SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3/Amendment 2
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
incorporation or organization) Identification No.)
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 & Paulsen
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.
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 Registered to be Maximum Offering Aggregate Registration
Registered(1) Price Per Unit(2) Offering Price(2) Fee(3)
-----------------------------------------------------------------------------------------------------------------------
Common Stock 713,333 $874,000 $239.78
=======================================================================================================================
(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 708,333 shares at $1.20
per share and warrants representing 5,000 shares at $4.80 per share.
(3) Calculated based on a price of $1.20 per share.
Unless otherwise indicated, all share and per share data and other financial information
in this Prospectus, except for the financial statements, have been adjusted
retroactively to reflect the reverse stock splits of 1:10 effected on July 1, 1999 (the
Reverse Stock Split ). See Recent Developments .
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.
</TABLE>
METALCLAD CORPORATION
Cross-Reference Sheet Showing Location in Prospectus of Information
required by items of the Registration Statement on Form S-3.
<TABLE><S> <C>
Registration Statement
Items and Headings Captions in Prospectus
1. Forepart of the Registration Facing Page; Cross-Reference Sheet;
Statement and 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 Cover Page of Prospectus; Risk
Factors and Ratio of Earnings Factors, Incorporation of Certain
to Fixed Charges 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 Incorporation of Certain Documents
be Registered by Reference
10. Interest of Named Experts Experts; Legal Opinion
and Counsel
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 Indemnification of Officers and on
Position on Indemnification Directors
for Securities Act Liabilities
</TABLE>
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 JULY ___, 1999
713,333 Shares
METALCLAD CORPORATION
Common Stock
This Prospectus relates to the sale of up to approximately 713,333
shares of common stock, par value $.10 per share (the common stock is
generally referred to hereafter as the Common Stock ), of Metalclad
Corporation ( us or we ) offered for the account of one of our
stockholders (the Selling Stockholder ). These 713,333 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 us (the Debentures ), based on the
trading prices of the Common Stock prior to April 30, 1999; and (ii) 5,000
shares of Common Stock that are reserved for issuance on the exercise of
Common Stock Purchase Warrants at an exercise price of $4.80 per share
(the Warrants ) issued in connection with the Debentures. The actual
number of shares of Common Stock issued or issuable upon conversion of
the Debentures is subject to adjustment based on the market price of the
Common Stock on the conversion date. The conversion price is the lesser
of $12.50 or the market price of the Common Stock less 25% on the date of
conversion. Therefore, the conversion price could be materially less or
more than the above-estimated amount, depending upon factors that cannot
be predicted by us at this time, including, among others, the future
market price of the Common Stock. See Risk Factors-Shares Available for
Future Sale.
The Shares may be offered by the Selling Stockholder 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 Stockholder 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
Stockholder 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).
We will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholder other than the exercise price of the Warrants
upon exercise. If all of the Warrants are exercised, the proceeds to us
will be $24,000, less the expenses of this offering. We have agreed to
bear all expenses of registration of the Shares, but all selling and other
expenses incurred by the Selling Stockholder will be borne by the Selling
Stockholder. See Use of Proceeds and Selling Stockholder and Plan of
Distribution.
The Selling Stockholder and any broker-dealers or agents that
participate with the Selling Stockholder 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 Stockholder 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 June 25, 1999 the closing bid quotation of our Common Stock, as
reported on the Nasdaq SmallCap Market, was $0.16 per share. Adjusted to
reflect a 1:10 reverse stock split, effective July 1, 1999, a price per
share of $1.60 is being utilized. That price represents interdealer
quotations without adjustment for retail markup, markdown or commission,
and does not necessarily represent actual transactions. The price of our
Common Stock has been volatile and the number of shares traded has
fluctuated substantially from day to day.
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.
AVAILABLE INFORMATION
We have 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 us and this offering, we refer you to the
Registration Statement and its exhibits. 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. Where the contract or other document has been filed as an
exhibit to the Registration Statement, each statement referring to the
contract or document is qualified in all respects by reference to the
applicable document filed with the Commission.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the Exchange Act ), and are required to
file reports, proxy statements and other information with the Commission.
Those 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 us with the Commission are
incorporated into this prospectus by reference:
(a) Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed pursuant to Section 13 of the Exchange Act (the
1998 Annual Report ).
(b) Our Proxy Statement dated April 30, 1999, filed pursuant to
Section 14 of the Exchange Act (the 1999 Proxy Statement ).
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(c) Our Quarterly Report on Form 10-Q for the fiscal quarter endedst
March 31, 1999, filed pursuant to Section 13 of the Exchange Act (the 1
Quarter 1999 Report ).
(d) Our Current Report on Form 8-K, filed pursuant to Section 13 of
the Exchange Act on June 9, 1999 (the June 1999 Current Report ).
(e) Our Registration of Securities on Form 8-A dated June 17, 1988.
In addition, all reports and other documents filed by us under
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.
We 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 our
principal executive offices: Metalclad Corporation, 2 Corporate Plaza,
Suite 125, Newport Beach, California 92660. Our 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. You should read the entire
Prospectus and consider very carefully the following investment
considerations, among others, before purchasing Shares.
General Risks
History of Losses. We have a December 31st fiscal year end and
experienced a net loss of $4,610,000 during the 12-month period ended
December 31, 1997 and a net loss of $4,778,000 for the 12 months ended
December 31, 1998. While the losses related primarily to expenses
associated with our development of the industrial and hazardous waste
business in Mexico and our litigation under the NAFTA Treaty against the
government of Mexico (the NAFTA Claim ), there can be no assurance that
we 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 our Mexican business has resulted in a steady increase in our capital
requirements. At December 31, 1998, we had a working capital deficit of
$376,000. We will need to obtain additional capital to properly pursue
our NAFTA Claim.
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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. It is also 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 we
pursue our NAFTA Claim. Also, the number of shares into which the
Debenture is convertible is determined by the lesser of $12.50 or 75% of
the market price (the closing bid price of the Common Stock on the Nasdaq
SmallCap Market) on the conversion date. Assuming that the Debenture is
converted at $1.20 per share, the split adjusted market price of the
Common Stock on the date of this Prospectus, less 25%, the number of
shares into which the Debenture is convertible is 713,333 shares. 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 in the
1998 Annual Report.
The outstanding convertible debentures are convertible, at a floating
rate that will depend on the market price of the Common Stock and, as a
result, the lower the stock price at the time the Selling Stockholder
converts, the more common shares the Selling Stockholder gets.
To the extent the Selling Stockholder converts and the more dilution
is suffered by the existing stockholders, its debentures, or exercise its
warrants, and then sells its common stock, the Common Stock price may
decrease due to the additional shares in the market. This could allow the
Selling Stockholder to convert its Debentures into greater amounts of
Common Stock, the sales of which could further depress the stock price.
The significant downward pressure on the price of the Common Stock as
the Selling Stockholder converts and the warrant holder exercises, and
sell sells material amounts of Common Stock could encourage short sales by
the Selling Stockholder or others. This could place further downward
pressure on the price of the Common Stock.
The conversion of the Debenture may result in substantial dilution to
the interests of other holders of common stock, since the Selling
Stockholder may ultimately convert and sell the full amount conversion.
The following chart summarizes the total amount of shares currently
issuable on conversion of outstanding debentures, exercise of warrants and
exercise of options:
Underlying
Shares
----------
Zero Coupon Convertible Notes 600,000
10% Convertible Debentures 291,666
7% Convertible Debentures (this offering) 708,333
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Warrants exercisable at $4.80 (this offering) 5,000
Warrants exercisable at $2.50-$22.50 24,352,072
Options exercisable at $5.60-45.00 2,440,207
----------
Total Potential Additional Shares 4,672,856
==========
Listing and Maintenance Criteria for Nasdaq Securities. Our Common
Stock is quoted on the Nasdaq SmallCap Market. To maintain its listing on
the Nasdaq SmallCap Market, we 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. Also, the
minimum bid price of our Common Stock must be $1.00 or higher. On
November 11, 1998, we were notified by Nasdaq that we failed to meet the
$1.00 minimum bid price for continued listing on the Nasdaq SmallCap
Market. On April 8, 1999, Nasdaq identified another deficiency relating
to the issuance of securities without the required stockholder approval
under Nasdaq s Marketplace Rule 4310 (c) (25) (H). On April 22, 1999, we
appeared before Nasdaq s Listing Qualification Panel to present our plans
to comply with the deficiencies identified by Nasdaq. We have not yet
heard whether our Common Stock will continue to be listed on the Nasdaq
SmallCap Market. If Nasdaq does not approve continued listing, our Common
Stock will likely be traded on the Over-the-Counter Bulletin Board. If
our Common Stock fails to maintain Nasdaq SmallCap Market listing, 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 June 1999 Current
Report and 1999 Proxy Statement. See the Financial Statements included in
the 1998 Annual Report and the Price Range of Common Stock section of
the 1998 Annual Report. On June 2, 1999, our shareholders and Board of
Directors approved a 1:10 reverse stock split to comply with Nasdaq s
minimum bid price requirement.
Potential Impediments to Attempted Changes of Control. Our
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.
Legal Proceedings.
In the ordinary course of its insulation business a substantial
number of claims have been filed against us for actual and punitive
damages. Presently, the number of these claims exceeds 300. The
potential value of the claims is estimated by us to be in the range of
$1,000,000 to $5,500,000. We believe we have adequate insurance coverage
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with financially sound carriers responding to these claims and we do not
foresee any financial exposure resulting from these claims. Throughout
our history we have maintained insurance policies that typically respond
to these claims. Based on the advice of our counsel, it is our opinion
that these actions, individually and in the aggregate, will not have a
significant adverse impact on our financial position or results of
operations.
In May 1997, a jury found Texaco oil refinery, one of our clients, 55%
liable for injuries and damages sustained by one of our employee while he
was working at Texaco s Wilmington, California refinery. The jury
determined that Texaco s portion of the damages amounted to $5.5 million.
Under terms of our contract with Texaco, certain indemnities may be
applied. We had project specific, as well as other insurance policies in
effect at the time of the injury. In June 1999, counsel to the Company
was advised that this case had been settled and dismissed, with no
indemnity claim or costs to the Company.
On October 2, 1996, having completed a long period of negotiation
with the Mexican government on the opening of our hazardous waste landfill
in San Luis Potosi, Mexico, we filed a Notice of Claim under the provision
of the North American Free Trade Agreement ( NAFTA ). The notice was
filed with the International Center for the Settlement of Investment
Disputes (ICSID) in Washington, D.C. pursuant to the provisions of the
NAFTA. On January 2, 1997, we filed our actual claim with the Tribunal,
after which a three-member Tribunal was impaneled which includes one
arbitrator from Mexico, one from the United States and a third, chosen
jointly by the parties, from Great Britain. The first hearing was held in
Washington, D.C. on July 15, 1997 and a number of matters were agreed upon
by the parties and a significant amount of direction was given by the
Tribunal to the proceedings that would move forward.
Pursuant to those understandings, on October 13, 1997 we filed our
Memorial, which included the Claim and all of the evidence supporting the
Claim, including expert witness studies and the like. The basis of our
claim against Mexico is one likened to expropriation. Our position is
that since we are not being allowed to operate a legally authorized
project, our landfill has in essence been taken by the Mexican government
and they should, therefore, be responsible for paying fair compensation
under the provision of the NAFTA. A fair market valuation was done on our
behalf by an expert company indicating that the fair market value of this
business was $90,000,000.
On October 13, 1997, we filed a detailed memorial with the NAFTA
Tribunal hearing our claim. On February 17, 1998, the United Mexican
States ( Mexico ) responded to our claim to the Tribunal. On August 21,
1998 we filed a Reply to Mexico, and on May 3, 1999 Mexico filed its
Rejoinder. A pre-hearing conference has been scheduled for July 6, 1999
with a final hearing date set for August 30, 1999. A decision is expected
shortly after the final hearing.
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We have devoted substantial resources in the pursuit of our claim
before the NAFTA Tribunal. We have given our counsel broad authority in
the employment of experts and others our attorneys feel necessary to
properly pursue our claim. Our officers have also spent substantial
amounts of time and resources in assisting our NAFTA counsel and will
continue to do so to completion. There is no assurance, however, that we
will be successful in pursuing the NAFTA claim. If we are not, the
negative impact on us will be material. However, our management does not
believe that a loss of the NAFTA arbitration case would cause us to become
insolvent or prevent us from conducting our domestic business, or in
making acquisitions or mergers with others in similar business seeking a
public market.
In May 1999, two of our shareholders filed complaints in Federal and
California State Court against the Company and certain of its officers,
directors, and former directors. The complaint alleges that the
defendants violated the securities laws by (I) participating in a scheme
to deceive the public, artificially inflate the price of our stock,
manipulate our market price, and induce the plaintiffs to purchase our
stock at artificially inflated prices; (ii) making material
misrepresentations and omissions. The plaintiffs assert several claims
for relief including violation of Section 10(b) of the Exchange Act and
SEC Rule 10b-5, violation of Section 20(a) of the Exchange Act, violation
of Sections 25400(d), 25401, and 25504.1 of the California Corporations
Code, intentional misrepresentation, negligent misrepresentation, breach
of fiduciary duty, constructive fraud, and negligence. The plaintiffs
seek interest, attorneys fees and costs, and compensatory, rescissionary
punitive, and emotional distress damages.
Although the complaint has not yet been served, we have recently
retained counsel and informed our insurance carrier of the filing of the
complaint. We believe the complaint is without merit and intend to defend
the action vigorously; however, there is no assurance that we will prevail
in the defense of this lawsuit. We have officers and directors insurance
in place, but there is no assurance that the insurance will be adequate to
cover any damages against us.
Risks Associated with Insulation Business
No Guaranty of Profitable Operations. Although we experienced income
from insulation operations for the year ending December 31, 1998 of
$395,000, there can be no assurance that our 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 in the 1998 Annual Report.
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
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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 we have. The
regional and local specialty contracting companies which compete with us
either provide one service or they provide integrated services by
subcontracting part of their services to other companies. See Business -
Insulation Business-Competition in the 1998 Annual Report.
Potential Liability and Insurance. Insulation contracting operations
may expose our employees and others to potentially dangerous quantities of
asbestos, a known carcinogen. Although we take precautions to minimize
exposure of our workers and others to asbestos, there can be no assurance
that we can avoid liability to persons who contract diseases that are
related to asbestos exposure emanating from projects involving us.
Consistent with industry trends, we have 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. Our 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 on
September 1, 1999. In addition the Company maintains a Contractors
Pollution Policy in the amount of $10,000,000 which also expires on
September 1, 1999. There can be no assurance that all possible types of
liabilities that may be incurred by us as a result of our activities are
covered by our insurance or that the dollar amount of such liabilities
will not exceed our policy limits. A partially or completely uninsured
claim, if successful and of sufficient magnitude, could have a material
adverse effect on our financial condition. See Business-Insulation
Business-Legal Proceedings in the 1998 Annual Report.
Government Regulation. We are 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 we
believe that we are substantially in compliance with all regulations
relating to our operations, and currently have all material government
permits, licenses, qualifications and approvals required for operations,
there can be no assurance that we will be able to comply with any future
regulations, maintain its existing licenses and permits in effect or
obtain any future licenses, permits, qualifications or approvals which may
be required for the operation of our business. See Business-Insulation
Business-Government Regulation in the 1998 Annual Report.
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Dependence Upon Joint Venture Revenues. We are 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 us. In the event of a termination of
the Partnership, our revenues and profitability would be adversely
affected.
Dependence on Significant Customers. Our 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 38% of our revenues during the fiscal year ended December 31, 1998.
During the last two fiscal years our key customers included Texaco,
Southern California Edison and ARCO. If any of these principal customers
were to cease to be customers, our business would be materially adversely
affected.
Risk of Competitive Bidding. We obtain a significant number of our
industrial insulation and industrial asbestos abatement service contracts
through the competitive bidding process. Although we believe that our
bids are competitively priced and anticipate that in the future our bids
will continue to be competitively priced with bids submitted by others,
there can be no assurance that a sufficient number of our bids will be
accepted so that we may operate profitably. See Business-Insulation
Business-Insulation Contracts in the 1998 Annual Report.
Dependence Upon Key Personnel. The success of our insulation
business is largely dependent on the personal efforts of David Duclett,
the President of our insulation subsidiary. We have not entered into an
employment agreement with Mr. Duclett and, although we have been advised
that he has no present intentions to do so, he could leave us at any time.
Furthermore, we have not obtained key man insurance on Mr. Duclett and
do not currently intend to do so. Should Mr. Duclett cease to be
affiliated with us for any reason before a qualified replacement is found,
there could be a material adverse effect on our business and prospects.
See Management in the 1998 Annual Report.
Risks Associated With Mexican Business
Disposition of Mexican Business; No Assurance of Profitable Sale.
During the fourth quarter 1998, the Company determined that its efforts at
building its business in Mexico would not be allowed to succeed. The
Company s investment in the El Confin landfill in the State of San Luis
Potosi has resulted in an arbitration under the NAFTA treaty, its
investment in Aguascalientes has been blocked just prior to the project s
completion, and its other business has been impacted due to the loss of
these projects and the synergy they would have provided. Consequently,
8
the Company has determined that its Mexican businesses must be sold to
minimize future losses and that any further investment in Mexico should be
halted. The Company will retain its investment in El Confin, with the
operations of ARI and El Llano and the development activities of ECONSA
held for sale as discontinued operations. The Company is pursuing several
parties interested in purchasing the businesses in Mexico but there is no
assurance that the businesses can be profitably sold or sold at all.
Risks in Ownership of Foreign Operations. So long as the Company has
participation in the ownership of the Mexican subsidiaries the Company is
exposed 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 always have a direct effect on
the revenues, if any, to the Company through its ownership of all Mexican
subsidiaries. Any disruption of Mexican operations prior to sale would
have a material adverse effect on the business of the Company.
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 has for sale, the
political climate there is such that the businesses of the Company can be
adversely impacted even without significant competition.
Dependence on Key Personnel. The success in the sale of the Mexican
businesses 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 businesses in Mexico
and their potential sale. Moreover, the Company s NAFTA claim could be
compromised if any of these key witnesses were to leave the Company and be
unavailable as important witnesses. See Management in the 1998 Annual
Report.
RECENT DEVELOPMENTS
On July 30, 1998, we 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 in the
Debentures, and we agreed, among other things, to issue to the Investor
the Warrants. Pursuant to the Agreement we issued to the Investor on July
9
30, 1998 $1.0 million in Debentures and agreed to issue the Warrants to
purchase 50,000 shares of our 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 our Common Stock.
* Date of maturity is July 1, 2001.
* The Debentures are convertible into the number of shares of
our Common Stock equal to the principal amount and accrued and unpaid
interest outstanding under the Debentures on the conversion date divided
by the lesser of: (a) $12.50, or (b) the market price (the closing bid
price on the Nasdaq SmallCap Market) times 75%. 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 our option, we 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. In February 1999 the Company redeemed $150,000
worth of the principal amount of the debentures.
* We are 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) additional
equity investments (which redemption shall be limited to the amount of the
equity investment if less than the amount required to fully redeem the
Debentures), from investors other than certain identified potential
investors.
* Warrants to purchase 50,000 shares of our Common Stock were
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 and ask price on the Nasdaq SmallCap Market on November
30, 1998.
The Agreement also requires us 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.
10
The Company s NAFTA claim was filed in January 1997. Since then
there has been one hearing, several rulings by the tribunal, and several
filings by the respective parties. Mexico s last filing was made on May
3, 1999. There are no more permitted filings and the case is expected to
proceed to a final hearing on August 30, 1999 before final determination
by the tribunal. The final hearing and the pre-hearing conference
scheduled for July 6, 1999 are both scheduled for Washington, DC.
DILUTION
As of March 31, 1999, our net tangible book value was approximately
$3,974,000 or approximately $1.14 per share of Common Stock, based on
3,472,752 shares outstanding on that date. Net tangible book value per
share represents the amount of our total tangible assets less 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 March 31, 1999 at a conversion price of $1.20 per share and
that all of the Warrants had been exercised at a price of $4.80 per share
so that an additional 713,333 shares were outstanding and that the net
tangible book value increased by $874,000, our net tangible book value
would have increased to $4,848,000 or approximately $1.16 per share, based
on 4,186,085 shares outstanding. Assuming a sales price of $1.20 per
share, purchasers of the Shares offered hereby will experience an
immediate dilution of $.04 per share. The Selling Stockholder 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)............................... $1.20
Net tangible book value per share............... 1.14
----
Dilution per Share to new shareholders............ $ .06
====
---------------------
(1) The computation above represents an assumed open market sales price
of $.25 per share, the closing bid quotation of our Common Stock, as
reported on the Nasdaq Small Cap Market on June 3, 1999.
USE OF PROCEEDS
11
If at any time Selling Stockholder exercises Warrants, we will
receive the proceeds from such exercise. Assuming that all the Warrants
are exercised at $4.80 per share, we will realize $24,000. We will not
otherwise receive any proceeds from the offering. Any proceeds received
by us from this offering will be used as working capital.
SELLING STOCKHOLDER AND PLAN OF DISTRIBUTION
An aggregate of 713,333 shares of our Common Stock is being offered
pursuant to this Prospectus by the Selling Stockholder. The following
table sets forth the name of the Selling Stockholder, the nature of any
position or relationship between the Selling Stockholder (and any of its
directors, officers, partners or affiliates) and us, the number of shares
of Common Stock beneficially owned by the Selling Stockholder prior to the
offering to be made by this Prospectus (assuming a Debenture conversion
price of $1.20 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.
<TABLE><S> <C> <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. -0- 713,333 -0- -0-
---------------------
(1) The computation above represents an assumed open market sales price of $1.20 per
share, the closing bid quotation of our Common Stock, as reported on the Nasdaq Small
Cap Market on June 25, 1999, adjusted for the reverse stock split.
(2) 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.
(3) Based on 3,056,912 shares of Common Stock issued and outstanding on December 31,
1998, adjusted to reflect the 1:10 reverse split.
(4) Assuming all shares offered by Selling Stockholder are in fact sold.
</TABLE>
The Selling Stockholder may sell the Shares pursuant to trades
effectuated through the Nasdaq Small Cap market or pursuant to
12
individually negotiated sales and underwriting agreements. Brokerage
commissions equal to or in excess of normal commissions may be paid by the
Selling Stockholder. We have no knowledge of any existing selling
arrangements relating to the Shares offered hereby between any securities
dealer or broker and the Selling Stockholder. We will bear all expenses
with respect to the registration of the Shares and the costs associated
with preparing this Prospectus. The Selling Stockholder will bear the
costs associated with the sale and distribution of the Shares.
EXPERTS
Our financial statements and schedules included in our 1998 Annual
Report, incorporated by reference herein and elsewhere in this Prospectus
have been incorporated by reference in this Prospectus in reliance on the
reports of Moss Adams, LLP and Arthur Andersen LLP, independent certified
public accountants, incorporated by reference herein, and upon the
authority of these firms as experts in accounting and auditing.
LEGAL OPINION
Gibson, Haglund & Paulsen, as our counsel, has rendered an opinion to
us (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 our Board of Directors and beneficially owns approximately 0.5% of our
outstanding Common Stock.
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 ). Our Restated Certificate of Incorporation provides that we
shall indemnify our 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 us pursuant to the foregoing provisions,
we have 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. We have obtained a directors,
officers, and company reimbursement insurance policy which expires in
October 1999 with a limit of liability equal to $5,000,000 in the
aggregate.
13
-----------------
No person has been authorized to give ---------------
any information or made 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 _________ SHARES
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 solici-
tation is unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder
shall, under any circumstances, create any METALCLAD CORPORATION
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. COMMON STOCK
-----------------
TABLE OF CONTENTS ---------------
Available Information.................... 1
Incorporation of Documents by Reference.. 1
Risk Factors............................. 2 PROSPECTUS
Dilution................................. 7
Use of Proceeds.......................... 7
Selling Stockholder and Plan of
Distribution.......................... 8 ---------------
Experts.................................. 10
Legal Opinion............................ 10 June ___, 1999
Indemnification of Officers and
Directors............................. 10
14
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
We anticipate that the expenses incurred or to be incurred by us 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.**
10.3 Form of Warrant issuable by us to The Shaar Fund between us and
The Shaar Fund Ltd. Dated July 30, 1998.**
10.4 Escrow Agreement between us and The Shaar Fund Ltd. Dated July
30, 1998.**
15
10.5 Registration Rights Agreement between us 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.*
24.3 Consent of Moss Adams LLP.*
*To be filed later.
**Previously filed.
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.
16
(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
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.
17
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 June 25, 1999.
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 and July 1, 1999
--------------------- Director
Grant S. Kesler
/s/Anthony C. Dabbene Chief Financial Officer, Director July 1, 1999
--------------------- (Principal Accounting Officer)
Anthony C. Dabbene
/s/Bruce H. Haglund Director July 1, 1999
---------------------
Bruce H. Haglund
---------------------
Raymond J. Pacini Director
---------------------
J. Thomas Talbot Director
