
states have promulgated regulations requiring, among other things, notice
of proposed asbestos abatement and disposal activities. Although the
Company believes that it is substantially in compliance with all
regulations relating to its operations, and currently has all material
government permits, licenses, qualifications and approvals required for
its operations, there can be no assurance that the Company will be able to
comply with any future regulations, maintain its existing licenses and
PART I-4<PAGE>
permits in effect or obtain any future licenses, permits, qualifications
or approvals which may be required for the operation of the Company s
business. See Business - Insulation Business - Government Regulation.
Dependence Upon Joint Venture Revenues. The Company is a 49% partner
in Curtom - Metalclad, a general partnership (the Partnership ), which
qualifies as a minority business enterprise because of the ownership of
51% of the partnership by a person qualifying as a minority. The
Partnership qualifies for preferential contract bidding for certain
governmental and quasi-governmental (e.g. public utility) contracts. The
Partnership submits bids for insulation contracting services and, if
successful, subcontracts the work to the Company. In the event of a
termination of the Partnership, the revenues and profitability of the
Company would be adversely affected.
Dependence on Significant Customers. The Company s industrial
insulation services customers are predominantly public utilities, oil
refiners, food processors, paper processors, manufacturers, and
engineering and construction companies. Contracts with one customer
accounted for more than 30% of the Company s revenues during the fiscal
year ended December 31, 1997. During the last two fiscal years the
Company s key customer included Texaco, Southern California Edison and
ARCO. If any of these principal customers were to cease to be customers
of the Company, the business of the Company would be materially adversely
affected.
Risk of Competitive Bidding. The Company obtains a significant
number of its industrial insulation and industrial asbestos abatement
service contracts through the competitive bidding process. Although the
Company believes that its bids are competitively priced and anticipates
that in the future its bids will continue to be competitively priced with
bids submitted by others, there can be no assurance that a sufficient
number of the Company s bids will be accepted so that the Company may
operate profitably. See Business - Insulation Business - Insulation
Contracts.
Dependence Upon Key Personnel. The success of the Company s
insulation business is largely dependent on the personal efforts of David
Duclett, its President. The Company has not entered into an employment
agreement with Mr. Duclett and, although the Company has been advised
that he has no present intentions to do so, he could leave the Company at
any time. Furthermore, the Company has not obtained key man insurance
on Mr. Duclett and does not currently intend to do so. Should Mr. Duclett
cease to be affiliated with the Company for any reason before a qualified
replacement is found, there could be a material adverse effect on the
Company s business and prospects. See Management.
Risks Associated With Mexican Business
Speculative Nature of Proposed Business; No Assurance of Revenues.
The Company s Mexican development business is subject to all of the risks
inherent in the commencement of a new business activity. Although the
Company has obtained a permit to construct an industrial waste treatment
facility in Aguascalientes, there can be no assurance that the Company
PART I-5<PAGE>
will be successful. If the Company is successful in constructing a
facility, there can be no assurance that it will be successful in
implementing its business plans or achieving profitable operations.
Although the Company has identified major multinational companies that are
likely customers of the proposed Aguascalientes facility, there can be no
assurance that the Company will be successful in entering into contracts
with such entities. Because the business to be conducted in Mexico is
still in the formative stages, the Company cannot yet evaluate all of the
specific investment considerations and risk factors of the proposed
business and there can be no assurance that any such unanticipated
considerations or factors will not have a material adverse impact on the
proposed Mexican business of the Company. See Business - Mexican
Business.
Risks in Ownership of Foreign Operations. The participation in the
ownership of the Mexican subsidiaries exposes the Company to the effects
of potential economic, political, and labor developments, including
political instability, nationalization of assets, local inflation, and
currency fluctuations and restrictions. The application of Mexican
environmental, tax, and labor laws to the operations of the Mexican
subsidiaries will have a direct effect on the revenues, if any, to the
Company through its ownership of all Mexican subsidiaries. Any disruption
of Mexican operations would have a material adverse effect on the business
of the Company. See Business - Mexican Business.
Permit Requirements; Impact of Mexican Environmental Law. The
Company s proposed business in Mexico will be subject to Mexican
environmental law and cannot be commenced until the Mexican corporation
organized to develop each facility receives a separate unconditional
permit to construct the various proposed waste treatment facilities from
the office of the Secretariat of Social Development ( SEDESOL ), an agency
of the Mexican government similar to the United States Environmental
Protection Agency (the EPA ). There can be no assurance that future
permits will be issued, that additional permits will not be required to
enable the facilities to continue to operate in the manner proposed, or
that the Mexican government will not impose additional restrictions on or
revoke any operating permit for a facility that would have a material
adverse impact on the proposed business of the Company.
Although the Company intends to locate its facilities in areas where
governmental approvals can be obtained, where potential claims from
surrounding landowners will be minimal, and public response to a hazardous
waste treatment facility will not be adverse, there can be no assurance
that adverse public response would not result in delays, increased costs,
or closure of any proposed facility. Because of the lack of facilities in
Mexico similar to those proposed to be developed by the Company, the
Company cannot predict whether citizens groups will actively challenge
the grant of any license or permit the Company may obtain.
Mexican environmental law is in early stages of development and the
history of enforcement of environmental law is limited. The scope and
stringency of Mexican laws and regulations designed to protect the
environment have increased dramatically in the recent past. Compliance
with the evolving and expanding regulatory requirements is anticipated to
PART I-6<PAGE>
be costly and may be resisted by Mexican industry. Although the Company
believes that increased regulation and enforcement will be a benefit to
the Company, there can be no assurance that the Company s business will
not be adversely affected thereby. See Business - Mexican Business -
Mexican Governmental Regulations and Permits.
Competition. Although the management of the Company is not aware of
any existing hazardous waste treatment facilities in Mexico comparable to
the kinds of treatment facilities that the Company intends to develop,
there can be no assurance that competitors with greater financial and
technological resources than the Company will not enter the market and
compete with the Company s proposed facilities.. Any such competition
could have a material adverse impact on the business of the Company. See
Business - Mexican Business - Competition.
Dependence on Key Personnel. The success of the Mexican business
will be largely dependent on the personal efforts of Grant S. Kesler, the
President of the Company, Anthony C. Dabbene, the Chief Financial Officer
of the Company, and Javier Guerra Cisneros, the Director General of
Mexican Operations of the Company. Although the Company has entered into
employment agreements with Messrs. Kesler, Dabbene, and Guerra and the
Company has been advised that they have no present intentions to terminate
their employment, any one of Messrs. Kesler, Dabbene, and Guerra could
leave the Company at any time. Should any one of Messrs. Kesler, Dabbene,
and Guerra cease to be affiliated with the Company for any reason before a
qualified replacement is found, there could be a material adverse effect
on the Company s business and prospects. As the Company completes its
business objectives in Mexico, it will need to expand its staff to support
the new operations. There can be no assurance that the Company will be
successful in hiring or retaining qualified personnel to meet this demand.
See Management.
RECENT DEVELOPMENTS
On July 30, 1998, the Company entered into the Securities Purchase
Agreement for the sale of the Debentures and Warrants (the Agreement ).
Pursuant to the Agreement, The Shaar Fund Ltd. (the Investor ) agreed
under certain terms and conditions to invest up to $1.0 million into the
Company in the Debentures, and the Company agreed, among other things, to
issue to the Investor the Warrants. Pursuant to the Agreement, the
Company issued to the Investor on July 30, 1998 $1.0 million in
Debentures and agreed to issue the Warrants to purchase 50,000 shares of
the Company s Common Stock.
The terms and conditions pursuant to the Debentures and Warrants are
summarized as follows:
--The interest rate on the Debentures is 7% per annum, payable
in cash or in shares of the Company s Common Stock.
--Date of maturity is July 1, 2001.
--The Debentures are convertible into the number of shares of
the Company s Common Stock equal to the principal amount and accrued and
PART I-7<PAGE>
unpaid interest outstanding under the Debentures on the conversion date
divided by the lesser of: (a) $1.25, or (b) the market price (the closing
bid price on the Nasdaq SmallCap Market) times the applicable discount,
which is 82.5% for the period from November 28, 1998 to December 27, 1998,
79% for the period from December 28, 1998 to January 26, 1999, and 75%
after January 26, 1999. Up to 33% of the Debentures are convertible into
Common Stock during the period from November 28, 1998 to December 27,
1998, up to 66% for the period from December 28, 1998 to January 26, 1999,
and up to 100% after January 26, 1999. The Debenture must be converted
into Common Stock by July 30, 2000.
--At its option, the Company may redeem the Debentures at any
time prior to conversion for an amount equal to the accrued and unpaid
interest under the Debentures plus 117.5% of the outstanding principal
under the Debentures for the period from November 28, 1998 to December 27,
1998, 121% for the period from December 28, 1998 to January 26, 1999, and
125% after January 26, 1999.
--The Company is required to redeem the Debentures for an amount
equal to the accrued and unpaid interest under the Debentures plus 125%
of the outstanding principal under the Debentures in the event that the
Company receives (i) an award relating to the pending arbitration
involving its San Luis Potosi, Mexico facility of $1,500,000 or more, or
(ii) any additional equity investment (which redemption shall be limited
to the amount of the equity investment if less than the amount required to
fully redeem the Debentures).
--Warrants to purchase 50,000 shares of the Company s Common
Stock will be granted to the Investor on November 27, 1998. The Warrants
expire on December 31, 2003 and provide for an exercise price of 110% of
the average of the closing bid prices on the Nasdaq SmallCap Market on
November 30, 1998.
The Agreement also requires the Company to file with the Commission
this registration statement to register the Common Stock issuable upon
conversion of the Debentures and upon exercise of the Warrants to allow
the Investor to resell such Common Stock to the public.
DILUTION
As of June 30, 1998, the net tangible book value of the Company was
approximately $6,020,000 or approximately $.20 per share of Common Stock,
based on 30,450,622 shares outstanding on such date. Net tangible book
value per share represents the amount of the Company s total tangible
assets less its total liabilities, divided by the number of shares of its
Common Stock outstanding.
The Shares being offered pursuant to this Prospectus are not
presently outstanding. Assuming that the conversion of the Debentures had
occurred on June 30, 1998 at a conversion price of $1.25 per share and
that all of the Warrants had been exercised at a price of $1.25 per share
so that an additional 850,000 shares were outstanding and that the net
tangible book value increased by $1,062,500, the Company s net tangible
PART I-8<PAGE>
book value would have increased to $7,083,000 or approximately $.23 per
share, based on 31,300,622 shares outstanding. Assuming a sales price of
$1.25 per share, purchasers of the Shares offered hereby will experience
an immediate dilution of $1.02 per share. The Selling Shareholders may
sell the Shares offered hereby pursuant to trades effectuated through the
Nasdaq Small Cap Market or pursuant to individually negotiated sales and
underwriting agreements and thus dilution may vary. Dilution is
determined by subtracting net tangible book value per share after the
offering from the amount paid per share by new investors. The following
table illustrates the per share dilution:
Price per Share (1) $1.25
Net tangible book value per share $ .23
Dilution per Share to new shareholders $1.02
(1) The computation above represents an assumed open market sales price of
$1.25 per share, the closing bid quotation of the Company s Common Stock,
as reported on the Nasdaq Small Cap Market on October ___, 1998.
USE OF PROCEEDS
If at any time any individual Selling Shareholder exercises Warrants,
the Company will receive the proceeds from such exercise. Assuming that
all the Warrants are exercised at $1.25 per share, the Company will
realize $62,500. The Company will not otherwise receive any proceeds from
the offering. Any proceeds received by the Company from this offering
will be used as working capital.
SELLING SHAREHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of 2,050,000 shares of the Company s Common Stock is
being offered pursuant to this Prospectus by the persons and Company whose
names appears below (the Selling Shareholders ). The following table
sets forth the name of each Selling Shareholder, the nature of any
position or relationship between the Selling Shareholder (and any of its
directors, officers, partners or affiliates and the Company), the number
of shares of Common Stock beneficially owned by each Selling Shareholder
prior to the offering to be made by this Prospectus (assuming a Debenture
conversion price of $1.25 per share), the maximum number of shares to be
offered hereby for its account, and the number and percentage of the
outstanding shares of Common Stock to be beneficially owned by each
Selling Shareholder after completion of this offering.
PART I-9<PAGE>
<TABLE><S><C> <C> <C>
Beneficial Ownership Beneficial Ownership
Before Offering After Offering
---------------------------------- ------------------------------------
Number Shares Number Percentage of
of Offered of Outstanding
Name Shares (1) Hereby Shares (2) Common Stock (3)
---- ----------- ----------- ----------- ---------------
The Shaar Fund, Ltd. 850,000 850,000 -0- -0-
(1) For the purposes of this chart, a person is deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from the effective date of this prospectus upon the exercise of warrants or options. Each beneficial
owner s percentage ownership is determined by assuming that options or warrants that are held by such person (but not those
held by any other person) and which are exercisable within 60 days from the effective date of this prospectus, have been
exercised.
(2) Based on 30,450,622 shares of Common Stock issued and outstanding on June 30, 1998.
(3) Assuming all shares offered by Selling Shareholders are in fact sold.
</TABLE>
The Selling Shareholders may sell the Shares offered hereby pursuant
to trades effectuated through the Nasdaq Small Cap market or pursuant to
individually negotiated sales and underwriting agreements. Brokerage
commissions equal to or in excess of normal commissions may be paid by the
Selling Shareholders. Management of the Company has no knowledge of any
existing selling arrangements relating to the Shares offered hereby
between any securities dealer or broker and the Selling Shareholder. The
Company will bear all expenses with respect to the registration of the
Shares and the costs associated with preparing this Prospectus. The
Selling Shareholders will bear the costs associated with the sale and
distribution of the Shares.
EXPERTS
The financial statements and schedules of the Company included in the
Company s Annual Report on Form 10-K for the fiscal year ended December
31, 1997, incorporated by reference herein and elsewhere in this
Prospectus have been incorporated by reference in this Prospectus in
reliance on the report of Arthur Andersen LLP, independent certified
public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
LEGAL OPINION
Gibson, Haglund & Johnson, as counsel to the Company, has rendered an
opinion to the Company (a copy of which has been filed as an Exhibit to
the Registration Statement of which this Prospectus is a part) to the
effect that the shares of Common Stock offered hereby have been legally
issued and are fully-paid and nonassessable. Bruce H. Haglund is
Secretary and a member of the Board of Directors of the Company and holds
approximately 0.5% of the Company s outstanding Common Stock.
PART I-10<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware Corporation Law permits the
indemnification of directors, officers, employees and agents of Delaware
corporations in terms sufficiently broad to include indemnification under
certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended
(the Act ). The Restated Certificate of Incorporation of the Company
provides that the Company shall indemnify its directors and officers to
the fullest extent permitted by Delaware General Corporation Law. Insofar
as indemnification for liabilities arising under the Act may be permitted
to officer, directors, or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable. The
Company has obtained a directors, officers, and company reimbursement
insurance policy which expires in ** with a limit of liability equal to
$5,000,000 in the aggregate.
No person has been authorized to give any information or make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized. This Prospectus does not constitute an offer
to sell or the solicitation of an offer to buy any securities other than
the securities to which it relates or any offer to sell or the
solicitation of any offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained or incorporated by reference herein is correct as of any time
subsequent to the date hereof.
PART I-11<PAGE>
TABLE OF CONTENTS
Available Information............................................ 1
Incorporation of Documents by Reference.......................... 1
Risk Factors..................................................... 2
Dilution......................................................... 7
Use of Proceeds.................................................. 7
Selling Shareholders and Plan of Distribution.................... 8
Experts.......................................................... 10
Legal Opinion.................................................... 10
Indemnification of Officers and Directors........................ 10
2,050,000 SHARES
METALCLAD CORPORATION
COMMON STOCK
PROSPECTUS
, 1998
PART I-12<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The Company anticipates that the expenses incurred or to be incurred
by the Company in connection with the preparation and filing of this
Registration statement and the transactions contemplated hereby will be
approximately as follows:
Description Amount
----------- -------
Printing and duplication costs $ 500
Registration and blue sky filing fees and expenses $ 2,500
Transfer agent and registrar costs $ 100
Legal fees and expenses $15,000
Accounting fees and expenses $ 5,500
Miscellaneous costs $ 1,400
-------
Total $25,000
=======
Item 15. Indemnification of Directors and Officers
The Restated Certificate of Incorporation of the Company makes
provision for indemnification in terms sufficiently broad to permit
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of
1933, as amended (the Act ). See Indemnification of Officers and
Directors in the Prospectus forming part of this Registration Statement
for a more detailed description of the Delaware General Law with respect
to indemnification of officers and directors.
Item 16. Exhibits
The following exhibits are filed herewith as part of this
Registration statement:
5.1 Opinion of Counsel to the Company, with respect to the legality
of the shares.
10.1 7% Convertible Debenture Due July 31, 2001 between the Company
and The Shaar Fund Ltd. dated July 30, 1998.
10.2 Form of Warrant issuable by the Company to The Shaar Fund
between the Company and The Shaar Fund Ltd. dated July 30, 1998.
24.1 Consent of Counsel (included in the Opinion of Counsel filed as
Exhibit 5.1).*
24.2 Consent of Arthur Andersen LLP.
*To be filed later.
PART II-1<PAGE>
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represents a fundamental change in the information set
forth in the Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
Provided, however, that Paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the Registration Statement is on Form S-3 or
Form S-8, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for the
purpose of determining any liability under the Securities Act of 1933,
each filing of the registrant s annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Act of 1934 (and, where applicable, each
filing of an employee benefit plan s annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to the initial
bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security holders
that is incorporated by reference in the prospectus and furnished pursuant
to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth
PART II-2<PAGE>
in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or precedent) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
PART II-3<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach,
State of California, on September 25, 1998.
METALCLAD CORPORATION
By: /s/Grant S. Kesler
----------------------------
Grant S. Kesler
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
/s/Grant S. Kesler Chief Executive Officer September 25, 1998
------------------------- and Director
Grant S. Kesler
/s/Anthony C. Dabbene Chairman, September 25, 1998
------------------------- Chief Financial Officer
Anthony C. Dabbene (Principal Accounting
Officer)
/s/Javier Guerra Cisneros Director September 25, 1998
-------------------------
Javier Guerra Cisneros
------------------------- Director
Jose Akle Fiero
------------------------- Director
Juan B. Morales
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAIL-
ABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
SUCH OTHER LAWS."
7% CONVERTIBLE DEBENTURE
Due July 31, 2001
July 30, 1998
$1,000,000
No. 001
Metalclad Corporation, a Delaware corporation with principal
executive offices located at 2 Corporate Plaza, Suite 125, Newport Beach,
California 92660 (the "Company"), for value received, hereby promises to
pay to the Holder (as defined below), or order, on July 31, 2001 (the
"Maturity Date") the principal sum of One Million Dollars and No Cents
($1,000,000) and to pay interest thereon from the date of original
issuance (or the most recent interest payment date to which interest has
been paid), semiannually in arrears, on each June 30 and December 31 of
each year, commencing on December 31, 1998, at the rate of 7% per annum
(the "Debenture Interest Rate"), until the principal of this Debenture has
been paid in full or duly and irrevocably provided for by conversion or as
otherwise permitted herein. The interest so payable and duly and
punctually provided for on any interest payment date shall be paid to the
Person in whose name this Debenture is registered at the close of
business on the 15th day next preceding the applicable interest payment
date and all interest payable on the principal amount of this Debenture
shall be calculated on the basis of 360-day year for the actual number of
days elapsed. Interest shall be paid at the option of the Company either
(a) in cash or (b) through the issuance of duly and validly authorized and
issued, fully paid and non-assessable, freely tradeable shares of the
Company's Common Stock valued at the Current Market Price on the
applicable Interest Payment Due Date. The Common Stock to be issued in
lieu of cash interest payments shall be registered for resale in the
Registration Statement to be filed by the Company to register the Common
Stock issuable upon conversion of the Debenture and exercise of the
Warrants as set forth in the Registration Rights Agreement.
Notwithstanding the foregoing, until such Registration Statement has been
declared effective under the Securities Act by the SEC, payment of
interest on the Debenture shall be in cash.
Ex. 10.1, Page 1<PAGE>
ARTICLE
DEFINITIONS
SECTION 1.1 Definitions. The terms defined in this Article whenever
used in this Debenture have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in
Section 3.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "Applicable Discount" 82.5% for the period beginning 121 days
and ending 150 days from the Closing Date; 79% for the period beginning
151 days and ending 180 days from the Closing Date; and 75% thereafter.
(d) "Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the state of New York are authorized or
obligated to close.
(e) "Capital Shares" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in
the distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Company.
(f) "Closing Date" means July 30, 1998.
(g) "Common Shares" or "Common Stock" means shares of the common
stock, $.10 par value, of the Company.
(h) "Common Stock Issued at Conversion" when used with reference to
the securities issuable upon conversion of this Debenture, means all
Common Shares now or hereafter Outstanding and securities of any other
class or series into which the Debenture hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(i) "Company" means Metalclad Corporation, a Delaware corporation,
and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the
Company's assets, or otherwise.
(j) "Conversion Date" means any day on which all or any portion of
the principal amount of this Debenture is converted in accordance with the
provisions hereof.
(k) "Conversion Notice" has the meaning set forth in Section 3.2.
(l) "Conversion Price" on any date of determination means the
applicable price for the conversion of this Debenture into Common Shares
on such day as set forth in Section 3.1.
Ex. 10.1, Page 2<PAGE>
(m) "Conversion Ratio" on any date of determination means the
applicable percentage of the Market Price for conversion of this Debenture
into Common Shares on such day as set forth in Section 3.1.
(n) "Current Market Price" on any date of determination means the
closing bid price of a Common Share on such day as reported on the
National Association of Securities Dealers, Inc. Automated Quotation
System for SmallCap Market ("NASDAQ") or, if the Common Shares are
otherwise listed on the NASDAQ or on an established United States national
stock exchange, the closing price of a Common Share on such day as
reported by such system or exchange (provided, that the NASDAQ quotation
shall be utilized in the event of the dual listing of the Common Shares).
(o) "Debenture" means this 7% Convertible Debenture due July 31,
2001 of the Company or such other convertible debentures or Debentures
exchanged therefor as provided in Section 2.1.
(p) "Default Interest Rate" shall be equal to the Debenture Interest
Rate plus an additional 4% per annum.
(q) "Event of Default" has the meaning set forth in Section 6.1.
(r) "Holder" means The Shaar Fund Ltd., any successor thereto, or
any Person to whom this Debenture is subsequently transferred in
accordance with the provisions hereof.
(s) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of Common Shares on NASDAQ.
(t) "Market Price" per Common Share means the average of the closing
bid prices of the Common Shares as reported on NASDAQ for any Valuation
Period or, if the Common Shares are otherwise listed on the NASDAQ or on
an established United States national stock exchange, the average of the
closing bid prices of the Common Shares for any Valuation Period as
reported by such system or exchange (provided, that the NASDAQ quotation
shall be utilized in the event of the dual listing of the Common Shares).
(u) "Maximum Rate" has the meaning set forth in Section 6.3.
(v) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of
determination, all issued and outstanding Shares, and includes all such
Shares issuable in respect of outstanding warrants, options or rights to
subscribe for or purchase shares outstanding, scrip or any certificates
representing fractional interests in such Shares; provided, however, that
any such Shares directly or indirectly owned or held by or for the account
of the Company or any Subsidiary of the Company shall not be deemed
"Outstanding" for purposes hereof.
(w) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government
Ex. 10.1, Page 3<PAGE>
or political subdivision or any agency or instrumentality thereof.
(x) "Registration Rights Agreement" means that certain registration
rights agreement dated July 30, 1998, between the Company and The Shaar
Fund Ltd.
(y) "SEC" means the United States Securities and Exchange
Commission.
(z) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at
the time.
(aa) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement dated July 30, 1998, between the Company and The Shaar
Fund Ltd.
(bb) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
owned directly or indirectly by the Company.
(cc) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "Valuation Event" has the meaning set forth in Section 3.1.
(ee) "Valuation Period" means the five Trading Day period
immediately preceding any Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
EXCHANGES AND TRANSFER
SECTION 2.1 Exchange and Registration of Transfer of Debentures.
Subject to compliance with applicable securities laws, the Holder may, at
its option, surrender this Debenture at the principal executive offices of
the Company and receive in exchange therefor a Debenture or Debentures,
each in the denomination of $10,000 or integral multiples of $1,000 in
excess thereof, dated as of the date of this Debenture, and, subject to
Section 4.2, payable to such Person or order as may be designated by such
Holder. The aggregate principal amount of the Debenture or Debentures
exchanged in accordance with this Section 2.1 shall equal the aggregate
unpaid principal amount of this Debenture as of the date of such
surrender; provided, however, that upon any exchange pursuant to this
Section 2.1 there shall be filed with the Company the name and address for
all purposes hereof of the Holder or Holders of the Debenture or
Debentures delivered in such exchange. This Debenture, when presented for
registration of transfer or for exchange or conversion, shall (if so
Ex. 10.1, Page 4<PAGE>
required by the Company) be duly endorsed, or be accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company duly
executed, by the Holder duly authorized in writing.
SECTION 2.2 Loss, Theft, Destruction of Debenture. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Debenture, the Company
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated Debenture, a new Debenture or Debentures of like tenor and
unpaid principal amount dated as of the date hereof. This Debenture shall
be held and owned upon the express condition that the provisions of this
Section 2.2 are exclusive with respect to the replacement of a mutilated,
destroyed, lost or stolen Debenture and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 2.3 Who Deemed Absolute Owner. The Company may deem the
Person in whose name this Debenture shall be registered upon the registry
books of the Company to be, and may treat it as, the absolute owner of
this Debenture (whether or not this Debenture shall be overdue) for the
purpose of receiving payment of or on account of the principal amount of
this Debenture, for the conversion of this Debenture and for all other
purposes, and the Company shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon this Debenture to
the extent of the sum or sums so paid or the conversion so made.
Article 3
CONVERSION OF DEBENTURE
SECTION 3.1 Conversion; Conversion Price. At the option of the
Holder, this Debenture may be converted, either in whole or in part, up to
the full principal amount hereof (in increments of not less than $10,000
principal amount) into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time, and from time
to time as set forth below, at a price equal to the lesser of (a) $1.25 or
(b) the Market Price multiplied by the Applicable Discount. The
Debentures may be converted as follows: up to 33% during the period
beginning 121 days and ending 150 days from the Closing Date; up to 66%
during the period beginning 151 days and ending 180 days from the Closing
Date; and up to 100% thereafter; provided, however, that 100% this
Debenture shall be converted by the second anniversary of the Closing
Date. The Holder shall not have the right to convert any portion of this
Debenture to the extent that the issuance to the Holder of Common Shares
upon such conversion would result in the Holder being deemed the
"beneficial owner" of 5% or more of the then outstanding Common Shares
within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
Ex. 10.1, Page 5<PAGE>
as amended. At the Company's option, the amount of accrued and unpaid
interest as of the Conversion Date shall not be subject to conversion but
instead may be paid in cash as of the Conversion Date; if the Company
elects to convert the amount of accrued and unpaid interest at the
Conversion Date into Common Stock, the Common Stock issued to the Holder
shall be valued at the Conversion Price.
Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period
shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; provided that if a
Valuation Event occurs on the fifth day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on
such day; and provided, further, that the Holder may, in its discretion,
postpone such Conversion Date to a Trading Day which is no more than five
Trading Days after the occurrence of the latest Valuation Event. In the
event that the Holder deems the Valuation Period to be other than the five
Trading Days
immediately prior to the Conversion Date, the Holder shall give written
notice of such fact to the Company at the time of conversion.
For purposes of this Section 3.1, a "Valuation Event" shall mean an event
in which the Company at any time during a Valuation Period takes any of
the following actions:
(a) subdivides or combines its Capital Shares;
(b) pays a dividend in its Capital Shares or makes any other
distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections
3.1(a) and 3.1(b) above, at a price per share less, or for other
consideration lower, than the Current Market Price in effect immediately
prior to such issuances, or without consideration, except for issuances
under employee benefit plans consistent with those presently in effect and
issuances under presently outstanding warrants, options or convertible
securities;
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for
which Additional Capital Shares at any time thereafter may be issuable
shall be less than the Current Market Price on the date of such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities
shall be less than the Current Market Price in effect on the date of such
issuance;
(f) makes a distribution of its assets or evidences of
Ex. 10.1, Page 6<PAGE>
indebtedness to the holders of its Capital Shares as a dividend in
liquidation or by way of return of capital or other than as a dividend
payable out of earnings or surplus legally available for the payment of
dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets
(other than under the circumstances provided for in the foregoing Sections
3.1(a) through 3.1(e)), provided, in each case, that such distribution
described in this Section 3.1(f) does not constitute an Event of Default;
or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing
Sections 3.1(a) through 3.1(f) hereof, inclusive, which in the opinion of
the Company's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of this Debenture.
SECTION 3.2 Exercise of Conversion Privilege.
(a) Conversion of this Debenture may be exercised, in whole or in
part, by the Holder by telecopying an executed and completed notice of
conversion in the form annexed hereto as Annex I (the "Conversion Notice")
to the Company. Each date on which a Conversion Notice is telecopied to
and received by the Company in accordance with the provisions of this
Section 3.2 shall constitute a Conversion Date. The Conversion Notice
shall state the name or names (with addresses) of the persons who are to
become the holders of the Common Stock issued upon such conversion. Upon
receipt of the telecopied Conversion Notice, the Company shall within
three Business Days of receipt of the Conversion Notice (i) issue the
Common Stock effective as of the Conversion Date in accordance with the
provisions of this Article 3, and (ii) cause to be mailed for delivery by
overnight courier to the Holder (X) a certificate or certificate(s)
representing the number of Common Shares to which the Holder is entitled
by virtue of such conversion, (Y) cash, as provided in Section 3.4, in
respect of any fraction of a Share issuable upon such conversion and (Z)
cash in the amount of accrued and unpaid interest as of the Conversion
Date, if any, to the extent payable in cash. If the Company fails to
deliver the Common Stock converted on such Conversion Date to Holder
within such period, the Company shall pay such additional amount to Holder
as set forth in Section V.C. of the Securities Purchase Agreement.
Upon surrender for conversion, this Debenture shall be
accompanied by a proper assignment hereof to the Company or be endorsed in
blank. Conversion shall be deemed to have been effected at the time
stated in the Conversion Notice and at such time the rights of the Holder
of this Debenture, as such, shall cease to the extent of such conversion,
and the Person and Persons in whose name or names the Common Stock Issued
at Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby. The
Conversion Notice shall constitute a contract between the Holder and the
Company, whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such conversion
Ex. 10.1, Page 7<PAGE>
and, in payment and satisfaction of such subscription (and for any cash
adjustment to which it is entitled pursuant to Section 3.4), and to
release the Company from all liability thereon. No cash payment
aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) Except as set forth in Section 3.1 hereof, at any time after the
date of this Debenture, (i) the Company challenges, disputes or denies the
right of the Holder hereof to effect the conversion of this Debenture into
Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 3.2 and this Agreement or
(ii) any third party who is not and has never been an Affiliate of the
Holder commences any lawsuit or proceeding or otherwise asserts any claim
before any court or public or governmental authority which seeks to
challenge, deny, enjoin, limit, modify, delay or dispute the right of the
Holder hereof to effect the conversion of this Debenture into Common
Shares, then the Holder shall have the right, by written notice to the
Company, to require the Company to promptly redeem this Debenture for cash
at a redemption price equal to 125% of the principal amount hereof
together with all accrued and unpaid interest thereon (the "Mandatory
Purchase Amount"). Under any of the circumstances set forth above, the
Company shall be responsible for the payment of all costs and expenses of
the Holder, including reasonable legal fees and expenses, as and when
incurred in disputing any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11 U.S.C.
Sec. 101 et seq. (the "Bankruptcy Code"). In the event the Company is a
debtor under the Bankruptcy Code, the Company hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. Sec. 362
in respect of the Holder's conversion privilege. The Company hereby
waives to the fullest extent permitted any rights to relief it may have
under 11 U.S.C. Sec. 362 in respect of the conversion of this Debenture.
The Company agrees, without cost or expense to the Buyer, to take or
consent to any and all action necessary to effectuate relief under 11
U.S.C. Sec. 362.
SECTION 3.3 [This Section Reserved]
SECTION 3.4 Fractional Shares. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of
this Debenture. Instead of any fractional Common Shares which otherwise
would be issuable upon conversion of this Debenture, the Company shall pay
a cash adjustment in respect of such fraction in an amount equal to the
same fraction. No cash payment of less than $1.50 shall be required to be
given unless specifically requested by the Holder.
SECTION 3.5 Reclassification, Consolidation, Merger or Mandatory
Share Exchange. At any time while this Debenture remains outstanding and
any principal amount hereof has not been converted, in case of any
reclassification or change of Outstanding Common Shares issuable upon
Ex. 10.1, Page 8<PAGE>
conversion of this Debenture (other than a change in par value, or from
par value to no par value per share, or from no par value per share to par
value or as a result of a subdivision or combination of outstanding
securities issuable upon conversion of this Debenture) or in case of any
consolidation, merger or mandatory share exchange of the Company with or
into another corporation (other than a merger or mandatory share exchange
with another corporation in which the Company is a continuing corporation
and which does not result in any reclassification or change, other than a
change in par value, or from par value to no par value per share, or from
no par value per share to par value, or as a result of a subdivision or
combination of Outstanding Common Shares upon conversion of this
Debenture), or in the case of any sale or transfer to another corporation
of the property of the Company as an entirety or substantially as an
entirety, the Company, or such successor, resulting or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute a new Debenture providing that the Holder
shall have the right to convert such new Debenture (upon terms and
conditions not less favorable to the Holder than those in effect pursuant
to this Debenture) and to receive upon such exercise, in lieu of each
Common Share theretofore issuable upon conversion of this Debenture, the
kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation, merger,
mandatory share exchange, sale or transfer by the holder of one Common
Share issuable upon conversion of this Debenture had this Debenture been
converted immediately prior to such reclassification, change,
consolidation, merger, mandatory share exchange or sale or transfer. The
provisions of this Section 3.5 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 3.6 Adjustments to Conversion Ratio. For so long as this
Debenture is outstanding, if the Company (i) issues and sells pursuant to
an exemption from registration under the Securities Act (A) Common Shares
at a purchase price representing a percentage of the Current Market Price
on the date of issuance thereof that is lower than 75%, (B) warrants or
options with an exercise price representing a percentage of the Current
Market Price on the date of issuance of the warrants or options that is
lower than 75%, except for stock option agreements or stock incentive
agreements, or (C) convertible, exchangeable or exercisable securities
with a right to exchange at lower than 75% of the Current Market Price on
the Common Shares on the date of issuance or conversion, as applicable, of
such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right
to the purchaser(s) thereof to demand that the Company register under the
Securities Act such Common Shares issued or the Common Shares for which
such warrants or options may be exercised or such convertible,
exchangeable or exercisable securities may be converted, exercised or
exchanged, then the Conversion Ratio shall be reduced to equal the lowest
of any such lower percentages.
Ex. 10.1, Page 9<PAGE>
SECTION 3.7 (a) Optional Redemptions. The Company, upon notice
delivered to the Holder as provided in Section 3.8, may redeem this
Debenture, in cash, in whole or in part (and only with respect to such
principal amount as to which the Holder has not theretofore furnished a
Conversion Notice in compliance with Section 3.2), at a price to be
calculated as follows: for the period beginning 121 days and ending 150
days from the Closing Date 117.5% of the then outstanding aggregate
principal amount of the Debenture; for the period beginning 151 days and
ending 180 days from the Closing Date 121% of the then outstanding
aggregate principal amount of the Debenture; and thereafter, 125% of the
then outstanding aggregate principal amount of the Debenture, in each case
together with all accrued and unpaid interest thereon, in cash, to the
date of redemption (the "Redemption Date") which shall be no later than
thirty (30) days following the date of delivery of a notice of redemption
pursuant to Section 3.8.
(b) Mandatory Redemptions. In the event that the Company shall
receive (i) an award relating to the pending arbitration involving its San
Luis Potosi, Mexico facility in an amount of $1,500,000 or more or (ii) an
additional equity investment of any amount (other than in connection with
offerings currently pending with Jesup & Lamont (solely with respect to an
investment by West End Capital located at One World Trade Center, Suite
4563, New York, New York 10048, contact: Ethan E. Benovitz), Donald & Co.
and Oakes Fitzwilliams & Co. Limited) (each, a "Mandatory Redemption
Event"), the Company shall redeem the then outstanding aggregate principal
amount of this Debenture. Within seven (7) days after a Mandatory
Redemption Event, the Company shall redeem the outstanding Debentures at
one hundred and twenty-five percent (125%) of the then outstanding
aggregate principal amount of the Debentures, together with all accrued
and unpaid dividends thereon, in cash, to the date of redemption;
provided, however, that the Company's obligation to redeem the outstanding
aggregate principal amount of this Debenture pursuant to a Mandatory
Redemption Event described in (ii) above shall be limited to the amount of
such additional equity investment.
(c) Except as set forth in this Section 3.7, the Company shall not
have the right to prepay or redeem this Debenture.
SECTION 3.8 Notice of Redemption. Notice of optional redemption
pursuant to Section 3.7 shall be provided by the Company to the Holder in
writing (by registered mail or overnight courier at the Holder's last
address appearing in the Company's security registry) not less than seven
nor more than 15 days prior to the Redemption Date, which notice shall
specify the Redemption Date and refer to Section 3.7 (including a
statement of the Market Price per Common Share) and this Section 3.8.
SECTION 3.9 Surrender of Debentures. Upon any redemption of this
Debenture pursuant to Section 3.7, the Holder shall either deliver this
Debenture by hand to the Company at its principal executive offices or
surrender the same to the Company at such address by express courier.
Payment of the redemption price specified in Section 3.7 shall be made by
the Company to the Holder against receipt of this Debenture (as provided
Ex. 10.1, Page 10<PAGE>
in this Section 3.9) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Company. If payment of
such redemption price is not made in full by the Redemption Date, the
Holder shall again have the right to convert this Debenture as provided in
Article 3 hereof.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
SECTION 4.1 Status of Debenture. This Debenture is a secured
obligation of the Company, and constitutes a legal, valid and binding
obligation of the Company, enforceable in accordance with its terms
subject, as to enforceability, to general principles of equity and to
principles of bankruptcy, insolvency, reorganization and other similar
laws of general applicability relating to or affecting creditors' rights
and remedies generally.
SECTION 4.2 Restrictions on Transfer. This Debenture, and any
Common Shares issuable according to the terms hereof, have not been
registered under the Securities Act. This Debenture and any Common Shares
issued upon conversion may not be offered or sold, directly or indirectly,
except pursuant to an effective registration statement under the Act, or
pursuant to an available exemption therefrom.
ARTICLE 5
COVENANTS
The Company covenants and agrees that so long as this Debenture shall
be outstanding:
SECTION 5.1 Conversion. The Company shall not later than three
Business Days after its receipt of the Conversion Notice, issue and
deliver to the Holder the requisite shares of common stock issuable upon
conversion, according to the terms hereof.
SECTION 5.2 Notice of Default. If any one or more events occur
which constitute or which, with notice, lapse of time, or both, would
constitute an Event of Default, or if the Holder shall demand the issuance
of Common Shares or take any other action permitted upon the occurrence of
any such Event of Default, the Company shall forthwith give notice to the
Holder, specifying the nature and status of the Event of Default or other
event or of such demand or action, as the case may be.
SECTION 5.3 Insurance. The Company shall carry and maintain in full
force and effect at all times with insurers that are financially sound and
reputable such insurance in such amounts as is customary in the industry
of the Company.
SECTION 5.4 Payment of Obligations. Prior to conversion of the
entire principal amount of this Debenture, the Company shall pay, extend,
Ex. 10.1, Page 11<PAGE>
or discharge at or before maturity, all its respective material
obligations and liabilities, including, without limitation, tax
liabilities, except where the same may be contested in good faith by
appropriate proceedings.
SECTION 5.5 Compliance with Laws. The Company shall comply with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities, except for such noncompliance which would not
have a material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the
Company.
SECTION 5.6 Inspection of Property, Books and Records. The Company
shall keep proper books of record and account in which full, true and
correct entries shall be made of all material dealings and transactions in
relation to its business and activities and shall permit representatives
of the Holder at the Holder's expense to visit and inspect any of its
respective properties, to examine and make abstracts from any of its
respective books and records, not reasonably deemed confidential by the
Company, and to discuss its respective affairs, finances and accounts with
its respective officers and independent public accountants, all at such
reasonable times and as often as may reasonably be desired.
ARTICLE 6
REMEDIES
SECTION 6.1 Events of Default. "Event of Default" wherever used
herein means any one of the following events:
(a) the Company shall default in the payment of principal of or
interest on this Debenture as and when the same shall be due and payable
and, in the case of an interest payment default, such default shall
continue for five Business Days after the date such interest payment was
due, or the Company shall fail to perform or observe any other covenant,
agreement, term, provision, undertaking or commitment under this
Debenture, the Securities Purchase Agreement, the Registration Rights
Agreement or the Warrant and such default shall continue for a period of
ten Business Days after the receipt by the Company of written notice that
the Company is in default hereunder; or
(b) any of the representations or warranties made by the Company
herein, the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrant or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this Debenture,
the Securities Purchase Agreement, the Registration Rights Agreement or
the Warrant shall be false or misleading in any material respect on the
Closing Date; or
(c) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any subsidiary a bankrupt or
Ex. 10.1, Page 12<PAGE>
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company under the United States Bankruptcy Code of 1978, as amended
(the "Bankruptcy Code"), or any other applicable Federal or state law, or
appointing a receiver, liquidator, assignee, trustee or sequestrator (or
other similar official) of the Company or of any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and
any such decree or order continues and is unstayed and in effect for a
period of 60 calendar days; or
(d) institution by the Company or any subsidiary of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or
relief under the Bankruptcy Code or any other applicable federal or state
law, or the consent by it to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee, trustee or sequestrator
(or other similar official) of the Company or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as and when they become due, or the taking of corporate
action by the Company in furtherance of any such action; or
(e) a final judgment or final judgments for the payment of money
shall have been entered by any court or courts of competent jurisdiction
against the Company and remains undischarged for a period (during which
execution shall be effectively stayed) of 30 days, provided that the
aggregate amount of all such judgments at any time outstanding (to the
extent not paid or to be paid, as evidenced by a written communication to
that effect from the applicable insurer, by insurance) exceeds $200,000;
or
(f) it becomes unlawful for the Company to perform or comply with
its obligations under this Debenture, the Securities Purchase Agreement or
the Registration Rights Agreement; or
(g) the Common Shares shall be delisted from the NASDAQ (the
"Trading Market," or, to the extent the Company becomes eligible to list
its Common Stock on The New York Stock Exchange, upon official notice of
listing on any such exchange or system, as the case may be, it shall be
the "Trading Market") or suspended from trading on the Trading Market, and
shall not be reinstated, relisted or such suspension lifted, as the case
may be, within ten (10) days; or
(h) the Company shall default (giving effect to any applicable grace
period) in the payment of principal or interest as and when the same shall
become due and payable, under any indebtedness, individually or in the
aggregate, of more than $200,000, except with respect to payment due on
that certain Zero Coupon Note due on July 31, 1998 in the amount of
$252,812.50, payable to Ultra Pacific Holdings, S.A. out of the proceeds
to the Company from the Debenture.
Ex. 10.1, Page 13<PAGE>
SECTION 6.2 Acceleration of Maturity; Rescission and Annulment. If
an Event of Default occurs and is continuing, then and in every such case
any Holder may rescind the Conversion Notice and obtain payment for the
entire outstanding principal amount of the Debenture which remains
unconverted, by a notice in writing to the Company, and upon any such
declaration the entire principal amount of this Debenture shall become
immediately due and payable by virtue of such rescission; provided,
however, in the case of any Event of Default described in paragraphs (c),
(d) or (f) above, the entire then outstanding principal amount of this
Debenture, together with all accrued and unpaid interest thereon,
automatically shall become immediately due and payable without the
necessity of any notice or declaration as aforesaid.
SECTION 6.3 Default Interest Rate. (a) If any portion of the
principal of or interest on the Debenture shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise) such
principal of and interest on the Debenture which is due and owing but not
paid shall, without limiting the Holder's rights under this Debenture,
bear interest at the Default Interest Rate until paid in full or otherwise
converted as set forth herein.
(b) Notwithstanding anything herein to the contrary, if at any time
the applicable interest rate as provided for herein shall exceed the
maximum lawful rate which may be contracted for, charged, taken or
received by the Holder in accordance with applicable laws of the State of
New York (the "Maximum Rate"), the rate of interest applicable to the
Debenture shall be limited to the Maximum Rate.
SECTION 6.4 Remedies Not Waived. No course of dealing between the
Company and the Holder or any delay in exercising any rights hereunder
shall operate as a waiver by the Holder.
SECTION 6.5 Waiver. No recourse shall be had for the payment of the
principal of, or the interest on, this Debenture, or for any claim based
hereon, or otherwise in respect hereof, against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 Notice of Certain Events. In the case of the occurrence
of any event described in Sections 3.1, 3.5 or 3.6 of this Debenture, the
Company shall cause to be mailed to the Holder of this Debenture at its
last address as it appears in the Company's security registry, at least 20
days prior to the applicable record, effective or expiration date
hereinafter specified (or, if such 20 days notice is not possible, at the
Ex. 10.1, Page 14<PAGE>
earliest possible date prior to any such record, effective or expiration
date), a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, issuance or granting of
rights, options or warrants, or if a record is not to be taken, the date
as of which the holders of record of Common Stock to be entitled to such
dividend, distribution, issuance or granting of rights, options or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and the date as
of which it is expected that holders of record of Common Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale
transfer, dissolution, liquidation or winding-up.
SECTION 7.2 Register. (a) The Company shall keep at its principal
office a register in which the Company shall provide for the registration
of this Debenture. Upon any transfer of this Debenture in accordance with
Article 2 and 4 hereof, the Company shall register such transfer on the
Debenture register.
(b) The Company may deem the person in whose name this Debenture
shall be registered upon the registry books of the Company to be, and may
treat it as, the absolute owner of this Debenture (whether or not this
Debenture shall be overdue) for the purpose of receiving payment of
interest on or principal of this Debenture, for the conversion of this
Debenture and for all other purposes, and the Company shall not be
affected by any notice to the contrary. All such payments and such
conversions shall be valid and effective to satisfy and discharge the
liability upon this Debenture to the extent of the sum or sums so paid or
the conversion or conversions so made.
SECTION 7.3 Withholding. To the extent required by applicable law,
the Company may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Company from any payments made pursuant to this
Debenture.
SECTION 7.4 Governing Law. THIS DEBENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO CONFLICTS OF LAWS PRINCIPLES). WITH RESPECT TO ANY SUIT,
ACTION OR PROCEEDINGS RELATING TO THIS DEBENTURE, THE COMPANY IRREVOCABLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK AND HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. SUBJECT TO
APPLICABLE LAW, THE COMPANY AGREES THAT FINAL JUDGMENT AGAINST IT IN ANY
LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS DEBENTURE
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION WITHIN
OR OUTSIDE THE UNITED STATES BY SUIT ON THE JUDGMENT, A CERTIFIED COPY OF
WHICH JUDGMENT SHALL BE CONCLUSIVE EVIDENCE THEREOF AND THE AMOUNT OF ITS
INDEBTEDNESS, OR BY SUCH OTHER MEANS PROVIDED BY LAW.
Ex. 10.1, Page 15<PAGE>
SECTION 7.5 Headings. The headings of the Articles and Sections of
this Debenture are inserted for convenience only and do not constitute a
part of this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
signed by its duly authorized officer under its corporate seal, attested
by its duly authorized officer, on the date of this Debenture.
METALCLAD CORPORATION
By:
-----------------------------------
Name:
Title:
Attest
By:
-----------------------------------
Name:
Title:
INITIAL HOLDER
THE SHAAR FUND, LTD.
By: INTER CARIBBEAN SERVICES LTD.
By:
--------------------------------
Name:
Title:
Ex. 10.1, Page 16<PAGE>
ANNEX I
[FORM OF CONVERSION NOTICE]
TO:
---------------------------------
---------------------------------
---------------------------------
The undersigned owner of this 7% Convertible Debenture due July
31, 2001 issued by Metalclad Corporation (the "Debenture") hereby
irrevocably exercises its option to convert $--------- principal amount of
the Debenture into shares of the common stock, $.10 par value, of
Metalclad Corporation ("Common Stock"), in accordance with the terms of
the Debenture. The undersigned hereby instructs the Company to convert
the portion of the Debenture specified above into Shares of Common Stock
Issued at Conversion in accordance with the provisions of Article 3 of the
Debenture. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Debenture
recertificated in the principal amount, if any, not being surrendered for
conversion hereby, together with any check in payment for fractional
Common Stock, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below. All capitalized terms
used and not defined herein have the respective meanings assigned to them
in the Debenture.
Dated:
-----------------------------
------------------------------------
Signature
Fill in for registration of Debenture:
Please print name and address
(including zip code number) :
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WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAW
OF ANY STATE, AND MAY NOT BE TRANSFERRED
IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE
SECURITIES LAWS OR THE PROVISIONS OF THIS WARRANT
No. of Shares of Common Stock: 50,000
WARRANT
To Purchase Common Stock of
Metalclad Corporation
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Warrant Issuance Date (as
hereinafter defined) to the Expiration Date (as hereinafter defined), to
purchase from Metalclad Corporation, a Delaware corporation (the
"Company"), 50,000 shares of Common Stock (as hereinafter defined and
subject to adjustment as provided herein), in whole or in part, including
fractional parts, at a purchase price per share equal to 110% per share of
the average of the closing bid prices of the Common Stock as quoted by
NASDAQ for the Warrant Issuance Date, all on the terms and conditions and
pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant
Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as
of the last day of any month immediately preceding such date, divided by
the number of Fully Diluted Outstanding shares of Common Stock as
determined in accordance with GAAP (assuming the payment of the exercise
Exhibit 10.2, Page 1<PAGE>
prices for such shares) by Arthur Andersen LLP or any other firm of
independent certified public accountants of recognized national standing
selected by the Company and reasonably acceptable to the Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of
New York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other
federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.10 par value, of the Company as constituted
on the Closing Date, and any capital stock into which such Common Stock
may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which
is also not preferred as to dividends or assets over any other class of
stock of the Company and which is not subject to redemption and
(ii) shares of common stock of any successor or acquiring corporation
received by or distributed to the holders of Common Stock of the Company
in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property,
for shares of Common Stock, either immediately or upon the occurrence of a
specified date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect from time
to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean December 31, 2003.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to
be determined, all shares of Common Stock Outstanding at such date and all
Exhibit 10.2, Page 2<PAGE>
shares of Common Stock issuable in respect of this Warrant, outstanding on
such date, and other options or warrants to purchase, or securities
convertible into, shares of Common Stock outstanding on such date which
would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Market Price" per Common Share means the average of the closing
prices of the Common Shares as reported on the National Association of
Securities Dealers Automated Quotation System for the Smallcap Market,
("NASDAQ") or, if such security is not listed or admitted to trading on
the NASDAQ, on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading,
or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported
by the National Association of Security Dealers, Inc., or a similar
generally accepted reporting service, or a price determined in good faith
by the Board of Directors of the Company as being equal to the fair market
value thereof, as the case may be, for the five (5) trading days
immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or
for the account of the Company or any subsidiary thereof, and shall
include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith by and between the Company and The
Shaar Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on the exercise of this Warrant would
Exhibit 10.2, Page 3<PAGE>
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith by and between the Company and
The Shaar Fund, Ltd. as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Issuance Date" shall mean the date 120 days after the
Closing Date.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions
and date, except as to the number of shares of Common Stock for which they
may be exercised.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant
pursuant to Section 2.1, multiplied by (ii) the Current Warrant Price as
of the date of such exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise. From and after the Warrant Issuance Date
and until 5:00 P.M., California time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the
number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election
to exercise this Warrant, which notice shall specify the number of shares
of Common Stock to be purchased, at least five (5) days prior to the
intended date of exercise (ii) payment by cash, check or bank draft
payable to the Company of the Warrant Price in cash or by wire transfer or
cashier's check drawn on a United States bank or by the Holder's surrender
of Warrant Stock (or the right to receive such number of shares) having an
Exhibit 10.2, Page 4<PAGE>
aggregate Market Price equal to the Warrant Price for all shares then
being purchased and (iii) this Warrant. Such notice shall be
substantially in the form of the subscription form appearing at the end of
this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and
(iii) above, the Company shall, as promptly as practicable, and in any
event within three (3) Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common
Stock issuable upon such exercise, together with cash in lieu of any
fraction of a share, as hereinafter provided. The stock certificate or
certificates so delivered shall be, to the extent possible, in such
denomination or denominations as Holder shall request in the notice and
shall be registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall
be deemed to have been issued, and Holder or any other Person so
designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the Warrant has
been exercised by payment to the Company of the Warrant purchase price and
all taxes required to be paid by Holder, if any, pursuant to Section 2.2
prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of
delivery of the certificate or certificates representing Warrant Stock,
deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical with
this Warrant. Notwithstanding any provision herein to the contrary, the
Company shall not be required to register shares in the name of any Person
who acquired this Warrant (or part hereof) or any Warrant Stock otherwise
than in accordance with this Warrant.
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. Sec. 101 et
seq. (the "Bankruptcy Code"). In the event the Company is a debtor under
the Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Sec. 362 in
respect of the Holder's exercise right. The Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C.
Sec. 362 in respect of the exercise of the Warrant. The Company agrees,
without cost or expense to the Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. Sec. 362.
2.2 Payment of Taxes and Charges. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof
shall be validly issued, fully paid and nonassessable, and without any
preemptive rights. The Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed with
respect to, the issue or delivery thereof, unless such tax or charge is
imposed by law upon Holder, in which case such taxes or charges shall be
Exhibit 10.2, Page 5<PAGE>
paid by Holder. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in
the issue of any certificate for shares of Common Stock issuable upon
exercise of this Warrant in any name other than that of Holder, and in
such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other
charge is due.
2.3 Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase
upon such exercise, the Company shall pay a cash adjustment in respect of
such final fraction in an amount equal to the same fraction of the Market
Price per share of Common Stock as of the Closing Date.
2.4 Continued Validity. A holder of shares of Common Stock issued
upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold
pursuant to a Registration Statement under the Securities Act or sold
pursuant to Rule 144 thereunder), shall continue to be entitled with
respect to such shares to all rights to which it would have been entitled
as Holder under Sections 9, 10 and 14 of this Warrant. The Company will,
at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory
to Holder, its continuing obligation to afford Holder all such rights;
provided, however, that if Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to
afford to Holder all such rights.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer. Subject to compliance with Sections 9, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose,
upon surrender of this Warrant at the principal office of the Company
referred to in Section 2.1 or the office or agency designated by the
Company pursuant to Section 12, together with a written assignment of this
Warrant substantially in the form of Exhibit B hereto duly executed by
Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and,
if required, such payment, the Company shall, subject to Section 9,
execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denomination specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly
be canceled. A Warrant, if properly assigned in compliance with Section
9, may be exercised by a new Holder for the purchase of shares of Common
Stock without having a new Warrant issued.
Exhibit 10.2, Page 6<PAGE>
3.2 Division and Combination. Subject to Section 9, this Warrant
may be divided or combined with other Warrants upon presentation hereof at
the aforesaid office or agency of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to
be issued, signed by Holder or its agent or attorney. Subject to
compliance with Section 3.1 and with Section 9, as to any transfer which
may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
3.3 Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the
registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time
as set forth in this Section 4. The Company shall give Holder notice of
any event described below which requires an adjustment pursuant to this
Section 4 at the time of such event.
4.1 Stock Dividends, Subdivisions and Combinations. If at any time
the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which this Warrant
is exercisable immediately prior to the occurrence of such event would own
or be entitled to receive after the happening of such event, and (ii) the
Current Warrant Price shall be adjusted to equal (A) the Current Warrant
Price multiplied by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to the adjustment divided by
(B) the number of shares for which this Warrant is exercisable immediately
Exhibit 10.2, Page 7<PAGE>
after such adjustment.
4.2 Certain Other Distributions. (a) If at any time the
Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution
of:
(i) cash,
(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other
than cash, Convertible Securities or Additional Shares of Common Stock),
or
(iii) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as
if Holder had exercised the Warrant. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value
or from no par value to par value) into shares of Common Stock and shares
of any other class of stock shall be deemed a distribution by the Company
to the holders of its Common Stock of such shares of such other class of
stock within the meaning of this Section 4.2 and, if the outstanding
shares of Common Stock shall be changed into a larger or smaller number of
shares of Common Stock as a part of such reclassification, such change
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 4.1.
(b) In case the Company shall issue any Common Stock or any
rights, options or warrants to all holders of record of its Common Stock
entitling all holders to subscribe for or purchase shares of Common Stock
at a price per share less than the Market Price per share of the Common
Stock on the date fixed for such issue, the Current Warrant Price in
effect immediately prior to the close of business on the date fixed for
such determination shall be reduced to the amount determined by
multiplying such Current Warrant Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding
immediately prior to the close of business on the date fixed for such
determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such
Market Price and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the close of business on the
date fixed for such determination plus the number of shares of Common
Stock so offered for subscription or purchase, such reduced amount to
become effective immediately after the close of business on the date fixed
for such determination. For the purposes of this clause (b), (i) the
Exhibit 10.2, Page 8<PAGE>
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company and (ii) in the case of any
rights, options or warrants which expire by their terms not more than 60
days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Current Warrant Price shall be made until the expiration
or exercise of all rights, options or warrants, whereupon such adjustment
shall be made in the manner provided in this clause (b), but only with
respect to the shares of Common Stock actually issued pursuant thereto.
Such adjustment shall be made successively whenever any event specified
above shall occur. In the event that any or all rights, options or
warrants covered by this clause (b) are not so issued or expire or
terminate before being exercised, the Current Warrant Price then in effect
shall be appropriately readjusted.
4.3 Other Provisions Applicable to Adjustments under this Section.
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment,
any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and
any such adjustment previously made in respect thereof shall be rescinded
and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board
of Directors of the Company shall be required to make a determination in
good faith of the fair value of any item under this Section 4, such
determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized
national standing selected by the Company and acceptable to the Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where
Exhibit 10.2, Page 9<PAGE>
there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another corporation
and, pursuant to the terms of such reorganization, reclassification,
merger, consolidation or disposition of assets, shares of common stock of
the successor or acquiring corporation, or any cash, shares of stock or
other securities or property of any nature whatsoever (including warrants
or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"),
are to be received by or distributed to the holders of Common Stock of the
Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the
successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or
disposition of assets by a holder of the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger, consolidation
or disposition of assets, the successor or acquiring corporation (if other
than the Company) shall expressly assume the due and punctual observance
and performance of each and every covenant and condition of this Warrant
to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is
not preferred as to dividends or assets over any other class of stock of
such corporation and which is not subject to redemption and shall also
include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or pur-
chase any such stock. The foregoing provisions of this Section 4.4 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its
Common Stock, other than any action described in this Section 4, which
would have a materially adverse effect upon the rights of the Holder, the
number of shares of Common Stock and/or the purchase price thereof shall
be adjusted in such manner as may be equitable in the circumstances, as
determined in good faith by the Board of Directors of the Company.
4.6 Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price
Exhibit 10.2, Page 10<PAGE>
to be less than the par value per share of Common Stock.
4.7 No Voting Rights. This Warrant shall not entitle its Holder to
any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments. Whenever the number of shares of Common
Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall
forthwith prepare a certificate to be executed by an executive officer of
the Company setting forth, in reasonable detail, the event requiring the
adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.4 or
4.5) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the
purchase price or prices thereof, after giving effect to such adjustment
or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to
Section 12 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by
the Holder or any prospective purchaser of a Warrant designated by the
Holder.
5.2 Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property,
assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder
(i) at least 30 days' prior written notice of the date on which a record
date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
Exhibit 10.2, Page 11<PAGE>
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least 30 days'
prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and
the amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and
the time, if any such time is to be fixed, as of which the holders of
Common Stock shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par
value of any shares of Common Stock receivable upon the exercise of this
Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant
and the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
Exhibit 10.2, Page 12<PAGE>
sufficient to permit the exercise in full of all outstanding Warrants.
All shares of Common Stock which shall be so issuable, when issued upon
exercise of any Warrant and payment therefor in accordance with the terms
of such Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company
may validly and legally issue fully paid and non-assessable shares of such
Common Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction
thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, the Company
will in each such case take such a record and will take such record as of
the close of business on a Business Day. The Company will not at any
time, except upon dissolution, liquidation or winding up of the Company or
any event that results in material suspension or limitation of trading of
the Company's Common Stock on a trading market or exchange upon which the
Company's Common Stock actively trades, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified
in this Section 9, which conditions are intended to ensure compliance with
the provisions of the Securities Act with respect to the Transfer of any
Warrant or any Warrant Stock. Holder, by acceptance of this Warrant,
agrees to be bound by the provisions of this Section 9.
9.1 Restrictive Legend. The Holder by accepting this Warrant and any
Warrant Stock agrees that this Warrant and the Warrant Stock issuable upon
exercise hereof may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder
that such securities may be sold pursuant to an exemption from
registration under the Securities or (ii) a registration statement
relating to such securities has been filed by the Company and declared
Exhibit 10.2, Page 13<PAGE>
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear
a legend substantially worded as follows unless such securities have been
sold pursuant to an effective registration statement under the Securities
Act:
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") or any state
securities laws. The securities may not be offered for sale, sold,
assigned, offered, transferred or otherwise distributed for value except
(i) pursuant to an effective registration statement under the Act or any
state securities laws or (ii) pursuant to an exemption from registration
or prospectus delivery requirements under the Act or any state securities
laws in respect of which the Company has received an opinion of counsel
satisfactory to the Company to such effect. Copies of the agreement
covering both the purchase of the securities and restricting their
transfer may be obtained at no cost by written request made by the holder
of record of this certificate to the Secretary of the Company at the
principal executive offices of the Company."
(a) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"This Warrant and the securities represented hereby have not been regis-
tered under the Securities Act of 1933, as amended, or any state
securities laws and may not be transferred in violation of such Act, the
rules and regulations thereunder or any state securities laws or the
provisions of this Warrant."
9.2 Notice of Proposed Transfers. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common
Stock, the Holder shall give five days' prior written notice (a "Transfer
Notice") to the Company of Holder's intention to effect such Transfer,
describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act or state securities laws. After receipt of the Transfer
Notice and opinion, the Company shall, as promptly as practicable, notify
the Holder as to whether such opinion is reasonably satisfactory and, if
so, such holder shall thereupon be entitled to Transfer such Warrants or
such Restricted Common Stock, in accordance with the terms of the Transfer
Notice. Each certificate, if any, evidencing such shares of Restricted
Common Stock issued upon such Transfer and the Warrant issued upon such
Transfer shall bear the restrictive legends set forth in Section 9.1,
unless in the opinion of such counsel such legend is not required in order
to ensure compliance with the Securities Act. The Holder shall not be
entitled to Transfer such Warrants or such Restricted Common Stock until
Exhibit 10.2, Page 14<PAGE>
receipt of notice from the Company under this Section 9.2(a) that such
opinion is reasonably satisfactory.
9.3 Required Registration. Pursuant to the terms and conditions set
forth in the Registration Rights Agreement, the Company shall prepare and
file with the Commission not later than the 30th day after the Closing
Date, a Registration Statement relating to the offer and sale of the
Common Stock issuable upon exercise of the Warrants and shall use its best
efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but no later
than 120 days after the Closing Date.
9.4 Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 9, the restrictions imposed by this Section upon the
transferability of the Warrants, the Warrant Stock and the Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants)
and the legend requirements of Section 9.1 shall terminate as to any
particular Warrant or share of Warrant Stock or Restricted Common Stock
(or Common Stock issuable upon the exercise of the Warrants) (i) when and
so long as such security shall have been effectively registered under the
Securities Act and applicable state securities laws and disposed of
pursuant thereto or (ii) when the Company shall have received an opinion
of counsel reasonably satisfactory to it that such shares may be
transferred without registration thereof under the Securities Act and
applicable state securities laws. Whenever the restrictions imposed by
Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from the Company upon written
request of the Holder, at the expense of the Company, a new Warrant
bearing the following legend in place of the restrictive legend set forth
hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED IN
SECTION 9 HEREOF TERMINATED ON ________, 19__, AND ARE OF NO FURTHER FORCE
AND EFFECT."
All Warrants issued upon registration of transfer, division or combination
of, or in substitution for, any Warrant or Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed by this Section shall terminate as to any share of
Restricted Common Stock, as hereinabove provided, the holder thereof shall
be entitled to receive from the Company, at the Company's expense, a new
certificate representing such Common Stock not bearing the restrictive
legends set forth in Section 9.1.
9.5 Listing on Securities Exchange. If the Company shall list any
shares of Common Stock on any securities exchange, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing
of, all shares of Common Stock issued or, to the extent permissible under
the applicable securities exchange rules, issuable upon the exercise of
this Warrant so long as any shares of Common Stock shall be so listed
Exhibit 10.2, Page 15<PAGE>
during any such Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it
being understood that the written agreement of the Holder shall be
sufficient indemnity), and in case of mutilation upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant of like tenor to Holder; provided, in the case of mutilation,
no indemnity shall be required if this Warrant in identifiable form is
surrendered to the Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this
Warrant, such office to be initially located at 2 Corporate Plaza, Suite
125, Newport Beach, California 92660, fax: (949) 719-1240, provided,
however, that the Company shall provide prior written notice to Holder of
a change in address no less than 30 days prior to such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder
to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by
creditors of the Company.
14. MISCELLANEOUS
14.1 Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights,
powers or remedies, notwithstanding all rights hereunder terminate on the
Expiration Date. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of
Exhibit 10.2, Page 16<PAGE>
this Warrant, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings,
incurred by Holder in collecting any amounts due pursuant hereto or in
otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally. Except as may be otherwise provided herein,
any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight
courier service, and shall be deemed given when so delivered personally or
by overnight courier service, or, if mailed, three (3) days after the date
of deposit in the United States mails, as follows:
(1) if to the Company, to:
Metalclad Corporation
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
Fax: (949) 719-1240
Attention: Grant S. Kesler
(2) if to the Holder, to:
THE SHAAR FUND LTD.,
c/o SHAAR ADVISORY SERVICES LTD.
62 King George Street, Apartment 4F
Jerusalem, Israel
Attention: Samuel Levinson
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification. The Company agrees to indemnify and hold
harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys'
fees, expenses and disbursements of any kind which may be imposed upon,
incurred by or asserted against Holder in any manner relating to or
arising out of any failure by the Company to perform or observe in any
material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; provided, however, that the Company
will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, attorneys' fees, expenses or disbursements are found in a
final non-appealable judgment by a court to have resulted from Holder's
negligence, bad faith or willful misconduct in its capacity as a
stockholder or warrantholder of the Company.
14.4 Remedies. Holder in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
Exhibit 10.2, Page 17<PAGE>
specific performance of its rights under Section 9 of this Warrant. The
Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of
Section 9 of this Warrant and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
14.5 Successors and Assigns. Subject to the provisions of Sections
3.1 and 9, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors of the Company and the
successors and assigns of Holder. The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this
Warrant and, with respect to Section 9 hereof, holders of Warrant Stock,
and shall be enforceable by any such Holder or holder of Warrant Stock.
14.6 Amendment. This Warrant and all other Warrants may be modified
or amended or the provisions hereof waived with the written consent of the
Company and the Holder.
14.7 Severability. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
of this Warrant.
14.8 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
14.9 Governing Law. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating
to conflict of laws.
Exhibit 10.2, Page 18<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested
by its Secretary or an Assistant Secretary.
Dated: ---------, 1998
METALCLAD CORPORATION
By:
-----------------------------
Name:
Title:
Attest:
By:-------------------------
Name:
Title:
Exhibit 10.2, Page 19<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of -------- Shares of Common Stock
of Metalclad Corporation and herewith makes payment therefor in cash or by
check or bank draft made payable to the Company, all at the price and on
the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the
name of and delivered to ----------- whose address is -------------- and,
if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of
like tenor and date for the balance of the shares of Common Stock issuable
hereunder be delivered to the undersigned.
---------------------------------
(Name of Registered Owner)
---------------------------------
(Signature of Registered Owner)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under this Warrant, with respect to
the number of shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint ---------------------
-------------------------attorney-in-fact to register such transfer on the
books of Metalclad Corporation maintained for the purpose, with full power
of substitution in the premises.
Dated:---------------------- Print Name:---------------------------
Signature:------------------
Witness:--------------------
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
