SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM 10-K
(Mark One)
( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the year ended December 31, 1998
Commission File Number 0-2000
METALCLAD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2368719
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (949) 719-1234
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock -- $.10 Par Value
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ( X )
The aggregate market value of the Common Stock held by non-affiliates
of the registrant on March 15, 1999 was approximately $9,544,900, based
upon the average of the bid and asked prices of the Common Stock, as
reported on The Nasdaq Stock Market .
The number of shares of the Common Stock of the registrant
outstanding as of March 15, 1999 was 33,727,522.
Documents incorporated by reference:
Portions of the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's 1999
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
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PART I
All statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements under
Management s Discussion and Analysis of Financial Condition and Results
of Operations and Business , are, or may be deemed to be, forward-
looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the Securities Act ), and Section 21E of the
Securities Exchange Act of 1934 (the Exchange Act ). Such forward-
l o o king statements involve assumptions, known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance or achievements of Metalclad Corporation (the Company ) to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this
Form 10-K. Such potential risks and uncertainties include, without
limitation, the ability to profitably dispose of the Company s businesses
in Mexico, the outcome of the Company s NAFTA claim for damages against
Mexico, competitive pricing and other pressures from other businesses in
the Company s markets, economic conditions generally and in the Company s
primary markets, availability of capital, cost of labor, and other risk
factors detailed herein and in other of the Company s filings with the
Securities and Exchange Commission. The forward-looking statements are
made as of the date of this Form 10-K and the Company assumes no
obligation to update the forward-looking statements or to update the
reasons actual results could differ from those projected in such forward-
looking statements. Therefore, readers are cautioned not to place undue
reliance on these forward-looking statements.
ITEM 1. BUSINESS
(a) General Development of Business
Mexican Industrial Waste Treatment and Disposal Business. Since
November 1991, the Company has been actively involved in the development
and operation of integrated industrial waste treatment and disposal
facilities in various states in the Republic of Mexico. The business is
comprised of three major components: industrial waste services, treatment
and disposal, and development.
Industrial waste services are conducted by Administracion de Residuos
Industriales, S.A. de C.V. ( ARI ). ARI s business is comprised of waste
collection, placement and servicing of parts-washing machines, recycling,
fuels blending and transportation. ARI currently operates through a
n e twork of branch offices, strategically located in Mexico City,
Guadalajara, Puebla, Tampico, Monterrey, Guanajuato, San Luis Potosi,
Veracruz and Coatzacoalcos. In addition, it operates a fuel blending and
recycling facility in Tenango. ARI s headquarters are in Mexico City.
Treatment and disposal operations have not progressed beyond the
development stage. The Company s completed landfill and treatment
facility, known as El Confin , located in the State of San Luis Potosi
has not been allowed by the Mexican government to open and now is the
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subject of the Company s claim under the North American Free Trade
Agreement ( NAFTA ). See Item 3 - Legal Proceedings and Note C of the
Financial Statements.
Since 1997, the Company has been developing another waste treatment
and disposal facility in the State of Aguascalientes. Construction began
in February 1998 but was interrupted in September 1998 by protestors and
r e m a i n ed inactive through year-end. The state government of
Aguascalientes has been alternately willing and unwilling to enforce their
laws and protect the Company s investment. On October 1, 1998 the Company
announced that it would suspend further investment in Mexico and it would
stop further attempts to develop and construct the Aguascalientes project
until the settlement of the Company s NAFTA claim and until the state
government of Aguascalientes demonstrated a willingness to enforce their
laws and protect the Company s investment. The project as of this writing
is approximately 90% complete.
Another expression of the opposition of the Mexican Federal
Government to the Company and its projects is demonstrated by the
unwillingness of the federal development bank, Banco Nacional De Obras Y
Servicios Publicos, S.N.C. (BANOBRAS), to approve financing for the
Company s project in Aguascalientes. The Company received conceptual
approval for financing in August 1997 and had expected final approval on
February 25, 1998. Because of a request made by a senior Mexican official
the bank has indicated it would have to review our loan application.
During the remainder of the 1998 the Company had no further word from
BANOBRAS, and has concluded that the bank has no serious interest in ever
giving final approval to the Company s request for financing.
Because of these most recent experiences in Aguascalientes, and
because the Mexican Government has not shown any serious willingness to
settle the Company s NAFTA claim short of final arbitration, on October 1,
1998 the management of the Company committed to a plan to discontinue its
Mexican operations and to seek to identify potential buyers for its
Mexican business. The Company s Mexican operations are now being
classified as discontinued operations, held for sale. The Company
believes it will be able to complete a sale of its Mexican business during
the next twelve months. The Company is also considering the filing of a
second NAFTA claim concerning the Aguascalientes project, but has not yet
determined a final course of action.
Development activities in the past have been conducted by Ecosistemas
Nacionales, S.A. de C.V. ( ECONSA ). ECONSA s primary business is the
development and permitting of industrial waste treatment and landfill
facilities in strategic locations in Mexico. The Company believes
ECONSA s development activities have value to another company willing to
complete the projects identified by ECONSA.
Insulation and Asbestos Abatement Contracting. Metalclad Insulation
Corporation provides insulation and asbestos abatement services to a
largely industrial clientele, primarily on the West Coast. The Company
provides labor and material supply services to a wide range of industrial
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and commercial clients. Insulation services include the installation of
high- and low-temperature insulation on pipe, ducts, furnaces, boilers,
and other types of industrial equipment and commercial applications.
Asbestos abatement services include removal and disposal of asbestos-
containing products in similar applications. The Company fabricates
specialty items for the insulation industry and sells insulation material
and accessories incident to its services business to its customers as well
as to other contractors. A diverse list of clientele includes refineries,
u t i lities, chemical/petrochemical plants, manufacturing facilities,
c o m m ercial/manufacturing installations and buildings, and various
government facilities.
Corporate Structure. The Company, incorporated originally in 1947 as
an Arizona corporation, was reincorporated in Delaware on November 24,
1993. The Company's wholly owned United States subsidiaries include Eco-
Metalclad, Inc. ("ECO-MTLC"), a Utah corporation, Metalclad Insulation
Corporation ("MIC"), a California corporation, and Metalclad Environmental
Contractors ("MEC"), a California corporation.
The Company's Mexican subsidiaries include Ecosistemas Nacionales,
S.A. de C.V. (ECONSA), Ecosistemas del Potosi, S.A. de C.V., formerly
known as Eco Administracion, S.A. de C.V. ("ECOPSA"), Quimica Omega, S.A.
de C.V. ("QUIMICA OMEGA"), Consultoria Ambiental Total, S.A. de C.V.
("CATSA"), Confinamiento Tecnico de Residues Industriales, S.A. de C.V.
("COTERIN"), Administracion de Residuos Industriales, S.A. de C.V. (ARI)
and Ecosistemas El Llano, S.A. de C.V. ( El Llano ). Each of the Mexican
subsidiaries is a corporation of variable capital (sociedad anonima de
capital variable).
Unless otherwise indicated, the term "Company" refers to Metalclad
C o rporation, its United States and Mexican subsidiaries, and its
predecessors.
The Company's principal executive offices are located at 2 Corporate
Plaza, Suite 125, Newport Beach, California 92660, United States, and its
telephone number is (949) 719-1234. MIC and MEC serve their insulation
contracting customers from their headquarters in Anaheim, California.
ECO-MTLC's offices are in Newport Beach, California, and the Company's
Mexican subsidiaries' offices are located in Mexico City, the City of San
Luis Potosi and the City of Aguascalientes.
(b) Subsequent Events
1. Since the Company s decision to sell its businesses in Mexico,
made in the fourth quarter of 1998, the Company has pursued several
opportunities and is currently negotiating with parties interested in the
Company s businesses in Mexico. The Company believes that it will be
successful in concluding its activities in Mexico in such a way as to
obtain return of its investment and still not diminish the potential claim
the Company may have against Mexico for its interference in the Company s
businesses there. However, no assurances can be given that these efforts
will be successful.
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2. On October 13, 1997, the Company filed its detailed Memorial
with the NAFTA Tribunal hearing the Company s claim related to its El
Confin facility. On February 17, 1998, the United Mexican States
( Mexico ) responded to the Company s claim to the Tribunal by filing a
Counter-Memorial . The Company filed a Reply brief on August 21, 1998.
Mexico must now file its final brief known as a Rejoinder by April 19,
1999. The Company was notified on March 5, 1999 that a pre-hearing
conference has now been scheduled in Washington, D.C. for July 6, 1999
with the final hearing on the case scheduled to take place on August 30,
1999. A final decision by the tribunal is expected to follow shortly
after the final hearing.
3. In March 1999 the Company accepted the resignations of three
Directors of the Company, Messrs. Guerra, Morales, and Akle. There were
no disputes with any of the resigning Directors but each felt unable to
m a ke further contributions to the Company given the decision to
discontinue any further investments in Mexico. Mr. Guerra will retain his
position as the Director General of all Mexican operations.
4. Three new Directors were appointed to the Board, effective March
22, 1999, and all three, plus the two remaining directors, Messrs. Kesler
and Dabbene, have agreed to stand for election at the next annual meeting
tentatively scheduled for June 2, 1999. The three new directors are:
Raymond J. Pacini, President and CEO of California Coastal
Committee.
J. Thomas Talbot, owner of the Talbot Company.
Bruce H. Haglund has previously served as a Director the Company
and also serves as the Company s Secretary and General Counsel.
5. In December 1998, the Company made an offer to all holders of its
warrants containing anti-dilution provisions, including the provision for
adjustment of the number of underlying shares in the event of a reduction
in the exercise price of its warrants. The offer made was to freeze the
number of underlying shares per warrant, calculated on the basis of an
exercise price of $1.25, which was the then current exercise price.
Additionally, the Company offered to reduce the exercise price of the
resultant number of underlying shares to $.35. Lastly, for those holders
of warrants who chose to exercise their warrants by January 31, 1999, the
Company would reduce the exercise price to $.25 and issue additional
warrants equal to the number of shares acquired by exercise. In exchange,
the anti-dilution provisions of the warrants were eliminated related to
both price and quantity of the underlying shares going forward. The
Company has received acceptances from over 95% of the warrant holders to
date. The results of this transaction are reflected in Note J to the
accompanying financial statements.
(c) Financial Information About Industry Segments
The Company, through MIC and MEC, is engaged in insulation services,
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a s b estos abatement services, and insulation material sales, such
activities constituting one industry segment. The development and
operation of the industrial waste treatment business, commenced in
November 1991 through ECO-MTLC and now conducted by the Company s Mexican
subsidiaries, had previously been reported as a separate industry segment
for 1995, 1996 and 1997 and is now being reported as discontinued
operations.
(d) Narrative Description of Business
Introduction
Business in Mexico. Since November 1991, the Company has been
actively involved in doing business in Mexico. The Company s initial
focus was the development of facilities for the treatment, storage and
disposal of industrial hazardous waste.
During the fourth quarter of 1998, the Company determined that its
efforts at building its business in Mexico would not be allowed to
succeed. The Company s investment in El Confin 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, 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.
Business in the United States. Metalclad Insulation Corporation
specializes in insulation and asbestos abatement services primarily on the
West Coast. The Company provides labor and material supply services to a
wide range of industrial and commercial clients. Insulation services
include the installation of high- and low-temperature insulation on pipe,
ducts, furnaces, boilers, and other types of industrial equipment and
commercial applications. Asbestos abatement services include removal and
disposal of asbestos-containing products in similar applications. The
Company fabricates specialty items for the insulation industry and sells
insulation material and accessories incident to its services business to
its customers as well as to other contractors. A diverse list of
clientele includes refineries, utilities, chemical/petrochemical plants,
m a nufacturing facilities, commercial/manufacturing installations and
buildings, and various government facilities.
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Mexican Business
Due to the Company s decision to discontinue its Mexican development
and operational businesses, the Company has no ongoing business in Mexico
other than the business being conducted by ARI. It will continue to hold
its investment in the subsidiaries associated with El Confin pending
conclusion of the ongoing NAFTA arbitration proceedings. Its remaining
businesses are being held for sale.
Insulation Contracting Services
Background. The Company's insulation contracting services include
the installation of high- and low-temperature insulation on pipe, ducts,
furnaces, boilers, and various other types of equipment. Insulation
services are provided for new construction and maintenance of existing
facilities. The Company is a licensed general contractor and typically
provides project management, labor, tools, equipment and materials
necessary to complete the installation.
The Company usually performs substantially all of the work required
to complete its contracts, generally subcontracting to others the
scaffolding and painting. In a typical insulation contract, the Company
obtains plans and specifications prepared by the owner of a facility or
its agent. In projects where the customer is the owner of the facility,
the Company acts as the general contractor. The Company also works as a
subcontractor for other general contractors. Insulation contracts for new
construction may require one or more years to complete. Maintenance
contracts typically extend over a period of one or more years.
The Company's insulation contracting business has historically
included, among other things, maintenance, removal, repair, and re-
installation of insulation on existing facilities and equipment. These
activities included asbestos removal services in most cases in which the
insulation at such facilities has included asbestos-containing material
("ACM").
The Company removes all forms of ACM after first treating the
asbestos with water and a wetting agent to minimize fiber release. Dry
removal is conducted in special cases where wetting is not feasible,
provided Environmental Protection Agency ("EPA") approval is obtained.
The Company's workers also remove pipe insulation by cutting the wrapping
into sections in an enclosed containment area or utilizing special
" g lovebags" which provide containment around the section of pipe
insulation being removed. In some instances, the Company performs
asbestos removal and provides related re-insulation contracting services,
including insulation material sales; in other cases, the Company performs
only asbestos removal services. The Company believes that the removal of
ACM provides the best and most cost-effective solution for most asbestos
abatement projects.
Insulation Contracts. The Company obtains contracts, which
ordinarily fall within one of the types set forth below, on the basis of
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either competitive bids or direct negotiations:
Cost-plus. These contracts, sometimes referred to as "time and
materials" contracts, generally provide for reimbursement of costs
incurred by the Company and the payment of a fee equal to a percentage of
the cost of construction. They generally provide for monthly payments
covering both reimbursement for costs incurred to date and a portion of
the fee based upon the amount of work performed and are customarily not
subject to retention of fees or costs.
Fixed-price. These contracts generally require the Company to
perform all work for an agreed upon price, often by a specified date.
Such contracts usually provide for increases in the contract price if the
Company's construction costs increase due to changes in or delays of the
project initiated or caused by the customer or owner or by escalating
project labor rates. However, absent causes resulting in increases in
contract prices, the Company takes certain risks associated with its fixed
prices. Under these types of contracts the Company receives periodic
payments based on the work performed to date, less certain retentions.
The amounts retained are held by the customer pending either satisfactory
completion of the Company's work or in some cases, satisfactory completion
of the entire project.
In accordance with industry practice, most of the Company's contracts
are subject to termination or modification by the customer, with provision
for the recovery of costs incurred and the payment to the Company of a
proportionate part of its fees, in the case of a cost-plus contract, and
overhead and profit, in the case of a fixed price contract. At various
times, contracts that the Company has with its customers have been
terminated or modified. However, such termination or modification occurs
in the regular course of the Company's business due to changes in the work
to be performed as determined by the customer. No single termination or
modification has had or is expected to have a material adverse impact on
the Company's business.
Operations and Employee Safety. All contract work is performed by
trained Company personnel and supervised by project managers trained and
experienced in construction and asbestos abatement. Each employee
involved in asbestos abatement must complete a general training and safety
program conducted by the Company. Training topics include approved work
procedures, instruction on protective equipment and personal safety,
dangers of asbestos, methods for controlling friable asbestos and asbestos
transportation and handling procedures. In addition, all full-time
employees engaged in asbestos abatement activities are required to attend
a minimum four-day course approved by EPA and the Occupational Safety and
Health Administration ("OSHA") and all supervisors of abatement projects
are required to attend a nine-hour first aid/CPR/safety course and an
eight-hour EPA/AHERA refresher course annually. Six of the Company's
full-time employees and 43 hourly employees have been trained and
certified as "competent individuals" under EPA regulations relating to the
training of asbestos abatement workers. All employees are issued detailed
training materials and the Company typically conducts a job safety
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analysis in the job bidding stage.
The Company requires the use of protective equipment and sponsors
periodic medical examination of all field employees. During removal
procedures, ACM is generally wetted to minimize fiber release and
filtration devices are used to reduce contamination levels. Air
monitoring to determine asbestos fiber contamination levels is conducted
on all abatement projects involving the removal of friable asbestos. The
Company has a comprehensive policy and procedure manual that covers all
a c t i v i ties of an asbestos abatement project and the specific
responsibilities and implementation of Company procedures and policies to
be followed on each project. The manual is reviewed periodically by
management and updated to insure compliance with federal, state, and local
r e gulations, to include information from in-house project reviews
findings, and to include updated information regarding industry practices.
To separate its responsibilities and to limit liability, the Company
utilizes third party, unaffiliated laboratories for asbestos sampling
analysis and licensed independent waste haulers for the transportation and
disposal of asbestos waste from its projects.
Materials and Supplies. The Company purchases its insulating and
asbestos abatement materials and supplies from a number of national
manufacturers and the Company is not dependent on any one source for these
materials and accessories used in its insulation services and asbestos
abatement business.
Marketing and Sales
Insulation Contracting Services. The Company currently obtains most
of its insulation contracting business from existing customers and
referrals by customers, engineers, architects, and construction firms.
Additional business is obtained by referrals obtained through labor,
industry, and trade association affiliations.
Projects are also awarded through competitive bidding although major
companies frequently rely on selected bidders chosen by them based on a
variety of criteria such as adequate capitalization, bonding capability,
insurance carried, and experience. The Company is frequently invited in
this manner to bid on projects and obtains a significant amount of its
contracts through the competitive bidding process. 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.
The Company's marketing and sales effort emphasizes its experience,
reputation for timely performance, and knowledge of the insulation and
asbestos abatement industry. The Company is a member of the Western
Insulation Contractors Association, the National Insulation Contractors
Association, and various local business associations.
Curtom-Metalclad Joint Venture. In 1989, the Company entered into a
j o int venture with a minority service firm, which qualifies for
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preferential contract bidding because of minority status, with the Company
owning a 49% interest in the joint venture. The joint venture, known as
"Curtom-Metalclad," submits bids for insulation and asbestos abatement
services. When contracts are obtained by the joint venture, the Company
performs the work specified in the contract as a subcontractor to the
joint venture. The Company also receives an interest in 49% of the
profits or losses of the joint venture.
Insulation Material Sales. The current emphasis in this area is to
primarily warehouse and supply material for projects where other Company
services are provided. The warehoused material is based on economics of
bulk purchases of the most commonly used products or projected needs on
future known projects, to handle emergencies, and to supply material sales
direct to other users as available and when solicited.
Customers. The Company's insulation customers are categorized as
Industrial or Commercial. The industrial customers are predominately
public utilities (power, natural gas and water/water treatment), major oil
companies for oil refineries and petrochemical plants, chemical and food
p r ocessors, other heavy manufacturers, and engineering/construction
c o m p a n ies. The Commercial customers are primarily government
i n stallations, schools, hospitals, institutions, an array of
m a nufacturing/commercial facilities, and the general or mechanical
construction contractors. The Company anticipates that a significant
portion of its revenues in 1999 will continue to be from work performed
for Southern California Edison, ARCO, and Texaco.
Competition. Competition in the insulation contracting services
business is intense and is expected to remain intense in the foreseeable
future. Competition includes a few national and regional companies that
provide integrated services and many regional and local companies that
provide insulation and asbestos abatement 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. The Company
believes that the primary competitive factors in these areas are price,
technical performance, and reliability. The Company obtains a significant
number of its insulation service contracts through the competitive bidding
process. 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.
Insurance and Bonding. The Company's general liability insurance
policy provides base coverage of $1,000,000 per occurrence and excess
liability coverage of $10,000,000. Additionally, the Company maintains
separate policies for contractor pollution coverage in the amount of
$10,000,000. The Company's current insulation and asbestos abatement
services customers do not generally require performance bonds. The
Company believes, however, that its current bonding arrangements are
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adequate for the Company's anticipated future needs. The Company has
always carried insurance for liability associated with the sale of
asbestos bearing materials. Because of the age of the Company there have
been several different insurance carriers. As claims are made for
liability associated with asbestos those claims are managed by counsel for
the Company and submitted to the appropriate insurance carrier for defense
depending upon the date the claim originated. It has been more than 25
years since the Company sold any asbestos bearing material. Since the
Company has not yet exhausted more than 50% of the available coverage the
Company believes that there is adequate coverage and the Company has no
material exposure to any future claims.
Government Regulation
Insulation Services and Material Sales Regulation. The Company, as a
general contractor and insulation specialty contractor, is subject to
regulation requiring it to obtain licenses from several state and
municipal agencies. Other than licensing, the Company's industrial
insulation services and material sales business is not subject to material
or significant regulation.
Asbestos Abatement Regulation. Asbestos abatement operations are
s u b ject to regulation by federal, state, and local governmental
authorities, including OSHA and the EPA. In general, OSHA regulations set
maximum asbestos fiber exposure levels applicable to employees and the EPA
regulations provide asbestos fiber emission control standards. The EPA
requires use of accredited persons for both inspection and abatement. In
addition, a number of states have promulgated regulations setting forth
such requirements as registration or licensing of asbestos abatement
contractors, training courses for workers, notification of intent to
u n dertake abatement projects and various types of approvals from
designated entities. Transportation and disposal activities are also
regulated. The Company believes that similar legislation may be adopted
in other states and in local building codes.
OSHA has promulgated regulations specifying airborne asbestos fiber
exposure standards for asbestos workers, engineering and administrative
controls, workplace practices, and medical surveillance and worker
protection requirements. OSHA's construction standards require companies
removing asbestos on construction sites to utilize specified control
methods to limit employee exposure to airborne asbestos fibers, to conduct
air monitoring, to provide decontamination units and to appropriately
supervise operations. EPA regulations restrict the use of spray applied
ACM and asbestos insulation, establish procedures for handling ACM during
demolition and renovations, and prohibit visible emissions during removal,
transportation and disposal of ACM.
The Company believes that it is substantially in compliance with all
regulations relating to its asbestos abatement operations, and currently
h a s all material government permits, licenses, qualifications and
approvals required for its operations.
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Backlog. The Company's backlog for insulation services at December
3 1 , 1998, and December 31, 1997 was $7,200,000 and $5,500,000,
respectively. Backlog is calculated in terms of estimated revenues on
fixed-price and cost-plus projects in progress or for which contracts have
been executed. The Company believes that backlog as of any date is not
necessarily indicative of future revenues. The Company estimates that its
entire backlog as of December 31, 1998 will be completed during the next
twelve months. The majority of the Company's present business is on cost-
plus contracts for which backlog is estimated. The Company fulfills
product and supply orders promptly, and there is no backlog in the
material sales business.
Employees. As of December 31, 1998, the Company had a full-time
staff of 14 salaried employees, including one executive officer, project
managers/estimators, purchasing, accounting, and office staff.
As of December 31, 1998, the Company employed approximately 104
hourly employees for insulation contracting services, nearly all of whom
are members of the International Association of Heat and Frost Insulators
and Asbestos Workers ("AFL-CIO"). The Company is a party to agreements
with various local chapters of various trade unions. The number of hourly
employees employed by the Company fluctuates depending upon the number and
size of projects that the Company has under construction at any particular
time. It has been the Company's experience that hourly employees are
generally available for its projects, and the Company has continuously
employed a number of them on various projects over an extended period of
time. The Company considers its relations with its hourly employees and
the unions representing them to be good and has experienced no recent work
stoppages due to strikes by such employees. Additionally, the trade union
agreements the Company is a party to include no strike, no work stoppage
provisions.
Directors and Executive Officers of the Company
The names, ages, and positions of the Company's directors and
executive officers (including certain significant executive officers of
the Company's principal subsidiaries) are listed below:
<TABLE><S> <C> <C> <C>
Director
or Officer
Name Age Since Current Position with the Company
---- --- ---------- ----------------------------------------------
Anthony C. Dabbene 47 1996 Chief Financial Officer, Director
David Duclett 48 1989 President - MIC/MEC
Bruce H. Haglund 47 1983 Secretary, General Counsel, Director
Grant S. Kesler 55 1991 President, Chief Executive Officer, Director
Raymond J. Pacini 43 1999 Director
J. Thomas Talbot 63 1999 Director
Javier Guerra Cisneros 52 1994 Director General, Mexican Companies
</TABLE>
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Anthony C. Dabbene has been the Chief Financial Officer for the
Company since January 1996 and a Director since May 1997. Prior to his
employment with the Company, Mr. Dabbene was employed by LG & E Energy
Corp. for 10 years, including service as Vice President and Controller to
the Energy Services Group. From 1973 to 1985, he was employed by EBASCO
Services Incorporated, where he was Manager - Finance and Administration
for the Western region from 1981 to 1985.
David Duclett has been employed by the Company since 1977 and has
been Vice President of Marketing and Sales of Metalclad Insulation and
Metalclad Environmental since 1989. He was appointed President in May
1998. Mr. Duclett s main responsibility is to lead the Company and further
the objectives of the Board while establishing and building long-term
client relationships. He has negotiated and managed contracts for both
industrial and commercial work, with concentration on refinery and utility
maintenance work and hi-rise commercial buildings.
Bruce H. Haglund has served as Secretary-General Counsel of the
Company since 1983 and served as a Director of the Company from 1983 to
July 1991 and again in 1999. Mr. Haglund is a principal in the law firm
of Gibson, Haglund & Johnson in Orange County, California where he has
been engaged in the private practice of law since 1980. He is also a
member of the Boards of Directors of Aviation Distributors, Inc.,
HydroMaid International, Inc., Renaissance Golf Products, Inc., Santa
Barbara Restaurant Group, and VitriSeal, Inc.
Grant S. Kesler has served as a Director of the Company since
February 1991 and has been Chief Executive Officer since May 1991. From
1982 to May 1991, he was employed by Paradigm Securities, Inc., a company
he formed in 1982. In 1975, he was General Counsel to Development
Associates, a real estate development firm. Earlier, he was engaged in
the private practice of law, served as an assistant attorney general for
the State of Utah, and served as an intern to the chief justice of the
Utah Supreme Court.
Raymond J. Pacini is the President, Chief Executive Officer, and a
Director of California Coastal Communities, Inc. (formerly Koll Real
Estate Group, Inc.), where he has been since 1990.
J. Thomas Talbot is the owner of The Talbot company, an investment and
asset management company. Mr. Talbot has been the Chief Executive Officer
of HAL, Inc., the parent company of Hawaiian Airlines, and currently
serves on the boards of directors of The Hallwood Group, Inc., Fidelity
National Financial, Inc., California Coastal Communities, Inc., and The
Pacific Club.
Javier Guerra Cisneros, a former Director of the Company, has been
the Director General of QUIMICA OMEGA since its formation in 1981. He
also founded and was the President of the Institute on Industrial
Hazardous Waste, a non-profit organization that promotes public awareness
of the Mexican environmental regulations through its publication DIP.
Since 1990, Mr. Guerra, through QUIMICA OMEGA, has been one of the
<PAGE> 12
<PAGE>
pioneers in the implementation in Mexico of the program to use hazardous
wastes as supplemental fuel in cement kilns. He has more than 10 years of
experience on environmental regulations and handling of hazardous wastes
in Mexico and the United States as well as in the compliance of Mexican
environmental legislation. He has participated in multiple conferences on
ecological matters, including seminars sponsored by the EPA and SEDESOL.
ITEM 2. PROPERTIES
The Company leases space for its offices and warehouse facilities
under leases of varying terms at rentals aggregating approximately $14,650
per month. The Company's executive offices are located in Newport Beach,
California, which consists of approximately 3,000 square feet leased at a
current rate of $5,850 per month. The Newport Beach lease expires in
September 2002. Facilities in Anaheim, California house the Southern
California industrial insulation services and the insulation material
sales operations. The Anaheim facility consists of 26,000 square feet of
office and warehouse space that is leased at the current rate of $9,212
per month. The Anaheim lease expires in April and is currently in
negotiations for renewal.
The Company owns approximately 145 acres of unimproved land located
in Tulare County, California which is not related to the business of the
Company and is being held for sale.
ECOPSA owns an approximately 92-hectare parcel (approximately 227
acres) of land in Santa Maria del Rio near San Luis Potosi, Mexico.
COTERIN owns approximately 2,200 acres of land near La Pedrera in the
Mexican State of San Luis Potosi on which El Confin is located.
ITEM 3. LEGAL PROCEEDINGS
Given the Company s long history in the insulation business and in
the sale of insulation materials, it is subject to various claims related
to prior asbestos related business as well as its current business. The
number of these claims is over 300, the Company believes it has adequate
insurance in place and had adequate insurance in prior years and is
vigorously defending all claims. The Company does not believe that these
claims, individually or in the aggregate, will have a material adverse
effect on its financial condition. (See Note M.)
In May 1997, a jury found Texaco oil refinery, a client of the
Company, 55% liable for injuries and damages sustained by a Metalclad
Insulation employee while working at the Wilmington, California refinery.
The jury determined that Texaco s portion of the damages amounted to $5.5
million. Under terms of the Company s contract with Texaco, certain
indemnities may be applied. The Company had project specific, as well as
other insurance policies in effect at the time of the injury. This award
has been appealed and the ultimate outcome cannot be predicted; however,
the Company maintained separate, project-specific insurance coverage,
which it believes is adequate to address any potential exposure.
<PAGE> 13
<PAGE>
On October 2, 1996, having completed a long period of negotiation
with the Mexican government on the opening of its hazardous waste landfill
in San Luis Potosi, Mexico, the Company filed a Notice of Claim under the
provision of the North American Free Trade Agreement. 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, the Company filed its 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, the Company, on October 13, 1997,
filed its Memorial, which included the Claim and all of the evidence
supporting the Claim, including expert witness studies and the like. The
b a sis of the Company s claim against Mexico is one likened to
expropriation. The Company s position is since it is not being allowed to
operate a legally authorized project, it 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 behalf of the Company by an expert company, which
indicated the fair market value of this business was $90,000,000.
On October 13, 1997, the Company filed its detailed memorial with the
NAFTA Tribunal, hearing the Company s claim related to its El Confin
facility. On February 17, 1998, the United Mexican States ( Mexico )
responded to the Company s claim to the Tribunal. On August 21, 1998 the
Company filed its Reply to Mexico and on April 19, 1999 Mexico is due to
file 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.
The Company has devoted substantial resources in the pursuit of its
claim before the NAFTA tribunal. It has given counsel broad authority in
the employment of experts and others it feels necessary to properly pursue
the Company s claim. The officers of the Company have also spent
substantial amounts of time and resources in assisting the Company s NAFTA
counsel and will continue to do so to completion. There is no assurance,
however, that the Company will be successful. If it is not, the impact
will be material and adverse (see Note C). Management does not believe
that a loss of its arbitration case would cause the Company to become
insolvent or prevent it from conducting its domestic business, or in
making acquisitions or mergers with others in similar businesses seeking a
public market.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on The Nasdaq Stock Market under the
symbol "MTLC." The following table sets forth, for the fiscal periods
indicated, the high and low sales prices for the Common Stock as reported
by Nasdaq:
<TABLE>
<S> <C> <C>
Sales Price
High Low
---- ---
Fiscal Year Ended May 31, 1996
------------------------------
1st Fiscal Quarter Ended August 31, 1995 3 5/16 2 15/16
2nd Fiscal Quarter Ended November 30, 1995 3 13/16 3 1/8
3rd Fiscal Quarter Ended February 29, 1996 5 5/85 5 1/4
4th Fiscal Quarter Ended May 31, 1996 3 1/4 3 1/32
Seven Months Ended December 31, 1996
1st Fiscal Quarter Ended August 31, 1996 3 3/8 2 5/8
2nd Fiscal Quarter Ended November 30, 1996 3 1/4 1 1/2
3rd Fiscal Quarter Ended December 31, 1996 1 15/16 1 3/8
Fiscal Year Ended December 31, 1997
1st Fiscal Quarter Ended March 31, 1997 1 5/8 1 3/32
2nd Fiscal Quarter Ended June 30, 1997 2 1 3/32
3rd Fiscal Quarter Ended September 30, 1997 1 17/32 1 3/16
4th Fiscal Quarter Ended December 31, 1997 1 9/32 15/16
Fiscal Year Ended December 31, 1998
1st Fiscal Quarter Ended March 31, 1998 1 3/16 1 1/8
2nd Fiscal Quarter Ended June 30, 1998 1 1/16 1 1/32
3rd Fiscal Quarter Ended September 30, 1998 11/16 5/8
4th Fiscal Quarter Ended December 31, 1998 13/32 3/8
</TABLE>
The Company has not paid any cash dividends on its Common Stock since
its incorporation and anticipates that, for the foreseeable future,
earnings, if any, will continue to be retained for use in its business.
As of March 15, 1999, the approximate number of record holders of the
Company's Common Stock was 1,731.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the
<PAGE> 15
<PAGE>
consolidated financial statements of the Company and should be read in
conjunction with the consolidated financial statements, related notes and
other financial information included herein.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Year 7 Months Year Year Year
Ended Ended Ended Ended Ended Ended
Dec 31, Dec 31, Dec 31, May 31, May 31, May 31,
-------- ------- ------- ------- ------- -------
(in thousands, except per share amounts)
Statement of Operations Data (1)
Revenues from
continuing operations $10,009 $8,971 $5,519 $11,445 $15,724 $16,249
Loss from continuing operations (2,477) (2,299) (1,807) (5,630) (6,287) (1,449)
Loss from discontinued operations (2) (2,301) (2,311) (1,473) (1,150) (9,112) (3,443)
Net loss (4,778) (4,610) (3,280) (6,780) (15,399) (4,892)
Earnings per share:
Net loss per common share, continued
operations - basic and diluted $(0.08) $(0.08) $(0.06) $(0.25) $(0.46) $(0.16)
Net loss per common share,
discontinued operations basic
and diluted $(0.08) $(0.08) $(0.05) $(0.05) $(0.67) $(0.40)
Balance Sheet Data
Total assets $9,050 $11,538 $14,931 $17,702 $10,710 $18,311
Convertible long term notes 1,640 1,500 - - 2,050 2,662
Convertible debentures (3) 1,202 20 229 239 8,636 8,755
------------------------
(1) In the fourth quarter of 1998, the Company committed to a plan to discontinue its operations in Mexico and to seek a
buyer. Consequently, the Statement of Operations Data has been restated to reflect this decision.
(2) Includes $6,378,000 write off in May 1995 of the goodwill associated with the May 1994 purchase of QUIMICA OMEGA. See
Item 7, Management s Discussion and Analysis of Financial Conditions and Results of Operations
(3) During the year ended May 31, 1996 a substantial portion of the convertible subordinated debentures were converted into
shares of common stock. Additionally, $2,100,000 of the Company s long term debt was converted into equity. See Item 7,
Management s Discussion and Analysis of Financial Conditions and Results of Operations .
</TABLE>
No dividends were paid or declared during the years ended December
31, 1998 or 1997, the seven months ended December 31, 1996, or the fiscal
years ended May 31, 1996, 1995 or 1994.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
<PAGE> 16
<PAGE>
RESULTS OF OPERATIONS
This discussion and analysis contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of
the Exchange Act, which are subject to the safe harbor created by those
sections. The Company s actual future results could differ materially
from those projected in the forward-looking statements. The Company
assumes no obligation to update the forward-looking statements or such
factors.
Presentation of Financial Statements
The financial statements of the Company reflect the Company s on
g o i n g business in the insulation contracting segment and the
discontinuance of its waste management segment in Mexico. The net assets
of the Company s business in Mexico are now classified as discontinued
operations, with the Company retaining its interest in the El Confin
facility pending resolution of its claim under the NAFTA. Financial
statements of prior periods have been restated to reflect the Company s
decision to discontinue operations in Mexico.
With the Company having significant financial transactions in Mexico,
it has been affected by the continued decline of the Mexico peso. In
November 1994, the value of the peso was 3.4 to the U.S. dollar. As of
December 31, 1998, the value of the peso was 9.85 to the U.S. dollar. As
of December 31, 1998, the Company has a foreign currency translation
adjustment of $(2,140,110) in the equity section of its balance sheet.
Results of Operations
General. Historically, the Company s revenues were generated primarily by
(i) revenues in the United States from insulation services and sales of
insulation products and related materials; and (ii) revenues in Mexico
from the collection of waste oils and solvents for recycling, rental of
parts washing machines, brokering the disposal of waste and remediation
services.
As discussed in Note B to the Consolidated Financial Statements, the
Company committed to a plan to discontinue its operations in Mexico and to
seek a buyer. While no assurances can be made, it is anticipated that a
sale will be completed in fiscal 1999. The following narrative details
the Company s discontinued operations in Mexico and its ongoing Insulation
Business.
Twelve Months Ended December 31, 1998
Compared to Twelve Months Ended December 31, 1997
Insulation Business. Total revenues were $10,009,000 in 1998 as
compared to $8,971,000 for 1997, an increase of 12%. This increase is
attributed to work performed under the Company s various maintenance
agreements, particularly with ARCO, and the Company s continuing efforts
<PAGE> 17
<PAGE>
in the commercial insulation market.
Operating costs and expenses were $8,620,000 in 1998 compared to
$7,686,000 in 1997 an increase of 12%, attributed to the increased level
of direct costs associated with higher revenues.
Selling, general and administrative expenses were $993,000 in 1998
compared to $1,177,000 for the same period in 1997, a decrease of 16%.
This decrease reflects the full year results of the Company s cost
reduction program, initiated in 1997.
Discontinued Operations. Loss from discontinued operations for the
year ended December 31, 1998 was $2,301,000 compared to a loss of
$2,311,000 for 1997. The 1998 loss includes an accrual of $450,000
associated with the decision to discontinue the Mexican waste management
business. Net of this accrual, losses for 1998 declined by 20% from 1997.
Corporate Expense. Corporate expenses were $2,685,000 in 1998 as
compared to $2,469,000 for 1997, an increase of 9%, reflecting the
increased legal and consulting costs associated with the Company s ongoing
NAFTA arbitration.
Interest Expense. Interest expense was $187,000 in 1998 compared to
interest income of $62,000 for 1997, largely due to the Company s issuance
of notes and debentures in 1998.
Consolidated Results. The net loss for the year ended December 31,
1998 was $4,778,000 as compared to $4,610,000 for 1997, an increase of 4%.
T h i s increased loss is attributable to accruals associated with
discontinued operations in Mexico and the costs to pursue the Company s
NAFTA claim.
Twelve Months Ended December 31, 1997
Compared to Twelve Months Ended December 31, 1996
Insulation Business. Total revenues for the year ended December 31,
1997 were $8,971,000 compared to $10,144,000 for the same period in 1996,
a decline of 12%. This decrease can be attributed to lower volumes of
work performed under the Company s various maintenance agreements and
under subcontracts with Curtom-Metalclad for work at various Edison
plants. In addition, demand for asbestos abatement services has also
declined.
Operating costs and expenses were $7,686,000 compared to $9,463,000
for the same period in 1996, a decline of 19%. This decrease is directly
associated with the decline in revenues. Additionally, 1996 contained
costs associated with overruns on two fixed price projects.
Selling, general and administrative expenses were $1,177,000 compared
to $1,600,000 for the same period in 1996, a decrease of 26%. This
<PAGE> 18
<PAGE>
decline in expenses is the direct result of steps taken by the Company to
reduce its cost structure, including the elimination of certain staff
positions.
Discontinued Operations. Loss from discontinued operations was
$2,311,000 in 1997 versus $1,918,000 in 1996. The increase in loss was
due to the expenses associated with the Company s efforts in developing
new projects, the write off of goodwill of approximately $71,000 and the
expansion of ARI.
Corporate Expense. Corporate expense for the year ended December 31,
1997 was $2,469,000 compared to $3,828,000 for the same period in 1996.
Interest Expense. Interest income from continuing operations was
$62,000 as compared to interest expense of $163,000 for the same period in
1996.
Consolidated Results. The net loss for the year ended December 31,
1997 was $4,610,000 as compared to $6,783,000 for the same period in 1996,
a decrease of 32%. This improved performance can be attributed to an
overall reduction in the Company s cost structure as well as improved
performance in the insulation business.
Seven Months Ended December 31, 1996
Compared to Seven Months Ended December 31, 1995
Insulation Business. Total revenues for the seven months ended
December 31, 1996 was $5,519,000 compared to $6,910,000 for the same
period in 1995, a decrease of 20%. This decrease is attributable to a
decline in the overall volume of work performed under the Company s
various maintenance agreements as well as a decline in the demand for
asbestos abatement services. Income from the Curtom-Metalclad joint
venture was $45,000 compared to $0.00 for the same period in 1995 due to
the increase in Edison work contracted through the joint venture.
Operating costs and expenses were $4,816,000 compared to $5,685,000
for the same period in 1995, a decrease of 15% associated with the decline
in revenues. Selling, general and administrative expenses were $769,000
compared to $1,226,000 representing a decrease of 37% attributed to the
Company s efforts to control overhead costs.
Discontinued Operations. Loss from discontinued operations was
$1,473,000 as compared to income of $76,000 in 1995. This increase in
loss was due in large part to the Company s commencement of the expansion
of ARI, which was a joint venture with BFI in 1996, as well as the costs
associated with the Company s project development activities.
Corporate Expense. Corporate expense for the seven months ended
December 31, 1996 was $1,940,000 as compared to $1,790,000, an increase of
8%. This increase is attributed to (a) the initial costs of pursuing the
Company s claim under NAFTA and (b) a reserve established by the Company
<PAGE> 19
<PAGE>
for certain ongoing litigation.
Interest Expense. Interest income from continuing operations was
$154,000 for the seven months ended December 31, 1996 compared to interest
expense of $834,000 for the same period in fiscal 1996. This reduction is
due to the conversions of both the Company s debt and convertible
subordinated debentures to shares of common stock.
Other Expense. Other expense was $0 as compared to $729,000 for the
same period in fiscal 1996. In 1996, other expense represented the
discount given to debenture holders to induce conversion into common stock
of the Company.
Consolidated Results. The net loss for the seven months ended
December 31, 1996 was $3,280,000 as compared to $3,277,000, representing
no change. This comparable performance was achieved despite the start-up
costs of BFI-OMEGA, NAFTA litigation costs and litigation reserves
included in the current seven months net loss, while the seven months
ended December 31, 1995 contained a one-time gain of $317,000 for donated
equipment.
Liquidity and Capital Resources
In November 1991, the Company completed the acquisition of Eco-
Metalclad, Inc. ("ECO-MTLC"), commenced the development of the hazardous
waste treatment business in Mexico and began advancing cash to its Mexican
subsidiaries for use in the Mexican business. Funding the development of
the Company's Mexican business has required substantial capital. To
obtain capital for the development of the business of the Company in
Mexico, the Company has made private placements of its common stock and
convertible subordinated debentures and has obtained loans from financial
institutions.
In August 1997, the Company initiated a warrant exchange program,
wherein investors who exercised their existing warrants were granted
additional replacement warrants. Between August 1997 and October 1997,
910,626 warrants were exercised at $1.50, netting the Company $1,365,939.
In December 1997, the Company issued $2,200,000 Five Year Zero Coupon
S e cured Notes, netting the Company $1,500,000. These notes are
convertible into shares of common stock of the Company and the holder was
also issued warrants to purchase common stock of the Company (see Note G).
These notes are secured by 100% of the stock of Metalclad Insulation
Corporation.
In July 1998, the Company issued $1,000,000 in 7% Convertible
Debentures due in July 2001, netting the Company $875,000 (see Note H).
In August 1998, the Company issued $350,000 in 10% Convertible
Subordinated Debentures due in August 2001, netting the Company $308,000
(see Note H).
<PAGE> 20
<PAGE>
The Company had a working capital deficit at December 31, 1998 of
$376,000 compared to working capital of $1,914,000 at December 31, 1997.
The Company had cash and cash equivalents at December 31, 1998 of $524,000
and $1,533,000 at December 31, 1997. Cash used in continuing operations
for the twelve months ended December 31, 1998 was $1,236,000 compared to
$1,580,000 for 1997. Cash used by discontinued operations for the twelve
months ended December 31, 1998 was $1,012,000 compared to $1,944,000 for
1997. Cash used in operating activities for the twelve months ended
December 31, 1998 was funded primarily by cash and cash equivalents on
hand at the beginning of the year as well as debt financings completed
during 1998; however, no assurances can be given that such funds will be
available to the Company as required.
The Company believes that the insulation business will generate
adequate cash flows from operations to meet its future obligations and
expenses relating to such operations. For the year ended December 31,
1998 the insulation business generated cash flow from operations of
$832,000. The Company will require substantial additional financing to
continue pursuit of its NAFTA claim, and complete the sale of its Mexican
operations, along with general and administrative expenses without
revenues to offset such expenses. The Company is aware of its on going
cash needs and continues to work with its warrant holders, investment
bankers and other sources to meet its on going needs through December 31,
1999. Given the Company s decision to discontinue operations in Mexico,
and sell its businesses, the cash requirements in Mexico greatly diminish.
The Company believes it will obtain the necessary funds to continue its
planned operations throughout 1999.
Impact of Inflation
The Company reflects price escalations in its quotations to its
insulation customers and in its estimation of costs for materials and
labor. For construction contracts based on a cost-plus or time-and-
materials basis, the effect of inflation on the Company is negligible.
For projects on a fixed-price basis, the effect of inflation may result in
reduced profit margin or a loss as a result of higher costs to the Company
as the contracts are completed; however, the majority of the Company's
contracts are completed within 12 months of their commencement and the
Company believes that the impact of inflation on such contracts is
insignificant.
Although inflation has been a significant factor in the Mexican
economy in general since the devaluation, the Company does not anticipate
that it will have a material impact on its current or remaining
operations.
Year 2000 Issues
During fiscal 1998, the Company initiated a plan to implement new
business information systems, which will address all year 2000 issues.
This plan included updating hardware and software necessary to comply with
the issues associated with year 2000. This implementation did not require
<PAGE> 21
<PAGE>
any significant capital expenditures during fiscal 1998 and no significant
e x p enditures are anticipated in 1999. In the event that this
implementation is not completed prior to the year 2000, the Company has a
contingency plan, pursuant to which, existing systems will be modified to
eliminate remaining year 2000 issues and all costs associated with the
modifications will be expensed. To date, expenditures of approximately
$40,000 have been made and associated expenditures in 1999 will not be
material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and schedules listed in the
accompanying Index to Consolidated Financial Statements are attached
hereto and filed as a part of this Report under Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 25, 1999, the Board of Directors approved the dismissal of
its principal accountants, Arthur Andersen LLP and approved the engagement
of Moss Adams LLP as its new principal accountants. During the Company s
past two fiscal years, there were no disagreements between the Company and
Arthur Andersen LLP. For the fiscal year ended December 31, 1997, Arthur
Andersen s report on the financial statements of the Company was qualified
relative to the Company s ability to continue as a going concern given its
recurring losses and large accumulated deficit.
<PAGE> 22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 401 of Regulation S-K is set forth
in the Company's 1999 Annual Meeting Proxy Statement which will be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 1999. The Company's 1999 Annual Meeting Proxy Statement,
exclusive of the information set forth under the captions "Report of the
Compensation Committee" and "Company Performance," are incorporated herein
by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is set forth
in the Company's 1999 Annual Meeting Proxy Statement which will be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 1998. The Company's 1999 Annual Meeting Proxy Statement,
exclusive of the information set forth under the captions "Report of the
Compensation Committee" and "Company Performance," are incorporated herein
by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is set forth
in the Company's 1999 Annual Meeting Proxy Statement which will be filed
with the Securities and Exchange Commission not later than 120 days after
December 31, 1998. The Company's 1998 Annual Meeting Proxy Statement,
exclusive of the information set forth under the captions "Report of the
Compensation Committee" and "Company Performance," are incorporated herein
by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1994, in consideration of extraordinary contributions to
the Company, including but not limited to the pledge of 755,000 shares of
common stock of the Company owned by them to facilitate necessary
financings for the Company, the board of Directors approved a loan of
$370,000 to each of Mr. Kesler and Mr. Neveau. Such borrowings are due 30
days after demand and bear annual interest at the prime rate of interest
plus 7%. The borrowings are secured by a pledge of 300,000 shares of
common stock from each borrower. In February 1996 Messrs. Kesler and
Neveau each repaid $150,000 to the Company. In March 1996, the notes were
amended to modify the loan principal between Messrs. Kesler and Neveau as
well as to adjust the interest rates, effective March 1, 1996 to a
variable rate based upon the Company s quarterly investment rate.
Repayment of these notes has been extended until December 31, 1999.
In June 1996, Mr. Neveau, Chairman of the board of Directors, Senior
<PAGE> 23
<PAGE>
Vice President, and a Director of the Company, resigned his position
effective the next shareholders meeting. As a result, the Company and
Mr. Neveau renegotiated the terms of his employment agreement relative to
compensation, benefits and stock options. Since May 1997, the Company has
been offsetting payments due Mr. Neveau against his outstanding loan
balance to the Company. There are no remaining payments due Mr. Neveau
and his indebtedness to the Company as of December 31, 1998 was $67,200.
During the twelve months ended December 31, 1998, the Company accrued
legal fees of $74,000 from the law firm of Gibson, Haglund & Johnson, of
which Bruce H. Haglund, general counsel, Director, and Secretary of the
Company, is a principal; however, none of such fees have been paid.
During December, 1996, the Company loaned $150,000 to Mr. Javier
Guerra Cisneros, a Director and Vice President of Mexico operations. This
loan is evidenced by a promissory note bearing interest at 10% and secured
by a pledge of future salary and 300,000 shares of common stock in the
Company. In February 1997, Mr. Guerra repaid $120,000 of this loan.
Repayment of this note has been extended to the earlier of the completion
of the sale of the Mexican operations or December 31, 1999.
<PAGE> 24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report on Form 10-K:
1 Financial Statements
Reports of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2 Schedules to Financial Statements
Schedule II - Valuation and Qualifying Accounts
All schedules, other than those listed above, are omitted, as the
information is not required, is not material or is otherwise furnished.
3 Exhibits
The following exhibits are being filed with this Annual Report on
Form 10-K and/or are incorporated by reference therein in accordance with
the designated footnote references:
3. Restated and Amended Certificate of Incorporation and Bylaws of
the Company, and all amendments thereto(1)
3.1 Form of Certificate for Common Stock (2)
10.1 Form of 1993 Omnibus Stock Option and Incentive Plan (3)
10.2 Form of 1993 Omnibus Stock Option and Incentive Plan (4)
10.3 Employment Agreement between the Company and Grant S.
Kesler dated January 1, 1998
10.4 Employment Agreement between the Company and Anthony C.
Dabbene dated January 1, 1998
----------------------
(1) Filed with the Company s Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by this reference.
(2) Filed with the Company s Registration Statement on Form S-1
dated December 15, 1987 and incorporated herein by this reference.
(3) Filed with the Company s Transition Report on Form 10-K for the
five months ended May 31, 1993 and incorporated herein by this reference.
(4) Filed with the Company s Preliminary Proxy Statement dated
September 10, 1996 ad incorporated herein by this reference.
<PAGE> 25
<PAGE>
10.5 Employment Agreement between the Company and Javier Guerra
Cisneros dated January 1, 1998
10.6 Purchase Agreement between the Company and Sundial
International Fund Limited and Ultra Pacific Holdings S.A. dated December
31, 1997
10.7 Form of Common Stock Purchase Warrant between the Company
and Sundial International Fund Limited and Ultra Pacific Holdings S.A.
dated December 1, 1997
10.8 Zero Coupon Secured Note between the Company and Sundial
International Fund Limited dated December 31, 1997
10.9 Pledge Agreement between the Company and Gilmartin, Poster
& Shafto dated December 31, 1997
10.10 Registration Rights Agreement between the Company and
Sundial International Fund Limited and Ultra Pacific Holdings S.A. dated
December 31, 1997
10.11 Purchase Agreement between the Company and Ultra Pacific
Holdings S.A. dated June 18, 1998
10.12 Registration Rights Agreement between the Company and
Sundial International Fund Limited and Ultra Pacific Holdings S.A. dated
December 31, 1997
10.13 Pledge Agreement between the Company and Gilmartin, Poster
& Shafto dated June 18, 1998
22. List of Subsidiaries of the Registrant
23. Consents of Experts and Counsel
(b) Reports on Form 8-K
A current report on Form 8-K was filed on February 1, 1999, reporting
the change in the Company s accountants. See Item 9, Changes in and
Disagreements with Accountants on Accounting and financial Disclosure .
SUPPLEMENTAL INFORMATION
An annual report and a proxy statement shall be furnished to the security
holders of the Company subsequent to the filing of this Form 10-K. The
Company shall furnish copies of the annual report to security holders and
the proxy statement to the Securities and Exchange Commission when it is
sent to the security holder.
<PAGE> 26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
METALCLAD CORPORATION
By: /s/Anthony C. Dabbene
--------------------------
Anthony C. Dabbene
Chief Financial Officer
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/Grant S. Kesler Chief Executive Officer and March 31, 1999
----------------------- Director
Grant S. Kesler (Principal Executive Officer)
/s/Anthony C. Dabbene Chief Financial Officer and March 31, 1999
----------------------- Director
Anthony C. Dabbene (Principal Financial and
Accounting Officer)
/s/Bruce H. Haglund Secretary and Director March 31, 1999
----------------------
Bruce H. Haglund
/s/J. Thomas Talbot Director March 31, 1999
----------------------
J. Thomas Talbot
/s/Raymond J. Pacini Director March 31, 1999
----------------------
Raymond J. Pacini
<PAGE> 27
<PAGE>
ITEM 14(A)(1) and (2)
METALCLAD CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Metalclad Corporation
and subsidiaries are included in Item 8:
Reports of Independent Public Accountants on Consolidated Financial
Statements:
Report of Moss Adams LLP...................................... F-1
Report of Arthur Andersen LLP................................. F-2
Financial Statements:
Consolidated Balance Sheets - December 31, 1998 and 1997...... F-3-4
Consolidated Statements of Operations - the Years Ended
December 31, 1998 and 1997, Seven Months Ended December 31,
1996 and the Year Ended May 31, 1996.......................... F-5
Consolidated Statements of Shareholders Equity - the Years
Ended December 31, 1998 and 1997, Seven Months Ended
December 31, 1996 and the Year Ended May 31, 1996............. F-6-7
Consolidated Statements of Cash Flows - the Years Ended
December 31, 1998 and 1997, Seven Months Ended December 31,
1996 and the Year Ended May 31, 1996..................... .... F-8-9
Notes to Consolidated Financial Statements.................... F-10
Supplementary Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts............... F-25
<PAGE> 28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of Metalclad Corporation:
We have audited the accompanying consolidated balance sheet of Metalclad
Corporation (a Delaware Corporation) and subsidiaries as of December 31,
1998, and the related consolidated statements of operations, shareholders
equity and cash flows for the year ended December 31, 1998. These
financial statements are the responsibility of the Company s management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metalclad Corporation
and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from
operations and has a large accumulated deficit that raises substantial
doubt about its ability to continue as a going concern. Management s
plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commission s rules and is not part of the basic
financial statements. The data for the year ended December 31, 1998 has
been subjected to the auditing procedures applied in the audit of the
basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/MOSS ADAMS LLP
Costa Mesa, California
March 24, 1999
<PAGE> F1
<PAGE>
<TABLE><S><C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Metalclad Corporation:
We have audited the accompanying consolidated balance sheet of Metalclad Corporation (a
Delaware Corporation) and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders equity and cash flows for the year
ended December 31, 1997, the seven months ended December 31, 1996 and the year ended May
31, 1996. These financial statements are the responsibility of the Company s
management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Metalclad Corporation and subsidiaries as
of December 31, 1997, and the results of their operations and their cash flows for the
year ended December 31, 1997, the seven months ended December 31, 1996 and the year
ended May 31, 1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note A to the financial statements, the
Company has suffered recurring losses from operations and has a large accumulated
deficit that raises substantial doubt about its ability to continue as a going concern.
Management s plans in regard to these matters are also described in Note A. The
financial statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial statements
is presented for purposes of complying with the Securities and Exchange Commission s
rules and is not part of the basic financial statements. The data for the year ended
December 31, 1997, the seven months ended December 31, 1996 and the year ended May 31,
1996 has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic financial
statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
Orange County, California
April 15, 1998
</TABLE>
<PAGE> F2
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE><S> <C> <C>
December 31,
1998 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 523,953 $ 1,532,694
Accounts receivable, less allowance for doubtful accounts of $133,868 at
December 1998, and $38,701 at December 1997 817,257 1,573,506
Costs and estimated earnings in excess of billings on uncompleted contracts 143,672 232,073
Inventories 176,697 161,241
Prepaid expenses and other current assets 58,813 141,838
Receivables from related parties 190,492 131,825
---------- ----------
Total current assets 1,910,884 3,773,177
Property, plant and equipment, net 4,631,097 4,424,864
Net assets of discontinued operations 1,754,677 2,467,440
Goodwill, less accumulated amortization of $305,579 at December 1998, and
$210,484 at December 1997 507,173 517,156
Other assets 245,834 355,857
---------- ----------
$ 9,049,665 $11,538,494
<PAGE> F3
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(continued)
December 31,
1998 1997
------------- -------------
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $1,031,244 $1,105,705
Accrued expenses 1,166,050 713,103
Billings in excess of costs and estimated earnings on uncompleted contracts 71,280 20,727
Current portion of convertible subordinated debentures - 19,533
Current portion of long-term debt 18,585 -
---------- ----------
Total current liabilities 2,287,159 1,859,068
Long-term debt, less current portion 51,959 -
Convertible long-term notes 1,640,000 1,500,000
Convertible subordinated debentures 1,201,547 -
---------- ----------
Total liabilities 5,180,665 3,359,068
---------- ----------
Shareholders equity :
Preferred stock, par value $10; 1,500,000 shares authorized; none issued - -
Common stock, par value $.10; 80,000,000 shares authorized; 30,569,122, and
30,063,870 issued and outstanding at December 1998 and 1997, respectively 3,056,912 3,006,387
Additional paid-in capital 57,404,880 56,962,689
Accumulated deficit (53,907,766) (49,129,377)
Officers receivable collateralized by stock (544,906) (520,163)
Accumulated other comprehensive income (2,140,110) (2,140,110)
---------- ----------
3,869,010 8,179,426
---------- ----------
$ 9,049,665 $11,538,494
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE> F4
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><S> <C> <C> <C> <C>
Seven
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, May 31,
------------ ----------- ----------- ----------
1998 1997 1996 1996
---- ---- ---- ----
Revenues-Insulation
Contract revenues $9,912,194 $8,533,425 $ 5,380,297 $11,208,360
Material sales 92,227 201,976 138,309 230,336
Other 4,250 235,702 - 6,390
--------- --------- ---------- ----------
10,008,671 8,971,103 5,518,606 11,445,086
--------- --------- ---------- ----------
Operating costs and expenses - Insulation
Contract costs and expenses 8,548,872 7,525,047 4,703,458 10,160,868
Cost of material sales 71,316 161,297 112,299 173,911
Selling, general and administrative 993,369 1,177,047 768,631 2,055,043
--------- --------- ---------- ----------
9,613,557 8,863,391 5,584,388 12,389,822
--------- --------- ---------- ----------
Equity in earnings of unconsolidated affiliate - - 44,915 90,817
Corporate expense (2,685,199) (2,468,973) (1,940,147) (3,676,907)
--------- --------- ---------- ----------
Operating loss (2,290,085) (2,361,261) (1,961,014) (4,530,826)
Interest income (expense) (187,011) 62,460 154,364 (370,556)
Other expense - - - 728,644
--------- --------- ---------- ----------
Loss from continuing operations (2,477,096) (2,298,801) (1,806,650) (5,630,026)
Loss from discontinued operations (2,301,293) (2,311,332) (1,473,165) (1,149,745)
--------- --------- ---------- ----------
Net loss $(4,778,389) $(4,610,133) $(3,279,815) $(6,779,771)
========== ========== ========== ==========
Weighted average number of common shares 30,362,765 29,438,062 28,910,449 22,770,516
========== ========== ========== ==========
Loss per share of common stock, continuing
operations basic and diluted $(.08) $(.08) $(.06) $(.25)
Loss per share of common stock, discontinued
operations basic and diluted $(.08) $(.08) $(.05) $(.05)
Loss per share of common stock - basic and
diluted $(.16) $(.16) $(.11) $(.30)
==== ==== ==== ====
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> F5
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
The Years Ended December 31, 1998 and 1997,
the Seven Months Ended December 31, 1996, and
the Year Ended May 31, 1996
<TABLE><S> <C> <C> <C> <C> <C> <C> <C>
Total
Accumulated Share-
Additional Other holders
Common Stock Paid-in Accumulated Officers Comprehensive Equity
Shares Amounts Capital Deficit Receivable Income (Deficit)
---------- ---------- ---------- ----------- ----------- ---------- ----------
Balance at May 31, 1995 15,885,628 $1,588,563 $29,044,185 $(34,583,992) $(740,000) $(1,482,080) $(6,173,324)
Issuance of common stock 4,044,986 404,498 9,297,372 - - - 9,701,870
Common stock issued under stock
option plans and warrants 3,951,836 395,184 6,448,386 - - - 6,843,570
Conversion of debentures to
common stock 3,525,581 352,558 8,270,869 - - - 8,623,427
Officers loans; interest &
repayments - - - - 180,808 - 180,808
Debt conversions 1,325,198 132,520 1,974,545 - - - 2,107,065
Donated capital - - (44,405) - - - (44,405)
foreign currency translation
adjustment - - - - - (393,450) (393,450)
Net loss - - - (6,779,771) - - (6,779,771)
---------- --------- ---------- ----------- ---------- ---------- ----------
Balance at May 31, 1996 28,733,229 2,873,323 54,990,952 (41,363,763) (559,192) (1,875,530) 14,065,790
Issuance of common stock 15,010 1,501 52,874 - - - 54,375
Common stock issued under stock
option plans and warrants 371,000 37,100 528,637 - - - 565,737
Conversion of debentures to
common stock 4,000 400 9,600 - - - 10,000
Officers loans; interest &
repayments - - - - (17,448) - (17,448)
Foreign currency translation
adjustment - - - - - (283,386) (283,386)
Net loss - - - (3,279,815) - - (3,279,815)
---------- --------- ---------- ----------- ---------- ---------- ----------
Balance at December 31, 1996 29,123,239 $ 2,912,324 $55,582,063 $(44,643,578) $ (576,640) $(2,158,916) $11,115,253
Issuance of common stock 5 - - - - - -
Common stock issued under stock
option and warrants 910,626 91,063 1,274,876 - - - 1.365,939
Officers loans; interest &
repayments - - - - 56,477 - 56,477
Stock issued under bonus plans 30,000 3,000 105,750 - - - 108,750
Other - - - 124,334 - - 124,334
Foreign currency translation
adjustment - - - - - 18,806 18,806
Net loss - - - (4,610,133) - - (4,610,133)
<PAGE> F6
<PAGE>
---------- --------- ---------- ----------- ---------- ---------- ----------
Metalclad Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
The Years Ended December 31, 1998 and 1997,
the Seven Months Ended December 31, 1996, and
the Year Ended May 31, 1996
(continued)
Total
Accumulated Share-
Additional Other holders
Common Stock Paid-in Accumulated Officers Comprehensive Equity
Shares Amounts Capital Deficit Receivable Income (Deficit)
---------- ---------- ---------- ----------- ----------- ---------- ----------
Balance at December 31, 1997 30,063,870 3,006,387 56,962,689 (49,129,377) (520,163) (2,140,110) 8,179,426
Issuance of common stock 6,752 675 7,765 - - - 8,440
Common stock issued under stock
option and warrants 498,500 49,850 434,426 - - - 484,276
Officers loans; interest &
repayments - - - - (24,743) - (24,743)
Net loss - - - (4,778,389) - - (4,778,389)
---------- --------- ---------- ----------- ---------- ---------- ----------
Balance at December 31, 1998 30,569,122 $3,056,912 $57,404,880 $(53,907,766) $ (544,906) $(2,140,110) $3,869,010
========== ========= ========== =========== ========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> F7
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE><S> <C> <C> <C> <C>
Seven
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, May 31,
------------ ----------- ----------- ------------
1998 1997 1996 1996
---- ---- ---- ----
Cash flows from operating activities:
Net loss $(4,778,389) $(4,610,133) $(3,279,815) $(6,779,771)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss from discontinued operations 2,301,293 2,311,332 1,473,165 1,149,745
Depreciation and amortization 128,921 235,045 132,026 154,555
Provision for losses on accounts receivable (8,907) - (4,572) (6,522)
(Equity) from unconsolidated affiliates - - (44,915) -
Issuance of stock for services and interest 8,441 108,750 - 399,608
Issuance of debenture for services and interest - - - 39,323
Debenture conversion expense - - - 728,644
Write down of real estate held for sale - - - 130,415
Changes in operating assets & liabilities:
Decrease (increase) in accounts receivable 595,205 680,149 (409,140) 124,400
Decrease (increase) in unbilled receivables 88,401 (57,305) (118,396) 287,033
Decrease (increase) in inventories (15,456) 152,916 7,725 42,730
Decrease (increase) in prepaid expenses and
other assets 63,771 789,093 (902,600) 657,043
Distributions from Curtom-Metalclad - 12,588 88,530 27,412
Decrease (increase) in receivables from
related parties (59,100) 108,554 (142,064) 97,914
Increase (decrease) in accounts payable and
accrued expenses 389,729 (1,287,517) 544,526 (539,972)
Increase (decrease) in billings over cost 50,553 (24,741) (24,289) (44,060)
Other - 1,164 - (276,095)
-------- --------- --------- ---------
Net cash used in continuing operations (1,235,538) (1,580,105) (2,679,819) (3,807,598)
Net cash used in discontinued operations (1,012,106) (1,943,687) (891,061) (2,015,194)
-------- --------- --------- ---------
Net cash used in operating activities (2,247,644) (3,523,792) (3,570,880) (5,822,792)
-------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures continuing operations (274,104) - (31,028) -
Capital expenditures discontinued operations (388,940) (705,240) (1,205,078) (2,089,752)
-------- --------- --------- ---------
Net cash used in investing activities (663,044) (705,240) (1,236,106) (2,089,752)
-------- --------- --------- ---------
<PAGE> F8
<PAGE>
Metalclad Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Seven
Year Ended Year Ended Months Ended Year Ended
December 31, December 31, December 31, May 31,
------------ ----------- ----------- ------------
1998 1997 1996 1996
---- ---- ---- ----
Financing activities:
Proceeds from long-term borrowings 1,392,979 1,500,000 - -
Payments on long-term borrowings
continued operations - (210,000) - (684,831)
(Borrowings) repayments by officers,
secured by stock (net) (24,743) 56,477 - 180,808
Proceeds from issuance of common stock - - 13,512 8,864,862
Proceeds from issuance of common stock
under stock option plans 111,527 - 222,250 6,843,570
Proceeds from exercise of warrants 372,750 1,365,939 384,350 -
-------- --------- --------- ---------
Net cash provided (used) continuing operations 1,852,513 2,712,416 620,112 15,204,409
Net cash provided (used) in discontinued
operations 120,391 - - (210,471)
-------- --------- --------- ---------
Net cash provided by financing activities 1,972,904 2,712,416 620,112 14,993,938
Effects of exchange rates on cash 139,969 (22,672) (83,088) (118,443)
Loss on foreign currency translations (210,926) (2,413) - -
-------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents (1,008,741) (1,541,701) (4,269,962) 6,962,951
Cash and cash equivalents at beginning of period 1,532,694 3,074,395 7,344,357 381,406
-------- --------- --------- ---------
Cash and cash equivalents at end of period $ 523,953 $1,532,694 $3,074,395 $7,344,357
========= ========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,603 $ 114,820 $ 211,537 $ 951,968
========= ========== ========== ==========
Supplemental schedule of noncash investing and financing activities:
During fiscal year ended May 31, 1996, 125,000 shares of common stock were issued at $3.50 per share as additional
consideration for the acquisition of COTERIN (see Note C).
During fiscal year ended May 31, 1996, approximately $8.6 million in convertible subordinated debentures converted into
common stock of the Company at the induced conversion rate of $2.50 per share. Debenture conversion rate at the time of the
offer by the Company was $2.82 per share.
During fiscal year ended May 31, 1996, approximately $2.1 million in debt converted into common stock of the Company at
the conversation rate of $1.59 per share.
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE> F9
<PAGE>
NOTE A DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Metalclad Corporation (the Company ) is engaged in insulation services,
including asbestos abatement and material sales, to customers primarily in
California (the Insulation Business ). The Company has also been engaged
in the development of hazardous and non-hazardous industrial waste
treatment and storage facilities, as well as the collection and recycling
of industrial waste for disposition to landfills or as alternative fuels
for cement kilns in Mexico (the Mexican Business ).
On October 13, 1997, the Company filed a claim for arbitration against
Mexico under provisions of the North American Free Trade Agreement
( NAFTA ). The claim alleges the Company has been denied the right to
operate its permitted and fully constructed landfill facility in the State
of San Luis Potosi, thereby causing the facility to be, as a practical
matter, expropriated. The Company believes it is entitled to the fair
market value of the facility as damages. A final hearing on the Company s
claim has been scheduled to commence on August 30, 1999, with a decision
anticipated shortly thereafter. The decision in the NAFTA arbitration
will be material to the Company, however, no assurances can be given of
the Company being successful.
Because of this arbitration, the Company s other businesses in Mexico,
including its development of a second landfill facility in the State of
Aguascalientes, have been impacted dramatically. Consequently, the
Company is discontinuing any further investment in Mexico and is seeking
to sell its remaining businesses in Mexico. (See Note B.)
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the financial
statements, the Company has incurred recurring losses from operations and
has a large accumulated deficit. Additionally, the Company may require
substantial additional financing to pursue its NAFTA claim, the sale of
its Mexican businesses and to fund general and administrative expenses
without sufficient revenues to offset. These matters raise substantial
doubt about the Company s ability to continue as a going concern. The
Company is continuing its efforts to reduce costs and has halted any
further funding for development in Mexico. The Company is pursuing
additional financing alternatives to maintain its operations which may
include a continuation of its warrant exchange program. The financial
s t a t e ments to do not include any adjustments relating to the
recoverability of asset carrying amounts or the amount and classification
of liabilities that might result should the Company be unable to continue
as a going concern.
Principles of Consolidation/Investments
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Investments in other companies and
joint venture corporations which are 20-50% owned are reported on the
<PAGE> F7
<PAGE>
equity method. Significant intercompany accounts and transactions have
been eliminated in consolidation. Costs incurred relating to the
acquisition or formation of an equity method investment are considered
part of the investment and are amortized over five years.
Contracts in Process
Fixed price insulation installation and asbestos abatement contracts are
accounted for by the percentage-of-completion method wherein costs and
estimated earnings are included in revenues as the work is performed. If
a loss on a fixed price contract is indicated, the entire amount of the
estimated loss is accrued when known. Time and material contracts are
accounted for under a cost plus fee basis. Retentions by customers under
contract terms are due at contract completion.
Inventories
Inventories, which consist principally of insulation products and related
materials, are stated at the lower of cost (determined on the first-in,
first-out method) or market.
Depreciation and Amortization
Property, plant and equipment is stated at cost. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of related assets which range from between five to seven
years for machinery, equipment and leasehold improvements.
Goodwill
Goodwill represents the excess purchase price over the fair value of
certain landfill assets acquired in 1994 and is being amortized over 10
years. (See Note C.)
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of those
instruments.
Loss Per Share
The Company computes loss per share in accordance with SFAS 128, Earnings
Per Share . This statement requires the presentation of both basic and
diluted net loss per share for financial statement purposes. Basic net
loss per share is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding.
Diluted net loss per share includes the effect of the potential shares
outstanding, including dilutive stock options and warrants using the
treasury stock method. Because the impact of options and warrants are
anti-dilutive, there is no difference between the loss per share amounts
<PAGE> F8
<PAGE>
computed for basic and diluted purposes.
Stock-Based Compensation
Effective June 1, 1996, the Company adopted the disclosure provisions of
SFAS No. 123, Accounting for Stock-Based Compensation . SFAS No. 123
requires the Company to disclose pro forma net income and earnings per
share as if the fair value based accounting method of SFAS No. 123 had
been used to account for stock based compensation. These disclosures are
included in Note J.
Income Taxes
The Company accounts for income taxes using the liability method as
prescribed by Financial Accounting Standards No. 109, Accounting for
Income Taxes .
Comprehensive Income
In 1998, the Company adopted SFAS 130, Reporting Comprehensive Income .
This statement establishes rules for the reporting of comprehensive income
and its components. Comprehensive income consists of net income and
f o reign currency translation adjustments and is presented in the
Consolidated Statement of Shareholders Equity. The adoption of SFAS 130
had no impact on total shareholders equity. Prior year financial
statements have been reclassified to conform to the SFAS 130 requirements.
Foreign Currency Translation
Through December 31, 1996, all assets and liabilities of the Mexican
subsidiaries were translated at the current exchange rate as of the end of
the accounting period. Items in the statements of operations were
translated at average currency exchange rates. The value of the Mexican
Peso relative to the U.S. Dollar declined from approximately 3.4 Mexican
Pesos in June 1994 to approximately 9.85 Mexican Pesos to the U.S. Dollar
at December 31, 1998. The resulting translation adjustments were recorded
as a separate component of shareholders equity.
As of January 1, 1997, Mexico has been deemed a highly inflationary
economy. This results in the U.S. dollar being the functional currency
of the Company s Mexican entities and the net exchange gain or losses
resulting from the translation of assets and liabilities of the Mexican
entities now being included in income, except for the effects of exchange
rate changes on intercompany transactions of a long-term investment nature
which are still recorded as a separate component of shareholders equity.
Reclassifications
Certain reclassifications have been made to prior period consolidated
financial statements to conform with the current year presentation.
<PAGE> F9
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE B DISCONTINUED OPERATIONS
During the year ended May 31, 1994, the Company formed a Mexican holding
company, Ecosistemas Nacionales, S.A. de C.V. (ECONSA), to ultimately hold
the common stock of Ecosistemas del Potosi, S.A. de C.V. (ECOPSA),
Confinamiento Tecnico de Residuos Industriales, S.A. de C.V. (COTERIN),
Consultoria Ambiental Total, S.A. de C.V. (CATSA), Quimica Omega, S.A. de
C.V. (QUIMICA OMEGA), Administracion de Residuos Industriales, S.A. de
C.V. ( ARI ) and Ecosistemas El Llano, S.A. de C.V. ( El Llano ).
During the fourth quarter of 1998, management committed to a plan to sell
its Mexican operations to a third party. Consequently, this segment of
the Company s business is now being reported as discontinued operations.
Although the exact timing is difficult to predict, the Company expects to
sell its interest in ARI, El Llano and ECONSA s development activities
during fiscal year 1999.
The loss from discontinued operations during fiscal 1998 includes a
provision for anticipated closing costs and operating losses until
disposal of $450,000. Based on information currently available, the
Company does not anticipate that it will incur a loss on the sale of the
reported net assets of the discontinued operations.
The consolidated financial statements for prior periods have been restated
to reflect the accounting for discontinued operations.
Net sales and loss from discontinued operations are as follows:
Year Ended Year Ended Seven Months Year Ended
December 31, December 31, December 31, May 31,
1998 1997 1996 1996
------------ ------------ ------------ ----------
Net Sales $5,232,554 $4,704,674 $631,884 $3,456,680
Operating loss (1,885,680) (2,219,177) (1,281,747) (560,082)
Interest expense (415,613) (92,155) (191,418) (589,663)
--------- --------- --------- ---------
Loss from discontinued
operations $(2,301,293) $(2,311,332) $(1,473,165) $(1,149,745)
========= ========= ========= =========
<PAGE> F10
<PAGE>
The net assets of discontinued operations are as follows:
December 31, December 31,
1998 1997
---- ----
Current assets $1,035,170 $1,465,676
Property, plant and equipment, net 3,317,269 1,682,074
Other assets 709,682 996,769
Current liabilities (3,307,444) (1,677,079)
---------- ----------
Net assets of discontinued
operations $1,754,677 $2,467,440
========= =========
NOTE C - REALIZATION OF ASSETS
The Company addresses the realization of its assets as required by SFAS
121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of . This statement requires that long-lived assets
and certain identifiable intangibles to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company has
conducted this review and believes that no impairment currently exists and
no material adjustments are necessary to the valuation of its assets.
El Confin
Included in property, plant and equipment, net at December 31, 1998, is
approximately $4,323,000 representing the Company s investment in its
completed hazardous waste treatment facility in the State of San Luis
Potosi, Mexico, known as El Confin . Additionally, the Company has
unamortized goodwill of approximately $507,000 associated with this
facility. The Company has been granted all necessary federal governmental
authorizations to open and operate the facility but, as yet, has not
received the support of the state and local governments. Consequently, on
October 2, 1996, the Company filed a Notice of Intent to File Claim Under
the North American Free Trade Agreement ( NAFTA ). The Claim was filed
with the International Centre for Settlement of Investment Disputes
( ICSID ) in Washington, D.C. On January 13, 1997, the Secretary General
of ICSID registered the Company s claim and notified both the United
States and Mexican governments of the registration. On October 13, 1997,
the Company filed its detailed memorial, or claim, and on February 17,
1998, Mexico filed its counter-memorial, or response. The Company filed a
reply brief on August 21, 1998 and Mexico is scheduled to file its
response on April 19, 1999. A final hearing on the issues is scheduled
for August 30, 1999. The Company s claim is one under the category of
Likened to Expropriation wherein the Company, having been denied the
right to operate its constructed and permitted facility, claims its
property has therefore been, as a practical matter, expropriated,
entitling the Company to the fair market value of the facility as damages.
Although the Company remains confident in its position, no assurances can
<PAGE> F11
<PAGE>
be given that it will be successful in this arbitration process. The
realization of the capitalized landfill costs and goodwill associated with
El Confin is dependent upon a successful resolution of the Company s NAFTA
claim. Based upon independent appraisal and management s best estimate,
the Company believes that the proceeds from the NAFTA claim will
significantly exceed the carrying value of the El Confin assets. However,
should a decision be rendered against the Company, assets totaling
$4,830,000 may be impaired and could potentially result in a write off
should the Company be unable to sell or otherwise recover its investment.
NOTE D - INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Curtom-Metalclad
In 1989, the Company entered into a joint venture with a minority service
firm ( Curtom-Metalclad ) to perform industrial insulation and industrial
asbestos abatement services similar to those performed by the Company.
When contracts are obtained by the joint venture, the Company performs the
work specified in the contract as a subcontractor to the joint venture.
The following is unaudited summarized financial information for Curtom-
Metalclad:
Balance Sheets
(Unaudited)
December 31, December 31,
1998 1997
---- ----
Cash $ 6,927 $ 3,651
Accounts receivable 151,784 375,083
-------- --------
Total assets $158,711 $378,734
======= =======
Accounts payable $151,088 $363,553
Curtom-equity 3,795 7,741
Metalclad-equity 3,828 7,440
------- -------
Total liabilities and partners
capital $158,711 $378,734
======= =======
<PAGE> F12
<PAGE>
Statements of Operations
(Unaudited)
Year Year Seven Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, May 31,
1998 1997 1996 1996
---- ---- ---- ----
Revenue $2,842,465 $3,679,907 $3,427,699 $1,417,601
Costs of sales (2,838,438) (3,684,288) (3,335,786) (1,231,613)
Expenses - (1,255) (904) (646)
--------- --------- --------- ---------
Income from
operations $ 4,027 $ (5,636) $ 91,009 $ 185,342
========= ========= ========= =========
NOTE E - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
December 31, December 31,
1998 1997
---- ----
Land & Buildings $ 11,476 $ 132,494
Machinery & equipment 525,766 551,895
Automotive equipment 216,330 80,975
Leasehold improvements 1,038 1,039
--------- ---------
754,610 766,403
Less accumulated depreciation
and amortization (446,400) (458,967)
--------- ---------
308,210 307,436
Hazardous waste treatment
facilities 4,322,887 4,117,428
--------- ---------
$4,631,097 $4,424,864
========= =========
<PAGE> F13
<PAGE>
NOTE F ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31, December 31,
1998 1997
---- ----
Wages, bonuses and taxes $ 467,763 $125,521
Union dues 97,933 105,325
Accounting fees 112,700 120,000
Other 487,654 362,257
--------- -------
$1,166,050 $713,103
========= =======
NOTE G CONVERTIBLE LONG-TERM NOTES
In December 1997, the Company issued $2,200,000 Five Year Zero Coupon
Secured Notes, due December 31, 2002, netting the Company $1,500,000. The
Company is amortizing the difference between the value at maturity and the
purchase price over five years. Upon the market price of the Company s
common stock closing at or above $1.50 for ten consecutive trading days,
the notes become convertible into common stock of the Company at $1.50 per
share and the Company is to issue warrants to purchase 1,500,000 common
shares of stock. Both the conversion price and warrant exercise price
also contain anti-dilution provisions. Additionally, the notes are
redeemable at the option of the holder, or the Company, any time after
April 15, 1999. These notes are secured by 100% of the stock of Metalclad
Insulation Corporation. In February 1998, the conditions triggering the
convertibility of the notes and the issuance of warrants were met.
In June 1998, the Company registered a bridge loan with the holder of
these notes in the amount of $250,000. As additional consideration for
the bridge loan, the Company issued 250,000 warrants exercisable at $1.25.
In connection with this financing, certain amendments were made to the
original Five Year Zero Coupon Notes which granted the holder an
additional 400,000 warrants exercisable at $1.50 and clarifying the anti-
dilution language contained in the original notes. The bridge loan was
paid in its entirety from the proceeds of the Company s July 1998
financing. Due to the anti-dilution provisions contained in both the
notes and the warrants, the holder of these notes had rights similar to
those of the Company s existing warrant holders. As part of the Company s
negotiations with the warrant holders to solve the issue of the on going
anti-dilution effects on the number of shares underlying the warrants, the
holder of these notes also had to be addressed to solve the anti-dilution
provisions contained in the notes. In February 1999, the Company and the
holder reached agreement on the conversion price of the notes, originally
priced to convert at $1.50 per share, and are now convertible into shares
of the Company s common stock at $.25 per share.
<PAGE> F14
<PAGE>
NOTE H - CONVERTIBLE SUBORDINATED DEBENTURES
I n N ovember 1993, the Company issued $3,840,000 of convertible
subordinated debentures due in 60 months, bearing interest at 9% and
convertible into shares of common stock at the rate of $5.50 per share
subject to certain adjustments. During the year ended May 31, 1994, the
Company also issued an additional $732,359 principal amount of convertible
subordinated debentures due in 60 months, bearing interest at 8%, and
convertible into shares of common stock at the rates of $4.00 and $5.00
per share subject to certain adjustments.
In August 1995, the Company offered to convert all outstanding debentures
into shares of common stock at a conversion price below the stated price
on the debentures. As of May 31, 1996, approximately $8,600,000 of these
debentures converted at the rate of $2.50 per share and the Company
recognized a charge of $729,000 due to the lower conversion price offer.
All of these debentures have now either converted or have been retired.
In July 1998, the Company issued $1,000,000 in 7% Convertible Debentures
due in July 2001. The debentures are convertible into shares of the
Company common stock at $1.25 or 75% of current market price, whichever is
lower. The Company has the option to redeem all or portions of this
debenture at 125% of the principal amount of the redemption. The
debenture also allows for a mandatory redemption in the event of an award
in the NAFTA arbitration or, in certain cases, if the Company obtains
additional equity investment. The mandatory redemption is also at 125% of
the then-outstanding principal balance. In February 1999, the Company
redeemed $150,000 of the principal amount of the debentures.
I n August 1998, the Company issued $350,000 in 10% Convertible
S u bordinated Debentures due in August 2001. The debentures are
convertible into shares of the Company s common stock at $1.25 per share
through June 30, 1999. After June 30, the debentures are convertible at
75% of current market price or $1.25 whichever is lower. The debentures
are also redeemable at the option of the company when the average closing
bid and ask prices of the Company s common stock closes at prices higher
than $3.00 per share for 20 days in any 30-day period.
NOTE I - INCOME TAXES
There was no provision for income taxes for the periods presented due to
losses incurred and the Company s inability to recognize certain loss
carry forwards. The major deferred tax items at December 31, 1998 and
1997 are as follows:
<PAGE> F15
<PAGE>
December 31, December 31,
1998 1997
---- ----
Assets:
Allowances established against
realization of certain assets $ 10,000 $ 12,000
Net operating loss carryforwards 8,878,800 8,144,416
Accrued liabilities and other 206,165 139,200
--------- ---------
9,094,965 8,295,616
Valuation allowance (9,094,965) (8,295,616)
--------- ---------
$ - $ -
========= =========
The difference between the actual income tax benefit and the tax benefit
computed by applying the statutory Federal income tax rate to the net loss
before income taxes is attributable to the inability to recognize
currently the future benefit of net operating loss carryforwards.
At December 31, 1998, the Company has available for U.S. Federal and
California income tax purposes net operating loss carryforwards of
approximately $19,000,000 and $7,000,000, respectively. These
carryforward amounts expire in the years 2000 through 2018 and 1999
through 2003, respectfully. At December 31, 1998, the Company has
available investment credits of approximately $32,300 to offset future
U.S. Federal income tax liability. The ultimate utilization of the net
operating loss and investment credit carryforwards may be restricted in
the future due to changes in the ownership of the Company. The Company
also has Mexican net operating loss carryforwards of approximately
$6,000,000 which may be utilized to offset future taxable income. The
Mexican losses are subject to a ten-year tax carryforward period and
expire in the years 2002 through 2008.
The Company has recorded a valuation allowance for that portion of the
deferred tax asset that the Company does not believe to be realizable.
NOTE J - SHAREHOLDERS EQUITY
Stock Options
On August 18, 1992, the Company adopted an omnibus stock option plan (the
1992 Plan ) which authorized the issuance of 1,600,000 options to acquire
the Company s common stock. At December 31, 1998, there were options
outstanding under the 1992 Plan for 770,000 shares, and none available for
grant. These options will expire 10 years from the date of grant.
On March 24, 1993, the Company adopted an omnibus stock option plan (the
1993 Plan ) which authorized the issuance of 1,000,000 options to acquire
the Company s common stock. The terms of the 1993 Plan are the same as
the 1992 Plan. At December 31, 1998, there were options outstanding under
<PAGE> F16
<PAGE>
the 1993 Plan for 674,500 shares, and 500 options available for grant.
These options expire 10 years from the date of the grant.
On May 15, 1997, the Company adopted an omnibus stock option plan (the
1997 Plan ) which authorized the issuance of 6,000,000 options to acquire
the Company s common stock. At December 31, 1998 there were no options
outstanding under this plan.
During the year ended December 31, 1998, the Board of Directors and its
Compensation Committee approved the grant to various officers, directors
and employees of the Company of options to purchase an aggregate of
2,463,000 shares of common stock. The options were granted at exercise
prices equal to or exceeding the fair market value of the Company s common
stock on the measurement date, expire 10 years from the date of grant and
have various vesting schedules.
The following is a summary of options granted:
<TABLE><S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Seven Months Ended Year Ended
December 31, 1998 December 31, 1997 December 31, 1996 May 31, 1996
----------------- ----------------- ------------------ -------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
----------- ----- ----------- ----- ----------- ----- ----------- -----
Options outstanding at
beginning of the year 3,923,000 $2.23 4,848,250 $2.75 7,904,250 $3.07 4,487,500 $2.17
Granted 2,463,000 1.38 890,000 1.47 300,000 3.00 5,040,000 3.56
Exercised (178,500) .75 - - (161,000) 1.38 (1,547,000) 2.10
Canceled (131,000) 2.09 (1,815,250) 3.25 (3,195,000) 3.63 (76,250) 2.25
--------- ---- --------- ---- --------- ---- --------- ----
Options outstanding at
end of the year 6,076,500 $1.93 3,923,000 $2.23 4,848,250 $2.75 7,904,250 $3.07
========= ==== ========= ==== ========= ==== ========= ====
Options Exercisable 5,721,000 3,699,000 2,982,000 2,855,750
========= ========= ========= =========
</TABLE>
<PAGE> F17
<PAGE>
The following significant assumptions were utilized to calculate the fair
value information presented utilizing the Black-Scholes Multiple Option
Approach:
December December December
1998 1997 1996
-------- -------- --------
Risk Free interest rate 6.00% 6.00% 6.10%
Expected life 1.5 years 1.31 years 1.2 years
Expected volatility 1.07 .9877 1.05
Expected dividends - - -
Weighted average fair value of
options granted .608 .615 3.36
<TABLE>
<S><C> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------- -------------------------------
Weighted
average Weighted Weighted
Number remaining average Number average
Range of outstanding contractual exercise exercisable exercise
exercise prices as of 12/31/98 life in years price as of 12/31/98 price
--------------- --------------- -------------- --------- -------------- --------
$0.560 - $1.438 613,000 8.84 $1.0911 559,000 $1.0682
$1.500 - $1.500 2,036,500 9.01 $1.5000 1,835,000 $1.5000
$1.625 - $1.625 500,000 8.01 $1.6250 500,000 $1.6250
$2.250 - $2.250 2,207,000 5.56 $2.2500 2,107,000 $2.2500
$2.500 - $3.000 580,000 7.53 $2.8276 580,000 $2.8276
$3.625 - $3.625 50,000 7.01 $3.6250 50,000 $3.6250
$4.500 - $4.500 90,000 7.01 $4.5000 90,000 $4.5000
--------------- --------- ---- ------- --------- -------
$0.560 - $4.500 6,076,500 7.47 $1.9301 5,721,000 $1.9453
=============== ========= ==== ======= ========= =======
</TABLE>
<PAGE> F18
<PAGE>
As the Company has adopted the disclosure requirements of SFAS 123, the
following table shows pro forma net loss and loss per share as if the fair
value based accounting method had been used to account for stock based
compensation cost.
Year Year Seven Months Year
Ended Ended Ended Ended
Dec. 31, Dec. 31, Dec. 31, May 31,
1998 1997 1996 1996
---- ---- ---- ----
Net loss $(4,778,389) $(4,610,000) $(3,280,000) $(6,780,000)
Pro forma
compensation
expense (1,497,000) (547,000) (355,000) (1,023,000)
--------- --------- --------- ---------
Pro forma net
loss $(6,275,389) $(5,157,000) $(3,635,000) $(7,803,000)
========== ========== ========== ==========
Pro forma loss
per share $(.21) $(.17) $(.13) $(.34)
==== ==== ==== ====
The effects of applying FASB 123 in this pro forma disclosure are not
indicative of future amounts.
Stock Purchase Warrants
In connection with various debt offerings, stock placements and services
provided, the Company has issued various stock purchase warrants. All
such warrants were issued at prices which approximated or exceeded fair
market value of the Company s common stock at the date of grant and are
exercisable at dates varying from one to five years.
Summarized information for stock purchase warrants is as follows:
<PAGE> F19
<PAGE>
<TABLE><S> <C> <C>
Number Price
of Warrants Per Share
----------- ---------
Warrants outstanding at May 31, 1996 7,365,385 $1.59-5.00
Issued - -
Exercised (210,000) 1.51-2.00
--------- ---------
Warrants outstanding at December 31, 1996 7,155,385 1.51-5.00
Issued 1,110,626 1.50
Exercised (910,626) 1.50
Expired (693,500) 2.00-2.25
--------- ---------
Warrants outstanding at December 31, 1997 6,661,885 1.50
Issued 2,568,400 1.25-1.50
Exercised (320,000) 1.25
Expired (221,000) 1.50-5.00
--------- ---------
Warrants outstanding at December 31, 1998 8,689,285 $1.25-$2.25
========= ==========
</TABLE>
As a result of the implementation of the ratchet clause contained in most
of the warrants issued by the Company, the shares underlying the Company s
warrants were increased significantly in 1999.. As a further result of the
Company s negotiations with its warrant holders, the ratchet effects have
been frozen and are reflected in the following table as of March 15, 1999:
Underlying Exercise Price
Shares Per Share
------ ---------
Shares underlying the warrants at
December 31, 1998 27,259,273 $.25-$2.25
Shares issued from exercises (2,773,400) .25
Shares underlying new warrants issued 1,773,400 .35
---------- ---------
Total underlying shares of warrants
outstanding 26,259,273 $.25-$2.25
========== =========
Common Stock
During the year ended December 31, 1997, the Company issued a total of
940,600 shares, with 910,600 being the result of warrant exercises and
30,000 issued as stock bonuses previously accrued in 1996. The Company
realized net proceeds of $1,366,000 from these transactions.
During the year ended December 31, 1998, the Company issued 505,252
<PAGE> F20
<PAGE>
shares, with 320,000 being the result of warrant exercises, 178,500 being
from the exercise of warrants and 6,752 being for services. The Company
realized net proceeds of $484,000 from these transactions.
NOTE K - EMPLOYEE BENEFIT PLANS
Effective January 1, 1990, the Company established a contributory profit
sharing and thrift plan for all salaried employees. Discretionary
matching contributions are made by the Company based upon participant
contributions, within limits provided for in the plan. No contributions
were made in the years ended December 31, 1998 and 1997, the seven months
ended December 31, 1996 or the year ended May 31, 1996, respectively.
Additionally, the Company participates in several multi-employer plans,
which provide defined benefits to union employees of its participating
companies. The Company makes contributions determined in accordance with
the provisions of negotiated labor contracts. The contributions were
$222,443, $257,000, $127,000 and $296,000 for the years ended December 31,
1998 and 1997, the seven months ended December 31, 1996 and for the fiscal
year ended May 31, 1996, respectively.
NOTE L - SIGNIFICANT CUSTOMERS
Sales for the twelve months ended December 31, 1998 to Curtom-Metalclad
were approximately $3,136,000 representing work performed at Edison plants
under the strategic alliance program. Additionally, the Company had sales
of $3,776,000 to Arco and $1,357,000 to Equilon (formerly Texaco). As of
December 31, 1998, the Company had accounts receivable from Curtom-
Metalclad of $151,000, ARCO of $110,000, Edison of $177,000 and Equilon of
$118,000.
Sales for the twelve months ended December 31, 1997 to Curtom-Metalclad
were approximately $3,573,000, including $3,533,000 performed at Edison
plants under the strategic alliance program. The Company had trade
accounts receivable of $355,000 from Curtom-Metalclad as of December 31,
1997. Additionally, the Company had sales of $1,455,000 and $1,557,000 to
Texaco and Arco, respectively, during 1997. Accounts receivable from
these two customers were $128,000 and $489,000, respectively, as of
December 31, 1997.
Sales for the seven months ended December 31, 1996 to Curtom-Metalclad
were approximately $3,445,000, including $3,345,000 performed at Edison
plants. The Company had trade accounts receivable of $1,602,000 from
Curtom-Metalclad as of December 31, 1996.
S a l e s to Southern California Edison and Curtom-Metalclad were
approximately $2,417,000 and $1,267,000, respectively, in the year ended
May 31, 1996.
<PAGE> F21
<PAGE>
NOTE M - COMMITMENTS AND CONTINGENT LIABILITIES
The Company has employment agreements with its executive officers. These
agreements continue until terminated by the executive or the Company and
provide for minimum salary levels, as adjusted for cost of living changes.
These agreements include incentive bonuses based upon specified management
goals, and a covenant against competition with the Company extending for a
period of time after termination.
The Company leases its facilities under non-cancelable operating lease
agreements which expire at various dates through 2002. Total rent expense
under operating leases was $178,245, $307,839, $168,722, and $404,647
for the years ended December 31, 1998 and 1997, seven months ended
December 31, 1996 and for the years ended May 31, 1996, respectively.
Future minimum non-cancelable lease commitments (assuming renewal of the
Anaheim lease) are as follows:
Year ending December 31, 1999 $211,788
2000 237,660
2001 149,878
2002 60,957
-------
$660,283
=======
In the ordinary course of its insulation business, certain parties have
filed a substantial number of claims against the Company for actual and
punitive damages. Presently, the number of these claims exceed 300. The
potential value of the claims is in the range of $1,000,000 to $5,500,000.
t h e Company continues to have adequate insurance coverages with
financially sound carriers responding to these claims and does not foresee
any financial exposure resulting from these claims. Throughout its
history, the Company has maintained insurance policies that typically
respond to these claims. Based on the advice of counsel, it is
management s opinion that these actions, individually and in the
aggregate, will not have a significant adverse impact on the Company s
financial position or results of operations.
<PAGE> F22
<PAGE>
NOTE N - RELATED PARTY TRANSACTIONS
Receivables from related parties are comprised of the following :
December 31, December 31,
1998 1997
----------- -----------
Parc-Metalclad $ - $ 12,644
Loans to executive officers,
directors and employees 100,297 119,181
Other 90,195 -
------- -------
$190,492 $131,825
======= =======
Loans to executive officers, directors and employees are represented by
promissory notes, due on demand and bear interest at 6%.
An officer and director of the Company is a partner in a law firm which
has received payments for legal fees of approximately $0, $47,000,
$54,000, and $283,000 for the years ended December 31, 1998 and 1997, the
seven months ended December 31, 1996 and the year ended May 31, 1996,
respectively.
During fiscal 1995 the Company loaned $370,000 each to Grant S. Kesler and
T. Daniel Neveau, officers of the Company. The loans are collateralized
by 180,000 shares of common stock of the Company. The loans accrued
interest at 7% over prime which was 9% at May 31, 1995. In February 1996,
Messrs. Kesler and Neveau each repaid $150,000 to the Company. In March
1996, the notes were amended to modify the loan principal between Messrs.
Kesler and Neveau as well as to adjust the interest rates, effective March
1, to a variable rate based upon the Company s quarterly investment rate.
The amendment also stipulated that the notes be re-paid by May 31, 1997.
The repayment of these notes has been extended until December 31, 1999.
In December 1996, the Company loaned $150,000 to Mr. Javier Guerra
Cisneros, a Director and Vice President of Mexico Operations. The loan is
collateralized by 300,000 shares of stock of the Company and is
represented by a promissory note bearing interest at 10%. In February
1997, Mr. Guerra repaid $120,000 of this note. The repayment of this note
has been extended until the earlier of the Company s sale of its Mexican
operations or December 31, 1999.
NOTE O - UNAUDITED INTERIM INFORMATION
The following condensed financial information for the twelve month and
seven month periods ended December 31, 1997 and December 31, 1996 is
unaudited and is being presented for comparative purposes.
<PAGE> F23
<PAGE>
<TABLE><S> <C> <C> <C> <C>
Twelve Months Ended Seven Months Ended
December 31, December 31,
--------------------------- ---------------------------
1997 1996 1996 1995
---- ---- ---- ----
Revenues - Insulation Business $8,971,103 $10,144,474 $5,518,606 $6,910,000
Revenues - Waste Management(1) 4,704,674 2,320,398 631,884 1,450,860
Operating Income (Loss) - Insulation Business 107,712 (873,517) (20,867) (1,269)
Operating Loss - Waste Management(1) (2,216,764) (1,917,915) (1,281,747) 76,086
Corporate Expense 2,468,973 3,828,047 1,940,147 1,789,007
Interest Expense 29,695 163,123 37,054 834,149
Other Expense 2,413 - - 728,644
--------- --------- --------- ---------
Net Loss $(4,610,133) $(6,782,602) $(3,279,815) $(3,276,983)
========== ========== ========== ==========
Net Loss Per Share - Basic and Diluted $(.16) $(.24) $(.11) $(.17)
==== ==== ==== ====
(1) The waste management business was discontinued in 1998. See Note B.
</TABLE>
<PAGE> F24
<PAGE>
Metalclad Corporation and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Other(A) Period
------------- --------- ---------- ---------- ---------- -------- ----------
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $38,701 $95,167 $ 0 $ 0 $ 0 $133,868
Allowance for excess and
obsolete inventory 16,009 0 0 11,009 0 5,000
------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $67,972 $ 8,340 $38,018 $ (31,416) $(44,213)(B) $38,701
Allowance for excess and
obsolete inventory 25,289 0 0 (9,280) 0 16,009
------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $66,566 $ 4,044 $ 0 $ 0 $ (2,638) $67,972
Allowance for excess and
obsolete inventory 25,000 289 0 0 0 25,000
------------------------------------------------------------------------------------------------------------------
Year ended May 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $44,480 $30,894 $ 0 $ 6,521 $ (2,287) $66,566
Allowance for excess and
obsolete inventory 25,000 0 0 0 0 25,000
------------------------------------------------------------------------------------------------------------------
(A) Exchange rate effect
(B) Includes adjustment for discontinued operations
</TABLE>
<PAGE> F24
EMPLOYMENT AGREEMENT
This Agreement is entered into this 1st day of January, 1998 by and
b e tween METALCLAD CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), and Grant S. Kesler (hereinafter referred
to as "Executive") under the following terms and conditions:
RECITALS:
WHEREAS, the Company and Executive desire to set forth the terms and
conditions on which (i) the Company shall employ Executive, (ii) Executive
shall render services to the Company, and (iii) the Company shall
compensate Executive for such services; and
WHEREAS, in connection with the employment of Executive by the
Company, the Company desires to restrict Executive s rights to compete
with the business of the Company;
NOW, THEREFORE, in consideration of the mutual promises, covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts
employment with the Company upon the terms and conditions hereinafter set
forth.
2. TERM.
2.1 The term of this Agreement (the "Term") shall be for a three
year period commencing on the Effective Date (as defined in Subsection 2.3
below) of this Agreement, subject, however, to termination as provided
herein in Sections 6 and 7 below.
2.2 Each year, prior to the anniversary date, the company and
executive shall meet to determine any additional compensation, if any, for
the remaining contract term.
2.3 The effective date of this Agreement shall be January 1,
1998 (the "Effective Date").
3. COMPENSATION.
3.1 For all services rendered by Executive under this Agreement,
the Company shall pay or cause one or more of its subsidiaries to pay
Executive during the term hereof a salary at the rate of Two Hundred Fifty
<PAGE> -1-
<PAGE>
Thousand Dollars ($250,000.00) per year. The Company shall pay such
compensation to Executive semi-monthly in accordance with its standard
practice for payment of compensation to its employees.
3.2 Executive shall be entitled to periodic cash bonuses in
accordance with the Metalclad Corporation Stock Option and Incentive Plan,
any other incentive bonus plans or other forms of compensation, at the
discretion of the Company s Board of Directors, dependent upon Employee s
performance. Executive shall be entitled to participate in the Company s
401(k) plan.
3.3 Executive shall be entitled to a car allowance, housing
allowance and to health insurance for him and his dependents.
3.4 All compensation shall be subject to customary withholding
t a x and other employment taxes as are required with respect to
compensation paid by a corporation to an employee.
3.5 In order to provide proper incentives to those personnel
engaged in developing waste processing facilities in Mexico, the Company
recognizes that it must institute special bonus programs and incentive
bonus programs from time to time. For the calendar year 1998, the
Compensation Committee has approved both a special bonus program and an
incentive bonus program as follows:
3.5.1 Special Bonus Program. Because of the Company s
involvement in a NAFTA arbitration against the Federal Government of
Mexico, it requires an extraordinary effort on the part of key employees
to ensure the success of the litigation on the part of the Company. A
total of five percent (5%) of the award, or the value of the settlement,
is to be shared with three key executives. The Executive herein shall be
entitled to two and one-quarter percent (2.25%) of the total award, or the
total value of the settlement of the case, in the event there is a
settlement.
3.5.2 Incentive Bonus Program. For the calendar year 1998,
the Board of Directors has set three major objectives for the key
executives. The objectives include opening the Aguascalientes project for
commercial operations, keeping the Company properly capitalized for
growth, and respecting the public market participation in the Company to
ensure that gains made by the Company are recognized by its public
ownership and reflected in its share price. To the extent that these
objectives are met, the key participants in the incentive bonus program,
including the Executive herein, shall be entitled to a minimum of twenty
percent (20%) of his base salary to a maximum of one hundred fifty percent
(150%) of base salary, depending upon the extent to which the objectives
have been achieved.
It is expected that the foregoing bonuses will be earned in
1998, unless the settlement or conclusion of the NAFTA litigation takes
longer, in which case that particular special bonus will go beyond 1998
until there is a final resolution. It is expected that the Board of
Directors will provide additional bonus incentives for years subsequent to
<PAGE> -2-
<PAGE>
1998, provided that for the life of the contract there will always be at
least a minimum incentive bonus of twenty percent (20%) due in December of
each year.
4. DUTIES AND RESPONSIBILITIES
4.1 Executive shall, during the Term of this Agreement unless
otherwise agreed by management, devote his full attention and expend his
best efforts, energies, and skills on a full-time basis, to the business
of the Company and any corporation controlled by the Company (each, a
"Subsidiary"). The Company acknowledges that Executive is engaged in
other business activities separate from and outside the scope of the
business of the Company. The Company agrees that the devotion of
reasonable amounts of time to such other business activities will not
violate the terms of this Agreement on the conditions that (i) such
activities are not corporate opportunities of the Company; and (ii) such
activities do not interfere with the performance of Executive's duties
hereunder. For purposes of this Agreement, the term the "Company" shall
mean the Company and all Subsidiaries.
4.2 During the Term of this Agreement, Executive shall serve as
the President and Chief Executive Officer of the Company or in such other
capacities as determined by the Board of Directors or its Executive
Committee except as provided for under Subsection 7.1. In the performance
of all of his responsibilities hereunder, Executive shall be subject to
all of the Company s policies, rules, and regulations applicable to its
executive of comparable status and shall report directly to, and shall be
subject to, the direction and control of the Executive Committee of the
Company and shall perform such duties as shall be assigned to him by the
Board of Directors or the Executive Committee. In performing such duties,
Executive will be subject to and abide by, and will use his best efforts
to cause other employees of the Company to be subject to and abide by, all
policies and procedures developed by the Executive Committee or senior
management of the Company.
4.3 Without first obtaining the written permission of the Board
of Directors of the Company, or its Executive Committee, in each instance,
Executive will not authorize or permit the Company to engage the services
of, or engage in any business activity with, or provide any financial or
other benefit to, any affiliate of Executive. The phrase "affiliate of
Executive" as used in this Subsection 4.3 shall mean and include
Executive s family by blood or marriage (including, without limitation,
parents, spouse, siblings, children and in-laws), and any business or
business entity which is directly or indirectly owned or controlled by
Executive or any member of Executive s family or in which Executive or any
member of Executive s family has a direct or indirect financial interest
whatsoever.
4.4 To induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not
a party or subject to any employment agreement or arrangement with other
person, firm, company, corporation or other business entity, (ii)
Executive is subject to no restraint, limitation or restriction by virtue
<PAGE> -3-
<PAGE>
of any law or rule of law or otherwise which would impair Executive s
right or ability (a) to enter the employ of the Company, or (b) to perform
fully his duties and obligations pursuant to this Agreement.
5. RESTRICTIVE COVENANTS
5.1 Executive acknowledges that (i) he has a major
responsibility for the operation, administration, development and growth
of the Company s business, (ii) the Company s business has become
international in scope, (iii) his work for the Company has brought him and
w i ll continue to bring him into close contact with confidential
information of the Company and its customers, and (iv) the agreements and
covenants contained in this Subsection 5.1 are essential to protect the
business interests of the Company and that the Company will not enter into
this Agreement but for such agreements and covenants. Accordingly,
Executive covenants and agrees as follows:
5.1.1 Except as otherwise provided for in this Agreement,
during the Term of this Agreement Executive shall not, directly or
indirectly, compete with respect to any services or products of the
Company which are either offered or are being developed by the Company as
of the date of termination; or, without limiting the generality of the
foregoing, by or become, or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder,
owner, officer, director, Executive, principal, agent, creditor, trustee,
consultant, co-venturer or otherwise) any individual, corporation, firm,
association, partnership, joint venture or other business entity, which
competes with respect to any services or products of the Company which are
either offered or are being developed by the Company as of the date of
termination; provided, however, that Executive may own, solely as an
investment, not more than one percent (1%) of any class of securities of
any publicly held corporation in competition with the Company whose
securities are traded on any national securities exchange in the United
States of America.
5.1.2 During the Term of this Agreement and, for one year
thereafter ("Termination Period"), Executive shall not, directly or
indirectly, (i) induce or attempt to influence any Executive of the
Company to leave its employ, (ii) aid or agree to aid any competitor,
customer or supplier of the Company in any attempt to hire any person who
shall have been employed by the Company within the one (1) year period
preceding such requested aid, or (iii) induce or attempt to influence any
person or business entity who was a customer or supplier of the Company
during any portion of said period to transact business with a competitor
of the Company in Company s business.
5.1. During the Term of this Agreement, the Termination
Period and any time thereafter, Executive shall not disclose to anyone any
information about the confidential or proprietary affairs of the Company,
i n c l u ding, without limitation, trade secrets, trade "know-how",
inventions, customer lists, business plans, operational methods, pricing
p o licies, marketing plans, sales plans, identity of suppliers or
customers, sales, profits or other financial information, which is
<PAGE> -4-
<PAGE>
confidential to the Company or is not generally known in the relevant
trade, nor shall Executive make use of any such information for his own
benefit.
5.2 If Executive breaches Subsection 5.1 (the "Restrictive
Covenants"), the Company shall have the following rights and remedies,
each of which shall be enforceable, and each of which is in addition to,
and not in lieu of, any other rights and remedies available to the Company
at law or in equity:
5.2.1 Executive acknowledges and agrees that in the event
of a violation or threatened violation of any of the provisions of
Subsection 5.1.1, the Company shall have no adequate remedy at law and
shall therefore be entitled to enforce each such provision by temporary or
permanent injunctive or mandatory relief obtained in any court of
competent jurisdiction without the necessity or proving damages, posting
any bond or other security, and without prejudice to any other rights and
remedies which may be available at law or in equity.
5.3 If any of the Restrictive Covenants, or any part thereof, is
held to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid or unenforceable portions. Without limiting
the generality of the foregoing, if any of the Restrictive Covenants, or
any part thereof, is held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that
the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, such
provision shall then be enforceable.
5.4 The parties hereto intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction
within the geographical scope of such Restrictive Covenants. In the event
that the courts of any one or more of such jurisdictions shall hold such
Restrictive Covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of the parties hereto that
such determination not bar or in any way affect the Company s right of the
relief provided above in the courts of any other jurisdictions within the
geographical scope of such Restrictive Covenants, as to breaches of such
covenants in such other respective jurisdictions, the above covenants as
they relate to each jurisdiction being, for this purpose, severable into
diverse and independent covenants.
6. TERMINATION.
6.1 The basic three-year term shall automatically be renewed
each year on the anniversary date of this Agreement, unless the Company
elects to terminate the Agreement. Upon election to terminate the
Agreement, the Company may exercise two options.
(i) It may elect to require the Executive to remain working
as per his duties and responsibilities outlined in Section 4.
<PAGE> -5-
<PAGE>
(ii) It may ask Executive to leave the day-to-day employ of
the Company and (a) remain as a consultant or (b) sever all relationships
with the Company whatsoever.
In either case, the Executive shall be entitled to his
annual compensation, including bonus and benefits during the remainder of
the three-year term.
6.2 The Company also may terminate Executive s employment under
this Agreement at any time for Cause. "Cause" shall exist for such
termination if Executive (i) is adjudicated guilty of illegal activities
by a court of competent jurisdiction, (ii) commits any act of fraud or
intentional misrepresentation, (iii) has engaged in serious misconduct,
which conduct has, or would, if generally known, materially adversely
affect the good will or reputation of the Company and which conduct
Executive has not cured or altered within ten (10) days following written
notice by the Board to Executive regarding such conduct, (iv) is in
material breach under this Agreement, or (v) Executive habitually fails to
perform the duties and responsibilities of his employment as set forth in
Section 4 of this Agreement or as may be assigned or delegated to him from
time to time by the Company, the Board, or the Executive Committee of the
Board, and, with regard to grounds (iv) and (v) the Board has given
Executive thirty (30) days written notice of the grounds for the
termination and the conduct required by Executive to cure such failure,
with such conduct outlined with reasonable specificity, and Executive has
not cured such failure, within the thirty (30) day period provided in the
written notice to Executive.
6.3 If the Company terminates Executive s employment under this
Agreement pursuant to the provisions of Subsections 6.2, Executive shall
be entitled to receive only six months severance pay unless the arbitrator
finds the he has been properly terminated pursuant to grounds (i) or (ii).
6.4 If Executive s employment with the Company is terminated due
to the death or permanent disability of Executive, the spouse of the
Executive, the estate of Executive or the Executive, as the case may be,
shall continue to receive compensation as determined in Section 7 below.
6.5 If Executive s employment with the Company is terminated as
the result of Executive s purely voluntary resignation for reasons other
than those set forth in Section 7 below, Executive shall not be entitled
to compensation after the effective date of such resignation.
7. TERMINATION COMPENSATION.
7.1 Compensation as defined in Section 3 above shall continue
for a period of three (3) years following the date of termination in the
event: (i) Executive is requested to resign pursuant to Section 6.1; (ii)
the death of Executive, said amount being paid to his spouse or estate as
the case may be; (iii) inability to discharge his responsibilities due to
health or a disability in which case, after six months of such a
condition, the Board may cancel the contract pursuant to paragraph 6.1; or
(iv) the Executive resigns due to a substantial change in ownership or
<PAGE> -6-
<PAGE>
Board membership as defined below.
7.2 A substantial change in ownership shall mean: (i) the sale
of over 50% of the corporation's assets, or (ii) a change in ownership of
over 50% of the outstanding stock of the Company; or (iii) the replacement
or change of over 65% of the Board in one fiscal year.
7.3 In the event Executive is requested to resign, employment is
terminated for any reason by the Company, including termination under
Sections 5 or 6 or in the event Executive voluntarily resigns as a result
of any of the events set forth in Section 7.1 above, then, and in any of
such events, all of the Executive s rights under the Company s Stock
Option and Incentive Plan and all other incentive bonus plans shall fully
and completely vest upon the date of such termination.
8. EXPENSES.
8.1 Executive shall be entitled to reimbursement of all
reasonable expenses actually incurred in the course of his employment.
Executive shall submit to the Company a standardized expense report form,
provided by the Company, and shall attach thereto receipts for all
expenditures. Expenses shall include housing, automobile expenses, and
travel.
8.2 The Company shall reimburse Executive within fifteen (15)
days after submission by Executive of his expense report.
9. THE COMPANY S AUTHORITY.
Executive agrees to observe and comply with the reasonable rules
and regulations of the Company as adopted by the Company s Board of
Directors, either orally or in writing, respecting performances of his
duties and to carry out and perform orders, directions, and policies
stated by the Board of Directors, to him from time to time, either orally
or in writing. Executive understands Company is a subsidiary of Metalclad
Corporation, a Delaware Corporation that operates with both a Board and an
Executive Committee. Direction by such Board or Executive Committee shall
constitute action by the Company s Board and be given the same respect and
weight.
10. PAID VACATION; SICK LEAVE; INSURANCE.
10.1 Executive shall be entitled to a paid vacation each year
equal to not less than three (3) weeks per year in addition to the paid
holidays on which the Company s offices are closed pursuant to Company
policy relating to paid holidays.
10.2 Executive shall be entitled to reasonable periods of paid
sick leave during the Term of the Agreement in accordance with the
Company s policy regarding such sick leave.
10.3 The Company shall provide Executive, at the Company s
<PAGE> -7-
<PAGE>
expense, participation in group medical, accident and health insurance,
and life insurance plans of the Company as may be provided by the Company
from time to time to Company executives of comparable status, subject to,
and to the extent that, Executive is eligible under such benefit plans in
accordance with their respective terms.
11. LEGAL DEFENSE.
The Company acknowledges that the environmental services
industry is a highly litigious industry whereby many regulatory fines,
penalties and third-party suits are directed at the individuals involved
in ownership and operations. The Company agrees to pay all legal fees,
judgments, awards, bonds, fines, penalties and costs related to the
defense and outcome whereby Executive was acting in his corporate
capacity.
12. MISCELLANEOUS.
12.1 The Company may, from time to time, apply for and take
out, in its own name and at its own expense, life, health, accident,
disability or other insurance upon Executive in any sum or sums that it
may deem necessary to protect its interests, and Executive agrees to aid
and cooperate in all reasonable respects with the Company in procuring any
and all such insurance, including without limitation, submitting to the
usual and customary medical examinations, and by filling out, executing
and delivering such applications and other instruments in writing as may
be reasonably required by an insurance company or companies to which an
application or applications for such insurance may be made by or for the
Company.
12.2 This Agreement is a personal contract, and the rights and
interests of Executive hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Executive shall not under any circumstances
have any option or right to require payment hereunder otherwise than in
accordance with the terms hereof. Except as otherwise expressly provided
herein, Executive shall not have any power of anticipation, alienation or
assignment of payments contemplated hereunder, and all rights and benefits
of Executive shall be for the sole personal benefit of Executive, and no
other person shall acquire any right, title or interest hereunder by
reason of any sale, assignment, transfer, claim or judgment or bankruptcy
proceedings against Executive; provided, however, that in the event of
E x e c utive s death, Executive s estate, legal representative or
beneficiaries (as the case may be) shall have the right to receive all of
the benefit that accrued to Executive pursuant to, and in accordance with,
the terms of this Agreement.
12.3 The Company shall have the right to assign this Agreement
to any successor of substantially all of its business or assets, and any
such successor and Executive shall be bound by all of the provisions
hereof.
<PAGE> -8-
<PAGE>
13. NOTICES.
All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and (unless otherwise
specifically provided herein) shall be deemed to have been given three (3)
days after having been mailed in any general or branch United States Post
Office, enclosed in a registered or certified postpaid envelope, addressed
to the parties stated below or to such changed address as such party may
have fixed by notice:
TO THE COMPANY: METALCLAD CORPORATION
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
COPY TO: Bruce H. Haglund, Esq.
Gibson & Haglund
2010 Main Street, Suite 400
Irvine, California 92714
EXECUTIVE: Grant S. Kesler
3739 Brighton Point Drive
Salt Lake City, UT 84121
14. ENTIRE AGREEMENT.
This Agreement supersedes any and all Agreements, whether oral or
written, between the parties hereto, with respect to the employment of
Executive by the Company and contains all of the covenants and Agreements
between the parties with respect to the rendering of such services in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or
promise with respect to such employment not contained in this Agreement
shall be valid or binding. Any modification of this Agreement will be
effective only if it is writing and signed by the parties hereto.
15. PARTIAL INVALIDITY.
If any provision in this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without
being impaired or invalidated in any way.
16. ATTORNEYS FEES.
Except with respect to paragraphs 5.3 and 5.4 which issues are
reserved for the court, any dispute regarding the negotiations leading up
to the execution of this Release and/or the interpretation or application
of this Agreement or the alleged breach hereof, or any act which allegedly
<PAGE> -9-
<PAGE>
has, or would, violate any provision of this Agreement must be submitted
to arbitration before a neutral arbitrator. The arbitration shall be
conducted in accordance with the rules of Judicial Arbitration and
Mediation Services, Inc. of Orange County. A written demand for
arbitration pursuant to Section 638 of the Code of Civil Procedure must be
made within sixty (60) days of the alleged breach. The results of
arbitration will be the exclusive, final and binding remedy for such claim
or dispute.
17. GOVERNING LAW.
This Agreement will be governed by and construed in accordance with
the laws of the State of California.
18. BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective representatives, heirs, successors and
assigns.
19. WAIVER.
No waiver of any of the provisions of this Agreement shall be deemed,
or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the
waiver.
20. CORPORATE APPROVALS.
The Company represents and warrants that the execution of this
Agreement by its corporate officer named below has been duly authorized by
the Board of Directors of the Company, is not in conflict with any Bylaw
or other agreement and will be a binding obligation of the Company,
enforceable in accordance with its terms.
<PAGE> -10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date above written.
THE COMPANY:
METALCLAD CORPORATION
By: /s/Anthony C. Dabbene
------------------------------------
Its Authorized Office
EXECUTIVE: /s/Grant S. Kesler
------------------------------------
Grant S. Kesler
-11-
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 1st day of January, 1998 by and
b e tween METALCLAD CORPORATION, a Delaware corporation (hereinafter
referred to as the "COMPANY"), and Anthony C. Dabbene (hereinafter
referred to as "Executive") under the following terms and conditions:
RECITALS:
WHEREAS, the Company and Executive desire to set forth the terms and
conditions on which (I) the Company shall employ Executive, (ii) Executive
shall render services to the Company, and (iii) the Company shall
compensate Executive for such services; and
WHEREAS, in connection with the employment of Executive by the
Company, the Company desires to restrict Executive s rights to compete
with the business of the Company and its affiliates;
NOW, THEREFORE, in consideration of the mutual promises, covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts
employment with the Company upon the terms and conditions hereinafter set
forth.
2. TERM.
2.1 The term of this Agreement (the "Term") shall be for a
three year period commencing on the Effective Date (as defined in
Subsection 2.3 below) of this Agreement, subject, however, to termination
as provided herein in Sections 6 and 7 below.
2.2 Each year, prior to the anniversary date, the company
and executive shall meet to determine any additional compensation if any
for the remaining contract term.
2.3 The effective date of this Agreement shall be January 1,
1998 (the "Effective Date").
3. COMPENSATION.
3.1 For all services rendered by Executive under this Agreement,
<PAGE>
the Company shall pay or cause one or more of its subsidiaries to pay
Executive during the term hereof a salary at the rate of One Hundred and
Eighty Thousand Dollars ($180,000) per year. The Company shall pay such
compensation to Executive semi-monthly in accordance with its standard
practice for payment of compensation to its employees.
3.2 Executive shall be entitled to periodic cash bonuses in
accordance with the Metalclad Corporation Stock Option and Incentive Plan
and the award of stock options, any other incentive bonus plans or other
forms of compensation, at the discretion of the Company s Board of
Directors, dependent upon Employee s performance. Executive shall be
entitled to participate in the Company s 401(k) plan.
3.3 Executive shall be entitled to a car allowance and to health
insurance for him and his dependents.
3.4 All compensation shall be subject to customary withholding
t a x and other employment taxes as are required with respect to
compensation paid by a corporation to an employee.
3.5 In order to provide proper incentives to those personnel
engaged in developing waste processing facilities in Mexico, the Company
recognizes that it must institute special bonus programs and incentive
bonus programs from time to time. For the calendar year 1998, the
Compensation Committee has approved both a special bonus program and an
incentive bonus program as follows:
3.5.1 Special Bonus Program. Because of the Company s
involvement in a NAFTA arbitration against the Federal Government of
Mexico, it requires an extraordinary effort on the part of key employees
to ensure the success of the litigation on the part of the Company. A
total of five percent (5%) of the award, or the value of the settlement,
is to be shared with three key executives. The Executive herein shall be
entitled to one percent (1%) of the total award, or the total value of the
settlement of the case, in the event there is a settlement.
3.5.2 Incentive Bonus Program. For the calendar year 1998,
the Board of Directors has set three major objectives for the key
executives. The objectives include opening the Aguascalientes project for
commercial operations, keeping the Company properly capitalized for
growth, and respecting the public market participation in the Company to
ensure that gains made by the Company are recognized by its public
ownership and reflected in its share price. To the extent that these
objectives are met, the key participants in the incentive bonus program,
including the Executive herein, shall be entitled to a minimum of twenty
percent (20%) of his base salary to a maximum of one hundred fifty percent
(150%) of base salary, depending upon the extent to which the objectives
have been achieved.
It is expected that the foregoing bonuses will be earned in
1998, unless the settlement or conclusion of the NAFTA litigation takes
longer, in which case that particular special bonus will go beyond 1998
until there is a final resolution. It is expected that the Board of
Directors will provide additional bonus incentives for years subsequent to
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<PAGE>
1998, provided that for the life of the contract there will always be at
least a minimum incentive bonus of twenty percent (20%) due in December of
each year.
4. DUTIES AND RESPONSIBILITIES
4.1 Executive shall, during the Term of this Agreement unless
otherwise agreed by management, devote his full attention and expend his
best efforts, energies, and skills on a full-time basis, to the business
of the Company and any corporation controlled by the Company (each, a
"Subsidiary"). The Company acknowledges that Executive is engaged in
other business activities separate from and outside the scope of the
business of the Company. The Company agrees that the devotion of
reasonable amounts of time to such other business activities will not
violate the terms of this Agreement on the conditions that (I) such
activities are not corporate opportunities of the Company; and (ii) such
activities do not interfere with the performance of Executive's duties
hereunder. For purposes of this Agreement, the term the "Company" shall
mean the Company and all Subsidiaries.
4.2 During the Term of this Agreement, Executive shall serve as
the Chief Financial Officer of the Company or in such other capacities as
determined by the Board of Directors or its Executive Committee except as
provided for under Subsection 7.1. In the performance of all of his
responsibilities hereunder, Executive shall be subject to all of the
Company s policies, rules, and regulations applicable to its executive of
comparable status and shall report directly to, and shall be subject to,
the direction and control of the Executive Committee of the Company and
shall perform such duties as shall be assigned to him by the Board of
Directors or the Executive Committee. In performing such duties,
Executive will be subject to and abide by, and will use his best efforts
to cause other employees of the Company to be subject to and abide by, all
policies and procedures developed by the Executive Committee or senior
management of the Company.
4.3 Without first obtaining the written permission of the Board
of Directors of the Company, or its Executive Committee, in each instance,
Executive will not authorize or permit the Company to engage the services
of, or engage in any business activity with, or provide any financial or
other benefit to, any affiliate of Executive. The phrase "affiliate of
Executive" as used in this Subsection 4.3 shall mean and include
Executive s family by blood or marriage (including, without limitation,
parents, spouse, siblings, children and in-laws), and any business or
business entity which is directly or indirectly owned or controlled by
Executive or any member of Executive s family or in which Executive or any
member of Executive s family has a direct or indirect financial interest
whatsoever.
4.4 To induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (I) Executive is not
a party or subject to any employment agreement or arrangement with other
person, firm, company, corporation or other business entity, (ii)
Executive is subject to no restraint, limitation or restriction by virtue
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<PAGE>
of any law or rule of law or otherwise which would impair Executive s
right or ability (a) to enter the employ of the Company, or (b) to perform
fully his duties and obligations pursuant to this Agreement.
5. RESTRICTIVE COVENANTS
5.1 Executive acknowledges that (I) he has a major
responsibility for the operation, administration, development and growth
of the Company s business, (ii) the Company s business has become
international in scope, (iii) his work for the Company has brought him and
w i ll continue to bring him into close contact with confidential
information of the Company and its customers, and (iv) the agreements and
covenants contained in this Subsection 5.1 are essential to protect the
business interests of the Company and that the Company will not enter into
this Agreement but for such agreements and covenants. Accordingly,
Executive covenants and agrees as follows:
5.1.1 Except as otherwise provided for in this Agreement,
during the Term of this Agreement Executive shall not, directly or
indirectly, compete with respect to any services or products of the
Company which are either offered or are being developed by the Company as
of the date of termination; or, without limiting the generality of the
foregoing, by or become, or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder,
owner, officer, director, Executive, principal, agent, creditor, trustee,
consultant, co-venturer or otherwise) any individual, corporation, firm,
association, partnership, joint venture or other business entity, which
competes with respect to any services or products of the Company which are
either offered or are being developed by the Company as of the date of
termination; provided, however, that Executive may own, solely as an
investment, not more than one percent (1%) of any class of securities of
any publicly held corporation in competition with the Company whose
securities are traded on any national securities exchange in the United
States of America.
5.1.2 During the Term of this Agreement and, for one year
thereafter ("Termination Period"), Executive shall not, directly or
indirectly, (I) induce or attempt to influence any Executive of the
Company to leave its employ, (ii) aid or agree to aid any competitor,
customer or supplier of the Company in any attempt to hire any person who
shall have been employed by the Company within the one (1) year period
preceding such requested aid, or (iii) induce or attempt to influence any
person or business entity who was a customer or supplier of the Company
during any portion of said period to transact business with a competitor
of the Company in Company s business.
5.1.3 During the Term of this Agreement, the Termination
Period and any time thereafter, Executive shall not disclose to anyone any
information about the confidential or proprietary affairs of the Company,
i n c l u ding, without limitation, trade secrets, trade "know-how",
inventions, customer lists, business plans, operational methods, pricing
p o licies, marketing plans, sales plans, identity of suppliers or
customers, sales, profits or other financial information, which is
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<PAGE>
confidential to the Company or is not generally known in the relevant
trade, nor shall Executive make use of any such information for his own
benefit.
5.2 If Executive breaches Subsection 5.1 (the "Restrictive
Covenants"), the Company shall have the following rights and remedies,
each of which shall be enforceable, and each of which is in addition to,
and not in lieu of, any other rights and remedies available to the Company
at law or in equity:
5.2.1 Executive acknowledges and agrees that in the event of
a violation or threatened violation of any of the provisions of Subsection
5.1.1, the Company shall have no adequate remedy at law and shall
therefore be entitled to enforce each such provision by temporary or
permanent injunctive or mandatory relief obtained in any court of
competent jurisdiction without the necessity or proving damages, posting
any bond or other security, and without prejudice to any other rights and
remedies which may be available at law or in equity.
5.3 If any of the Restrictive Covenants, or any part thereof, is
held to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid or unenforceable portions. Without limiting
the generality of the foregoing, if any of the Restrictive Covenants, or
any part thereof, is held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that
the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, such
provision shall then be enforceable.
5.4 The parties hereto intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction
within the geographical scope of such Restrictive Covenants. In the event
that the courts of any one or more of such jurisdictions shall hold such
Restrictive Covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of the parties hereto that
such determination not bar or in any way affect the Company s right of the
relief provided above in the courts of any other jurisdictions within the
geographical scope of such Restrictive Covenants, as to breaches of such
covenants in such other respective jurisdictions, the above covenants as
they relate to each jurisdiction being, for this purpose, severable into
diverse and independent covenants.
6. TERMINATION.
6.1 The basic three-year term shall automatically be renewed
each year on the anniversary date of this Agreement, unless the Company
elects to terminate the Agreement. Upon election to terminate the
Agreement, the Company may exercise two options.
(I) It may elect to require the Executive to remain working
as per his duties and responsibilities outlined in Section 4.
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<PAGE>
(ii) It may ask Executive to leave the day-to-day employ of
the Company and (a) remain as a consultant or (b) sever all relationships
with the Company whatsoever.
In either case, the Executive shall be entitled to his
annual compensation, including bonus and benefits during the remainder of
the three-year term.
6.2 The Company also may terminate Executive s employment under
this Agreement at any time for Cause. "Cause" shall exist for such
termination if Executive (I) is adjudicated guilty of illegal activities
by a court of competent jurisdiction, (ii) commits any act of fraud or
intentional misrepresentation, (iii) has engaged in serious misconduct,
which conduct has, or would, if generally known, materially adversely
affect the good will or reputation of the Company and which conduct
Executive has not cured or altered within ten (10) days following written
notice by the Board to Executive regarding such conduct, (iv) is in
material breach under this Agreement, or (v) Executive habitually fails to
perform the duties and responsibilities of his employment as set forth in
Section 4 of this Agreement or as may be assigned or delegated to him from
time to time by the Company, the Board, or the Executive Committee of the
Board, and, with regard to grounds (iv) and (v) the Board has given
Executive thirty (30) days written notice of the grounds for the
termination and the conduct required by Executive to cure such failure,
with such conduct outlined with reasonable specificity, and Executive has
not cured such failure, within the thirty (30) day period provided in the
written notice to Executive.
6.3 If the Company terminates Executive s employment under this
Agreement pursuant to the provisions of Subsections 6.2, Executive shall
be entitled to receive only six months severance pay unless the arbitrator
finds the he has been properly terminated pursuant to grounds (I) or (ii).
6.4 If Executive s employment with the Company is terminated due
to the death or permanent disability of Executive, the spouse of the
Executive, the estate of Executive or the Executive, as the case may be,
shall continue to receive compensation as determined in Section 7 below.
6.5 If Executive s employment with the Company is terminated as
the result of Executive s purely voluntary resignation for reasons other
than those set forth in Section 7 below, Executive shall not be entitled
to compensation after the effective date of such resignation.
7. TERMINATION COMPENSATION.
7.1 Compensation as defined in Section 3 above shall continue
for a period of three (3) years following the date of termination in the
event: (I) Executive is requested to resign pursuant to Section 6.1; (ii)
the death of Executive, said amount being paid to his spouse or estate as
the case may be; (iii) inability to discharge his responsibilities due to
health or a disability in which case, after six months of such a
condition, the Board may cancel the contract pursuant to paragraph 6.1; or
(iv) the Executive resigns due to a substantial change in ownership or
<PAGE> -6-
<PAGE>
Board membership as defined below.
7.2 A substantial change in ownership shall mean: (I) the sale
of over 50% of the corporation's assets, or (ii) a change in ownership of
over 50% of the outstanding stock of the Company; or (iii) the replacement
or change of over 65% of the Board in one fiscal year.
7.3 In the event Executive is requested to resign, employment is
terminated for any reason by the Company, including termination under
Sections 5 or 6 or in the event Executive voluntarily resigns as a result
of any of the events set forth in Section 7.1 above, then, and in any of
such events, all of the Executive s rights under the Company s 1992
Omnibus Stock Option and Incentive Plan and all other incentive bonus
plans shall fully and completely vest upon the date of such termination.
8. EXPENSES.
8.1 Executive shall be entitled to reimbursement of all
reasonable expenses actually incurred in the course of his employment.
Executive shall submit to the Company a standardized expense report form,
provided by the Company, and shall attach thereto receipts for all
expenditures. Expenses shall include automobile expenses and travel.
8.2 The Company shall reimburse Executive within fifteen (15)
days after submission by Executive of his expense report.
9. THE COMPANY S AUTHORITY.
Executive agrees to observe and comply with the reasonable rules
and regulations of the Company as adopted by the Company s Board of
Directors, either orally or in writing, respecting performances of his
duties and to carry out and perform orders, directions, and policies
stated by the Board of Directors, to him from time to time, either orally
or in writing. Executive understands Company is a subsidiary of Metalclad
Corporation, a Delaware Corporation that operates with both a Board and an
Executive Committee. Direction by such Board or Executive Committee shall
constitute action by the Company s Board and be given the same respect and
weight.
10. PAID VACATION; SICK LEAVE; INSURANCE.
10.1 Executive shall be entitled to a paid vacation each year
equal to not less than three (3) weeks per year in addition to the paid
holidays on which the Company s offices are closed pursuant to Company
policy relating to paid holidays.
10.2 Executive shall be entitled to reasonable periods of paid
sick leave during the Term of the Agreement in accordance with the
Company s policy regarding such sick leave.
10.3 The Company shall provide Executive, at the Company s
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<PAGE>
expense, participation in group medical, accident and health insurance,
and life insurance plans of the Company as may be provided by the Company
from time to time to Company executives of comparable status, subject to,
and to the extent that, Executive is eligible under such benefit plans in
accordance with their respective terms.
11. LEGAL DEFENSE.
The Company acknowledges that the environmental services
industry is a highly litigious industry whereby many regulatory fines,
penalties and third-party suits are directed at the individuals involved
in ownership and operations. The Company agrees to pay all legal fees,
judgments, awards, bonds, fines, penalties and costs related to the
defense and outcome whereby Executive was acting in his corporate
capacity.
12. MISCELLANEOUS.
12.1 The Company may, from time to time, apply for and take
out, in its own name and at its own expense, life, health, accident,
disability or other insurance upon Executive in any sum or sums that it
may deem necessary to protect its interests, and Executive agrees to aid
and cooperate in all reasonable respects with the Company in procuring any
and all such insurance, including without limitation, submitting to the
usual and customary medical examinations, and by filling out, executing
and delivering such applications and other instruments in writing as may
be reasonably required by an insurance company or companies to which an
application or applications for such insurance may be made by or for the
Company.
12.2 This Agreement is a personal contract, and the rights and
interests of Executive hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Executive shall not under any circumstances
have any option or right to require payment hereunder otherwise than in
accordance with the terms hereof. Except as otherwise expressly provided
herein, Executive shall not have any power of anticipation, alienation or
assignment of payments contemplated hereunder, and all rights and benefits
of Executive shall be for the sole personal benefit of Executive, and no
other person shall acquire any right, title or interest hereunder by
reason of any sale, assignment, transfer, claim or judgment or bankruptcy
proceedings against Executive; provided, however, that in the event of
E x e c utive s death, Executive s estate, legal representative or
beneficiaries (as the case may be) shall have the right to receive all of
the benefit that accrued to Executive pursuant to, and in accordance with,
the terms of this Agreement.
12.3 The Company shall have the right to assign this Agreement
to any successor of substantially all of its business or assets, and any
such successor and Executive shall be bound by all of the provisions
hereof.
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<PAGE>
13. NOTICES.
All notices, requests, demands and other communications provided for
by this Agreement shall be in writing and (unless otherwise specifically
provided herein) shall be deemed to have been given three (3) days after
having been mailed in any general or branch United States Post Office,
enclosed in a registered or certified postpaid envelope, addressed to the
parties stated below or to such changed address as such party may have
fixed by notice:
TO THE COMPANY: METALCLAD CORPORATION
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
COPY TO: Bruce H. Haglund, Esq.
Gibson & Haglund
2010 Main Street, Suite 400
Irvine, California 92714
EXECUTIVE: Anthony C. Dabbene
26921 Magnolia Court
Laguna Hills, CA 92653
14. ENTIRE AGREEMENT.
This Agreement supersedes any and all Agreements, whether oral
or written, between the parties hereto, with respect to the employment of
Executive by the Company and contains all of the covenants and Agreements
between the parties with respect to the rendering of such services in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or
promise with respect to such employment not contained in this Agreement
shall be valid or binding. Any modification of this Agreement will be
effective only if it is writing and signed by the parties hereto.
15. PARTIAL INVALIDITY.
If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS FEES.
Except with respect to paragraphs 5.3 and 5.4 which issues are
reserved for the court, any dispute regarding the negotiations leading up
to the execution of this Release and/or the interpretation or application
of this Agreement or the alleged breach hereof, or any act which allegedly
<PAGE> -9-
<PAGE>
has, or would, violate any provision of this Agreement must be submitted
to arbitration before a neutral arbitrator. The arbitration shall be
conducted in accordance with the rules of Judicial Arbitration and
Mediation Services, Inc. of Orange County. A written demand for
arbitration pursuant to Section 638 of the Code of Civil Procedure must be
made within sixty (60) days of the alleged breach. The results of
arbitration will be the exclusive, final and binding remedy for such claim
or dispute.
17. GOVERNING LAW.
This Agreement will be governed by and construed in accordance
with the laws of the State of California.
18. BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective representatives, heirs, successors
and assigns.
19. WAIVER.
No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver.
20. CORPORATE APPROVALS.
The Company represents and warrants that the execution of this
Agreement by its corporate officer named below has been duly authorized by
the Board of Directors of the Company, is not in conflict with any Bylaw
or other agreement and will be a binding obligation of the Company,
enforceable in accordance with its terms.
<PAGE> -10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date above written.
THE COMPANY: METALCLAD CORPORATION
By: /s/Grant S. Kesler
------------------------------
Its Authorized Officer
EXECUTIVE: /s/Anthony c. Dabbene
------------------------------
Anthony C. Dabbene
-11-
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 1st day of January, 1998 by and
b e tween METALCLAD CORPORATION, a Delaware corporation (hereinafter
referred to as the "Company"), and Javier Guerra Cisneros (hereinafter
referred to as "Executive") under the following terms and conditions:
RECITALS:
WHEREAS, the Company and Executive desire to set forth the terms and
conditions on which (i) the Company shall employ Executive, (ii) Executive
shall render services to the Company, and (iii) the Company shall
compensate Executive for such services; and
WHEREAS, in connection with the employment of Executive by the
Company, the Company desires to restrict Executive s rights to compete
with the business of the Company and its affiliates;
NOW, THEREFORE, in consideration of the mutual promises, covenants
and agreements hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts
employment with the Company upon the terms and conditions hereinafter set
forth.
2. TERM.
2.1 The term of this Agreement (the "Term") shall be for a three
year period commencing on the Effective Date (as defined in Subsection 2.3
below) of this Agreement, subject, however, to termination as provided
herein in Sections 6 and 7 below.
2.2 Each year, prior to the anniversary date, the company and
executive shall meet to determine any additional compensation, if any, for
the remaining contract term.
2.3 The effective date of this Agreement shall be January 1,
1998 (the "Effective Date").
3. COMPENSATION.
3.1 For all services rendered by Executive under this Agreement,
the Company shall pay or cause one or more of its subsidiaries to pay
<PAGE>
Executive during the term hereof a salary at the rate of Two Hundred
Thousand Dollars ($200,000) per year, adjusted to pesos each anniversary
date of the contract, which sum shall include payment allowable for
vacation and one month s salary per Mexican law. The Company shall pay
such compensation to Executive semi-monthly in accordance with its
standard practice for payment of compensation to its employees.
3.2 Executive shall be entitled to periodic cash bonuses in
accordance with the Metalclad Corporation Stock Option and Incentive Plan
and the award of stock options, any other incentive bonus plans or other
forms of compensation, at the discretion of the Company s Board of
Directors, dependent upon Employee s performance. Executive shall be
entitled to participate in the Company s 401(k) plan.
3.3 Executive shall be entitled to the use of a company-owned
car and health insurance for him and his dependents.
3.4 All compensation shall be subject to customary withholding
t a x and other employment taxes as are required with respect to
compensation paid by a corporation to an employee.
3.5 In order to provide proper incentives to those personnel
engaged in developing waste processing facilities in Mexico, the Company
recognizes that it must institute special bonus programs and incentive
bonus programs from time to time. For the calendar year 1998, the
Compensation Committee has approved both a special bonus program and an
incentive bonus program as follows:
3.5.1 Special Bonus Program. Because of the Company s
involvement in a NAFTA arbitration against the Federal Government of
Mexico, it requires an extraordinary effort on the part of key employees
to ensure the success of the litigation on the part of the Company. A
total of five percent (5%) of the award, or the value of the settlement,
is to be shared with three key executives. The Executive herein shall be
entitled to one and seventy-five 100ths percent (1.75%) of the total
award, or the total value of the settlement of the case, in the event
there is a settlement.
3.5.2 Incentive Bonus Program. For the calendar year 1998,
the Board of Directors has set three major objectives for the key
executives. The objectives include opening the Aguascalientes project for
commercial operations, keeping the Company properly capitalized for
growth, and respecting the public market participation in the Company to
ensure that gains made by the Company are recognized by its public
ownership and reflected in its share price. To the extent that these
objectives are met, the key participants in the incentive bonus program,
including the Executive herein, shall be entitled to a minimum of twenty
percent (20%) of his base salary to a maximum of one hundred fifty percent
(150%) of base salary, depending upon the extent to which the objectives
have been achieved.
It is expected that the foregoing bonuses will be earned in
1998, unless the settlement or conclusion of the NAFTA litigation takes
longer, in which case that particular special bonus will go beyond 1998
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<PAGE>
until there is a final resolution. It is expected that the Board of
Directors will provide additional bonus incentives for years subsequent to
1998, provided that for the life of the contract there will always be at
least a minimum incentive bonus of twenty percent (20%) due in December of
each year.
4. DUTIES AND RESPONSIBILITIES
4.1 Executive shall, during the Term of this Agreement unless
otherwise agreed by management, devote his full attention and expend his
best efforts, energies, and skills on a full-time basis, to the business
of the Company and any corporation controlled by the Company (each, a
"Subsidiary"). For purposes of this Agreement, the term the "Company"
shall mean the Company and all Subsidiaries.
4.2 During the Term of this Agreement, Executive shall serve as
the Director General of Mexican operations or in such other capacities as
determined by the Board of Directors, except as provided for under
Subsection 7.1. In the performance of all of his responsibilities
hereunder, Executive shall be subject to all of the Company s policies,
rules, and regulations applicable to its executive of comparable status
and shall report directly to, and shall be subject to, the direction and
control of the Board of Directors of the Company and shall perform such
duties as shall be assigned to him by the Board of Directors. In
performing such duties, Executive will be subject to and abide by, and
will use his best efforts to cause other employees of the Company to be
subject to and abide by, all policies and procedures developed by the
Board of Directors or senior management of the Company.
4.3 Without first obtaining the written permission of the Board
of Directors of the Company, Executive will not authorize or permit the
Company to engage the services of, or engage in any business activity
with, or provide any financial or other benefit to, any affiliate of
Executive. The phrase "affiliate of Executive" as used in this Subsection
4.3 shall mean and include Executive s family by blood or marriage
(including, without limitation, parents, spouse, siblings, children and
in-laws), and any business or business entity which is directly or
indirectly owned or controlled by Executive or any member of Executive s
family or in which Executive or any member of Executive s family has a
direct or indirect financial interest whatsoever.
4.4 To induce the Company to enter into this Agreement,
Executive represents and warrants to the Company that (i) Executive is not
a party or subject to any employment agreement or arrangement with other
person, firm, company, corporation or other business entity, (ii)
Executive is subject to no restraint, limitation or restriction by virtue
of any law or rule of law or otherwise which would impair Executive s
right or ability (a) to enter the employ of the Company, or (b) to perform
fully his duties and obligations pursuant to this Agreement.
5. RESTRICTIVE COVENANTS
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<PAGE>
5.1 Executive acknowledges that (i) he has a major
responsibility for the operation, administration, development and growth
of the Company s business, (ii) the Company s business has become
international in scope, (iii) his work for the Company has brought him and
w i ll continue to bring him into close contact with confidential
information of the Company and its customers, and (iv) the agreements and
covenants contained in this Subsection 5.1 are essential to protect the
business interests of the Company and its affiliates and that the Company
will not enter into this Agreement but for such agreements and covenants.
Accordingly, Executive covenants and agrees as follows with respect to the
Company (which includes all affiliates in Mexico):
5.1.1 Except as otherwise provided for in this Agreement,
during the Term of this Agreement Executive shall not, directly or
indirectly, compete with respect to any services or products of the
Company which are either offered or are being developed by the Company as
of the date of termination; or, without limiting the generality of the
foregoing, by or become, or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder,
owner, officer, director, Executive, principal, agent, creditor, trustee,
consultant, co-venturer or otherwise) any individual, corporation, firm,
association, partnership, joint venture or other business entity, which
competes with respect to any services or products of the Company which are
either offered or are being developed by the Company as of the date of
termination; provided, however, that Executive may own, solely as an
investment, not more than one percent (1%) of any class of securities of
any publicly held corporation in competition with the Company whose
securities are traded on any national securities exchange in the United
States of America.
5.1.2 During the Term of this Agreement and, for one year
thereafter ("Termination Period"), Executive shall not, directly or
indirectly, (i) induce or attempt to influence any Executive of the
Company to leave its employ, (ii) aid or agree to aid any competitor,
customer or supplier of the Company in any attempt to hire any person who
shall have been employed by the Company within the one (1) year period
preceding such requested aid, or (iii) induce or attempt to influence any
person or business entity who was a customer or supplier of the Company
during any portion of said period to transact business with a competitor
of the Company in Company s business.
5.1.3 During the Term of this Agreement, the Termination
Period and any time thereafter, Executive shall not disclose to anyone any
information about the confidential or proprietary affairs of the Company,
i n c l u ding, without limitation, trade secrets, trade "know-how",
inventions, customer lists, business plans, operational methods, pricing
p o licies, marketing plans, sales plans, identity of suppliers or
customers, sales, profits or other financial information, which is
confidential to the Company or is not generally known in the relevant
trade, nor shall Executive make use of any such information for his own
benefit.
5.2 If Executive breaches Subsection 5.1 (the "Restrictive
Covenants"), the Company shall have the following rights and remedies,
<PAGE> -4-
<PAGE>
each of which shall be enforceable, and each of which is in addition to,
and not in lieu of, any other rights and remedies available to the Company
at law or in equity:
5.2.1 Executive acknowledges and agrees that in the event
of a violation or threatened violation of any of the provisions of
Subsection 5.1.1, the Company shall have no adequate remedy at law and
shall therefore be entitled to enforce each such provision by temporary or
permanent injunctive or mandatory relief obtained in any court of
competent jurisdiction without the necessity or proving damages, posting
any bond or other security, and without prejudice to any other rights and
remedies which may be available at law or in equity.
5.3 If any of the Restrictive Covenants, or any part thereof, is
held to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid or unenforceable portions. Without limiting
the generality of the foregoing, if any of the Restrictive Covenants, or
any part thereof, is held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that
the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, such
provision shall then be enforceable.
5.4 The parties hereto intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of any jurisdiction
within the geographical scope of such Restrictive Covenants. In the event
that the courts of any one or more of such jurisdictions shall hold such
Restrictive Covenants wholly unenforceable by reason of the breadth of
such scope or otherwise, it is the intention of the parties hereto that
such determination not bar or in any way affect the Company s right of the
relief provided above in the courts of any other jurisdictions within the
geographical scope of such Restrictive Covenants, as to breaches of such
covenants in such other respective jurisdictions, the above covenants as
they relate to each jurisdiction being, for this purpose, severable into
diverse and independent covenants.
6. TERMINATION.
6.1 The basic three-year term shall automatically be renewed
each year on the anniversary date of this Agreement, unless the Company
elects to terminate the Agreement. Upon election to terminate the
Agreement, the Company may exercise two options.
(i) It may elect to require the Executive to remain working
as per his duties and responsibilities outlined in Section 4.
(ii) It may ask Executive to leave the day-to-day employ of
the Company and (a) remain as a consultant or (b) sever all relationships
with the Company whatsoever.
In either case, the Executive shall be entitled to his
annual compensation, including bonus and benefits during the remainder of
<PAGE> -5-
<PAGE>
the three-year term.
6.2 The Company also may terminate Executive s employment under
this Agreement at any time for Cause. "Cause" shall exist for such
termination if Executive (i) is adjudicated guilty of illegal activities
by a court of competent jurisdiction, (ii) commits any act of fraud or
intentional misrepresentation, (iii) has engaged in serious misconduct,
which conduct has, or would, if generally known, materially adversely
affect the good will or reputation of the Company and which conduct
Executive has not cured or altered within ten (10) days following written
notice by the Board to Executive regarding such conduct, (iv) is in
material breach under this Agreement, or (v) Executive habitually fails to
perform the duties and responsibilities of his employment as set forth in
Section 4 of this Agreement or as may be assigned or delegated to him from
time to time by the Company, the Board, or the Executive Committee of the
Board, and, with regard to grounds (iv) and (v) the Board has given
Executive thirty (30) days written notice of the grounds for the
termination and the conduct required by Executive to cure such failure,
with such conduct outlined with reasonable specificity, and Executive has
not cured such failure, within the thirty (30) day period provided in the
written notice to Executive.
6.3 If the Company terminates Executive s employment under this
Agreement pursuant to the provisions of Subsections 6.2, Executive shall
be entitled to receive only six months severance pay unless the arbitrator
finds the he has been properly terminated pursuant to grounds (i) or (ii).
6.4 If Executive s employment with the Company is terminated due
to the death or permanent disability of Executive, the spouse of the
Executive, the estate of Executive or the Executive, as the case may be,
shall continue to receive compensation as determined in Section 7 below.
6.5 If Executive s employment with the Company is terminated as
the result of Executive s purely voluntary resignation for reasons other
than those set forth in Section 7 below, Executive shall not be entitled
to compensation after the effective date of such resignation.
7. TERMINATION COMPENSATION.
7.1 Compensation as defined in Section 3 above shall continue
for a period of three (3) years following the date of termination in the
event: (i) Executive is requested to resign pursuant to Section 6.1; (ii)
the death of Executive, said amount being paid to his spouse or estate as
the case may be; (iii) inability to discharge his responsibilities due to
health or a disability in which case, after six months of such a
condition, the Board may cancel the contract pursuant to paragraph 6.1; or
(iv) the Executive resigns due to a substantial change in ownership or
Board membership as defined below.
7.2 A substantial change in ownership shall mean: (i) the sale
of over 60% of the corporation's assets, or (ii) a change in ownership of
over 60% of the outstanding stock of the Company.
<PAGE> -6-
<PAGE>
7.3 In the event Executive is requested to resign, employment is
terminated for any reason by the Company, including termination under
Sections 6 or in the event Executive voluntarily resigns as a result of
any of the events set forth in Section 7.1 above, then, and in any of such
events, all of the Executive s rights under the Company s Stock Option and
Incentive Plan and all other incentive bonus plans shall fully and
completely vest upon the date of such termination.
8. EXPENSES.
8.1 Executive shall be entitled to reimbursement of all
reasonable expenses actually incurred in the course of his employment.
Executive shall submit to the Company a standardized expense report form,
provided by the Company, and shall attach thereto receipts for all
expenditures.
8.2 The Company shall reimburse Executive within fifteen (15)
days after submission by Executive of his expense report.
9. THE COMPANY S AUTHORITY.
Executive agrees to observe and comply with the reasonable rules
and regulations of the Company as adopted by the Company s Board of
Directors, either orally or in writing, respecting performances of his
duties and to carry out and perform orders, directions, and policies
stated by the Board of Directors, to him from time to time, either orally
or in writing. Executive understands Company is a subsidiary of Metalclad
Corporation, a Delaware Corporation that operates with both a Board and an
Executive Committee. Direction by such Board or Executive Committee shall
constitute action by the Company s Board and be given the same respect and
weight.
10. PAID VACATION; SICK LEAVE; INSURANCE.
10.1 Executive shall be entitled to a paid vacation each year
equal to not less than three (3) weeks per year in addition to the paid
holidays on which the Company s offices are closed pursuant to Company
policy relating to paid holidays.
10.2 Executive shall be entitled to reasonable periods of paid
sick leave during the Term of the Agreement in accordance with the
Company s policy regarding such sick leave.
10.3 The Company shall provide Executive, at the Company s
expense, participation in group medical, accident and health insurance,
and life insurance plans of the Company as may be provided by the Company
from time to time to Company executives of comparable status, subject to,
and to the extent that, Executive is eligible under such benefit plans in
accordance with their respective terms.
<PAGE> -7-
<PAGE>
11. LEGAL DEFENSE.
The Company acknowledges that the environmental services
industry is a highly litigious industry whereby many regulatory fines,
penalties and third-party suits are directed at the individuals involved
in ownership and operations. The Company agrees to pay all legal fees,
judgments, awards, bonds, fines, penalties and costs related to the
defense and outcome whereby Executive was acting in his corporate
capacity.
12. MISCELLANEOUS.
12.1 The Company may, from time to time, apply for and take out,
in its own name and at its own expense, life, health, accident, disability
or other insurance upon Executive in any sum or sums that it may deem
necessary to protect its interests, and Executive agrees to aid and
cooperate in all reasonable respects with the Company in procuring any and
all such insurance, including without limitation, submitting to the usual
and customary medical examinations, and by filling out, executing and
delivering such applications and other instruments in writing as may be
reasonably required by an insurance company or companies to which an
application or applications for such insurance may be made by or for the
Company.
12.2 This Agreement is a personal contract, and the rights and
interests of Executive hereunder may not be sold, transferred, assigned,
pledged or hypothecated except as otherwise expressly permitted by the
provisions of this Agreement. Executive shall not under any circumstances
have any option or right to require payment hereunder otherwise than in
accordance with the terms hereof. Except as otherwise expressly provided
herein, Executive shall not have any power of anticipation, alienation or
assignment of payments contemplated hereunder, and all rights and benefits
of Executive shall be for the sole personal benefit of Executive, and no
other person shall acquire any right, title or interest hereunder by
reason of any sale, assignment, transfer, claim or judgment or bankruptcy
proceedings against Executive; provided, however, that in the event of
E x e c utive s death, Executive s estate, legal representative or
beneficiaries (as the case may be) shall have the right to receive all of
the benefit that accrued to Executive pursuant to, and in accordance with,
the terms of this Agreement.
12.3 The Company shall have the right to assign this Agreement
to any successor of substantially all of its business or assets, and any
such successor and Executive shall be bound by all of the provisions
hereof.
13. NOTICES.
All notices, requests, demands and other communications provided for
by this Agreement shall be in writing and (unless otherwise specifically
provided herein) shall be deemed to have been given three (3) days after
having been sent via Federal Express or similar courier, addressed to the
<PAGE> -8-
<PAGE>
parties stated below or to such changed address as such party may have
fixed by notice:
TO THE COMPANY: METALCLAD CORPORATION
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
COPY TO: Bruce H. Haglund, Esq.
Gibson & Haglund
2010 Main Street, Suite 400
Irvine, California 92714
EXECUTIVE: Javier Guerra Cisneros
Paseo De Las Primaveras, 144
Depto. 105 - Residencial Atalaya
Bosques De Las Lomas, MEXICO, D.F. 05120
14. ENTIRE AGREEMENT.
This Agreement supersedes any and all Agreements, whether oral
or written, between the parties hereto, with respect to the employment of
Executive by the Company and contains all of the covenants and Agreements
between the parties with respect to the rendering of such services in any
manner whatsoever. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and that no other agreement, statement or
promise with respect to such employment not contained in this Agreement
shall be valid or binding. Any modification of this Agreement will be
effective only if it is writing and signed by the parties hereto.
15. PARTIAL INVALIDITY.
If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void, or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
16. ATTORNEYS FEES.
Except with respect to paragraphs 5.3 and 5.4 which issues are
reserved for the court, any dispute regarding the negotiations leading up
to the execution of this Release and/or the interpretation or application
of this Agreement or the alleged breach hereof, or any act which allegedly
has, or would, violate any provision of this Agreement must be submitted
to arbitration before a neutral arbitrator. The arbitration shall be
conducted in accordance with the rules of Judicial Arbitration and
Mediation Services, Inc. of Orange County. A written demand for
arbitration pursuant to Section 638 of the Code of Civil Procedure must be
made within sixty (60) days of the alleged breach. The results of
arbitration will be the exclusive, final and binding remedy for such claim
<PAGE> -9-
<PAGE>
or dispute.
17. GOVERNING LAW.
This Agreement will be governed by and construed in accordance
with the laws of the State of California.
18. BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective representatives, heirs, successors
and assigns.
19. WAIVER.
No waiver of any of the provisions of this Agreement shall be
deemed, or shall constitute a waiver of any other provision, whether or
not similar, nor shall any waiver constitute a continuing waiver. No
waiver shall be binding unless executed in writing by the party making the
waiver.
20. CORPORATE APPROVALS.
The Company represents and warrants that the execution of this
Agreement by its corporate officer named below has been duly authorized by
the Board of Directors of the Company, is not in conflict with any Bylaw
or other agreement and will be a binding obligation of the Company,
enforceable in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date above written.
THE COMPANY:
METALCLAD CORPORATION
By: /s/Grant S. Kesler
------------------------------
Its Authorized Officer
EXECUTIVE: /s/Javier Guerra Cisneros
------------------------------
Javier Guerra Cisneros
-10-
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of the 31st day of December, 1997,
by and among the purchasers whose names and addresses are shown on the
signature page to this Purchase Agreement (each a "Purchaser" and together
the "Purchasers") and METALCLAD CORPORATION, a Delaware corporation, with
its principal offices at 2 Corporate Plaza, Suite 125, Newport Beach,
California 92660, United States of America (the "Company").
WITNESSETH:
WHEREAS, the Company is offering to sell up to U.S. $2,200,000.00
Principal Amount of its Zero Coupon Secured Notes, each Note to be dated
and issued as of the date hereof and to be due December 31, 2002 (each a
"Note" and together the "Notes"), the Purchasers or any other holders of
the Notes being hereinafter sometimes referred to as the "Noteholders" and
individually as a "Noteholder", and the Principal Amount of any Note being
hereinafter sometimes referred to as the "Principal Amount"), each Note to
be substantially in the form of Exhibit A annexed hereto and made a part
hereof;
WHEREAS, under certain circumstances described below and in the
Notes, the Notes may become convertible into the Company s Common Stock,
par value U.S. $.10 per share (the "Common Stock"), and may thereafter be
so converted at the option of the holder of such Note, the Company being
obligated to issue to the holder of each Note 1,000 "Warrants"
(hereinafter defined) to purchase the Common Stock of the Company for each
U.S. $1,000.00 of the "Purchase Price" (hereinafter defined) of the Notes
then outstanding (whether or not the Notes are then converted by the
holder thereof), and under certain further circumstances described below,
the Company may acquire the right, but not the obligation, to require the
holders of the Notes to convert the Notes into Common Stock (the Company
previously having issued the Warrants referred to above), neither of which
circumstances are certain to occur;
WHEREAS, under certain circumstances described below, on or after
April 15, 1999: (A) the Noteholders may acquire the right to require the
Company to redeem the Notes prior to maturity and concurrently therewith
to issue to the Noteholders 1,000 Warrants to purchase Common Stock for
each U.S. $1,000.00 of the Purchase Price of the Notes then outstanding
(provided such Warrants have not previously been issued to the
Noteholders); and (B) the Company may acquire the right to prepay the
Notes prior to maturity provided concurrently with the exercise of such
right, the Company shall issue to the Noteholders 1000 Warrants for each
such U.S. $1,000.00 of the Purchase Price of the Notes then outstanding
(provided such Warrants have not previously been issued to the
Noteholders);
WHEREAS, the obligations of the Company under the Purchase Agreement
and the Notes are entitled to the benefits of the Pledge Agreement
<PAGE>
mentioned below;
WHEREAS, the placement of the Notes has been arranged directly by and
between the Company and the Purchasers; and
WHEREAS, the Company has furnished to the Purchasers, in accordance
with Section 4.2 (c) hereof, the latest annual and quarterly reports and
other public information referred to below filed with the United States
Securities and Exchange Commission ("SEC") constituting all of the filings
of any nature which the Company has filed and was required to file with
the SEC from and including January 1, 1997 through and including December
31, 1997;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Purchase Agreement, the undersigned agree as
follows:
Section 1. Agreement to Sell and Purchase the Notes.
1.1 On the basis of the representations, warranties and agreements
contained in this Purchase Agreement but subject to the terms and
conditions set forth in this Purchase Agreement, the Company agrees to
issue and sell to each Purchaser, and each Purchaser agrees to purchase
from the Company on December 31, 1997, or on such other date as shall be
mutually agreed upon by the Company and the Purchasers (the "Closing
Date"), the aggregate Principal Amount of Notes set forth opposite such
Purchaser s name on Schedule 1 annexed to this Purchase Agreement and made
a part hereof. The Purchase Price for each Note shall be equal to the
Principal Amount of such Note multiplied by .68181819 (herein with
reference to each Note, the "Purchase Price") The total Purchase Price of
all Notes shall equal U.S. $1,500.000.00 (U.S. $2,200,000.00 Principal
Amount times .68181819).
1.2 Payment of the Purchase Price for each Note shall be made
by each Purchaser to the Company by wire transfer net of all wire transfer
charges of immediately available funds for value on December 31, 1997 or
such earlier date as the Company and the Purchasers shall agree in United
States dollars to:
Account: Metalclad Corporation
Account No.: 040116487
ABA No.: 122003516
Bank: Sanwa Bank, Santa Ana Main Branch
1622 North Main Street
Santa Ana, California 92701
United States of America
PURCHASER MUST INSTRUCT ITS PAYING BANK PRIOR TO THE CLOSING DATE TO WIRE
FUNDS FOR SAME DAY VALUE ON OR BEFORE THE CLOSING DATE, IN ORDER TO HAVE
SUCH FUNDS TRANSFERRED TO THE ABOVE ACCOUNT PRIOR TO THE CLOSING.
Alternatively, at the option of any Purchaser, payment may be made in
escrow in advance of the Closing Date by wire transfer of the Purchase
Price to be paid by such Purchaser in immediately available funds to:
<PAGE> 2
<PAGE>
Account: Gilmartin, Poster & Shafto Trust
Account No.: 04278931
ABA No.: 0210000089
Bank: Citibank, N.A.
One Broadway, New York, New York 10004
United States of America
Attention: Ms. Lena Circosta
Should the funds be transferred in such alternative manner and should
the Closing take place at a time of day when it is no longer practicable
or possible to wire transfer said funds to the above mentioned account of
the Company, Purchaser will cause Messrs. Gilmartin, Poster & Shafto
("Agent"), concurrently with the Closing, to: (i) issue and deliver to the
Company the Agent s irrevocable and unconditional confirmation that
concurrently with the Closing the Agent holds such Purchase Price solely
and exclusively for the benefit of the Company, and (ii) issue and deliver
to Citibank, N.A. no later than the opening of business on the following
Business Day its irrevocable and unconditional instructions to Citibank,
N.A. forthwith to wire transfer net of all wire transfer charges the total
Purchase Price of all the Notes to the Company s account with said Sanwa
Bank above mentioned.
1.3 The completion of the sale and purchase of the Notes (the
"Closing") shall take place at the offices of the Agent, 5th Floor, One
William Street, New York, New York 10004, at 10:00 a.m. local time on the
Closing Date. At the Closing, the Company shall deliver to the Agent for
the account of Purchasers, one Note for each Purchaser in the aggregate
Principal Amount of the Note being purchased by such Purchaser, such Note
being registered in the name of such Purchaser or its nominees,
representing the Notes being purchased by each Purchaser, against payment
of the Purchase Price therefor in immediately available funds to the
account of the Company designated in or otherwise as provided in Section
1.2 of this Purchase Agreement. Upon mutual Agreement of the Company and
the Purchasers, the Closing may take place earlier than December 31,1997,
but such earlier Closing shall have no effect on the dating of any
documents, including the Notes. In the event of such earlier closing the
Company shall pay interest to the Purchasers at the rate of 9 1/3% per
annum from the date of receipt of the Purchase Price by the Company to and
including December 30, 1997, such interest to be paid by the Company to
the Agent for distribution to the Purchasers no later than January 10,
1998.
1.4 The obligation of each Purchaser to purchase the Notes at the
Closing shall be conditional upon the delivery by the Company to the
Agent, on behalf of all the Purchasers, of:
1.4.1 The Pledge Agreement by and between the Company and
the Agent dated as of the Closing Date substantially in the form of
Schedule 2 annexed hereto and made a part hereof pursuant to which the
Company pledges to the Agent for the benefit of the Noteholders and as
security for, among other things, the obligations of the Company under the
Notes and this Purchase Agreement, all of the issued and outstanding
capital stock ("MIC Shares") of the Company s wholly owned subsidiary,
<PAGE>
Metalclad Insulation Corporation ("MK"), a California corporation.
1.4.2 Evidence satisfactory to the Agent of the authority of
the persons executing the Notes, the Pledge Agreement and all other
transaction documents on behalf of the Company.
1.4.3 The Notes.
1.4.4 The MIC Share Certificates and the MIC Stock Powers.
1.4.5 UCC Financing Statements relating to the Collateral to
be filed in such jurisdictions as are determined appropriate by the Agent.
Section 2. Contingent Rights of the Noteholders and the Company to
Require Conversion of the Notes; Obligation of the Company to Issue
Warrants Under Certain Circumstances; Right of the Noteholders to Require
Redemption of the Notes After April 15. 1999; Right of the Company to
Prepay the Notes Prior to Conversion After April 15. 1999; Certain Rights
of Noteholders Upon the Occurrence of an Event of Default; Registration
Rights.
2.1 When used in this Purchase Agreement, the following terms
shall have the following meanings:
2.1.1 "Agent" shall have the meaning set forth in Section
1.2 of this Purchase Agreement.
2.1.2 "Business Day" shall mean a day on which banks are
open for business in each of Los Angeles, California, New York City, New
York, London, England and the Channel Islands.
2.1.3 "Closing Date" shall have the meaning set forth in
Section 1.1 of this Purchase Agreement.
2.1.4 "Common Stock" shall have the meaning set forth in the
second recital of this Purchase Agreement.
2.1.5 "Company" shall have the meaning set forth in the
first paragraph of this Purchase Agreement.
2.1.6 "Conversion Rate" shall mean 667 shares of Common
Stock for each U.S. $1,000.00 of the Purchase Price of any Note, which
number of shares shall be subject to adjustment pursuant to the OFW
Ratchet Clause.
2.1.7 "Conversion Shares" shall mean the shares of Common
Stock of the Company issuable upon conversion of the Notes.
2.1.8 "Default Rate" shall be a per annum rate of interest
equal to (i) the greater of (w) 15% or (x) the sum of 6% plus the rate
announced from time to time by Citibank, N.A. as its prime or stated rate
for unsecured short term U.S. dollar commercial loans in the United
States.
<PAGE> 4
<PAGE>
2.1.9 "Discounted Present Value" with respect to any Note
shall be based on a simple interest rate of 9 1/3% per annum without
compounding and shall mean with respect to any Note an amount calculated
in accordance with the following formula:
n
----
PP + (46 2/3% PP x 1826)
wherein PP equals the Purchase Price of a Note, n equals the number of
days elapsed from and including the date of issuance of any Note to and
including (A) the date of payment pursuant to the exercise by any
Noteholder of its contingent right of redemption or (B) the date of
payment pursuant to the exercise by the Company of its contingent right of
prepayment or (C) the date of occurrence of an Event of Default, as the
case may be, and 1826 equals the total number of days from and including
the date of issuance to and including the date of maturity of the Note
(December 31, 1997 through and including December 31, 2002).
2.1.10 "Event of Default" shall mean any of the events
referred to in Section 7 of this Purchase Agreement; and "Events of
Default" shall mean more than one such event.
2.1.11 "Mandatory Redemption" shall mean the exercise by
any Noteholder, at any time after April 15, 1999 and prior to the timely
receipt by such Noteholder of notice from the Company of the occurrence of
a Trigger Event, of the right to require the Company to redeem such Note
at a price equal to the Discounted Present Value from the date of payment
of the redemption price and the concurrent delivery by the Company to such
Noteholder of 1,000 Warrants for each $1,000.00 of the Purchase Price of
such Note.
2.1.12 "Market Price" shall have the meaning set forth in
the form of Warrant annexed to this Purchase Agreement as Exhibit B and
made a part hereof.
2.1.13 "MIC Shares" shall mean all of the issued and
outstanding capital stock of Metalclad - Insulation Corporation, a
California corporation.
2.1.14 "MIC Stock Powers" shall mean stock powers executed
in blank, with signature guaranteed, in form sufficient to enable the
Agent to transfer the registered and beneficial ownership of the whole or
any portion of the MIC Shares pursuant to the terms of the Pledge
Agreement.
2.1.15 "MTLC Optional Conversion Event" shall mean the
occurrence of both of (i) the receipt of timely notice by the Noteholder
of the occurrence of a Trigger Event, (ii) the receipt by the Noteholders
of notice from the Company that the Market Price of the Common Stock has
equaled or exceeded U.S. $3.00 per share for not less than 60 consecutive
trading days, which such notice must be given by the Company not later
than 15 calendar days after the occurrence of such MTLC Optional
Conversion Event.
<PAGE> 5
<PAGE>
2.1.16 "Noteholder" and "Noteholders" shall have the
meanings set forth in the first recital of this Purchase Agreement.
2.1.17 "Obligations" shall have the meaning set forth in
Pledge Agreement.
2.1.18 "OFW Ratchet Clause" shall have the meaning set
forth in the form of Warrant annexed hereto as Exhibit B and made a part
hereof.
2.1.19 "Pledge Agreement" shall mean that certain Pledge
Agreement by and between the Company and the Agent dated as of December
31, 1997, substantially in the form of Exhibit C annexed hereto and made a
part hereof, pursuant to which, among other things, the Company pledges to
the Agent for the benefit of the Noteholders and as security for all of
the Obligations, the MIC Shares.
2.1.20 "Principal Amount" shall mean with respect to all of
the Notes, U.S. $2,200,000, and with respect to any Note, shall mean the
Purchase Price thereof multiplied by 1.466666667.
2.1.21 "Purchaser" and "Purchasers" shall have the meanings
set forth in the first paragraph of this Purchase Agreement.
2.1.22 "Purchase Price" of any Note shall mean the
Principal Amount thereof multiplied times .68181819.
2.1.23 "SEC" shall have the meaning set forth in the last
recital of this Purchase Agreement.
2.1.24 "Total Interest" in respect of any Note shall mean
the total interest thereon from the date of issuance to the date of
maturity and shall be equal to the Principal Amount of such Note
multiplied times .318181.
2.1.25 "Trigger Event" shall mean the timely receipt by the
Noteholder of Notice from the Company that the Market Price of the Common,
Stock shall have equaled or exceeded U.S. $1.50 per share for a period of
10 consecutive trading days (which Notice the Company shall be obligated
to give upon the first occurrence thereof).
2.1.26 "Warrant" shall mean the non-redeemable right to
purchase one share of the Common Stock at the Warrant Exercise Price; and
"Warrants" shall mean the plural thereof, each Warrant to be substantially
in the form of Exhibit B annexed hereto and made a part hereof.
2.1.27 "Warrant Exercise Price" shall mean U.S. $1.50 per
share of Common Stock as the same may be adjusted pursuant to the OFW
Ratchet Clause.
2.1.28 "Warrant Shares" shall mean the shares of Common
Stock of the Company issuable upon exercise of the Warrant.
2.2 Upon the occurrence of a Trigger Event following the issuance
<PAGE> 6
<PAGE>
of the Notes: (i) the Notes shall become convertible at the option of the
holder thereof at the Conversion Rate; (ii) the Company shall issue to
such holder 1,000 Warrants for each $1,000.00 of the Purchase Price of
such Note; and (iii) the right of the Noteholder to receive Total Interest
in respect of his Note, whether accrued or to be accrued, shall be
canceled if, and only if, such Note is actually converted by such
Noteholder following the owner of a Trigger Event or (B) following the
occurrence of an MTLC Optional Conversion Event as hereinafter provided.
2.3 Upon the occurrence of an MTLC Optional Conversion Event,
provided the Noteholders shall have received notice thereof not later than
15 calendar days following the occurrence thereof, the Company shall have
the right (but not the obligation) to require the Noteholders to convert
the Notes into Common Stock at the Conversion Rate at any time prior to
maturity of the Notes. In the event such notice is not received by such
Noteholder within such 15 calendar days, the right of the Company to
require such conversion shall lapse without prejudice to the right of the
Company to require such conversion upon the occurrence of an MTLC Optional
Conversion Event provided notice thereof is given to the Noteholders
within such 15 day period. Upon the exercise by the Company of such right
to require conversion following the occurrence of an MTLC Optional
Conversion Event, (A) the Notes shall be converted into Common Stock at
the Conversion Rate and (B) the Company shall, concurrently with such
conversion, issue to such Noteholder 1000 Warrants for each $1000.00 of
Purchase Price of such Note (unless such Warrants have previously been
issued to such Noteholder).
2.4 In the event a Trigger Event shall not have occurred on or
before April 14, 1999, the holder of any Note shall thereafter have the
right (but not the obligation) to require the Company to redeem such Note
and upon the exercise of such right, the Company will (i) pay to such
Noteholder the Discounted Present Value of such Note calculated to the
date of payment thereof, which payment shall be effected by the Company
within 30 calendar days following the date of such demand for redemption,
and (ii) issue to such holder 1,000 Warrants for each $1,000.00 of the
Purchase Price of such Note.
2.5 At any time after April 15, 1999 prior to the exercise (i) by
any Noteholder or the Company of their rights of conversion pursuant to
Sections 2.2 or 2.3, or (ii) by any Noteholder of its right of redemption
under Section 2.4, the Company may, but shall not be required to, prepay
the Notes in whole but not in part by (A) paying to each Noteholder the
Discounted Present Value of his Note calculated to the date of such
prepayment, and (B) issuing to each Noteholder 1,000 Warrants for each
$1,000.00 of the Purchase Price of his Note (unless such Noteholders shall
have previously received such amount of Warrants).
2.6 Upon the occurrence of an Event of Default and so long as the
same shall be continuing, any Noteholder shall have the right to declare
his Note to be in default. In the event of any such declaration the
Discounted Present Value of such Note shall be calculated to the date of
the occurrence of such Event of Default and, (i) thereafter, such
Discounted Present Value of the Note shall bear interest at the Default
Rate until all amounts due such Noteholder are paid in full, and (ii)
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unless previously issued to such Noteholder, the Company will forthwith
issue to the Noteholder 1,000 Warrants for each $1,000.00 of the Purchase
Price of such Note. Upon the occurrence of an Event of Default any
Noteholder may instruct the Agent to exercise any one or more or all of
the Agent s rights under the Pledge Agreement, all without prejudice to
the Noteholders rights in law or equity.
2.7 If the SEC or any other agency of the government of the
United States abolishes, modifies or otherwise changes the terms of
Regulation S or Rule 144 promulgated under the Securities Act of 1933, as
amended, so as to (i) extend the holding period under Regulation S to a
period greater than 40 days, or (ii) extend the holding period under Rule
144 to greater than one year, the Purchasers adversely affected thereby
shall have the registration rights set forth in the Registration Rights
Agreement attached hereto as Exhibit D and incorporated herein by this
reference.
Section 3. Representations and Warranties of the Company.
The Company hereby represents and Warrants to each Purchaser as
follows:
3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority
to own and lease its properties and to conduct its business as presently
conducted and as described in the Offering Memorandum. The Company and its
subsidiaries are duly qualified to do business as foreign corporations and
are in good standing in every jurisdiction where such qualification is
required by controlling law and where the failure to so qualify would have
a material adverse effect on the Company and its subsidiaries, taken as a
whole.
3.2 MIC Shares. The MIC Shares consist of 1,000 shares of Common
Stock, no par value, represent all of the issued shares of capital stock
of the Company, have been duly and validly authorized and issued, and are
fully paid and nonassessable. The MIC Shares are owned directly by the
Company and are free and clear of any claim, lien, security interest,
mortgage, pledge, charge or other encumbrance of any nature whatsoever.
3.3 Due Execution. Delivery and Performance of the Purchase
Agreement. The execution, delivery and performance of this Purchase
Agreement, the Notes, the Pledge Agreement, the Warrant, and all other
documents delivered by the Company in connection with this Purchase
Agreement (a) have been duly authorized by all requisite corporate action
of the Company, and (b) will not violate (i) the Certificate of
Incorporation or Bylaws of the Company or (ii) any law applicable to the
Company, any of its subsidiaries or any rule, regulation or order of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or (iii) any provision of any indenture,
mortgage, agreement, contract or other instrument to which the Company is
bound.
3.4 Issuance and Delivery of the Conversion Shares and the
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Warrant Shares. The offer, issuance, sale and delivery of the Conversion
Shares and the Warrant Shares, as in accordance with the Purchase
Agreements, have been duly authorized by all requisite corporate action of
the Company. The Conversion Shares and the Warrant Shares, when issued,
will conform to the terms of the Common Stock set forth in the Company s
Certificate of Incorporation. The Conversion Shares when issued pursuant
to the conversion of the Note and this Purchase Agreement, and the Warrant
Shares, when exercised in accordance with the Warrant and this Purchase
Agreement, will be duly and validly issued and outstanding, fully paid and
non-assessable, will not be subject to any pre-emptive or similar right,
and Purchaser will receive good and valid record title to the Conversion
Shares and the Warrant Shares, respectively, free and clear of any claim,
lien, security interest, mortgage, pledge, charge or other encumbrance of
any nature whatsoever, except such as may have been created by the
Purchaser. No consent or approval by the stockholders of the Company or of
any other person is required to be obtained by the Company for the
consummation of the issuance, sale and delivery of the Conversion Shares
and the Warrant Shares pursuant to the terms of this Purchase Agreement.
The Conversion Shares and the Warrant Shares have been duly and validly
authorized and reserved for issuance.
3.5 Notes and Warrants Authorized. At the Closing, the Notes and
the Warrants will be duly and validly executed and delivered by the
Company and will constitute the valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
respective terms, except as the enforceability thereof may be limited by
any applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting the enforcement of creditors rights
generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
3.6 Compliance with Regulation S. The Company is a "reporting
issuer" (as defined in Regulation S promulgated by the SEC). The Company,
its affiliates and any person acting on behalf of, or as agent of, any of
the foregoing, whether as principal or agent, (a) has offered and sold the
securities which are the subject of this Purchase Agreement, including the
Notes, the Conversion Shares and the Warrant Shares (the "Securities") to
the Purchasers only in an "offshore transaction" (as defined in Regulation
5), (b) has not engaged with respect to the Securities in any "directed
selling efforts" (as defined in Regulation 5) in or directed toward the
United States, and (c) has complied with all "offering restrictions" (as
defined in Regulation 5) in respect of the Securities.
Section 4. Representations. Warranties and Covenants of Purchaser.
Each Purchaser hereby represents, warrants and covenants to the
Company as follows:
4.1 Compliance with United States Securities Laws. Each Purchaser
understands and acknowledges that (a) the Securities have not been and
will not be registered under the Securities Act, and may not be offered or
sold in the United States or to, or for the account or benefit of, any
"U.S. person" (as defined in Regulation 5, which definition is set out in
Schedule 4 hereto), unless such securities are registered under the
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Securities Act and any applicable state securities or blue sky laws or
such offer or sale is made pursuant to exemptions from the registration
requirements of such laws, (b) the Notes may not be converted and the
Warrants may not be exercised in the United States or by or on behalf of a
"U.S. person" (as defined in Regulation 5) unless the Conversion Shares,
the Warrants and the Warrant Shares are registered under the Securities
Act and any applicable state securities or blue sky laws or exemptions
from the registration requirements of such laws are available, and (c) the
Securities are being offered and sold pursuant to the terms of Regulation
S under the Securities Act, which permits securities to be sold to non-
"U.S. persons" in "offshore transactions" (as defined in Regulation 5),
subject to certain terms and conditions.
4.2 Status of Purchaser.
(a) Purchaser is purchasing the Securities for its own
account or for persons or accounts as to which it exercises investment
discretion. Neither Purchaser nor such person or account is a "U.S.
person" (as defined in Regulation 5). Purchaser has executed this
Purchase Agreement outside the United States. The offer to Purchaser and
sale of the Securities has occurred outside the United States.
(b) Purchaser (and any person or account on whose behalf
Purchaser is purchasing) is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments
in restricted securities such as this Purchase Agreement and the
Securities) and has requested, received, reviewed and considered all
information it deems relevant in making a decision to execute this
Purchase Agreement and to purchase the Securities. Purchaser acknowledges
that it is capable of evaluating the merits and risks of an investment in
the Securities.
(c) Purchaser acknowledges that the Company has made
available to Purchaser (i) the latest annual and quarterly reports and
other public information referred to below filed with the SEC. including
all of the filings of any nature which the Company has filed and was
required to file with the SEC from and including January 1, 1997 through
and including December 31, 1997, (ii) the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Securities, and (iii) the opportunity to obtain any additional information
that the Company possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy of the information
furnished in accordance herewith.
(d) Purchaser has agreed to purchase the Securities for
investment purposes and not with a view to a distribution. To the extent
that the Shares and the Warrants comprising the Securities are registered
in the name of Purchaser s nominee, Purchaser confirms that such nominee
is acting as custodian for Purchaser of such securities.
4.3 Restrictions on Transfer or Re-Sale.
(a) For a period of 40 days following the Closing Date, or
if the Securities come to be issued on more than one day, the latest
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Closing Date (the "Restricted Period"), Purchaser shall not engage in any
activity for the purpose of, or which may reasonably be expected to have
the effect of, conditioning the market in the United States for the
Securities, or offer, sell, transfer, pledge or otherwise dispose of the
Securities, or any interest therein in the United States to, or for the
account or benefit of, a "U.S. person" (as defined in Regulation 5).
(b) Purchaser understands that the Conversion Shares or
Warrant Shares or any interest therein are only transferable on the books
and records of the Transfer Agent and Registrar of the Common Stock of the
Company and, with respect to the Notes and the Warrants, on the books and
records of the Company. Purchaser further understands that the Transfer
Agent and Registrar and the Company will not register any transfer of the
Securities or any interest therein which the Company in good faith
believes violates the restrictions set forth herein.
(c) Unless registered under the Securities Act, any proposed
offer, sale, transfer, pledge or other disposition during the Restricted
Period of any of the Securities or any interest therein shall be subject
to the condition that Purchaser must deliver to the Company (i) a written
certification that neither record nor beneficial ownership of the
Securities has been offered or sold in the United States or to, or for the
account or benefit of, any "U.S. person" (as defined in Regulation 5),
(ii) a written certification of the proposed transferee that such
transferee (or any account for which such transferee is acquiring such
Securities is not a "U.S. person (as defined in Regulation 5), that such
transferee is acquiring such Securities or such interest therein, as the
case may be, for such transferee s own account (or an account over which
it has investment discretion) and for investment and not with a view to a
distribution, and that such transferee is knowledgeable of and agrees to
be bound by the restrictions on re-sale set forth in this section and
Regulation S during the Restricted Period, and (iii) a written opinion of
United States counsel, in form and substance satisfactory to the Company,
to the effect that the offer, sale, transfer, pledge or other disposition
of such Securities, or any interest therein, as the case may be, are
exempt from registration under the Securities Act and any applicable state
securities or blue sky laws.
(d) Purchaser will not, directly or indirectly, voluntarily
offer, sell, pledge, transfer or otherwise dispose of (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge oh its
rights under this Purchase Agreement otherwise than in compliance with the
Securities Act, any applicable state securities or blue sky laws and any
applicable securities laws of jurisdictions outside the United States, and
the rules and regulations promulgated thereunder.
(e) The parties acknowledge the contemplated transfer of a
portion of the principal amount of the Note and agree that a portion of
the Note may be transferred to a "U.S. person" (as defined in Regulation
5) on the condition that the transferee agrees to accept the imposition of
the following legend restricting further transfer of re-sale:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
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CANNOT BE SOLD OR TRANSFERRED UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, IS THEN IN EFFECT WITH RESPECT TO
THE SECURITIES REPRESENTED HEREBY; OR (ii) A WRITTEN OPINION FROM LEGAL
COUNSEL TO THE ISSUER IS OBTAINED TO THE EFFECT THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE WITH RESPECT TO THE PROPOSED
SALE OR TRANSFER AND THAT NO SUCH REGISTRATION IS REQUIRED; OR (iii) A NO
ACTION LETTER OR ITS THEN EQUIVALENT WITH RESPECT TO SUCH SALE OR TRANSFER
HAS BEEN ISSUED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION.
4.5 Exercise of the Warrants. Purchaser understands that the
Warrants may not be exercised by or on behalf of any "U.S. person" (as
defined in Regulation 5) unless the Warrants and the Warrant Shares
issuable upon exercise thereof are registered under the Securities Act or
an exemption from such registration is available. Accordingly, Purchaser
understands that it is a condition to the exercise of the Warrants that
(a) any shares of Common Stock issuable upon such exercise will not be
delivered within the United States except in circumstances constituting an
"offshore transaction" (as defined in Regulation 5) or unless such shares
of Common Stock have been registered under the Securities Act or an
exemption from such registration is available, and (b) the holder
exercising the Warrants must deliver to the Company (i) a written
certification that such holder is not a "U.S. person" (as defined in
Regulation 5) and that the Warrants are not being exercised on behalf of,
or for the account or benefit of, a "U.S. person" (as defined in
Regulation 5) or (ii) a written opinion of United States counsel, in form
and substance satisfactory to the Company, to the effect that the Warrants
and the shares of Common Stock issuable upon exercise of the Warrants have
been registered under the Securities Act or are exempt from registration
under the Securities Act.
4.6 Due Execution. Delivery and Performance of the Purchase
Agreement and Other Obligations. Purchaser has full right, power,
authority and capacity to enter into this Purchase Agreement and to
consummate the transactions contemplated hereby; if Purchaser is a company
or corporation, the execution, delivery and performance of this Purchase
Agreement by Purchaser have been duly authorized by all requisite
corporate action of Purchaser. Upon the execution and delivery of this
Purchase Agreement by Purchaser, this Purchase Agreement shall constitute
the legal, valid and binding obligations of Purchaser, except as the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting
the enforcement of creditors rights generally and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
Section 5. Representations and Warranties at the Closing; Survival of
Representations. Warranties and Agreements.
5.1 Each of the parties hereto acknowledges that each of its
respective representations and warranties contained in this Purchase
Agreement is true and correct as of the date of this Purchase Agreement.
5.2 Notwithstanding any investigation made by either party to
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this Purchase Agreement, all covenants, agreements, representations and
warranties made by the Company and Purchaser herein and in the Securities
delivered pursuant hereto shall survive the execution of this Purchase
Agreement, the delivery to Purchaser of the Securities, and the receipt by
the Company of payment for the Securities.
Section 6. Certain Agreements of the Company.
The Company hereby covenants and agrees with Purchaser as follows:
6.1 The Company shall cause MIC to preserve and maintain its
corporate existence and all of its right, privileges and franchises in
every jurisdiction in which the character of the property owned or the
nature of the business transacted makes licensing of qualification
necessary relative to the conduct of MIC s business.
6.2 The Company shall not permit MIC to encumber, mortgage,
pledge, assign or grant any security in MIC s assets to anyone other than
Purchaser. The shall cause MIC to place notations on MIC s books of
account and financial statements to disclose Purchaser s interest in MIC
assets.
6.3 The Company shall cause MIC to keep and maintain MIC s assets
in good operating condition, reasonable wear and tear excepted.
6.4 The Company shall not permit MIC to make any capital
expenditures in any fiscal year in excess of $100,000 without the consent
of Purchaser.
6.5 The Company shall promptly notify Purchaser of the imposition
at any time of any lien or encumbrance upon any of the Collateral and the
Company shall defend MIC s assets against all claims and demands of all
persons at any time claiming the same or any interest therein adverse to
Purchaser.
6.6 Without the prior written consent of Purchaser, the Company
shall not sell, assign, transfer, mortgage, pledge, or otherwise dispose
of MIC s assets, other than in the ordinary course of business.
6.7 The Company shall promptly give to Purchaser notice in
writing of any proceeding before any governmental agency or court against
MIC which might, if determined adversely to MIC, materially and adversely
affect MIC s financial condition, affairs or operations.
6.8 The Company shall cause MIC to pay all taxes, assessments,
governmental charges or levies imposed upon it or upon its income or
profits, or upon any property belonging to it, prior to the date penalties
attach thereto; provided, however, that MIC shall not be required to pay
any such all taxes, assessments, governmental charges or levies being
contested in good faith and by appropriate proceedings, but only so long
as such proceedings do not involve any material danger or material adverse
impact on the business of MIC.
6.9 The Company shall not permit MIC to merge or consolidate with
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or into any other corporation or entity (except to the extent that MIC is
the successor, survivor or parent and, in such event, only if (i) the
tangible net worth of MIC is in the Company s reasonable judgment equal to
or greater than the tangible net worth of MIC prior to such merger or
consolidation, and (ii) MIC remains a wholly-owned subsidiary of the
Company.
6.10 The Company shall cause MIC to defend MIC s assets against
the claims and demands of all parties.
6.11 The Company shall not permit MIC to make a loan, pay a
dividend, or otherwise transfer any of MIC s assets to the Company.
6.12 The Company shall not permit MIC to make any loans to any
officers, directors, employees, or affiliates of the Company or MIC.
6.13 The Company shall cause MIC to provide Purchaser with
unaudited financial statements of MIC, including a balance sheet, profit
and loss statement, statement of equity, and cash flow statement, within
45 days of the end of each fiscal quarter and 90 days after the end of the
fiscal year. All financial statements required hereunder shall be prepared
in accordance with GAAP, subject to year-end adjustments in the case of
quarterly statements. In addition, the Company shall cause MIC to furnish
Purchaser with a month-by-month operating budget and cash flow for each
fiscal year, including a balance sheet and income statement) no later than
30 days prior to the end of the previous fiscal year.
6.14 The Company shall cause MIC to maintain insurance as on its
assets in a commercially reasonable manner.
6.15 The Company shall cause MIC to remain in material compliance
with all applicable provisions of the Occupational Safety and Health Act
("OSHA") and the Environmental Protection Act.
6.16 The Company shall not permit MIC to materially change the
nature of its business.
6.17 The Company shall not permit MIC to purchase or acquire
obligations or stock of, or any interest in, or make any investment in any
entity other than (i) obligations issued or guaranteed by the United
States of America or any agency thereof, (ii) commercial paper with
maturities of not more than 180 days and a published rating of not less
than A-1 or P-1 or equivalent rating, or (iii) certificates of deposit
having maturities of not more than 180 days issued by FDIC-insured
commercial banks with combined capital and surplus of at least $500
million, (iv) U.S. money market funds that invest solely in obligations
issued by the United States of America or any agency thereof, and (v)
Eurodollar time deposits with financial institutions with a published
rating of not less than A-I or P-I or equivalent rating.
Section 7. Events of Default
7.1 The Company shall be deemed to be in default of this Purchase
Agreement and the Note if any of the following events ("Events of
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Default") shall occur and be continuing:
(a) The Company shall fail to pay any principal of any Note
when due in accordance with the terms thereof or hereof; or the Company
shall fail to pay any interest on any Note or any other amount payable
hereunder, within five Business Days after any such interest or other
amount becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by
the Company or MIC or in any other transaction document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Purchase
Agreement or any such other transaction document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) The Company shall default in the observance or
performance of any agreement contained in Section o or any covenant
contained in any other transaction document; or
(d) The Company or MIC shall default in the observance or
performance of any agreement contained in this Purchase Agreement or any
other transaction document and such default shall continue unremedied for
a period of 30 days after the earlier of (i) the date upon which an
executive officer of the Company has actual knowledge thereof and (ii) the
date upon which the Agent or any Noteholder gives notice to the Company
thereof; or
(e) (i) the Company or MIC shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have any order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it
or its debts, or (B) seeking appointment of a receiver, trustee,
custodian, conservator or other similar official for it or for all or any
substantial part of its assets, or the Company or MIC shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Company or MIC any case, proceeding or other action
of a nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 60 days; or
(iii) there shall, be commenced against the Company or MIC any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of an order for any such
relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the Company
or MIC shall take any action in furtherance of, or indicating its consent
to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii), or (iii) above; or (v) the Company or MIC shall generally not,
or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due.
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7.2 In any such Event of Default, as defined in Section 7.1, (A)
if such Event of Default specified in clause (i) or (iv) of paragraph (e)
of Section 7.1 with respect to the Company, automatically the Notes
hereunder (with accrued interest on) and all other amounts owing under
this Purchase Agreement (including, without limitation, all Obligations
shall immediately become due and payable, and (B) if such event is any
other Event of Default, any Noteholder may declare the Notes (and accrued
interest thereon) and all other amounts owing under this Purchase
Agreement without limitation, all Obligations, to be due and payable
forthwith, whereupon the same shall immediately become due and payable.
7.3 Except as expressly provided above in this Section 7, demand,
protest and all other notices of any kind are hereby expressly waived.
Section 8. Notices.
Notices and other communications provided for herein shall be in
writing and shall be delivered by hand or shall be sent by telecopy (and
if sent by telecopy, shall be confirmed by registered mail, return receipt
requested, or by overnight mail or courier, postage and delivery charges
prepaid), to the following addresses:
if to the Company: Metalclad Corporation
Attention: Grant Kesler, President
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
Phone: (714) 719-1234
Fax: (714) 719-1240
with a copy to: Gibson, Haglund & Johnson
Attention: Bruce H. Haglund, Esq.
Koll Center Irvine
2010 Main Street, Suite 400
Irvine, California 92614
Phone: (714) 752-1100
Fax: (714) 752-7144 or (714) 752-1188
if to the Purchaser: Sundial International Fund Limited
Attention: Mr. J.C.M. Robertson, Director
Les Bruyeres, Les Grande Mielle
Fauvic, Grouville
Jersey, Channel Islands JE3 9BN
Phone: 011-44-1534-851-294
Fax: 011-44-1534-857-228
Ultra Pacific Holdings S.A.
Attention: Herr Hans Gassner
c/o Dr. Herbert Batliner
Post Box 86
F.L. 9490
Vaduz, Liechtenstein
Phone: 011-41-75-236-0404
Fax: 011-41-75-236-0405
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with copies to: Gilmartin, Poster & Shafto
Attention: Donald B. Shafto, Esq.
One William Street, 5th Floor
New York, New York 10004
Phone: (212) 425-3220
Fax: (212) 482-0848 or (212) 425-3130
Sundt & Co. Ltd.
Attention: Nick Murphy
11 St. James s Square
London SW1Y 4LB United Kingdom
Phone: 011-44-171-930-5757
Fax: 011-44-171-930-1784
Whenever any notice is required to be given hereunder, such notice shall
be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telecopy, when received. Addresses may be changed
upon notice of such change given as provided in this Section 8.
Section 9. Amendments.
No amendment, interpretation or waiver of any of the provisions of this
Purchase Agreement shall be effective unless made in writing and signed by
the parties to this Purchase Agreement.
Section 10. Headings.
The headings of the sections and sub-sections of this Purchase
Agreement are used for convenience only and shall not affect the meaning
or interpretation of the contents of this Purchase Agreement.
Section 11. Enforcement.
The failure to enforce or to require the performance at any time of
any of the provisions of this Purchase Agreement shall in no way be
construed to be a waiver of such provisions, and shall not affect either
the validity of this Purchase Agreement or any part hereof or the right of
any party thereafter to enforce each and every provision in accordance
with the terms of this Purchase Agreement.
Section 12. Governing Law.
This Agreement and the relationships of the parties in connection
with the subject matter of this Purchase Agreement shall be governed by
and determined in accordance with the substantive laws of the State of New
York, in the United States of America, applicable to agreements made and
to be performed entirely therein.
Section 13. Severability.
In case any one or more of the provisions contained in this Pledge
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby. To
<PAGE> 17
<PAGE>
the extent permitted by applicable law, the parties hereby waive any
provision of law which may render any provision hereof invalid, illegal or
unenforceable in any respect.
Section 14. Counterparts.
This Purchase Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the
same instrument, and all signatures need not appear on any one
counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by their duly authorized representatives as of
the day and year first above written.
The Company: METALCLAD CORPORATION
By: /s/Grant S. Kesler
--------------------------------
Grant S. Kesler, President
Purchasers: SUNDIAL INTERNATIONAL FUND LIMITED
By: /s/Donald B. Shafto
--------------------------------
Name: Donald B. Shafto
Title: Assistant Secretary
ULTRA PACIFIC HOLDINGS S.A.
By: /s/Donald B. Shafto
--------------------------------
Name: Donald B. Shafto
Title: President
<PAGE> 18
<PAGE>
METALCLAD CORPORATION
SCHEDULE 1
PURCHASE AGREEMENT DATED DECEMBER 31, 1997
Name of Noteholder Principal Amount of Notes
------------------ -------------------------
Sundial International Fund Limited $1,466,666.67
Ultra Pacific Holdings, S.A. 733,333.33
------------
Total $2,200,000.00
19
<PAGE>
FORM OF COMMON STOCK PURCHASE WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR
ANY OTHER SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY "U.S.
PERSON" (AS DEFINED IN REGULATION S UNDER THE ACT) PRIOR TO _______ UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE. THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON (AS
DEFINED IN REGULATION S UNDER THE ACT) UNLESS SUCH SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE THEREOF ARE REGISTERED UNDER THE ACT OR
AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
No. ________
WARRANTS TO PURCHASE COMMON STOCK OF
METALCLAD CORPORATION
Initial Issuance on ___________, 199
Void after 5:00 p.m. California Time, December 31, 2002
THIS CERTIFIES THAT, for value received, ______________________ or
registered assigns (the "Holder") is the registered holder of Warrants
(the "Warrants") to purchase from Metalclad Corporation, a Delaware
corporation (the "Company"), at any time or from time to time until 5:00
p.m., California time, on December 31, 2002 (the "Expiration Date"),
subject to the conditions as set forth herein, at the initial exercise
price of $1.50 per share (the "Initial Exercise Price"), subject to
adjustment as set forth herein (the "Exercise Price") up to an aggregate
of ________ shares, subject to adjustment as set forth herein (the
"Shares"), of fully paid and non-assessable common stock, $.10 par value
(the "Common Stock"), of the Company upon surrender of this Certificate
and payment of the Exercise Price at the principal office of the Company
presently located at 2 Corporate Plaza, Suite 125, Newport Beach,
California 92660, United States. The number of Shares purchaseable upon
exercise of the Warrants and the Exercise Price per Share shall be subject
to adjustment from time to time as set forth herein. The exercise of the
Warrants is subject to compliance with the conditions set forth herein.
The exercise of the Warrants is subject to compliance with the conditions
set forth herein under the heading "Compliance with U.S. Securities Laws."
under the heading "Compliance with U.S. Securities Laws."
1. Exercise of Warrants.
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<PAGE>
(a) The exercise of any Warrants represented by this Certificate
is subject to the conditions set forth below in "Compliance with U.S.
Securities Laws."
(b) Subject to compliance with the conditions set forth below in
"Compliance with U.S. Securities Laws," the Holder shall have the right to
purchase from the Company the number of Shares which the Holder may at the
time be entitled to purchase pursuant hereto, upon surrender to the
Company at its principal office, of this Certificate together with the
form of election to purchase attached hereto duly completed and signed,
and upon payment to the Company of the aggregate Exercise Price for the
number of Shares in respect of which Warrants are then exercised.
(c) No Warrant may be exercised after 5:00 p.m., California
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
(d) Payment of the aggregate Exercise Price for the number of
Shares in respect of which Warrants are exercised shall be made in cash,
or by certified check or bank draft payable to the order of the Company,
or any combination of the foregoing.
(e) The Warrants represented by this Certificate are exercisable
at the option of the Holder, in whole or in part (but not as to fractional
shares of Common Stock). Upon the exercise of less than all of the
Warrants evidenced by this Certificate, the Company shall forthwith issue
to the Holder a new Certificate of like tenor representing such number of
unexercised Warrants.
(f) Upon surrender of this Certificate and payment of the
Exercise Price as aforesaid, the Company shall cause to be delivered with
all reasonable dispatch to or upon the written order of the Holder and in
such name or names as the Holder may designate, a certificate or
certificates for the number of whole Shares purchased upon the exercise of
the Warrants.
2. Elimination of Fractional Interests. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock and shall not be required to issue scrip or pay cash in lieu of
fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
3. Payment of Taxes. The Company will pay all documentary stamp
taxes, if any, attributable to the issuance and delivery of the Shares
upon the exercise of the Warrants; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any
Warrant or the delivery of any Shares in any name other than that of the
Holder, which transfer taxes shall be paid by the Holder.
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4. Compliance with U.S. Securities Laws. The Warrants and the shares
of Common Stock issuable upon the exercise of the Warrants have not been
and will not be registered under the United States Securities Act of 1933,
as amended (the "Act"), and the Warrants may not be exercised within the
United States or by or on behalf of any "U.S. person" (as defined in
Regulation S under the Act) unless the Warrants and such shares of Common
Stock are registered under the Act or an exemption from such registration
is available. Accordingly, it is a condition to the exercise of the
Warrants that (I) any shares of Common Stock issuable upon such exercise
will not be delivered within the United States except in circumstances
constituting an "offshore transaction" (as defined in Regulation S under
the Act) or unless such shares have been registered under the Act or an
exemption from such registration is available, and (ii) the exercising
Holder must deliver to the Company (A) a written certification that such
Holder is not a "U.S. person" (as defined in Regulation S under the Act)
and that the Warrants are not being exercised on behalf of, or for the
account or benefit of, a "U.S. person" (as defined in Regulation S under
the Act), or (B) a written opinion of United States counsel, in form and
substance satisfactory to the Company, to the effect that the Warrants and
the shares of Common Stock issuable upon exercise thereof have been
registered under the Act or are exempt from registration under the Act.
5. Transfer of Warrants. The Warrants shall be transferable only on
the books of the Company maintained at the Company s principal office upon
delivery of this Certificate with the form of assignment attached hereto
duly completed and signed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. The Company may, in its discretion,
require, as a condition to any transfer of Warrants, a signature guarantee
by a commercial bank or trust company, by a broker or dealer which is a
member of the National Association of Securities Dealers, Inc., or by a
member of a national securities exchange, The Securities and Futures
Authority Limited in the United Kingdom, or The International Stock
Exchange in London, England. Upon any registration of transfer, the
Company shall deliver a new certificate or certificates of like tenor and
evidencing in the aggregate a like number of Warrants to the person
entitled thereto in exchange for this Certificate, subject to the
limitations provided herein, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
6. Exchange and Replacement of Warrant Certificates; Loss of
Mutilated Warrant Certificates.
(a) This Certificate is exchangeable without expense, upon the
surrender hereof by the Holder at the principal office of the Company, for
a new Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall
be designated by the Holder at the time of such surrender.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
Certificate and, in case of such loss, theft or destruction, of indemnity
<PAGE> 3
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or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of the Certificate, if mutilated, the Company will make
and deliver a new Certificate of like tenor, in lieu thereof.
7. Initial Exercise Price; Adjustment of Exercise Price.
(a) Initial Exercise Price. The Warrants initially are
exercisable at the Initial Exercise Price per Share, subject to adjustment
from time to time as provided herein.
(b) Computation of Adjusted Price. Subject to the exceptions
referred to in paragraph (g) below, in the event that the Company shall at
any time after the initial issuance date of the Warrants represented by
this Certificate issue or sell any shares of Common Stock (other than the
issuance or sale of Common Stock referred to in paragraph (g) below),
including shares of Common Stock held in the Company s treasury, for a
consideration per share less than the Exercise Price in effect immediately
prior to the issuance or sale of such shares or less than the Market Price
(as defined in subparagraph (vi) below), or without consideration, then
forthwith upon such issuance or sale, the Exercise Price shall (until
another such issuance or sale) be reduced to a price (calculated to the
nearest full cent) equal to the quotient derived by dividing (I) an amount
equal to the sum of (A) the product of (x) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale,
multiplied by (y) the lower of (1) the Exercise Price in effect
immediately prior to such issuance or sale or (2) the Market Price per
share of Common Stock on the date immediately prior to the issuance or
sale of such shares, plus, (B) the aggregate of the amount of all
consideration, if any, received by the Company upon such issuance or sale,
by (ii) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in
excess of the Exercise Price in effect immediately prior to such
computation, except in the case of readjustments provided for in paragraph
(c) below or a combination of outstanding shares of Common Stock provided
in paragraph (d) below.
For the purposes of any computation to be made in accordance with
this paragraph (b), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common
Stock for a consideration part or all of which shall be cash, the amount
of the cash consideration therefor shall be deemed to be the amount of
cash received by the Company for such shares (or, if shares of Common
stock are offered by the Company for subscription, the subscription price,
or, if such shares of Common Stock shall be sold to underwriters or
dealers for public offering without a subscription offering, the initial
public offering price) before deducting therefrom any compensation paid or
discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
<PAGE> 4
<PAGE>
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, or on the
exercise of options, rights or warrants or on the conversion or exchange
of convertible or exchangeable securities) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of
the consideration therefor other than cash shall be deemed to be the value
of such consideration as determined in good faith by the Board of
Directors of the Company of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to receive
such dividend or other distribution and shall be deemed to have been
issued without consideration.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have
been issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to receive
such dividend or other distribution and shall be deemed to have been
issued without consideration.
(iv) The reclassification of securities of the Company
(other than shares of Common Stock into securities including shares of
Common Stock) shall be deemed to involve the issuance of such shares of
Common Stock for a consideration other than cash immediately prior to the
close of business on the date fixed for the determination of security
holders entitled to receive such shares, and the value of the
consideration allocable to such shares of Common Stock shall be determined
as provided in subparagraph (ii) above.
(v) The number of Shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or
issuable (subject to readjustment upon the actual issuance thereof) upon
the exercise of options, rights, warrants and upon the conversion or
exchange of convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale price, or, in
case no such reported sale takes place on such day, the average of the
last reported sale prices for the last three trading days, in either case
as officially reported by the principal securities exchange on which the
common stock is listed or admitted to trading or as reported in the
Automated Quotation System of the National Association of Securities
Dealers, Inc. (the "Nasdaq System"), or, if the Common Stock is not listed
or admitted to trading on any national securities exchange or quoted on
the Nasdaq System, the closing bid price as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or similar
organization if Nasdaq is no longer reporting such information, or, if the
Common Stock is not quoted on Nasdaq, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such
issuance or sale, the day of such issuance or sale and the day immediately
<PAGE> 5
<PAGE>
after such issuance or sale.
(c) Options. Rights. Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe
for shares of Common Stock distributed to all the stockholders of the
Company and Holders of Warrants pursuant to paragraph (i), in the event
that the Company shall at any time after December 31, 1997 issue any
options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock (other than the issuance or exercise of options, rights or warrants
referred to in paragraph (g) below), (i) for a consideration per share
less than (A) the Exercise Price in effect immediately prior to the
issuance of such options, rights, or warrants, or such convertible or
exchangeable securities, or (B) the Market Price, or (ii) without
consideration, the Exercise Price in effect immediately prior to the
issuance of such options, rights or warrants, or such convertible or
exchangeable securities, as the case may be, shall be reduced to a price
determined by making a computation in accordance with the provisions of
paragraph (b) above; provided, however, that:
(i) The aggregate maximum number of shares of Common Stock
issuable under such options, rights or warrants shall be deemed to be
issued and outstanding at the time such options, rights or warrants are
issued, and for a consideration equal to the minimum purchase price per
share of Common Stock provided for in such options, rights or warrants at
the time or issuance, plus the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common
Stock), if any, received by the Company for such options, rights or
warrants, and if no minimum price is provided in such options, rights or
warrants, then the consideration shall be equal to zero; provided herein,
that upon the expiration or other termination of such options, rights or
warrants, if any thereof shall not have been exercised, the number of
shares of Common Stock deemed to be issued and outstanding pursuant to
this subparagraph (i) (and for the purposes of subparagraph (v) of
paragraph (b) above) shall be reduced by such number of shares of Common
Stock as to which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares of Common Stock shall no
longer be deemed to be issued and outstanding, and the Exercise Price then
in effect shall forthwith be readjusted and thereafter be the price which
it would have been had adjustment been made on the basis of the issuance
only of shares of Common Stock actually issued or issuable upon the
exercise of those options, rights or warrants as to which the exercise
rights shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of
issuance of such securities, and for a consideration equal to the
consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock) received by the Company for
such securities, plus the minimum consideration, if any, receivable by the
Company upon the conversion or exchange thereof; provided, however, that
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upon the termination of the right to convert or exchange such convertible
or exchangeable securities (whether by reason of redemption or otherwise),
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subparagraph (ii) (and for the purpose of subparagraph
(v) of paragraph (b) above) shall be reduced by such number of shares of
Common Stock as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no
longer be deemed to be issued and outstanding and the Exercise Price then
in effect shall forthwith be readjusted and thereafter be the price which
it would have been had adjustment been made on the basis of the issuance
only of the shares of Common Stock actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable securities as
to which the conversion or exchange rights shall not have expired or
terminated unexercised.
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
subparagraph (i) above, or in the price per share at which the securities
referred to in subparagraph (ii) above are convertible or exchangeable,
such options, rights or warrants or conversion or exchange rights, as the
case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the
exercise of such options, rights or warrants or the conversion or exchange
of such convertible or exchangeable securities.
(iv) When an adjustment has been made in the Exercise Price
pursuant to this paragraph (c) in respect of the issuance of any options,
rights or warrants to subscribe for shares of Common Stock or the issuance
of any securities convertible into or exchangeable for shares of Common
Stock, no additional adjustment in the Exercise Price shall be made
pursuant to paragraph 7(b) above upon the issuance of shares of Common
Stock upon the exercise of such options, rights or warrants or upon the
conversion or exchange of such securities.
(d) Subdivision and Combination. In the event that the Company
shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(e) Reclassification. Consolidation. Merger. Etc.. In the event
of any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in
the event of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger in
which the Company is the surviving corporation and which does not result
in any reclassification or change of the outstanding shares of Common
Stock, except a change as a result of a subdivision or combination of such
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shares or a change in par value, as aforesaid), or in the case of a sale
or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Holder shall thereafter have
the right to convert into and to purchase the kind and respective number
of shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance as if
the Holder were the owner of the shares of Common Stock underlying the
Warrants immediately prior to any such events at a price equal to the
product of (x) the number of shares issuable upon exercise of the Warrants
and (y) the Exercise Price in effect immediately prior to the record date
for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holder had exercised the Warrants.
(f) No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(i) upon the issuance or sale of shares of Common Stock upon
the exercise of the Warrants; or
(ii) upon the issuance or sale of shares of Common Stock and
warrants to be issued concurrently herewith, if any, and upon the issuance
or sale of shares of Common Stock upon the exercise of such warrants;
(iii) upon (A) the issuance of options pursuant to any
employee, executive or director benefit, incentive, stock option or profit
sharing plans of the Company which plans are in effect on December 31,
1997 or, (B) the sale by the Company of any shares of Common Stock
pursuant to the exercise of any such options; or
(iv) upon the issuance or sale by the Company of any shares
of Common Stock pursuant to the exercise of any options or warrants or
upon the conversion of any convertible subordinated debentures previously
issued and outstanding on December 31, 1997; or
(v) if the amount of said adjustment shall be less than $0.02
per Share; provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to at
least $0.02 per Share.
(g) Dividends and Other Distribution with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to its stockholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another person or entity, or any other
thing of value, the Holder of the unexercised Warrants shall thereafter be
entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise thereof, to receive, upon the exercise of
<PAGE> 8
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such Warrants, the same monies, property, assets, rights, evidences or
indebtedness, securities or any other thing of value that it would have
been entitled to receive at the time of such dividend or distribution. At
the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of
this subparagraph (g).
(h) Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or any affiliate of the Company shall
at any time after December 31, 1997 and prior to the exercise of all the
Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the
stockholders of the Company, the Holder of the unexercised Warrants shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights on a
pro rata basis at the time such rights are distributed to the other
stockholders of the Company.
(i) Statement on Warrants. Irrespective of any adjustments in the
Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants, the certificates representing the Warrants
theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the certificate
representing the Warrants initially issuable.
8. Notices to Warrant Holders. Nothing contained in this
Certificate shall be construed as conferring upon the Holder the right to
vote or to consent or to receive notice as a stockholder in respect of any
meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the
Company. If, however, at any time prior to the expiration of the Warrants
and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding-up of the Company
(other than in connection with a consolidation or merger) or a sale of all
or substantially all of its property, assets and business as an entirety
shall be proposed; or
(d) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or
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merger of the Company with another entity;
then, in any one or more of said events, the Company shall give written
notice of such event at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of
the stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or
entitled to vote on such proposed dissolution, liquidation, winding-up or
sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in
connection with the declaration or payment of any such dividend or
distribution, or the issuance of any convertible or exchangeable
securities or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding-up or sale.
9. Reservation and Listing of Securities.
(a) The Company covenants and agrees that at all times during
the period the Warrants are exercisable, the Company shall reserve and
keep available, free from preemptive rights, out of its authorized and
unissued shares of Common Stock or out of its authorized and issued shares
of Common Stock held in its treasury, solely for the purpose of issuance
upon exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise of the Warrants.
(b) The Company covenants and agrees that, upon exercise of the
Warrants and payment of the Exercise Price therefor, all shares of Common
Stock issuable upon such exercise shall be duly and validly issued, fully
paid and non-assessable, and the Holder shall receive good and valid
record title to such shares of Common Stock, free and clear from all taxes
with respect to the issue or sale thereof and any claim, lien, security
interest, mortgage, pledge, charge or other encumbrance of any nature
whatsoever, except as may have been created by the Holder, and such shares
of Common Stock shall not be subject to the preemptive rights of any
stockholder.
(c) As long as the Warrants shall be outstanding, the Company
shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed on or quoted by Nasdaq.
10. Survival. All agreements, covenants, representations and
warranties herein shall survive the execution and delivery of this
Certificate and any investigation at any time made by or on behalf of any
party hereto and the exercise, sale and purchase of the Warrants and the
Common Stock (and any other securities or properties) issuable on exercise
hereof.
11. Remedies. The Company agrees that the remedies at law of the
Holder, in the event of any default or threatened default by the Company
in the performance of or compliance with any of the terms of hereof, may
not be adequate and such terms may, in addition to and not in lieu of any
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other remedy, be specifically enforced by a decree of specific performance
of any agreement contained herein or by an injunction against a violation
of any of the terms hereof or otherwise.
12. Registered Holder. The Company may deem and treat the registered
Holder(s) hereof as the absolute owner(s) of this Certificate and the
Warrants represented thereby (notwithstanding any notation of ownership or
other writing hereon made by anyone), for the purpose of any exercise of
the Warrants, and of any distribution to the Holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
13. Notices. All notices and other communications from the Company
to the Holder of the Warrants represented by this Certificate shall be
mailed by first class registered or certified airmail, postage prepaid, to
the last address of such Holder as it shall appear on the books of the
Company maintained at the Company s principal office upon or to such other
address as the Holder may have specified to the Company in writing.
14. Headings. The headings contained herein are for convenience of
reference only and are not part of this Warrant.
15. Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its duly authorized officers under its corporate seal.
Dated:
Metalclad Corporation
[Corporate Seal]
By: /s/Grant s. Kesler
----------------------------------
Grant S. Kesler, President
/s/Bruce H. Haglund
Attest: -------------------------------------
Bruce H. Haglund, Secretary
<PAGE> 11
<PAGE>
METALCLAD CORPORATION - FORM OF ELECTION TO PURCHASE
IN CONNECTION WITH THIS ELECTION TO PURCHASE, THE WARRANT HOLDER MUST
DELIVER TO THE COMPANY (i) A WRITTEN CERTIFICATION THAT SUCH HOLDER IS
NOT A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND THAT THE WARRANTS ARE
NOT BEING EXERCISED ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A
"U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE ACT), OR (ii) A
WRITTEN OPINION OF UNITED STATES COUNSEL, IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE WARRANTS AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED
UNDER THE ACT OR ARE EXEMPT FROM REGISTRATION UNDER THE ACT.
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by this Warrant Certificate for, and to purchase
thereunder, ________ Shares and herewith tenders in payment for such
Shares cash or a certified check or bank draft payable to the order of
METALCLAD CORPORATION in the amount of $________, all in accordance with
the terms hereof. The undersigned requests that a certificate for such
Shares be registered in the name of and delivered to:
(Please Print Name)
(Address)
(Social Security Number or other Identifying Number)
and, if said number of Shares shall not be all the Shares purchasable
hereunder, that a new Warrant Certificate for the balance remaining of the
Shares purchasable hereunder be registered in the name of the undersigned
Warrant holder or his Assignee as below indicated and delivered to the
address stated below.
Name of Warrant Holder: --------------------------------------
(Please Print)
Signature: ---------------------------------------
Date: ---------------------------------------
Note: The above signature must correspond in all respects with the name
of the holder as specified on the face of this Warrant Certificate,
without alteration or enlargement or change whatever, unless the Warrants
represented by this Warrant Certificate has been assigned.
<PAGE> 12
<PAGE>
METALCLAD CORPORATION - FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
--------------------------------------------------------------------------
(Please Print Name)
--------------------------------------------------------------------------
(Address)
--------------------------------------------------------------------------
(Social Security Number or other Identifying Number)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint the Secretary
of Metalclad Corporation (the "Company"), as attorney-in-fact, to transfer
the within Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Signature: -----------------------------------------
Date: -----------------------------------------
Note: The above signature must correspond in all respects with the name
of the holder as specified on the face of this Warrant Certificate,
without alteration or enlargement or change whatever. The above signature
of the registered holder must be guaranteed by a commercial bank or trust
company, by a broker or dealer which is a member of the National
Association of Securities Dealers, Inc. or by a member of a national
securities exchange, The Securities and Futures Authority Limited in the
United Kingdom or The International Stock Exchange in London, England.
Notarized or witnessed signatures are not acceptable as guaranteed
signatures,
Signature Guaranteed:
----------------------------------
Authorized Officer
----------------------------------
Name of Institution
13
<PAGE>
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY APPLICABLE LAW OR REGULATION OF ANY STATE AND IS NOT
TRANSFERABLE EXCEPT UPON THE CONDITIONS SPECIFIED IN SECTION 4.3 OF THE
PURCHASE AGREEMENT REFERRED TO HEREIN.
THE NOTES REPRESENTED BY THIS INSTRUMENT AND THE OTHER SECURITIES WHICH
MAY BECOME ISSUABLE UPON EXERCISE OF CERTAIN CONTINGENT RIGHTS HEREUNDER
HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY OTHER SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY "U.S. PERSON" (AS DEFINED IN
REGULATION S UNDER THE ACT) PRIOR TO FEBRUARY 10, 1998, UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT IS AVAILABLE. THE CONTINGENT RIGHTS SET FORTH IN THIS INSTRUMENT MAY
NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON (AS DEFINED IN
REGULATION S UNDER THE ACT) UNLESS THE SECURITIES ISSUABLE UPON THE
EXERCISE THEREOF ARE REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
METALCLAD CORPORATION
ZERO COUPON SECURED NOTE
Due December 31, 2002
$______________ Dated as of December 31, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, METALCLAD CORPORATION, a Delaware
corporation (herein, together with any successor, referred to as the
"Company"), hereby promises to pay to ________________________________or
its registered assigns, the principal sum of $__________ on December 31,
2002 without interest, except in the event of the occurrence of an Event
of Default. Upon the occurrence of an Event of Default (hereinafter
defined), interest at the Default Rate shall be paid on the "Discounted
Present Value" of this Note. As used herein "Discounted Present Value"
shall be based on a simple interest rate of 9 1/3% per annum without
compounding and shall be calculated in accordance with the following
formula:
n
----
PP + (46 2/3% PP x 1826)
wherein PP equals the "Purchase Price" (hereinafter defined) of this Note,
n equals the number of days elapsed from and including the date of
issuance of this Note to and including (A) the date of payment pursuant to
a demand by the Noteholder for redemption pursuant to the exercise by the
Noteholder of its contingent right of redemption or (B) the date of
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<PAGE>
payment pursuant to the exercise by the Company of its contingent right of
prepayment or (C) upon the occurrence of an Event of Default, as the case
may be, and 1826 equals the total number of days from and including the
date of issuance to and including the date of maturity of the Note
(December 31, 1997 through and including December 31, 2002). Upon the
occurrence of an Event of Default, the Discounted Present Value of this
Note shall become immediately due and payable and shall bear interest at
the Default Rate from the date of such occurrence until paid in full.
The "Default Rate" shall be a per annum interest rate equal to the
greater of (w) 15% or (x) the sum of 60/o plus the rate announced from
time to time by Citibank, N.A. as its prime or stated rate for unsecured
short-term U.S. dollar commercial loans within the United States (the
"Prime Rate"), provided, however, that in no event shall the Default Rate
exceed the maximum nonusurious per annum interest rate permitted by
applicable law. As used herein, the term "Purchase Price" shall mean the
principal amount of this Note multiplied times .68181819, and the term
"Event of Default" shall have the meaning set forth in the "Purchase
Agreement" hereinafter referred to.
If any payment of Default interest due hereunder becomes due and
payable on a day which is not a "Business Day" (as defined in the Purchase
Agreement), the due date thereof shall be the next preceding day which is
a Business Day, and the interest payable on such next preceding Business
Day shall be the interest which would otherwise have been payable on the
due date which was not a Business Day.
Payments of principal and interest shall be made in lawful money of
the United States of America at the principal office of the Company at
Newport Beach, California, or at such other place as the Company shall
have designated for such purpose to the holder hereof in writing, as
provided in the Purchase Agreement referred to below, or to the address or
account designated by the holder hereof for such purpose.
This Note is one of a duly authorized issue of Zero Coupon Secured
Notes in an aggregate principal amount of U.S. $2,200,000 maturing
December 31, 2002 issued pursuant to a Purchase Agreement dated as of
December 31, 1997 between the Company and the purchasers ("Purchasers"
and, individually, a "Purchaser") named in the Purchase Agreement
("Purchase Agreement").
This Note is subject to the provisions of, is entitled to the
benefits of, and is subject to the rights of the Company and the
obligations of the holder set forth in the Purchase Agreement which
provide, inter alia that in the event that the "Market Price" (as defined
in the Purchase Agreement) of the Common Stock of the Company ("Common
Stock") shall equal or exceed U.S. $1.50 per share for not less than ten
consecutive trading days (hereinafter sometimes referred to as the
"Trigger Event"): (I) this Note shall automatically become convertible,
and may thereafter be converted at the option of the holder hereof
(subject to the rights of the Company under subdivision (iv) below and the
last sentence of the succeeding paragraph hereof) without necessity of
<PAGE> 2
<PAGE>
further act (other than the receipt by the holder from the Company of
notice that the "Trigger Event" has occurred, which notice the Company is
obliged to give pursuant to the terms of the Purchase Agreement within ten
calendar days after the occurrence of the "Trigger Event"), in whole or in
part (in increments of not less than U.S. $50,000.00 of the Purchase Price
of this Note) into the Common Stock ("Common Stock") of the Company at the
conversion rate of 667 shares of Common Stock for each U.S. $1,000.00 of
such Purchase Price subject to adjustment pursuant to the anti-dilution
provisions set forth in the Purchase Agreement and referred to therein as
the "OFW Rachet Clause" (said conversion rate as the same may be so
adjusted being hereinafter sometimes referred to as the "Conversion
Rate"), (ii) at such time, if ever, as this Note becomes convertible as
hereinabove set forth, and if this Note is so converted, the right of the
holder hereof to receive any and all interest ("Total Interest") in
respect of this Note, whether accrued or to be accrued, which amount of
interest from issuance through maturity is agreed to be equal to .318181
multiplied times the face amount of this Note so that if this Note becomes
convertible following the occurrence of a "Trigger Event" and is
converted, the right of the holder of this Note to receive Total Interest
shall be canceled, (iii) the Company shall forthwith issue to the holder
of this Note 1,000 Warrants "Warrants" as defined in the Purchase
Agreement to purchase shares of the Common Stock of the Company at an
exercise price of $1.50 per share for each $1,000 portion of the Purchase
Price of this Note, pro rated for amounts of less than $1,000 (said
exercise price as the same may be adjusted pursuant to the OFW Rachet
Clause, being hereinafter sometimes referred to as the "Warrant Exercise
Price"), said Warrants to expire at 5:00 p.m., California time, on
December 31, 2002, and (iv) shall be converted upon (A) the occurrence of
a "Trigger Event" and the receipt of notice thereof by the holder from the
Company, and (B) notice that the Company has exercised its right to
require the holder hereof to convert this Note into shares of the
Company s Common Stock at the Conversion Rate upon receipt by the holder
from the Company of not less than 5 nor more than 15 calendar days after
the occurrence of an "MTLC Optional Conversion Event." As used herein, the
term "MTLC Optional Conversion Event" shall mean the occurrence of any
period during which the Market Price of the Common Stock equals or exceeds
$3.00 per share for not less than 60 consecutive trading days, it being
understood that the failure of the Company to give the holder, and the
holder to receive, such notice of the occurrence of an MTLC Optional
Conversion Event within such 15-day period shall cause the lapse of the
Company s right to require such conversion in respect of such MTLC
Optional Conversion Event without prejudice to the further exercise of
such right upon the occurrence of another MTLC Optional Conversion Event
prior to the maturity of this Note provided the Company gives, and the
holder receives, such notice of the occurrence of such MTLC Conversion
Event within 15 calendar days following the occurrence thereof.
Notwithstanding the foregoing, the holder of this Note shall have the
right, exercisable at any time on or after April 15, 1999, of requiring
the Company to redeem this Note ("Mandatory Redemption") at a price equal
to the Discounted Present Value hereof as at the date payment is made
pursuant to such demand for redemption. In the event of such a demand for
<PAGE> 3
<PAGE>
redemption, payment shall be effected within 30 calendar days following
the date of such demand and concurrently with such payment the Company
will issue to the holder of this Note 1,000 Warrants for each $1,000.00 of
the Purchase Price of the Notes being redeemed (provided such Warrants
have not been previously issued to the Noteholder). Further,
notwithstanding the foregoing, the Company shall have the right at any
time after April 15, 1999 and prior to receipt by the Company of notice
from any Noteholder of the exercise of any right of conversion it may then
have to prepay all the Notes at their Discounted Present Value calculated
to the date of such prepayment provided concurrently therewith the Company
issues to the holders of the Notes, 1,000 Warrants for each $1,000.00 of
the Purchase Price thereof (provided such Warrants have not been
previously issued to the Noteholder)
The Note is transferable only upon the terms and conditions specified
in the Purchase Agreement.
If an Event of Default, as defined in Section 7 of the Purchase
Agreement, shall occur and be continuing, the Discounted Present Value of
this Note may be declared immediately due and payable in the manner and
with the effect provided in the Purchase Agreement and this Note.
No reference herein to the Purchase Agreement and no provision hereof
or thereof shall alter or impair the obligations of the Company, which are
absolute and unconditional, to pay the principal hereof and interest
hereon at the respective times and places specified herein and in the
Purchase Agreement.
This Note is delivered in and shall be construed and enforced in
accordance with and governed by the laws of the State of New York (other
than any conflict of laws rules which might result in the application of
the laws of any other jurisdiction).
Subject to the provisions of Section 4.3 of the Purchase Agreement,
the Company may treat the person in whose name this Note is registered as
the owner and holder of this Note for the purpose of receiving payment of
principal of, premium, if any, and interest on this Note and for all other
purposes whatsoever, and the Company shall not be affected by any notice
to the contrary (except that the Company shall comply with the provisions
of Section 4.3 of the Purchase Agreement regarding the issuance of a new
Note or Notes to permitted transferees).
IN WITNESS WHEREOF, Metalclad Corporation has caused this Note to be
duly executed and delivered as of December 31, 1997.
METALCLAD CORPORATION
By: /S/Grant s. Kesler
----------------------------------
Grant S. Kesler, President
4
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is entered into as of this 31st day of December
1997, by and between METALCLAD CORPORATION, a Delaware corporation (the
"Pledgor"), and GILMARTIN, POSTER & SHAFTO, a New York general partnership
(the "Agent"), as agent for the Purchasers referred to in the Purchase
Agreement defined below.
WITNESSETH:
WHEREAS, pursuant to Purchase Agreement dated as of the date hereof
(the "Purchase Agreement") between the Pledgor and the purchasers named
therein ("Purchasers" and individually a "Purchaser"), Purchasers are
simultaneously herewith purchasing $2,200,000 aggregate principal amount
of the Pledgor s Zero Coupon Secured Notes due December 31, 2002 (the
"Notes");
WHEREAS, as more specifically set forth in the Purchase Agreement and
the Notes, upon the occurrence of certain contingent events not certain to
occur, (i) Pledgor may become obligated to issue warrants (the "Warrants")
to purchase an aggregate of 1,500,000 shares of the Pledgor s Common
Stock, par value $0.10 per share, (ii) the Notes may become convertible
into 1,000,000 shares (subject to adjustment in certain events) of the
Pledgor s Common Stock, and (iii) the principal amount of Notes may be
reduced from U.S. $2,200,000 to U.S. $1,500,000;
WHEREAS, as a condition precedent and as an inducement to the
Purchasers to purchase the Notes, the Pledgor has agreed to grant to the
Agent for the benefit of the Purchasers (as defined in the Purchase
Agreement) a security interest in the Collateral (as defined below), as
more fully set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. For the purposes hereof unless the context
otherwise requires, the following terms shall have the meanings indicated:
(a) "Collateral" shall mean (i) the Pledged Securities, (ii) all
proceeds of the Pledged Securities, and (iii) all other monies, securities
or other property at any time and from time to time receivable or
otherwise distributed in respect of, or in exchange for, any of the
Pledged Securities or such additional securities.
(b) "Event-of Default" shall mean an Event of Default as defined
<PAGE> 1
<PAGE>
in the Purchase Agreement.
(c) "MIC" shall mean Metalclad Insulation Corporation, a
California corporation.
(d) "Obligations" shall mean the obligations of the Pledgor
under the Purchase Agreement, the Notes and this Agreement.
(e) "Pledged Securities" shall mean all of the issued and
outstanding share capital of MIC, all of which is owned beneficially and
of record W the Pledgor, and which constitutes 1,000 shares, no par value.
2. Pledge. As security for the payment and performance in full of
all of the Obligations, the Pledgor hereby grants, pledges and delivers to
the Agent for the benefit of the Purchasers, and hereby grants to the
Agent a security interest in, the Collateral.
3. Delivery of Collateral to Agent. Simultaneously herewith, the
Pledgor is delivering to the Agent certificates representing all shares of
the Pledged Securities, accompanied by stock powers or instruments of
transfer, as the case may be, duly executed in blank by the Pledgor or its
nominee, and by such other instruments or documents as the Agent or its
counsel shall reasonably request.
4. Registration in Nominee Name; Denomination. The Agent shall have
the right (in its sole and absolute discretion) (i) to hold the
certificates or other instruments or documents representing any of the
Collateral in its own name, the name of its nominee or in the name of the
Pledgor, endorsed or assigned in blank or in favor of the Agent, and (ii)
upon the occurrence and during the continuation of an Event of Default, to
exchange the certificates or other instruments or documents representing
the Collateral for certificates of smaller or larger denominations for any
purpose consistent with this Pledge Agreement.
5. Representations. Warranties and Covenants of the Pledgor. The
Pledgor hereby represents and warrants to, and/or covenants and agrees
with, the Agent as follows:
(a) the Pledgor is duly organized and validly existing in good
standing under the laws of the State of Delaware and is in good standing
as a foreign corporation in all jurisdictions where the nature of its
properties or business requires it to be qualified. The Pledgor has the
corporate power to own its properties and carry on its business as now
being conducted, to execute, deliver and perform its obligations under
this Pledge Agreement and to pledge to the Agent and to grant to the Agent
a security interest in the Collateral;
(b) the execution, delivery and performance of this Pledge
Agreement and the pledge to the Agent and the grant to the Agent of a
security interest in the Collateral (i) have been duly authorized by all
necessary corporate action on the part of the Pledgor, (ii) will not
violate, or involve the Agent or any of the Purchasers in a violation of,
<PAGE> 2
<PAGE>
any provision of any law or regulation or any order of any governmental
authority or any judgment of any court applicable to the Pledgor or its
properties and assets, (iii) will not violate any provision of the
Certificate of Incorporation or By-Laws of the Pledgor or any indenture,
any agreement for borrowed money, any bond, note or other similar
instrument or any other material agreement to which the Pledgor is a party
or by which the Pledgor or any of its property is bound or affected, (iv)
will not be in conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement for borrowed money, bond, note, instrument or other agreement,
and (v) will not result in the creation, or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any property or assets of the
Pledgor other than pursuant to this Pledge Agreement;
(c) this Pledge Agreement constitutes the legal, valid and
binding obligation of the Pledgor, enforceable in accordance with its
terms, subject (i) as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency and other laws affecting creditors
rights generally and to moratorium laws from time to time in effect, and
(ii) to general equitable principles;
(d) the Pledged Securities represent all of the issued and
outstanding shares of the capital stock of MIC, all of which are owned
beneficially and of record by the Pledgor;
(e) the Pledgor has good title to the Collateral;
(f) the Collateral is not subject to any other liens, security
interests or encumbrances;
(g) the Pledgor has the right to pledge and to grant the
security interest in the Collateral free of any encumbrances, and without
the consent of the creditors of the Pledgor or any other person or any
governmental authority whatsoever;
(i) there is no material pending legal or governmental
proceeding to which the Pledgor is a party or to which any of its
properties is subject, which proceeding will materially affect (i) the
Pledgor s ability to perform its obligations hereunder or (ii) the
Collateral;
(j) this Pledge Agreement creates in favor of the Agent a valid,
binding and enforceable security interest in, and lien upon, all right,
title and interest of the Pledgor in the Collateral and, upon delivery of
the Collateral to the Agent, the Agent will have a fully perfected first
and prior security interest in and lien upon all right, title and interest
of the Pledgor in the Collateral; and
(k) the Pledgor will not create or permit to exist any lien,
security interest or encumbrance on the Collateral except as permitted by
this Agreement.
<PAGE> 3
<PAGE>
6. Voting Rights; Dividends; Etc.
(a) The Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to owners of the Pledged
Securities or any part thereof for any purpose not inconsistent with the
terms hereof, at all times, except as expressly provided in Section 6(c)
below.
(b) Any dividends or distributions of any kind whatsoever (in
cash or otherwise) received by the Pledgor, whether declared on a regular,
periodic basis or resulting from a subdivision, combination, or
reclassification of the outstanding capital stock of the issuer, in
respect of the Pledged Securities, or received in exchange for the Pledged
Securities, or other Collateral or any part thereof or as a result of any
merger, consolidation, acquisition, or other exchange of assets to which
the issuer may be a party, or otherwise, shall, be and become part of the
Collateral pledged hereunder and shall immediately be delivered to the
Agent to be held subject to the terms hereof.
(c) Upon the occurrence and during the continuance of an Event
of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 6(a) shall cease, and all such rights shall thereupon become
vested in the Agent, which shall have the sole and exclusive right and
authority to exercise such voting and/or consensual rights and powers.
7. Remedies Upon Default.
(a) If an Event of Default shall have occurred and be
continuing, the Agent may sell the Collateral, or any part thereof, at
public or private sale or at any broker s board or on any securities
exchange, for cash, upon credit or for future delivery as the Agent shall
deem appropriate subject to the terms hereof or as otherwise provided in
the New York Uniform Commercial Code. The Agent shall be authorized at any
such sale (if it deems it advisable so to do) to restrict to the full
extent permitted by applicable law the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Agent shall have the right to assign, transfer, and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of the Pledgor.
(b) The Agent shall give the Pledgor ten calendar days written
notice of its intention to make any such public or private sale, or sale
at any broker s board or on any such securities exchange, or of any other
disposition of the Collateral. Such notice, in the case of public sale,
shall state the time and place for such sale and, in the case of sale at a
broker s board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which the
Collateral, or portion thereof, will first be offered for sale at such
<PAGE> 4
<PAGE>
board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the
Agent may fix and shall state in the notice of such sale. At any such
sale, the Collateral, or portion thereof, to be sold may be sold in one
lot as an entirety or in separate parcels, as the Agent may (in its sole
and absolute discretion) determine. The Agent shall not be obligated to
make any sale of the Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Collateral may have been
given. The Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same
was so adjourned. In case the sale of all or any part of the Collateral is
made on credit or for future delivery, the Collateral so sold shall be
retained by the Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Agent shall not incur any liability in case
any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any sale or sales made pursuant to this
Section 7, the Agent may bid for or purchase, free from any claim or right
of whatsoever kind, including any equity of redemption, of the Pledgor,
any such demand, notice, claim, right or equity being hereby expressly
waived and released, any or all of the Collateral offered for sale, and
may make any payment on the account thereof by using any claim for moneys
then due and payable to the Purchasers by the Pledgor as a credit against
the purchase price; and the Agent, upon compliance with the terms of sale,
may hold, retain and dispose of the Collateral without further
accountability therefor to the Pledgor or any, third party. The Agent
shall in any such sale make no representations or warranties with respect
to the Collateral or any part thereof and shall not be chargeable with any
of the obligations or liabilities of the Pledgor with respect thereto. As
an alternative to exercising the power of sale herein conferred upon it,
the Agent may proceed by a suit or suits at law or in equity to foreclose
upon the Collateral under this Pledge Agreement and to sell the
Collateral, or any portion thereof, pursuant to a judgment or decree of a
court or courts having competent jurisdiction.
8. Application of Proceeds of Sale. The proceeds of sale of the
Collateral sold pursuant to Section 7 hereof shall be distributed by the
Agent (after deduction of all costs and expenses incurred by the Agent
while enforcing its rights pursuant to this Pledge Agreement, including,
without limitation, reasonable attorneys fees and expenses) to the
holders of the Notes then outstanding, allocated among such holders in
proportion, as nearly as practicable, to the respective unpaid principal
amount of Notes then held by each such holder, to be applied by each such
holder to the Obligations in such manner as it may deem appropriate.
9. Agent Appointed Attorney-in-Fact. Upon the occurrence and during
the continuance of an Event of Default, the Pledgor hereby appoints the
Agent its attorney-in-fact for the purpose of carrying out the provisions
of this Pledge Agreement and the pledge of, and the grant of a security
interest in, the Collateral hereunder and the taking of any action and the
<PAGE> 5
<PAGE>
execution of any instrument which the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest. Without limiting the generality
of the foregoing, the Agent shall have the right and power to receive,
endorse and collect all checks and other orders for the payment of money
made payable to the Pledgor representing any dividend or other
distribution payable in respect of the Collateral or any part thereof and
to give full discharge for the same.
10. Federal Securities Laws. In view of the position of the Pledgor
in relation to the Collateral, or because of other present or future
circumstances, a question may arise under the Securities Act of 1933, as
amended, as now or hereafter in effect, or any similar statute hereafter
enacted analogous in purpose or effect (such Act and any such similar
statute as from time to time in effect being hereinafter called the
"Federal Securities Laws"), with respect to any disposition of the
Collateral permitted hereunder. The Pledgor understands that compliance
with the Federal Securities Laws may very strictly limit the course of
conduct of the Agent if the Agent were to attempt to dispose of all or any
part of the Collateral, and may also limit the extent to which or the
manner in which any subsequent transferee of any Collateral may dispose of
the same. Similarly, there may be other legal restrictions or limitations
affecting the Agent in any attempt to dispose of all or any part of the
Collateral under applicable blue sky or other state securities laws, or
similar laws analogous in purpose or effect. Under applicable law, in the
absence of an agreement to the contrary, the Agent may perhaps be held to
have certain general duties and obligations to the Pledgor to make some
effort towards obtaining a fair price even though the Obligations may be
discharged or reduced by the proceeds of a sale at a lesser price. The
Pledgor clearly understands that the Agent is not to have any such general
duty or obligation to it, and the Pledgor will not attempt to hold the
Agent responsible for selling all or any part of the Collateral at an
inadequate price, even if the Agent shall accept the first offer received
or does not approach more than one possible purchaser. Without limiting
the generality of the foregoing, the provisions of this Section 10 would
apply if, for example, the Agent were to place all or any part of the
Collateral for private placement by an investment banking firm, or if such
investment banking firm purchased all or any part of the Collateral for
its own account, or if the Agent placed all or any part of the Collateral
privately with a purchaser or purchasers.
11. Financing Statements. So long as the Obligations are outstanding
and the security interest hereunder shall not have terminated in
accordance with Section 13 hereof, the Pledgor agrees to execute and
deliver to the Agent such UCC financing statements and any amendments
thereto or continuations thereof and any other documents or instruments
and to give such notices as the Agent may deem necessary or desirable to
perfect the lien of the Agent on the Collateral. If the Pledgor does not
execute and deliver to the Agent any such financing statement, amendment
or other document or instrument or give such notice within five calendar
days after requested by the Agent, then the Secured Party is hereby
authorized by the Pledgor to file such items or give such notice, without
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the signature of the Pledgor or to execute such items as attorney-in-fact
for the Pledgor. The Pledgor further authorizes the Agent, upon the
occurrence and during the continuation of an Event of Default, to notify
any obligors on instruments that all sums payable to the Pledgor relating
to the collateral shall be paid directly to the Agent.
12. Further Assurances. Upon the request of the Agent, the Pledgor
hereby agrees duly to execute and deliver, or cause to be duly executed
and delivered, from time to time, at the cost and expense of the Pledgor,
such further instruments as may be necessary or proper, in the reasonable
judgment of the Agent, to carry out the provisions and purposes of this
Pledge Agreement and to do all things necessary or advisable, in the
judgment of the Agent, to perfect and preserve the pledge and the security
interests of the Agent hereunder and in the Collateral or any portion
thereof.
13. Release of Collateral.
(a) The pledge and grant of the security interest in all of the
Collateral hereunder shall terminate upon payment in full of the
Obligations or conversion, redemption or prepayment in full of all of the
Notes pursuant to Section 2 of the Purchase Agreement.
(b) At such time as the pledge and security interest hereunder
shall terminate, the Agent shall, if requested by the Pledgor, execute
such UCC termination statements or other documents as Pledgor may
reasonably request, and assign and deliver to the Pledgor, or to such
person or persons as the Pledgor shall designate, against receipt, such of
the Collateral (if any) as shall not have been sold or otherwise applied
by the Agent pursuant to the terms hereof, together with appropriate
instruments of reassignment and release and share certificates
representing the Collateral and any stock power or instrument of transfer
executed in blank, as the case may be, then remaining in the possession or
under the control of the Agent. Any such reassignment shall be without
recourse upon or warranty by the Agent (other than as to such Collateral
being free of any lien or encumbrance created by the Agent) and at the
expense of the Pledgor.
14. Notices. Notices and other communications provided for herein
shall be in writing and shall be delivered by hand or shall be sent by
telecopy (and if sent by telecopy, shall be confirmed by registered mail,
return receipt requested, or by overnight mail or courier, postage and
delivery charges prepaid), to the following addresses:
if to the Pledgor: Metalclad Corporation
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
Phone: (714) 719 1234
Fax No.(714) 719 1240
Attention: Mr. Grant Kesler, President
with a copy to: Gibson, Haglund & Johnson
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Koll Center Irvine
2010 Main Street, Suite 400
Irvine, California 92614
Phone:(714) 752 1100
FAX:(714) 752 7144 or (714) 752 1188
Attention: Bruce H. Haglund, Esq.
if to the Agent: Gilmartin, Poster & Shafto
5th Floor
One William Street
New York, New York 10004
Phone:(212) 425 3220
Fax:(212) 482 0848 or (212) 425 3130
Attention: Donald B. Shafto, Esq.
with a copy to each of the Purchasers at their addresses for receipt of
notices set forth in the Purchase Agreement.
Whenever any notice is required to be given hereunder, such notice shall
be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telecopy, when received. Addresses may be changed
upon notice of such change given as provided in this Section 14.
15. Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made herein and in any
certificates delivered pursuant hereto shall survive the purchase by the
Purchasers, and the execution and delivery, of the Notes pursuant to the
Purchase Agreement, and shall continue in full force and effect until the
payment in full of the Obligations or the, conversion, redemption or.
prepayment of all of the Notes pursuant to Section 2 of the Purchase
Agreement, regardless of the release of part or all of the Collateral
pursuant to the provisions of Section 13 hereof.
16. Successors. Whenever in this Pledge Agreement any of the
parties hereto is referred to such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of the parties which are contained in this
Pledge Agreement shall bind and inure to the benefit of the successors and
assigns of all other parties.
17. Reimbursement of Agent. The Pledgor agrees to pay to the Agent
an amount equal to the amount of all costs and expenses, including
reasonable legal fees and disbursements, resulting from any Collateral,
this Pledge Agreement (including the preparation of this Pledge Agreement
and all related documents whether or not the transactions contemplated
hereby are consummated) or the administration and enforcement or exercise
of any right or remedy granted to the Agent hereunder or thereunder. The
foregoing indemnity agreement includes any reasonable costs incurred by
the Agent in connection with any action or proceeding which may be
instituted in respect of the foregoing by the Agent, or by any other
person either against the Agent or in connection with which any officer,
agent or employee of the Agent is called as a witness or deponent,
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including, but not limited to, the reasonable fees and disbursements of
any counsel to the Agent, and any reasonable out-of-pocket costs incurred
by the Agent in appearing as a witness or in otherwise complying with
legal process served upon it.
If the Pledgor shall fail to do any act or thing which it has
covenanted to do hereunder or any representation or warranty of the
Pledgor shall be breached, the Agent may (but shall not be obligated to)
do the same or cause it to be done or remedy any such breach and there
shall be added to the obligations of the Pledgor secured hereby, the cost
or expense incurred by the Agent in so doing, and any and all amounts
expended by the Agent in taking such action shall be repayable to it upon
its demand therefor and shall bear interest at 15% per annum from the date
advanced to the date of repayment.
The Pledgor s obligations contained in this Section 17 shall survive
the expiration or earlier termination of this Pledge Agreement.
18. Indemnification by Pledgor. The Pledgor hereby indemnities and
holds harmless the Agent and the Purchasers (to the fullest extent
permitted by applicable law) from and against, and agrees that the Agent
and the Purchasers shall have no liability or obligation arising out of,
any and all claims, demands, losses, judgments, liabilities, penalties and
expenses (including, without limitation, reasonable attorneys fees and
disbursements) of any nature whatsoever, arising out of or related to this
Pledge Agreement or the Collateral, including with respect to the
Collateral any such claims (i) asserted before the taking of actual
possession or control of the relevant Collateral by the Agent pursuant to
this Pledge Agreement, (ii) arising out of any act of, or omission to act
on the part of, any party prior to such taking of actual possession or
control by the Agent (whether asserted before or after such taking of
possession or control), or (iii) arising out of any act on the part of the
Pledgor, its agents or affiliates before or after the commencement of such
actual possession or control by the Agent.
All indemnities contained in this Section 18 shall survive the
expiration or earlier termination of this Pledge Agreement.
19. Governing Law. This Pledge Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York (other
than any conflict of laws rule which might result in the application of
the laws of any other jurisdiction).
20. Failure to Act Not a Waiver. Neither any failure to exercise,
nor any delay on the part of the Agent in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall a single
or partial exercise thereof preclude any other or further exercise of any
right, power or privilege.
21. Modification. No modification, amendment or waiver of any
provision of this Pledge Agreement, and no consent to any departure by the
Pledgor herefrom, shall in any event be effective unless the same shall be
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in writing and signed by the Agent, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Pledgor in any case shall entitle the
Pledgor to any other or further notice or demand in the same, similar or
other circumstances.
22. Severability. In case any one or more of the provisions
contained in this Pledge Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected
or impaired thereby. To the extent permitted by applicable law., the
parties hereby waive any provision of law which may render any provision
hereof invalid, illegal or unenforceable in any respect.
23. Counterparts. This Pledge Agreement may be executed by the
parties hereto in separate counterparts, each of .which when so executed
and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
24. Headings. The headings and captions of this Pledge Agreement
are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof.
25. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE PLEDGOR
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES
THAT, SUBJECT TO THE ELECTION OF THE AGENT, ALL ACTIONS OR PROCEEDINGS
RELATING TO THIS PLEDGE AGREEMENT OR THE SUBJECT MATTER HEREOF MAY BE
LITIGATED IN SUCH COURTS. THE PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT AND THE SUBJECT MATTER
HEREOF. THE PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY REGISTERED MAIL,
RETURN RECEIPT REQUESTED, SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE
OF PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF THE AGENT TO BRING PROCEEDINGS OR OBTAIN OR
ENFORCE JUDGMENTS AGAINST THE PLEDGOR IN THE COURTS OF ANY OTHER
JURISDICTION.
26. WAIVER OF JURY TRIAL. THE PLEDGOR AND THE AGENT HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS PLEDGE AGREEMENT OR THE SUBJECT MATTER
HEREOF OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION. THE PLEDGOR AND THE AGENT ALSO WAIVE ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF
THE AGENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF
ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS PLEDGE AGREEMENT, INCLUDING WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON
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LAW AND STATUTORY CLAIMS. THE PLEDGOR AND THE AGENT FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND
THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO (OR ASSIGNMENTS OF) THIS PLEDGE AGREEMENT. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
(WITHOUT A JURY) BY THE COURT.
(The remainder of this page is intentionally blank.)
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IN WITNESS WHEREOF, the Pledgor and the Agent have caused this Pledge
Agreement to be executed by their respective duly authorized officers, all
as of day and year first above written.
METALCLAD CORPORATION
By: /s/ Grant S. Kesler
--------------------------------
Name: Grant S. Kesler
Title: President
GILMARTIN, POSTER & SHAFTO
By: /s/Donald B. Shafto
--------------------------------
Name: Donald B. Shafto
Title: Partner
12
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of the
31st day of December, 1997, by and between METALCLAD CORPORATION, a
Delaware corporation, on the one hand, and SUNDIAL INTERNATIONAL FUND
LIMITED, a Jersey (Channel Islands) corporation, and ULTRA PACIFIC
HOLDINGS, S.A., a Liechtenstein corporation, on the other hand. In
consideration of the mutual covenants set forth herein, the parties agree
as follows:
1. Certain Definitions
As used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Commission" shall mean the Securities and Exchange
Commission.
(b) "Common Stock" shall mean the Common Stock, par value $.1O,
of the Company
(c) "Company" shall mean METALCLAD CORPORATION, a Delaware
corporation.
(d) "Conversion Shares" shall mean the shares of Common Stock
issuable by the Company on conversion of the Notes.
(e) "Demand Registration" shall mean a registration of
Registrable Shares requested by a Holder or Holders under Section 3 (a)
below.
(f) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules
and regulations of the Commission promulgated thereunder.
(g) "Holder" shall mean the record holder of any of the
Registrable Shares on the Company s books.
(h) "Note" or "Notes" shall mean any of the Zero Coupon Secured
Notes issued by the Company pursuant to the terms of the Purchase
Agreement.
(i) "Person" shall mean any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other political subdivision
thereof.
(j) "Piggyback Registration" shall mean a registration of
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Registrable Shares requested by a Holder or Holders under Section 4 (a)
below.
(k) "Purchase Agreement" shall mean the Purchase Agreement dated
December 31, 1997 between the Company, on the one hand, and SUNDIAL and
ULTRA, on the other hand.
(l) "Registrable Shares" shall mean the Conversion Shares and
the Warrant Shares and any shares of Common Stock of the Company issued as
a dividend or other distribution with respect to, in exchange for or in
replacement of Registrable Shares; provided, however, that Registrable
Shares shall not include any shares which (i) have been previously
registered and sold in a public distribution or previously sold pursuant
to Rule 144, or (ii) do not constitute more than 2% of the total
outstanding shares of Common Stock and in the opinion of counsel to the
Company, determined to be available for sale by their current Holder to
the public in "broker s transactions" or transactions directly with a
market maker (as those terms are used in Rule 144), pursuant to Rule 144
or otherwise, in a single transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all
transfer restrictions and restrictive legends (not relating to a buyer
being an affiliate of the Company) with respect to that Act are or may be
removed upon the consummation of such sale.
(m) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the applicable rules
and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(n) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses. "Registration Expenses" shall include the reasonable
fees and expenses of one special counsel (who is reasonably acceptable to
the Company) for all participating Holders. Registration Expenses shall
exclude the compensation of regular employees of the Company which shall
be paid in any event by the Company.
(o) "Regulation 5" shall mean Regulation S as promulgated by the
Commission under the Securities Act, as such Regulation may be amended
from time to time, or any similar or successor regulation or provision
then in force that may be promulgated by the Commission.
(p) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule or provision then in force that may
be promulgated by the Commission.
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(q) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time
to time, or any similar successor rule or provision then in force that may
be promulgated by the Commission.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute, and the rules and
regulations promulgated by the Commission thereunder.
(s) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Shares and,
except as included in the definition of "Registration Expenses," all fees
and disbursements of counsel for any Holder.
(t) "SUNDIAL" shall mean SUNDIAL INTERNATIONAL FUND LIMITED, a
Jersey (Channel Islands) corporation.
(u) "ULTRA" shall mean ULTRA PACIFIC HOLDINGS, S.A., a
Liechtenstein corporation.
2. Conditions Upon Which Registration Rights Are Triggered.
If the Commission or any other agency of the government of the
United States abolishes, modifies or otherwise changes the terms of
Regulation S or Rule 144 so as to (i) extend the holding period under
Regulation S to a period greater than 40 days, or (ii) extend the holding
period under Rule 144 to greater than one year, the Purchasers adversely
affected thereby shall have the right to one Demand Registration and two
Piggyback Registrations in accordance with the terms and conditions set
forth in this Agreement.
3. Requested Registration
(a) Request for Registration. If the conditions set forth in
Section 2 above apply and the Company shall receive from a Holder or
Holders, at any time or times not later than five years after the date of
this Agreement, a written request that the Company effect a registration
with respect to at least 200,000 of the Registrable Shares (such number to
be appropriately adjusted for any stock dividends, combinations or similar
transactions with respect to such shares), the Company will promptly give
written notice of the proposed registration to all other Holders. The
Company will then, as soon as practicable, use its best efforts to effect
such registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act)
as would permit or facilitate the sale and distribution of all or such
portion of the Registrable Shares as are specified in such request,
together with all or such portion of the Registrable Shares of each Holder
joining in such request as are specified in a written notification
received by the Company within 20 days after such written notice from the
Company is given to such Holder in accordance with Section 14(c).
(b) Limitations on Registration Obligation. The Company will not
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be obligated to effect, or to take any action to effect, a Demand
Registration pursuant to this Section 3:
(i) If pursuant to a Demand Registration a registration
statement has been declared effective within the prior 12-month period;
(ii) After the Company has initiated a Demand Registration
pursuant to this Section 3 (counting for these purposes only (A)
registrations which have been declared or ordered effective and pursuant
to which securities have been sold, and (B) registrations which have been
withdrawn by the Holders as to which the Holders have not elected to bear
the Registration Expenses pursuant to Section 5 and would, absent such
election, have been required to bear such expenses);
(iii) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act;
(iv) During the period starting with the date 60 days prior
to the Company s good faith estimate of the date of filing of, and ending
on a date 180 days after the effective date of, a Company-initiated
registration (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that
the Company is actively employing in good faith all reasonable efforts to
cause the registration to become effective; or
(v) If the requesting Holder(s) proposed to dispose of
Registrable Shares which may be immediately registered on Form S-3
pursuant to a request made under Section 6.
(c) Company s Right to Defer Registration. Subject to clauses
(i) through (v) of Section 3(b), the Company shall file a registration
statement covering the Registrable Shares requested to be registered under
Section 3(a) as soon as practicable after receipt of the request of the
requesting Holder(s); provided, however, that if, (i) in the good faith
judgment of the Board of Directors of the Company, such registration would
be seriously detrimental to the Company and the Board of Directors of the
Company concludes, as a result, that it is essential to defer the filing
of such registration statement at such time, and (ii) the Company shall
furnish to all the Holders a certificate signed by the President of the
Company stating such facts, then the Company shall have the right to defer
such filing for the period during which such disclosure would be seriously
detrimental, provided that (except as permitted in Section 3(b)(iv) above)
the Company may not defer the filing for a period of more than 90 days
after receipt of the request of the requesting Holder(s) and, provided
further, that the Company shall not defer its obligation in this manner
more than once in any 12-month period.
(d) Other Included Securities. A registration statement filed
pursuant to the request of a Holder or Holders under Section 3(a) may,
subject to the provisions of Sections 3(e), include securities of the
Company held by other persons who have been granted registration rights by
<PAGE> 4
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the Company and may include securities of the Company being sold for the
account of the Company.
(e) Underwritten Offering. If a Demand Registration pursuant to
this Section 3 is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as part of the
notice given pursuant to Section 3(a). In such event, the right of any
Holder to registration pursuant to this Section 3 shall be conditioned
upon such Holder s participation in the underwriting arrangements required
by this Section 3(e), and the inclusion of such Holders Registrable Shares
in the underwriting to the extent requested shall be limited as provided
below. The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter
into an underwriting agreement in customary form with the representative
of the underwriter(s) selected for such underwriting by the Holders who
hold a majority of the Registrable Shares held by all the Holders with
respect to that underwriting, provided that the underwriter(s) shall be
reasonably acceptable to the Company. Notwithstanding any other provision
of this Section 3, if the representative of the underwriter(s) advises the
Company and the Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the representative
may (subject to the limitations set forth below) limit the number of
Registrable Shares and other securities to be included in the
underwriting. The Company shall so advise all participating Holders and
the number of shares that may be included in the registration and
underwriting shall be allocated: first to the Registrable Shares, with the
allocation among Registrable Shares held by Holders who have requested
inclusion in the registration in proportion, as nearly as practicable, to
the respective amounts of Registrable Shares held by such Holders and
properly requested to be included at the time of filing the registration
statement; second, to shares being sold for the account of the Company;
and then, to shares being sold for the account of other Persons. Any
Registrable Shares so excluded from the underwriting by reason of the
representative s marketing limitation shall be withdrawn from such
registration. To facilitate the allocation of shares in accordance with
the above provisions, the Company or the representative of the
underwriter(s) may round the number of registered shares allocated to any
Holder or other shareholder to the nearest 100 shares. If a Holder who has
requested inclusion in an underwritten Demand Registration as provided
above does not agree to the terms of the underwriting, that Holder s
shares may be excluded from the underwriting by written notice from the
Company or the representative of the underwriter(s) and the shares so
excluded shall be withdrawn from the registration. If shares are so
excluded from the underwriting because of a failure to agree to its terms
and the number of Registrable Shares to be included in the underwriting
was previously reduced as a result of marketing factors pursuant to this
Section 3(e), then, with the permission of the representative of the
underwriter(s) the Company shall offer to all Holders who have retained
rights to include Registrable Shares in the underwriting the right to
include additional Registrable Shares in an aggregate amount equal to the
number of shares so excluded. The registration of such additional
Registrable Shares shall be allocated among the Holders requesting the
additional inclusion pro rata in accordance with the numbers of their
Registrable Shares which are otherwise to be included in the registration.
<PAGE> 5
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4. Participation Registration
(a) Registration Right. If the conditions set forth in Section 2
above apply and, after the date of this Agreement, the Company shall
determine to register any of its securities either for its own account or
the account of a security holder or holders (other than pursuant to
Section 3 or 6), except for a registration relating solely to employee
benefit plans, a registration relating solely to a Rule 145 transaction, a
registration on any registration form that would not permit secondary
sales of Registrable Shares or a registration filed more than five years
after the date of this Agreement, the Company will, in two such instances:
(i) Promptly give to each Holder written notice thereof;
(ii) Use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance),
except as set forth in Section 4(b) below, and in any underwriting
involved therein, all the Registrable Shares specified in a written
request or requests made by any Holder within 15 days after the written
notice from the Company described in clause (i) above is given to that
Holder. Such written request may specify all or a part of a Holder s
Registrable Shares.
(b) Underwritten Offering. If the registration of which the
Company gives notice under Section 4(a) is for a registered public
offering involving an underwriting, the Company shall so advise the
Holders as a part of the written notice given pursuant to Section 4(a)(i).
In such event, the right of any Holder to registration pursuant to this
Section 4 shall be conditioned upon such Holder s participation in such
underwriting and the inclusion of such Holder s Registrable Shares in the
underwriting to the extent provided herein. All Holders proposing to
distribute their securities through the underwriting shall (together with
the Company and any other persons proposing to distribute their securities
through the underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter(s) selected by
the Company. Notwithstanding any other provision of this Section 4, if the
representative of the underwriter(s) advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) limit the number of Registrable Shares to be included in the
registration and underwriting; provided that the value of the included
Registrable Shares shall be at least 20% of the total value of the
securities included in the registration. The Company shall so advise all
Holders requesting to participate in the registration and the number of
shares that may be included in the registration and underwriting shall be
allocated: first, to the Company for securities being sold for its own
account; second, among Registrable Shares held by all Holders who have
requested inclusion in the registration in proportion, as nearly as
practicable, to the respective amounts of Registrable Shares held by such
Holders and properly requested to be included at the time of filing the
registration statement; and then to shares being sold for the accounts of
other Persons. Any Registrable Shares so excluded from the underwriting by
reason of the representative s limitation shall be withdrawn from such
registration. To facilitate the allocation of shares in accordance with
<PAGE> 6
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the above provisions, the Company or the representative of underwriter(s)
may round the number of shares allocated to any Holder or other
shareholder to the nearest 100 shares. If a Holder who has requested
inclusion in the registration does not agree to the terms of the
underwriting, that Holder s shares may be excluded from the underwriting
by written notice from the Company or the representative of the
underwriter(s) and the shares so excluded shall be withdrawn from the
registration. If shares are so excluded from the underwriting because of a
failure to agree to its terms and the number of shares of Registrable
Shares to be included in the underwriting was previously reduced as a
result of marketing factors pursuant to this Section 4(b), then, with the
permission of the representative of the underwriter(s) the Company shall
offer to all Holders who have retained rights to include Registrable
Shares in the underwriting the right to include additional Registrable
Shares in an aggregate amount equal to the number of shares so excluded.
The registration of such additional Registrable Shares shall be allocated
among the Holders requesting the additional inclusion pro rata in
accordance with the numbers of their Registrable Shares which are
otherwise to be included in the registration.
(c)
Right to Terminate Registration. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section
4 prior to the registration s effectiveness, whether or not any Holder has
elected under this Section 4 to include shares in the registration.
5. Expenses of Registration
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Sections 3 and 4
shall be borne by the Company. All Registration Expenses incurred in
connection with the registration of Registrable Shares under Section 6
shall be borne by the Holders participating in the registration pro rata
on the basis of the numbers of Registrable Shares so registered on their
behalf, provided that, if other shares are included in the registration,
the Registration Expenses shall be reasonably allocated among the Holders,
the Company and other participating shareholders based on the numbers of
their shares that are registered. A Holder or Holders may elect to bear
without reimbursement by the Company the Registration Expenses for a
Demand Registration proceeding begun by them pursuant to Section 3 and
subsequently withdrawn by them. In such a case, the registration
proceeding shall not be counted for purposes of Section 3(b)(ii). If a
withdrawal of a Demand Registration by a Holder is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or
otherwise) to the Holder requesting the registration at the time of a
request for registration under Section 3, such registration shall not be
treated as a counted registration for purposes of Section 3(b)(i), even
though the requesting Holder does not bear the Registration Expenses for
the registration. All Selling Expenses relating to shares of Holders
registered under Sections 3, 4 and 6 shall be borne by such Holders pro
rata on the basis of the numbers of shares so registered on their behalf.
6. Registration on Form S-3
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(a) If the Company has qualified for the use of Form S-3 under
the Securities Act (which for purposes of this Section 6 shall be deemed
to include any comparable or successor form or forms), in addition to the
rights contained in the foregoing provisions of this Agreement, the
Holders shall have the right to request registrations of their Registrable
Shares on Form S-3. Such requests must be in writing and must state the
number of shares of Registrable Shares to be disposed of and the intended
methods of disposition of such shares by the requesting Holder or Holders.
The Company shall not be obligated to effect any such registration: (i) if
the Holders propose to sell less than 200,000 Registrable Shares; or (ii)
if the Company shall furnish the certification described in Section 3(c)
(but subject to the limitations set forth therein); or (iii) after the
Company has previously effected one such registration in any 12-month
period; or (iv) if the request is made more than five years after the date
of this Agreement.
(b) If a request complying with the requirements of Section 6(a)
is delivered to the Company, the Company shall use its best efforts to
cause the Registrable Shares requested to be included in the registration
to be registered on Form S-3 and to cause such Registrable Shares to be
registered or qualified under applicable blue sky laws in such
jurisdictions as the requesting Holders may reasonably request. The
substantive provisions of Sections 3(a)(i), 3(a)(ii), and 3(c) shall apply
to such registration. If the registration is for an underwritten offering,
the substantive provisions of Section 3(e) shall also apply to such
registration.
7. Registration Procedures
In the case of each registration of Registrable Shares effected by
the Company pursuant to this Agreement, the Company will keep each
participating Holder advised in writing as to the initiation of the
registration and as to the completion thereof. The Company will use its
best efforts to:
(a) Keep the registration effective for a period of 90 days or
until the participating Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 90-day period shall be extended
for a period of time equal to the period the Holder refrains from selling
any securities included in such registration at the request of an
underwriter of the securities of the Company; and (ii) in the case of any
registration of Registrable Shares on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 90-day period shall be
extended, if necessary, to keep the registration statement effective until
all such Registrable Shares are sold, provided that Rule 145, or any
successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules
under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A)
includes any prospectus required by Section 10(a)(3) of the Securities Act
or (B) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
<PAGE> 8
<PAGE>
incorporation by reference of information required to be included in (A)
and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to the registration statement and the prospectus used in
connection with the registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by the registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the
prospectus, as a participating Holder from time to time may reasonably
request;
(d) Notify each seller of Registrable Shares covered by the
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing, and at the request of any
such seller prepare and furnish to the seller a reasonable number of
copies of a supplement to or an amendment of the prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
shares, the prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing;
(e) Cause all Registrable Shares registered pursuant to the
provisions of this Agreement to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Shares registered pursuant to such registration statement and a CUSIP
number for all such Registrable Shares, in each case not later than the
effective date of the registration; and
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
8. Indemnification
(a) The Company will indemnify each Holder, each of its
officers, directors and partners, legal counsel and accountants and each
person who controls such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification, or
compliance has been effected pursuant to this Agreement, and each
underwriter, if any, and each person who controls within the meaning of
Section 15 of the Securities Act any underwriter, against all expenses,
claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based on any untrue
<PAGE> 9
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statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any
such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of
its officers, directors, partners, legal counsel and accountants, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability or action, provided that
the Company will not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based
on any actual or alleged untrue statement or omission that is made in
reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 8(a) shall not apply to amounts paid in
settlement of any such loss claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent
has not been unreasonably withheld).
(b) Each Holder will, if Registrable Shares held by such Holder
are included in the securities to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors, officers, partners, legal counsel and accountants, each
underwriter, if any, of the Company s securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each
other such Holder and other stockholder, each of their officers, directors
and partners, and each person controlling such Holder or other
stockholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, other stockholders, directors, officers, partners, legal counsel,
accountants, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in
such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for
use therein. The obligations of such Holder under this Section 8(b) shall
not apply to amounts paid in settlement of any such claims, losses,
damages or liabilities (or actions in respect thereof) if such settlement
<PAGE> 10
<PAGE>
is effected without the consent of such Holder (which consent shall not be
unreasonably withheld).
(c) Each party entitled to indemnification under this Section 8
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and
provided further that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest, and provided
further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8, to the extent such failure is not
materially prejudicial. The Indemnified Party may participate in such
defense at such party s expense. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 8 is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party on the one hand,
and of the Indemnified Party on the other, in connection with the
statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations.
The relative fault of the Indemnifying Party and of the Indemnified Party
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party and the and Parties relative intent,
knowledge, information opportunity to correct or prevent such statement or
omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with an underwritten
public offering of securities registered under this Agreement are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
<PAGE> 11
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9. Information by Holder
Each Holder of Registrable Shares shall furnish to the Company such
information regarding such Holder and the distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
10. Limitations on Registration of Issues of Securities
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Purchasers, enter into any
agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights
the terms of which are more favorable than the registration rights granted
to the Holders hereunder.
With a view to making available the benefits of certain rules and
regulations of the Commission that may permit the sale of the Registrable
Shares to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act;
(c) So long as a Holder owns any Registrable Shares, furnish to
the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company filed with the Commission, and such
other reports and documents of the Company and information in its
possession as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
12. Transfer or Assignment of Registration Rights
The rights to cause the Company to register securities granted to a
Holder by the Company under this Agreement may be transferred or assigned
by the Holder only to a transferee or assignee of not less than 200,000
shares of Registrable Shares (subject to appropriate adjustments for stock
splits, stock dividends, reverse stock splits and the like), provided that
the Company is given written notice at the time of or within a reasonable
time after the transfer or assignment stating the name and address of the
transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and
provided further that before or concurrently with his or her exercise of
any such rights the transferee or assignee of such rights assumes in a
writing given to the Company the obligations of such Holder under this
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Agreement.
13. Delay of Registration
No Holder shall have any right to take any action to restrain, enjoin
or otherwise delay any registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Agreement.
14. Miscellaneous
(a) No Inconsistent Agreements. The Company shall not, on or
after the date of this Agreement, enter into any agreement with respect to
its securities which is inconsistent with the rights granted to the
Holders of the Registrable Shares in this Agreement or otherwise conflicts
with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless by a written instrument signed by an
officer of the Company and by the Holders of at least a majority of the
then outstanding Registrable Shares. Notwithstanding the foregoing: (i) in
no event shall the obligations of any Holder under this Agreement be
materially increased without the written consent of that Holder; and (ii)
a waiver or consent to depart from the provisions of this Agreement with
respect to a matter which relates exclusively to the rights of Holders of
Registrable Shares whose securities are being sold pursuant to a
registration statement and which does not directly or indirectly affect
the rights of Holders of Registrable Shares whose securities are not being
sold pursuant to the registration statement, may be given by either (A)
Holders of at least a majority of the then outstanding Registrable Shares
or (B) Holders of a majority of the Registrable Shares being sold by such
Holders; provided, however, that the provisions of this sentence may not
be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing and sent by hand delivery,
registered first-class mail, courier, telex or telecopier: (i) if to a
Holder of Registrable Shares, to the most current address of the Holder on
the books of the Company; and (ii) if to the Company, to the attention of
its President at the address of its principal executive office. All such
notices and communications shall be deemed to have been given: when
delivered at the proper address, if personally delivered or delivered by
courier; five business days after being deposited in the mail, postage
prepaid, if mailed by registered first-class mail; and when answered back,
if telexed, telecopied or sent by similar facsimile transmission.
(d) Successors and Assigns. Subject to Sections 8 and 12, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties.
(e) Counterparts. This Agreement may be executed in any number
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of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Headings and Section References. The headings in this
Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. Unless otherwise indicated, each
reference to a Section shall refer to a Section of this Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, as applied
to contracts made and performed in California, without regard to
principles of conflict of laws.
(h) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated, and the parties hereto shall use their best efforts to find
and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.
(i) Entire Agreement. This Agreement is intended by the parties
as a complete and final expression of their agreement with respect of the
subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matter.
(j) Attorneys Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party shall be entitled to
recover reasonable attorneys fees in addition to its costs and expenses
and any other available remedy.
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This Agreement has been executed as of the date set forth in the
first paragraph above.
The Company:
METALCLAD CORPORATION
By: /s/Grant S. Kesler
-------------------------------
Grant S. Kesler, President
The Purchasers:
SUNDIAL INTERNATIONAL FUND LIMITED
By: /s/Donald B. Shafto
-------------------------------
Its Duly Authorized Agent
ULTRA PACIFIC HOLDINGS, S.A.
By: /s/Donald B. Shafto
-------------------------------
Its Duly Authorized Agent
15
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT is made as of this 18th day of June 1998, by
and between ULTRA PACIFIC HOLDINGS S.A., a Liberian corporation, with its
office at c/o Dr. Herbert Batliner, Aeulestrasse 74, Post Box 86, F.L.
9490, Vaduz, Liechtenstein, Attention: Herr Hans Gassner, (the
"Purchaser"), and METALCLAD CORPORATION, a Delaware corporation, with its
principal offices at 3737 Birch Street, Suite 300, Newport Beach,
California 92660, United States of America (the "Company").
WHEREAS, the Company is offering to sell a U.S. $252,812.50 Principal
Amount Zero Coupon Secured Note (the "Note"), to be dated and issued as
of the date hereof and to be due 45 days following the date hereof being
July 31, 1998 (the "Maturity Date"), the Purchaser or any other holder of
the Note being hereinafter sometimes referred to as the "Noteholder, and
the principal amount of the Note being hereinafter sometimes referred to
as the "Principal Amount", the Note to be substantially in the form of
Exhibit A annexed hereto and made a part hereof;
WHEREAS, on the Maturity Date of the Note, the Company shall issue to
the Purchaser 250,000 "Warrants" (hereinafter defined) to purchase the
Company s common stock par value U.S.$.10 per share ("Common Stock");
WHEREAS, for each day following the Maturity Date that the Note is
not paid in full (whether or not the Noteholder has declared an Event of
Default), the Company will issue to the Noteholder an additional 7,143
Warrants to and including the date on which payment in full of the Note is
made;
WHEREAS, the obligations of the Company under this Purchase Agreement
and the Note are entitled to the benefits of the Pledge Agreement and the
Assignment mentioned below;
WHEREAS, the placement of the Note has been arranged directly by and
between the Company and the Purchaser;
WHEREAS, the Company has furnished to the Purchaser, in accordance
with Section 4.2(c) hereof, the latest annual and quarterly reports and
other public information referred to below filed with the United States
Securities and Exchange Commission ("SEC") constituting all of the filings
of any nature which the Company has filed and was required to file with
the SEC from and including January 1, 1998 through and including the date
hereof;
WHEREAS, the Company, the Purchaser and Sundial International Fund
Limited ("Sundial") heretofore entered into that certain Purchase
st
Agreement dated as of the 31 day of December, 1997 ("Prior Purchase
Agreement") pursuant to which the Purchaser and Sundial purchased
U.S.$2,200,000.00 Principal Amount of the Company s Zero Coupon Secured
Notes due December 31, 2002 (each a "Prior Note" and together the "Prior
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Notes" and the Purchaser and Sundial in such capacity being herein
referred to individually as "Prior Noteholder" and together as the "Prior
Noteholders") which Prior Purchase Agreement provided for the issuance to
the Prior Noteholders of certain Warrants to purchase Common Stock of the
Company and the right of the Prior Noteholders to convert the Prior Notes
into Common Stock of the Company and the right of the Company to require
the conversion of the Prior Notes into Common Stock of the Company, each
under certain circumstances, and all on the terms and conditions set forth
in the Prior Purchase Agreement and the documents referred to therein; and
WHEREAS, due to a mutual factual misunderstanding respecting
adjustment to the exercise price of the Warrants to be issued under the
Prior Purchase Agreement and certain other warrants, the number of
Warrants to be issued thereunder and the price at which the Prior Note to
be convertible into Common Stock of the Company, which mutual factual
misunderstanding the parties hereto wish to correct for their mutual
benefit and for the benefit of Sundial, all as more particularly set forth
in Section 2.7 of this Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Purchase Agreement, the undersigned agree as
follows:
Section 1. Agreement to Sell and Purchase the Note.
1.1 On the basis of the representations, warranties and agreements
contained in this Purchase Agreement but subject to the terms and
conditions set forth in this Purchase Agreement, the Company agrees to
issue and sell to the Purchaser, and the Purchaser agrees to purchase from
the Company on the date hereof, or on such other date as shall be mutually
agreed upon by the Company and the Purchaser (the "Closing Date"), the
Note for a purchase price of U.S.$250,000.00 (the "Purchase Price").
1.2 Payment of the Purchase Price shall be made by the Purchaser to
the Company by wire transfer, net of all wire transfer charges, in
immediately available funds for value on the date hereof, or such other
date as the Company and the Purchaser shall agree, in United States
dollars to:
Account: Metalclad Corporation
Account No.: 040116487
ABA No.: 122003516
Bank: Sanwa Bank, Santa Ana Main Branch
1622 North Main Street,
Santa Ana, California 92701
United States of America
Alternatively, at the option of the Purchaser, payment may be made in
escrow in advance of the Closing Date by wire transfer of the Purchase
Price in immediately available funds to:
Account: Gilmartin, Poster & Shafto Trust Account
Account No. 04278931
ABA No. 0210000089
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Bank: Citibank, N.A.
One Broadway
New York, New York 10004
Attention: Ms. Lena Circosta
Should the funds be transferred in such alternative manner and should the
Closing take place at a time of day when it is no longer practicable or
possible to wire transfer said funds to the above mentioned account of the
Company, Purchaser will cause Messrs. Gilmartin, Poster & Shafto
("Agent"), concurrently with the Closing, to: (i) issue and deliver to the
Company the Agent s irrevocable and unconditional confirmation that
concurrently with the Closing the Agent holds such Purchase Price solely
and exclusively for the benefit of the Company, and (ii) issue and deliver
to Citibank, N.A. no later than the opening of business on the following
Business Day its irrevocable and unconditional instructions forthwith to
wire transfer, net of all wire transfer charges, the Purchase Price of
the Note to the Company s account with said Sanwa Bank above mentioned.
1.3 The completion of the sale and purchase of the Note (the
"Closing") shall take place at the offices of the Agent, 5th Floor, One
William Street, New York, New York 10004, at 10:00 a.m. local time on the
Closing Date. At the Closing, the Company shall deliver to the Agent, for
the account of Purchaser, the Note registered in the name of the
Purchaser or its nominee, representing the Note being purchased by
Purchaser, against payment of the Purchase Price therefor in immediately
available funds to the account of the Company designated in or otherwise
as provided in Section 1.2 of this Purchase Agreement.
1.4 The obligation of the Purchaser to purchase the Note at the
Closing shall be conditional upon the delivery by the Company to the
Agent, on behalf of the Purchaser, of:
1.4.1 The Secondary Pledge Agreement (as executed and
delivered, the "Pledge Agreement") by and between the Company and the
Agent dated as of the Closing Date substantially in the form of Schedule 1
annexed hereto and made a part hereof pursuant to which the Company
pledges to the Agent for the benefit of the Noteholder and as security
for, among other things, the obligations of the Company under the Note and
this Purchase Agreement, all of the issued and outstanding capital stock
("MIC Shares") of the Company s wholly owned subsidiary, Metalclad
Insulation Corporation ("MIC"), a California corporation, subject to the
prior rights of the Agent under that certain Pledge Agreement dated as of
st
the 31 day of December, 1997 between the Company and the Agent (the
"Prior Pledge Agreement"), the MIC Share Certificates and the MIC Stock
Powers having been previously delivered by the Company to the Agent
pursuant to the Prior Pledge Agreement.
1.4.2 An Assignment of Account ("Assignment") substantially in
the form of Schedule 2 annexed hereto and made a part hereof pursuant to
which the Company assigns to the Agent, as secured party, acting on behalf
of the Noteholder, all of the Company s right, title and interest in and
to the "Fund Trust Agreement"(hereinafter defined) as security, inter
alia, for all of the "Obligations" (hereinafter defined).
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1.4.3 The Company s irrevocable and unconditioned undertaking
hereby made, to issue on, but not before, the Maturity Date (July 31,
1998), a Warrant dated the Maturity Date to purchase 250,000 Shares of the
Company s Common Stock at the Warrant Exercise Price with an expiration
date of July 31, 2003 registered to Purchaser.
1.44 Evidence satisfactory to the Agent of the authority of the
persons executing the Note, the Pledge Agreement, the Assignment and all
other transaction documents on behalf of the Company.
1.4.5 The Note.
1.4.6 UCC Financing Statements relating to the Collateral to be
filed in such jurisdictions as are determined appropriate by the Agent.
1.4.7 An opinion of Messrs. Gibson, Haglund & Johnson, counsel
to the Company, in form and substance satisfactory to the Agent.
Section 2. Definitions; Certain Rights of the Noteholder Upon the
Occurrence of an Event of Default.
2.1 When used in this Purchase Agreement, the following terms shall
have the following meanings:
2.1.1 "Agent" shall have the meaning set forth in Section 1.2
of this Agreement.
2.1.2 "Assignment" shall mean that certain Assignment of
Account executed by the Company in favor of the Agent dated as of the date
hereof substantially in the form of Schedule 2 annexed hereto and made a
part hereof pursuant to which, among other things, the Company assigns to
the Agent for the benefit of the Noteholder and as security for the
payment of any and all indebtedness of the company to Ultra all right,
title and interest of the Company in and to, among other things, the
account and all proceeds thereof established pursuant to the Fund Trust
Agreement.
2.1.3 "Business Day" shall mean a day on which banks are open
for business in each of Los Angeles, California, New York City, New York,
London, England and the Channel Islands.
2.1.4 "Closing Date" shall have the meaning set forth in
Section 1.1 of this Agreement.
2.1.5 "Collateral" shall mean all the right, title and interest
of the Agent in and to the property described in the Assignment and the
Pledge Agreement, which property the Agent holds for the benefit of the
Noteholder and as security for the performance of the Obligations.
2.1.6 "Common Stock" shall have the meaning set forth in the
second recital of this Agreement.
2.1.7 "Company" shall have the meaning set forth in the first
paragraph of this Agreement.
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2.1.8 "Debentures" shall have the meaning set forth in Section
3.1 of this Agreement.
2.1.9 "Default Rate" shall be a per annum rate of interest
equal to (i) the greater of (w) 15% or (x) the sum of 6% plus the rate
announced from time to time by Citibank, N.A. as its prime or stated rate
for unsecured short term U.S. dollar commercial loans in the United
States.
2.1.10 "Discounted Present Value"with respect to the Note shall
be based on a simple interest rate of 9% per annum without compounding and
shall mean with respect to the Note an amount calculated in accordance
with the following formula:
$250,000.00 + ($2,812.50 (n/45))
wherein n equals the number of days elapsed from and including the date of
issuance of any Note to and including the date of occurrence of an Event
of Default, as the case may be, and 45 equals the total number of days
from and including the date of issuance to and including the date of
maturity of the Note.
2.1.11 "EPA" shall have the meaning set forth in Section 6.15
of this Agreement.
2.1.12 "Event of Default" shall mean any of the events referred
to in Section 7.1 of this Agreement; and "Events of Default" shall mean
more than one such event.
2.1.13 "Fund Trust Agreement" shall mean that certain Amended
and Restated Fund Trust Agreement" between the Company and Pacific
National Bank, a copy of the Fund Trust Agreement being annexed hereto as
Schedule 4 and made a part hereof.
2.1.14 "GAAP" shall mean the standards, conventions, rules and
principles generally accepted and followed by accountants in the United
States in recording and summarizing transactions and in the preparation of
financial statements.
2.1.15 "Market Price" shall have the meaning set forth in the
form of Warrant annexed to this Purchase Agreement as Schedule 3 and made
a part hereof.
2.1.16 "MIC Shares" shall mean all of the issued and
outstanding capital stock of Metalclad Insulation Corporation, a
California corporation.
2.1.17 "MIC Stock Powers" shall mean stock powers executed in
blank, with signature guaranteed, in form sufficient to enable the Agent
to transfer the registered and beneficial ownership of the whole or any
portion of the MIC Shares pursuant to the terms of the Pledge Agreement.
2.1.18 "Noteholder" and "Noteholders" shall have the meanings
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set forth in the first recital of this Agreement.
2.1.19 "Note" shall have the meaning set forth in the first
recital of this Agreement.
2.1.20 "Obligations" shall mean all of the obligations of the
Company to the Noteholder under or pursuant to the Note, this Purchase
Agreement, the Pledge Agreement and the Assignment.
2.1.21 "OFW Ratchet Clause" shall mean the adjustments to the
Warrant Exercise Price set forth in Section 7 of the form of Warrant
annexed hereto as Schedule 3 and made a part hereof.
2.1.22 "OSHA" shall have the meaning set forth in Section 6.15
of this Agreement.
2.1.23 "Pledge Agreement" shall mean that certain Secondary
Pledge Agreement by and between the Company and the Agent dated as of the
date hereof substantially in the form of Schedule 1 annexed hereto and
made a part hereof, pursuant to which, among other things, the Company
pledges to the Agent for the benefit of the Noteholder and as security for
all of the Obligations, the MIC Shares subject, however, to the prior
rights of the Agent under and pursuant to the Prior Pledge Agreement. .
2.1.24 "Principal Amount" shall mean with respect to the Note,
U.S. $252,812.50.
2.1.25 "Prior Note"and "Prior Notes" shall have the meaning set
forth on the penultimate recital to this Agreement.
2.1.26 "Prior Noteholder" and "Prior Noteholders" shall have
the meaning set forth in the penultimate recital to this Agreement.
2.1.27 "Prior Pledge Agreement" shall mean that certain Pledge
st
Agreement dated the 31 day of December, 1997 by and between the Company
and the Agent pursuant to which the MIC shares and the MIC Stock Powers
were delivered to the Agent as security for the "Obligations" referred to
therein.
2.1.28 "Prior Purchaser" shall have the meaning set forth in
the penultimate recital to this Agreement.
2.1.29 "Purchaser" shall have the meaning set forth in the
first paragraph of this Agreement.
2.1.30 "Purchase Price" of the Note shall mean U.S.$250,000.00.
2.1.31 "Registration Rights Agreement" shall have the meaning
set forth in the Prior Purchase Agreement.
2.1.32 "Restricted Period" shall have the meaning set forth in
Section 4.3(a) of this Agreement.
2.1.33 "SEC" shall have the meaning set forth in the last
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recital of this Agreement.
2.1.34 "Securities" shall have the meaning set forth in
Section 3.6 of this Agreement.
2.1.35 "Sundial"shall have the meaning set forth in the
penultimate recital to this Agreement.
2.1.36 "Transaction documents" shall have the meaning set forth
in Section 3.3 of this Agreement.
2.1.37 "Warrant" shall mean the non-redeemable right to
purchase shares of Common Stock at the Warrant Exercise Price; and
"Warrants" shall mean the plural thereof, each Warrant to be substantially
in the form of Schedule 3 annexed hereto and made a part hereof.
2.1.38 "Warrant Exercise Price" shall mean U.S. $1.25 per share
of Common Stock as the same may be adjusted pursuant to the OFW Ratchet
Clause.
2.1.39 "Warrant Shares" shall mean the shares of Common Stock
of the Company issuable upon exercise of the Warrants.
2.2 Concurrently with the Maturity of the Note on the Maturity
Date, the Company will issue to the Purchaser a Warrant dated the Maturity
Date to purchase 250,000 shares of Common Stock. For each day following
th
the 45 day from the date of issuance of the Note that the Note has not
been paid in full (together with any default interest due thereon), the
Company will issue to the Purchaser an additional Warrant to purchase
7,143 shares of the Common Stock.
2.3 Upon the occurrence of an Event of Default and so long as the
same shall be continuing, the Noteholder shall have the right to declare
the Note to be in default. In the event of any such declaration, the
Discounted Present Value of such Note shall be calculated to the date of
the occurrence of such Event of Default and, (i) thereafter, such
Discounted Present Value of the Note shall bear interest at the Default
Rate until all amounts due the Noteholder are paid in full, and (ii) in
addition to the Warrant to purchase 250,000 shares of Common Stock,
Noteholder shall receive a Warrant to purchase 7,143 shares of Common
th
Stock of the Company for each day following the 45 day after the date of
issuance of the Note until the entire Principal Amount of the Note and
default interest thereon, if any, have been paid in full (whether or not
an Event of Default has been declared or waived by the Noteholder). Upon
the occurrence of an Event of Default the Noteholder may instruct the
Agent to exercise any one or more or all of the Agent s rights under the
Pledge Agreement and the Assignment, all without prejudice to the
Noteholder s rights in law or equity.
2.4 If the SEC or any other agency of the government of the United
States abolishes, modifies or otherwise changes the terms of Regulation S
or Rule 144 promulgated under the Securities Act of 1933, as amended, so
as to (i) extend the holding period under Regulation S to a period greater
than one year, or (ii) extend the holding period under Rule 144 to greater
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than one year, the Purchaser adversely affected thereby shall have
piggyback registration rights to the registration rights set forth in the
Registration Rights Agreement.
2.5 In the event there shall have accumulated $250,000.00 in the
Fund Trust Agreement at a time when any of the Obligations shall remain
outstanding, the Company shall cause a "Closing" (as defined in the Fund
Trust Agreement to take place) and shall apply the proceeds thereof to
payment of any the Obligations which then remaining outstanding.
2.6 The Purchaser hereby appoints the Agent to act as its agent for
purposes of retaining, perfecting and enforcing all of the rights
conferred upon Agent pursuant to the Pledge Agreement and the Assignment.
2.7.1 For the purposes of this Section 2.7 only, capitalized terms
used herein and not defined herein are used as defined in the Prior
Purchase Agreement.
2.7.2 The form of Warrant annexed to the Prior Purchase Agreement as
"Exhibit B" and made a part thereof is hereby amended by inserting a
subsection 7(e) following subsection 7(d) and renumbering existing
subsections (e) and (f) as subsections (f) and (g):
(e) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this paragraph 7, the
number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the
number of Shares issuable upon exercise of the Warrants immediately prior
to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
2.7.3 The definition of the term "OFW Rachet Clause" contained in
Section 2.1.18 of the Prior Purchase Agreement shall be changed to read as
follows:
"2.1.18 OFW Rachet Clause shall mean the entirety of
Section 7 of the form of Warrant annexed hereto as Exhibit B and made a
part hereof and shall include the addition to Section 7 thereof of the new
subsection (e) referred to in Section 2.7.2 of the Purchase Agreement
th
dated as of the 18 day of June 1998 by and among Ultra Pacific Holdings
S.A. ("Ultra"), it being understood that the OFW Rachet Clause as
hereinabove modified shall also be applied to modify and adjust the
Conversion Rate as well as the Warrant Exercise Price."
2.7.4 It is understood that no Warrants have heretofore been issued
under or pursuant to the Prior Purchase Agreement but that in accordance
with the terms of the Prior Purchase Agreement and the Note referred to
therein, Warrants shall become issuable by the Company to Ultra and
Sundial upon the occurrence of one or more of certain events described in
the Prior Purchase Agreement and the Note such that it is a certainty that
Warrants will be issued by the Company to Ultra and Sundial thereunder
because it is a certainty that one or more of the events referred to
therein will occur. It is further agreed that concurrently with the first
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issuance by the Company to Ultra and Sundial of Warrants in accordance
with the terms of the Prior Purchase Agreement and the Note referred to
therein, an additional 400,000 Warrants in the form of the Warrant annexed
to the Prior Purchase Agreement as Exhibit B as modified pursuant to this
Section 2.7., shall also then be issued to Ultra and Sundial in the
following proportions: a Warrant to Sundial to purchase 266,667 shares
of Common Stock and a Warrant to Ultra to purchase 133,333 shares of
Common Stock.
Section 3. Representations and Warranties of the Company
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Delaware and has all requisite corporate power and authority
to own and lease its properties and to conduct its business as presently
conducted and as described in the Confidential Private Placement
Memorandum dated as of May 27, 1998 respecting the proposed issuance by
the Company of up to $5,000,000 principal amount of its 10% Convertible
Subordinated Debentures due 2001 ("Debentures"). The Company and its
subsidiaries are duly qualified to do business as foreign corporations and
are in good standing in every jurisdiction where such qualification is
required by controlling law and where the failure so to qualify would have
a material adverse effect on the Company and its subsidiaries taken as a
whole.
3.2 MIC Shares. The MIC Shares consist of 1,000 shares of Common
Stock, no par value, representing all of the issued shares of capital
stock of MIC, have been duly and validly authorized and issued, and are
fully paid and nonassessable. The MIC Shares are owned directly by the
Company and are free and clear of any claim, lien, security interest,
mortgage, pledge, charge or other encumbrance of any nature whatsoever
other than the lien of the Prior Pledge and the Pledge Agreement.
3.3 Due Execution, Delivery and Performance of the Purchase
Agreement
The execution, delivery and performance of this Purchase
Agreement, the Note, the Pledge Agreement, the Assignment and all other
documents delivered or to be delivered by the Company in connection with
this Purchase Agreement including the Warrant to be dated and delivered
the Maturity Date (together the "transaction documents") (a) have been
duly authorized by all requisite corporate action of the Company, and (b)
will not violate (i) the Certificate of Incorporation or Bylaws of the
Company or (ii) any law applicable to the Company, MIC, or any of its
other subsidiaries or any rule, regulation or order of any court or
governmental agency or body having jurisdiction over the Company, MIC, or
any of its other subsidiaries or (iii) any provision of any indenture,
mortgage, debenture, agreement, contract or other instrument by which the
Company or its property is bound or affected.
3.4 Issuance and Delivery of the Warrant Shares. The offer,
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issuance, sale and delivery of the Warrant Shares, in accordance with the
Purchase Agreement, have been duly authorized by all requisite corporate
action of the Company. The Warrant Shares, when issued, will conform to
the terms of the Common Stock set forth in the Company s Certificate of
Incorporation. The Warrant Shares, when issued upon exercise of the
Warrants therefor, will be duly and validly issued and outstanding, fully
paid and non-assessable, will not be subject to any pre-emptive or similar
right, and Purchaser will receive good and valid record title to the
Warrant Shares, free and clear of any claim, lien, security interest,
mortgage, pledge, charge or other encumbrance of any nature whatsoever,
except such as may have been created by the Purchaser. No consent or
approval by the stockholders of the Company or of any other person is
required to be obtained by the Company for the consummation of the
issuance, sale and delivery of the Warrant Shares pursuant to the terms of
this Purchase Agreement. The Warrant Shares have been duly and validly
authorized and reserved for issuance.
3.5 Note and Warrant Authorized. At the Closing, the Note, and on
the Maturity Date, the Warrant, will be duly and validly executed and
delivered by the Company and will constitute the valid and legally binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as the enforceability thereof may be
limited by any applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting enforcement of creditors rights
generally and by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
3.6 Compliance with Regulation S. The Company is a "reporting
issuer" (as defined in Regulation S promulgated by the SEC). The Company,
its affiliates, and any person acting on behalf of, or as agent of, any of
the foregoing, whether as principal or agent, (a) has offered and sold the
securities which are the subject of this Purchase Agreement, including the
Note, the Warrants and the Warrant Shares (the "Securities") to the
Purchaser only in an "offshore transaction" (as defined in Regulation S),
(b) has not engaged with respect to the Securities in any "directed
selling efforts" (as defined in Regulation S) in or directed toward the
United States, and (c) has complied with all "offering restrictions" (as
defined in Regulation S) in respect of the Securities.
Section 4. Representations, Warranties and Covenants of Purchaser.
The Purchaser hereby represents, warrants and covenants to the
Company as follows:
4.1 Compliance with United States Securities Laws. The Purchaser
understands and acknowledges that (a) the Securities have not been and
will not be registered under the Securities Act, and may not be offered or
sold in the United States or to, or for the account or benefit of, any
"U.S. person" (as defined in Regulation S), unless such securities are
registered under the Securities Act and any applicable state securities or
blue sky laws or such offer or sale is made pursuant to exemptions from
the registration requirements of such laws, (b) the Warrant may not be
exercised in the United States or by or on behalf of a "U.S. Person" (as
defined in Regulation S) unless the Warrant and the Warrant Shares are
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registered under the Securities Act and any applicable state securities or
blue sky laws or exemptions from the registration requirements of such
laws are available, and (c) the Securities are being offered and sold
pursuant to the terms of Regulation S under the Securities Act, which
permits securities to be sold to non-"U.S. persons" in "offshore
transactions" (as defined in Regulation S), subject to certain terms and
conditions.
4.2 Status of Purchaser.
(a) Purchaser is purchasing the Securities for its own account
or for persons or accounts as to which it exercises investment discretion.
Neither Purchaser nor such person or account is a "U.S. person" (as
defined in Regulation S). Purchaser has executed this Purchase Agreement
outside the United States. The offer to Purchaser and sale of the
Securities has occurred outside the United States.
(b) Purchaser (and any person or account on whose behalf
Purchaser is purchasing) is knowledgeable, sophisticated and experienced
in making, and is qualified to make, decisions with respect to investments
in restricted securities such as this Purchase Agreement and the
Securities) and has requested, received, reviewed and considered all
information it deems relevant in making a decision to execute this
Purchase Agreement and to purchase the Securities. Purchaser acknowledges
that it is capable of evaluating the merits and risks of an investment in
the Securities.
(c) Purchaser acknowledges that the Company has made available
to Purchaser (i) the latest annual and quarterly reports and other public
information referred to below filed with the SEC, including all of the
filings of any nature which the Company has filed and was required to file
with the SEC from and including January 1, 1998 through and including the
date hereof, (ii) the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering of the Securities, and
(iii) the opportunity to obtain any additional information that the
Company possesses or can acquire without unreasonable effort or expense
necessary to verify the accuracy of the information furnished in
connection herewith and the transactions contemplated hereby.
(d) Purchaser has agreed to purchase the Securities for
investment purposes and not with a view to distribution. To the extent
that the Note and the Warrants comprising the Securities are registered in
the name of Purchaser s nominee, Purchaser confirms that such nominee is
acting as custodian for Purchaser of such securities.
4.3 Restrictions on Transfer or Re-Sale.
(a) For a period of one year following the Closing Date, or if
the Securities come to be issued on more than one day, the latest Closing
Date (the "Restricted Period"), Purchaser shall not engage in any activity
for the purpose of, or which may reasonably be expected to have the effect
of, conditioning the market in the United States for the Securities, or
offer, sell, transfer, pledge or otherwise dispose of the Securities, or
any interest therein in the United States to, or for the account or
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benefit of, a "U.S. person" (as defined in Regulation S).
(b) Purchaser understands that the Warrant Shares or any
interest therein are only transferable on the books and records of the
Transfer Agent and Registrar of the Common Stock of the Company and, with
respect to the Note and the Warrants, on the books and records of the
Company. Purchaser further understands that the Transfer Agent and
Registrar and the Company will not register any transfer of the Securities
or any interest therein which the Company in good faith believes violates
the restrictions set forth herein.
(c) Unless registered under the Securities Act, any proposed
offer, sale, transfer, pledge or other disposition during the Restricted
Period of any of the Securities or any interest therein shall be subject
to the condition that Purchaser must deliver to the Company (i) a written
certification that neither record nor beneficial ownership of the
Securities has been offered or sold in the United States or to, or for the
account or benefit of, any "U.S. person" (as defined in Regulation S),
(ii) a written certification of the proposed transferee that such
transferee (or any account for which such transferee is acquiring such
Securities is not a "U.S. person" (as defined in Regulation S), that such
transferee is acquiring such Securities or such interest therein, as the
case may be, for such transferee s own account (or an account over which
it has investment discretion) and for investment and not with a view to
distribution, and that such transferee is knowledgeable of and agrees to
be bound by the restrictions on re-sale set forth in this section and
Regulation S during the Restricted Period, and (iii) a written opinion of
United States counsel, in form and substance satisfactory to the Company,
to the effect that the offer, sale, transfer, pledge or other disposition
of such Securities, or any interest therein, as the case may be, are
exempt from registration under the Securities Act and any applicable state
securities or blue sky laws.
(d) Purchaser will not, directly or indirectly, voluntarily
offer, sell, pledge, transfer or otherwise dispose of (or solicit any
offers to buy, purchase or otherwise acquire or take a pledge of) its
rights under this Purchase Agreement otherwise than in compliance with the
Securities Act, any applicable state securities or blue sky laws and any
applicable securities laws of jurisdictions outside the United States, and
the rules and regulations promulgated thereunder.
4.4 Exercise of the Warrants. Purchaser understands that the
Warrants may not be exercised by or on behalf of any "U.S. person" (as
defined in Regulation S) unless the Warrants and the Warrant Shares
issuable upon exercise thereof are registered under the Securities Act or
an exemption from such registration is available. Accordingly, Purchaser
understands that it is a condition to the exercise of the Warrants that
(a) any shares of Common Stock issuable upon such exercise will not be
delivered within the United States except in circumstances constituting an
"offshore transaction" (as defined in Regulation S) or unless such shares
of Common Stock have been registered under the Securities Act or an
exemption from such registration is available, and (b) the holder
exercising the Warrants must deliver to the Company (i) a written
certification that such holder is not a "U.S. person" (as defined in
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Regulation S) and that the Warrants are not being exercised on behalf of,
or for the account or benefit of, a "U.S. person" (as defined in
Regulation S) or (ii) a written opinion of United States counsel, in form
and substance satisfactory to the Company, to the effect that the Warrants
and the shares of Common Stock issuable upon exercise of the Warrants have
been registered under the Securities Act or are exempt from registration
under the Securities Act.
4.5 Due Execution, Delivery and Performance of the Purchase
Agreement and Other Obligations. Purchaser has full right, power,
authority and capacity to enter into this Purchase Agreement and to
consummate the transactions contemplated hereby; if Purchaser is a company
or corporation, the execution, delivery and performance of this Purchase
Agreement by Purchaser have been duly authorized by all requisite
corporate action of Purchaser. Upon the execution and delivery of this
Purchase Agreement by Purchaser, this Purchase Agreement shall constitute
the legal, valid and binding obligations of Purchaser, except as the
enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or affecting
the enforcement of creditors rights generally and by general equitable
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
Section 5. Representations and Warranties at the Closing; Survival of
Representations, Warranties and Agreements.
5.1 Each of the parties hereto acknowledges that each of its
respective representations and warranties contained in this Purchase
Agreement is true and correct as of the date of this Purchase Agreement.
5.2 Notwithstanding any investigation made by either party to this
Purchase Agreement, all covenants, agreements, representations and
warranties made by the Company and Purchaser herein and in the Securities
delivered pursuant hereto shall survive the execution and delivery of this
Purchase Agreement and the other transaction documents, the delivery to
Purchaser of the Securities, and the receipt by the Company of payment for
the Securities.
Section 6. Certain Agreements of the Company.
The Company hereby covenants and agrees with Purchaser as follows:
6.1 The Company shall cause MIC to preserve and maintain its
corporate existence and all of its right, privileges and franchises in
every jurisdiction in which the character of the property owned or the
nature of the business transacted makes licensing of qualification
necessary relative to the conduct of MIC s business.
6.2 Except for the Prior Pledge, the Company shall not permit MIC to
encumber, mortgage, pledge, assign or grant any security in MIC s assets
to anyone other than Purchaser. The Company shall cause MIC to place
notations on MIC s books of account and financial statements to disclose
Purchaser s interest in MIC s assets.
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6.3 The Company shall cause MIC to keep and maintain MIC s assets
in good operating condition, reasonable wear and tear excepted.
6.4 The Company shall not permit MIC to make any capital
expenditures in any fiscal year in excess of $100,000 without the consent
of Purchaser.
6.5 The Company shall promptly notify Purchaser of the imposition at
any time of any lien or encumbrance upon any of the Collateral and the
Company shall defend MIC s assets against all claims and demands of all
persons at any time claiming the same or any interest therein adverse to
Purchaser.
6.6 Without the prior written consent of Purchaser, the Company
shall not sell, assign, transfer, mortgage, pledge, or otherwise dispose
of MIC s assets, other than in the ordinary course of business.
6.7 The Company shall promptly give to Purchaser notice in writing
of any proceeding before any governmental agency or court against MIC
which might, if determined adversely to MIC, materially and adversely
affect MIC s financial condition, affairs or operations.
6.8 The Company shall cause MIC to pay all taxes, assessments,
governmental charges or levies imposed upon it or upon its income or
profits, or upon any property belonging to it, prior to the date penalties
attach thereto; provided, however, that MIC shall not be required to pay
any such taxes, assessments, governmental charges or levies being
contested in good faith and by appropriate proceedings, but only so long
as such proceedings do not involve any material danger or material adverse
impact on the business of MIC.
6.9 The Company shall not permit MIC to merge or consolidate with or
into any other corporation or entity (except to the extent that MIC is the
successor, survivor or parent and, in such event, only if (i) the tangible
net worth of MIC is in the Company s reasonable judgment equal to or
greater than the tangible net worth of MIC prior to such merger or
consolidation, and (ii) MIC remains a wholly-owned subsidiary of the
Company.
6.10 The Company shall cause MIC to defend MIC s assets against the
claims and demands of all parties.
6.11 The Company shall not permit MIC to make a loan, pay a
dividend, or otherwise transfer any of MIC s assets to the Company or any
affiliate thereof.
6.12 The Company shall not permit MIC to make any loans to any
officers, directors, employees, or affiliates of the Company or MIC or any
affiliate of either thereof.
6.13 The Company shall cause MIC to provide Purchaser with unaudited
financial statements of MIC, including a balance sheet, profit and loss
statement, statement of equity, and cash flow statement, within 45 days of
the end of each fiscal quarter and 90 days after the end of the fiscal
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year. All financial statements required hereunder shall be prepared in
accordance with GAAP, subject to year-end adjustments in the case of
quarterly statements. In addition, the Company shall cause MIC to furnish
Purchaser with a month-by-month operating budget and cash flow for each
fiscal year, including a balance sheet and income statement) no later than
30 days prior to the end of the previous fiscal year.
6.14 The Company shall cause MIC to maintain insurance on its assets
in a commercially reasonable manner in commercially reasonable amounts.
6.15 The Company shall cause MIC to remain in material compliance
with all applicable provisions of the Occupational Safety and Health Act
as at any time amended ("OSHA") and the Environmental Protection Act as at
any time amended ("EPA").
6.16 The Company shall not permit MIC materially to change the
nature of its business.
6.17 The Company shall not permit MIC to purchase or acquire
obligations or stock of, or any interest in, or make any investment in any
entity other than (i) obligations issued or guaranteed by the United
States of America or any agency thereof, (ii) commercial paper with
maturities of not more than 180 days and a published rating of not less
than A-1 or P-1 or equivalent rating, or (iii) certificates of deposit
having maturities of not more than 180 days issued by FDIC-insured
commercial banks with combined capital and surplus of at least $500
million, (iv) U.S. money market funds that invest solely in obligations
issued by the United States of America or any agency thereof, and (v)
Eurodollar time deposits with financial institutions with a published
rating of not less than A-1 or P-1 or equivalent rating.
6.18 The Company shall reimburse the Purchaser on demand for
attorneys fees, disbursements, and other out-of-pocket expenses incurred
in connection with the preparation, execution, delivery or enforcement of
the terms of any of the transaction documents.
Section 7. Events of Default.
7.1 The Company shall be deemed to be in default of this Purchase
Agreement and the Note if any of the following events ("Events of
Default") shall occur and be continuing:
(a) The Company shall fail to pay the Principal Amount of the
Note when due in accordance with the terms thereof or hereof; or the
Company shall fail to pay any other amount or perform any other obligation
hereunder or under the Note or any other transaction document within five
Business Days after any such other amount becomes due in accordance with
the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the
Company or MIC or in any other transaction document or which is contained
in any certificate, document or financial or other statement furnished by
it at any time under or in connection with this Purchase Agreement or any
such other transaction document shall prove to have been incorrect in any
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material respect on or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance
of any agreement contained in Section 6 or any covenant contained in any
other transaction document; or
(d) The Company or MIC shall default in the observance or
performance of any agreement contained in this Purchase Agreement or any
other transaction document and such default shall continue unremedied for
a period of 30 days after the earlier of (i) the date upon which an
executive officer of the Company has actual knowledge thereof and (ii) the
date upon which the Agent or the Noteholder gives notice to the Company
thereof; or
(e) (I) the Company or MIC shall commence any case, proceeding
or other action (A) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have any order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any substantial part of its
assets, or the Company or MIC shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against the
Company or MIC any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for
relief or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall be
commenced against the Company or MIC any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60
days from the entry thereof; or (iv) the Company or MIC shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clauses (i), (ii) , or (iii)
above; or (v) the Company or MIC shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they
become due.
7.2 Upon the occurrence of any such Event of Default, as defined in
Section 7.1, (A) if such Event of Default is specified in clause (i) or
(iv) of paragraph (e) of Section 7.1 with respect to the Company,
automatically the Note hereunder and all other amounts owing under this
Purchase Agreement, the Note or any other transaction document (including,
without limitation, all Obligations shall immediately become due and
payable, and (B) if such event is any other Event of Default, the
Noteholder may declare the Note and all other amounts owing under this
Purchase Agreement, the Note or any other transaction document, including,
without limitation, all Obligations, to be due and payable forthwith,
whereupon the same shall immediately become due and payable.
7.3 Except as expressly provided above in this Section 7, demand,
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protest and all other notices of any kind are hereby expressly waived.
Section 8. Notices
Notices and other communications provided for herein shall be in writing
and shall be delivered by hand or shall be sent by telecopy (and if sent
by telecopy, shall be confirmed by registered mail, return receipt
requested, or by overnight mail or courier, postage and delivery charges
prepaid), to the following addresses:
if to the Company: Metalclad Corporation
Attention: Grant Kesler, President
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
Phone: 714 719-1234
Fax: 714 719-1240
with a copy to: Gibson, Haglund & Johnson
Attention: Bruce H. Haglund, Esq.
Koll Center Irvine
2010 Main Street, Suite 400
Irvine, California 92614
Phone: 714 752-1100
Fax: 714 752-7144 or 714 752-1188
if to the Purchaser: Ultra Pacific Holdings, S.A.
Attention: Herr Hans Gassner
c/o Dr. Herbert Batliner
Aeulestrasse 74
Post Box 86
F.L. 9490
Vaduz, Liechtenstien
Phone: 011 41 75 236-0404
Fax: 011 41 75 236-0405
with copies to: Gilmartin, Poster & Shafto
Attention: Donald B. Shafto, Esq.
th
One William Street, 5 Floor
New York, New York 10004
Phone: 212 425-3220
Fax: 212 482-0848 or 212 425-3220
Sundt & Co. Ltd.
Attention: Mr. Nick Murphy
11 St. James s Square
London SW1Y 4LB United Kingdom
Phone: 011 44 171 930-5757
Fax: 011 44 171 930 1784
Whenever any notice is required to be given hereunder, such notice shall
be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telecopy, when received. Addresses may be
changed upon notice of such change given as provided in this Section 8.
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Section 9. Amendments.
No amendment, interpretation or waiver of any of the provisions of
this Purchase Agreement shall be effective unless made in writing and
signed by the parties to this Purchase Agreement.
Section 10. Headings.
The headings of the sections and sub-sections of this Purchase
Agreement are used for convenience only and shall not affect the meaning
or interpretation of the contents of this Purchase Agreement.
Section 11. Enforcement.
The failure to enforce or to require the performance at any time of
any of the provisions of this Purchase Agreement shall in no way be
construed to be a waiver of such provisions, and shall not affect either
the validity of this Purchase Agreement or any part hereof or the right of
any party thereafter to enforce each and every position in accordance
with the terms of this Purchase Agreement.
Section 12. Governing Law.
This Agreement and the relationships of the parties in connection
with the subject matter of this Purchase Agreement shall be governed by
and determined in accordance with the substantive laws of the State of New
York, in the United States of America, applicable to agreements made and
to be performed entirely therein.
Section 13. Severability.
In case any one or more of the provisions contained in this Purchase
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions
contained herein shall no in any way be affected or impaired thereby. To
the extent permitted by applicable law, the parties hereby waive any
provision of law which may render any provision hereof invalid, illegal or
unenforceable in any respect.
Section 14. Counterparts.
This Purchase Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall
be an original, but all such counterparts shall together constitute one
and the same instrument, and all signatures need not appear on any one
counterpart.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by their duly authorized representatives as of
the day and year first above written.
The Company: METALCLAD CORPORATION
By: /s/Grant S. Kesler
----------------------------
Grant S. Kesler, President
Purchaser: ULTRA PACIFIC HOLDINGS S.A.
By: /s/Donald B. Shafto
----------------------------
Donald B. Shafto, President
19
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is made and entered into as of the
18th day of June, 1998, by and between METALCLAD CORPORATION, a Delaware
corporation, and ULTRA PACIFIC HOLDINGS S.A., a Liberian corporation, on
the other hand. In consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. Certain Definitions
As used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Commission" shall mean the Securities and Exchange Commission.
(b) "Common Stock" shall mean the Common Stock, par value $.10, of
the Company
(c) "Company" shall mean METALCLAD CORPORATION, a Delaware
corporation.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations of the Commission promulgated thereunder.
(g) "Holder" shall mean the record holder of any of the Registrable
Shares on the Company's books.
(h) "Note" shall mean the Zero Coupon Secured Note issued by the
Company pursuant to the terms of the Purchase Agreement.
(i) "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other political subdivision thereof.
(j) "Piggyback Registration Rights" shall mean the right to
participate in a registration of Registrable Shares requested by a Holder
or Holders under Section 2 below.
(k) "Purchase Agreement" shall mean the Purchase Agreement dated
June 18, 1998 between the Company and ULTRA.
(l) "Registrable Shares" shall mean the Warrant Shares and any
shares of Common Stock of the Company issued as a dividend or other
distribution with respect to, in exchange for or in replacement of
Registrable Shares; provided, however, that Registrable Shares shall not
include any shares which (i) have been previously registered and sold in a
public distribution or previously sold pursuant to Rule 144, or (ii) do
not constitute more than 2% of the total outstanding shares of Common
Stock and in the opinion of counsel to the Company, determined to be
available for sale by their current Holder to the public in "broker's
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transactions" or transactions directly with a market maker (as those terms
are used in Rule 144), pursuant to Rule 144 or otherwise, in a single
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends (not relating to a buyer being an affiliate of the
Company) with respect to that Act are or may be removed upon the
consummation of such sale.
(m) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the applicable rules
and regulations thereunder, and the declaration or ordering of the
effectiveness of such registration statement.
(n) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses. "Registration Expenses" shall include the reasonable
fees and expenses of one special counsel (who is reasonably acceptable to
the Company) for all participating Holders. Registration Expenses shall
exclude the compensation of regular employees of the Company which shall
be paid in any event by the Company.
(o) "Regulation S" shall mean Regulation S as promulgated by the
Commission under the Securities Act, as such Regulation may be amended
from time to time, or any similar or successor regulation or provision
then in force that may be promulgated by the Commission.
(p) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time,
or any similar successor rule or provision then in force that may be
promulgated by the Commission.
(q) "Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time,
or any similar successor rule or provision then in force that may be
promulgated by the Commission.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute, and the rules and
regulations promulgated by the Commission thereunder.
(s) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Shares and,
except as included in the definition of "Registration Expenses," all fees
and disbursements of counsel for any Holder.
(t) "Sundial/Ultra Registration Rights Agreement" shall mean that
certain Registration Rights Agreement dated December 31, 1998 between
Company, on the one hand, and ULTRA and SUNDIAL INTERNATIONAL FUND
LIMITED, a Jersey (Channel Islands) corporation, on the other hand, a copy
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<PAGE>
of which is attached hereto as Exhibit "A" and incorporated herein by this
reference.
(u) "ULTRA" shall mean ULTRA PACIFIC HOLDINGS S.A., a Liberian
corporation.
2. Conditions Upon Which Registration Rights Are Triggered.
If at any time the registration rights under the Sundial/Ultra
Registration Rights Agreement are triggered, Ultra shall have Piggyback
Registration Rights to participate in any registration initiated
thereunder and to include the Registrable Shares with the shares for which
the registration is filed pursuant the Sundial/Ultra Registration Rights
Agreement.
3. Expenses of Registration
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 2 shall be
borne in accordance with the provisions of Section 5 of the Sundial/Ultra
Registration Rights Agreement.
4. Participation Registration
(a) Registration Right. If the conditions set forth in Section 2
above apply and, after the date of this Agreement, the Company shall
determine to register any of its securities either for its own account or
the account of a security holder or holders (other than pursuant to
Section 3 or 6), except for a registration relating solely to employee
benefit plans, a registration relating solely to a Rule 145 transaction, a
registration on any registration form that would not permit secondary
sales of Registrable Shares or a registration filed more than five years
after the date of this Agreement, the Company will, in two such
instances:
(i) Promptly give to each Holder written notice thereof;
(ii) Use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except
as set forth in Section 4(b) below, and in any underwriting involved
therein, all the Registrable Shares specified in a written request or
requests made by any Holder within 15 days after the written notice from
the Company described in clause (i) above is given to that Holder. Such
written request may specify all or a part of a Holder's Registrable
Shares.
(b) Underwritten Offering. If the registration of which the
Company gives notice under Section 4(a) is for a registered public
offering involving an underwriting, the Company shall so advise the
Holders as a part of the written notice given pursuant to Section 4(a)(i).
In such event, the right of any Holder to registration pursuant to this
Section 4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Shares in the
underwriting to the extent provided herein. All Holders proposing to
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distribute their securities through the underwriting shall (together with
the Company and any other persons proposing to distribute their securities
through the underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter(s) selected by
the Company. Notwithstanding any other provision of this Section 4, if
the representative of the underwriter(s) advises the Company in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) limit the number of Registrable Shares to be included in the
registration and underwriting; provided that the value of the included
Registrable Shares shall be at least 20% of the total value of the
securities included in the registration. The Company shall so advise all
Holders requesting to participate in the registration and the number of
shares that may be included in the registration and underwriting shall be
allocated: first, to the Company for securities being sold for its own
account; second, among Registrable Shares held by all Holders who have
requested inclusion in the registration in proportion, as nearly as
practicable, to the respective amounts of Registrable Shares held by such
Holders and properly requested to be included at the time of filing the
registration statement; and then to shares being sold for the accounts of
other Persons. Any Registrable Shares so excluded from the underwriting
by reason of the representative's limitation shall be withdrawn from such
registration. To facilitate the allocation of shares in accordance with
the above provisions, the Company or the representative of underwriter(s)
may round the number of shares allocated to any Holder or other
shareholder to the nearest 100 shares. If a Holder who has requested
inclusion in the registration does not agree to the terms of the
underwriting, that Holder's shares may be excluded from the underwriting
by written notice from the Company or the representative of the
underwriter(s) and the shares so excluded shall be withdrawn from the
registration. If shares are so excluded from the underwriting because of
a failure to agree to its terms and the number of shares of Registrable
Shares to be included in the underwriting was previously reduced as a
result of marketing factors pursuant to this Section 4(b), then, with the
permission of the representative of the underwriter(s) the Company shall
offer to all Holders who have retained rights to include Registrable
Shares in the underwriting the right to include additional Registrable
Shares in an aggregate amount equal to the number of shares so excluded.
The registration of such additional Registrable Shares shall be allocated
among the Holders requesting the additional inclusion pro rata in
accordance with the numbers of their Registrable Shares which are
otherwise to be included in the registration.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 4 prior to the registration's effectiveness, whether or not any
Holder has elected under this Section 4 to include shares in the
registration.
5. Expenses of Registration
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Sections 3 and 4
shall be borne by the Company. All Registration Expenses incurred in
<PAGE> 4
<PAGE>
connection with the registration of Registrable Shares under Section 6
shall be borne by the Holders participating in the registration pro rata
on the basis of the numbers of Registrable Shares so registered on their
behalf, provided that, if other shares are included in the registration,
the Registration Expenses shall be reasonably allocated among the Holders,
the Company and other participating shareholders based on the numbers of
their shares that are registered. A Holder or Holders may elect to bear
without reimbursement by the Company the Registration Expenses for a
Demand Registration proceeding begun by them pursuant to Section 3 and
subsequently withdrawn by them. In such a case, the registration
proceeding shall not be counted for purposes of Section 3(b)(ii). If a
withdrawal of a Demand Registration by a Holder is based upon material
adverse information relating to the Company that is different from the
information known or available (upon request from the Company or
otherwise) to the Holder requesting the registration at the time of a
request for registration under Section 3, such registration shall not be
treated as a counted registration for purposes of Section 3(b)(i), even
though the requesting Holder does not bear the Registration Expenses for
the registration. All Selling Expenses relating to shares of Holders
registered under Sections 3, 4 and 6 shall be borne by such Holders pro
rata on the basis of the numbers of shares so registered on their behalf.
6. Registration on Form S-3
(a) If the Company has qualified for the use of Form S-3 under the
Securities Act (which for purposes of this Section 6 shall be deemed to
include any comparable or successor form or forms), in addition to the
rights contained in the foregoing provisions of this Agreement, the
Holders shall have the right to request registrations of their Registrable
Shares on Form S-3. Such requests must be in writing and must state the
number of shares of Registrable Shares to be disposed of and the intended
methods of disposition of such shares by the requesting Holder or Holders.
The Company shall not be obligated to effect any such registration: (i) if
the Holders propose to sell less than 200,000 Registrable Shares; or (ii)
if the Company shall furnish the certification described in Section 3(c)
(but subject to the limitations set forth therein); or (iii) after the
Company has previously effected one such registration in any 12-month
period; or (iv) if the request is made more than five years after the date
of this Agreement.
(b) If a request complying with the requirements of Section 6(a) is
delivered to the Company, the Company shall use its best efforts to cause
the Registrable Shares requested to be included in the registration to be
registered on Form S-3 and to cause such Registrable Shares to be
registered or qualified under applicable blue sky laws in such
jurisdictions as the requesting Holders may reasonably request. The
substantive provisions of Sections 3(a)(i), 3(a)(ii), and 3(c) shall apply
to such registration. If the registration is for an underwritten offering,
the substantive provisions of Section 3(e) shall also apply to such
registration.
7. Registration Procedures
In the case of each registration of Registrable Shares effected by
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the Company pursuant to this Agreement, the Company will keep each
participating Holder advised in writing as to the initiation of the
registration and as to the completion thereof. The Company will use its
best efforts to:
(a) Keep the registration effective for a period of 90 days or until
the participating Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 90-day period shall be extended
for a period of time equal to the period the Holder refrains from selling
any securities included in such registration at the request of an
underwriter of the securities of the Company; and (ii) in the case of any
registration of Registrable Shares on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 90-day period shall be
extended, if necessary, to keep the registration statement effective until
all such Registrable Shares are sold, provided that Rule 145, or any
successor rule under the Securities Act, permits an offering on a
continuous or delayed basis, and provided further that applicable rules
under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A)
includes any prospectus required by Section 10(a)(3) of the Securities Act
or (B) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (A)
and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to the registration statement and the prospectus used in
connection with the registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition
of all securities covered by the registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
participating Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Shares covered by the
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing, and at the request of any
such seller prepare and furnish to the seller a reasonable number of
copies of a supplement to or an amendment of the prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
shares, the prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in
the light of the circumstances then existing;
(e) Cause all Registrable Shares registered pursuant to the
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provisions of this Agreement to be listed on each securities exchange on
which similar securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Shares registered pursuant to such registration statement and a CUSIP
number for all such Registrable Shares, in each case not later than the
effective date of the registration; and
(g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
8. Indemnification
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel and accountants and each person who
controls such Holder within the meaning of Section 15 of the Securities
Act, with respect to which
registration, qualification, or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls
within the meaning of Section 15 of the Securities Act any underwriter,
against all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document
(including any related registration statement, notification, or the like)
incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of the Securities Act or
any rule or regulation thereunder applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors, partners, legal counsel and
accountants, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any actual or alleged untrue
statement or omission that is made in reliance upon and in conformity with
written information furnished to the Company by such Holder, controlling
person or underwriter and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 8(a) shall
not apply to amounts paid in settlement of any such loss claim, damage,
liability or action if such settlement is effected without the consent of
the Company (which consent has not been unreasonably withheld).
(b) Each Holder will, if Registrable Shares held by such Holder are
included in the securities to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its
directors, officers, partners, legal counsel and accountants, each
underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
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underwriter within the meaning of Section 15 of the Securities Act, each
other such Holder and other stockholder, each of their officers, directors
and partners, and each person controlling such Holder or other
stockholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, other stockholders, directors, officers, partners, legal counsel,
accountants, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case
to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in
such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for
use therein. The obligations of such Holder under this Section 8(b) shall
not apply to amounts paid in settlement of any such claims, losses,
damages or liabilities (or actions in respect thereof) if such settlement
is effected without the consent of such Holder (which consent shall no be
unreasonably withheld).
(c) Each party entitled to indemnification under this Section 8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and provided further
that the Indemnifying Party shall not assume the defense for matters as to
which there is a conflict of interest, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section
8, to the extent such failure is not materially prejudicial. The
Indemnified Party may participate in such defense at such party's expense.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 8 is held by
a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Party, in lieu of indemnifying
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such Indemnified Party hereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party on the one hand, and of the
Indemnified Party on the other, in connection with the statements or
omissions that resulted in such loss, liability, claim, damage or expense
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the and Parties' relative intent, knowledge,
information opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering
of securities registered under this Agreement are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
9. Information by Holder
Each Holder of Registrable Shares shall furnish to the Company such
information regarding such Holder and the distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
10. Limitations on Registration of Issues of Securities
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Purchasers, enter into any
agreement with any holder or prospective holder of any securities of the
Company giving such holder or prospective holder any registration rights
the terms of which are more favorable than the registration rights granted
to the Holders hereunder.
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11. Rule 144 Reporting
With a view to making available the benefits of certain rules and
regulations of the Commission that may permit the sale of the Registrable
Shares to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information regarding the Company available
as those terms are understood and defined in Rule 144 under the Securities
Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act;
(c) So long as a Holder owns any Registrable Shares, furnish to the
Holder forthwith upon written request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company filed with the Commission, and such other
reports and documents of the Company and information in its possession as
a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.
12. Transfer or Assignment of Registration Rights
The rights to cause the Company to register securities granted to a
Holder by the Company under this Agreement may be transferred or assigned
by the Holder only to a transferee or assignee of not less than 200,000
shares of Registrable Shares (subject to appropriate adjustments for stock
splits, stock dividends, reverse stock splits and the like), provided that
the Company is given written notice at the time of or within a reasonable
time after the transfer or assignment stating the name and address of the
transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and
provided further that before or concurrently with his or her exercise of
any such rights the transferee or assignee of such rights assumes in a
writing given to the Company the obligations of such Holder under this
Agreement.
13. Delay of Registration
No Holder shall have any right to take any action to restrain, enjoin
or otherwise delay any registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Agreement.
14. Miscellaneous
(a) No Inconsistent Agreements. The Company shall not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders of
the Registrable Shares in this Agreement or otherwise conflicts with the
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provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless by a written instrument signed by an
officer of the Company and by the Holders of at least a majority of the
then outstanding Registrable Shares. Notwithstanding the foregoing: (i) in
no event shall the obligations of any Holder under this Agreement be
materially increased without the written consent of that Holder; and (ii)
a waiver or consent to depart from the provisions of this Agreement with
respect to a matter which relates exclusively to the rights of Holders of
Registrable Shares whose securities are being sold pursuant to a
registration statement and which does not directly or indirectly affect
the rights of Holders of Registrable Shares whose securities are not being
sold pursuant to the registration statement, may be given by either (A)
Holders of at least a majority of the then outstanding Registrable Shares
or (B) Holders of a majority of the Registrable Shares being sold by such
Holders; provided, however, that the provisions of this sentence may not
be amended, modified or supplemented except in accordance with the
provisions of the immediately preceding sentence.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and sent by hand delivery,
registered first-class mail, courier, telex or telecopier: (i) if to a
Holder of Registrable Shares, to the most current address of the Holder on
the books of the Company; and (ii) if to the Company, to the attention of
its President at the address of its principal executive office. All such
notices and communications shall be deemed to have been given: when
delivered at the proper address, if personally delivered or delivered by
courier; five business days after being deposited in the mail, postage
prepaid, if mailed by registered first-class mail; and when answered back,
if telexed, telecopied or sent by similar facsimile transmission.
(d) Successors and Assigns. Subject to Sections 8 and 12, this
Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties.
(e) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings and Section References. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. Unless otherwise indicated, each reference to a
Section shall refer to a Section of this Agreement.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, as applied
to contracts made and performed in California, without regard to
principles of conflict of laws.
(h) Severability. If any term, provision, covenant or restriction of
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this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect
and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.
(i) Entire Agreement. This Agreement is intended by the parties as
a complete and final expression of their agreement with respect of the
subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such
subject matter.
(j) Attorneys Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party shall be entitled to recover
reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
This Agreement has been executed as of the date set forth in the
first paragraph above.
The Company:
METALCLAD CORPORATION
By: /s/Grant S. Kesler
---------------------------------
Grant S. Kesler, President
The Purchasers:
SUNDIAL INTERNATIONAL FUND LIMITED
By: /s/Donald K. Shafto
--------------------------------
Its Duly Authorized Agent
ULTRA PACIFIC HOLDINGS, S.A.
By: /s/Donald K. Shafto
-------------------------------
Its Duly Authorized Agent
13
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SECONDARY PLEDGE AGREEMENT
THIS SECONDARY PLEDGE AGREEMENT is entered into as of this 18th
day of June, 1998, by and between METALCLAD CORPORATION, a Delaware
corporation (the "Pledgor"), and GILMARTIN, POSTER & SHAFTO, a New York
general partnership (the "Agent"), as agent for the Purchasers referred to
in the Purchase Agreement defined below.
W I T N E S S E T H:
WHEREAS, pursuant to Purchase Agreement dated as of the date
hereof (the "Purchase Agreement") between the Pledgor and ULTRA PACIFIC
H O L DINGS S.A. ("Purchaser"), Purchaser is simultaneously herewith
purchasing $252,812.50 aggregate principal amount of the Pledgor s Zero
Coupon Secured Note due August 3, 1998 (the "Notes");
WHEREAS, as more specifically set forth in the Purchase
Agreement and the Note, upon the occurrence of certain contingent events
not certain to occur, Pledgor may become obligated to issue warrants (the
"Warrants") to purchase shares of the Pledgor s Common Stock, par value
$0.10 per share;
WHEREAS, as a condition precedent and as an inducement to the
Purchaser to purchase the Notes, the Pledgor has agreed to grant to the
Agent for the benefit of the Purchasers (as defined in the Purchase
Agreement) a security interest in the Collateral (as defined below), as
more fully set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good
and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. For the purposes hereof unless the context
otherwise requires, the following terms shall have the meanings indicated:
1.1 "Collateral" shall mean (i) the Pledged Securities,
(ii) all proceeds of the Pledged Securities, (iii) all other monies,
securities or other property at any time and from time to time receivable
or otherwise distributed in respect of, or in exchange for, any of the
Pledged Securities or such additional securities, and (iv) all right,
title, and interest of the Pledgor in and to the Trust Account and the
proceeds thereof.
1.2 "Event of Default" shall mean an Event of Default as
defined in the Purchase Agreement.
1.3 "MIC" shall mean Metalclad Insulation Corporation, a
California corporation.
1.4 "Obligations" shall mean the obligations of the Pledgor
under the Purchase Agreement, the Note and this Agreement.
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1.5 "Pledged Securities" shall mean all of the issued and
outstanding share capital of MIC, all of which is owned beneficially and
of record by the Pledgor, and which constitutes 1,000 shares, no par
value.
1.6 "Trust Account" shall mean the Metalclad Corporation
Trust Account with Pacific National Bank, Newport Beach, California
created pursuant to the terms of a Fund Trust Agreement dated May 27, 1998
and as amended and restated pursuant to the terms of an Amended and
Restated Fund Trust Agreement dated June 16, 1998.
2. Pledge. As security for the payment and performance in full
of all of the Obligations, the Pledgor hereby grants and pledges to the
Agent for the benefit of the Purchasers, and hereby grants to the Agent a
security interest in, the Collateral. The Agent acknowledges that Pledgor
has previously granted a security interest in the Pledged Securities to
Sundial International Fund Limited and Ultra Pacific Holdings S.A. on
December 31, 1997 (the "Sundial/Ultra Pledge") and that the pledge and
s e c u rity interest granted hereby is second in priority to the
Sundial/Ultra Pledge.
3. Delivery of Collateral to Agent. The Agent hereby
acknowledges the prior delivery of certificates representing all shares of
the Pledged Securities, accompanied by stock powers or instruments of
transfer, as the case may be, duly executed in blank by the Pledgor or its
nominee, in connection with the Sundial/Ultra Pledge.
4. Registration in Nominee Name; Denomination. The Agent shall
have the right (in its sole and absolute discretion) (i) to hold the
certificates or other instruments or documents representing any of the
Collateral in its own name, the name of its nominee or in the name of the
Pledgor, endorsed or assigned in blank or in favor of the Agent, and (ii)
upon the occurrence and during the continuation of an Event of Default, to
exchange the certificates or other instruments or documents representing
the Collateral for certificates of smaller or larger denominations for any
purpose consistent with this Pledge Agreement.
5. Representations, Warranties and Covenants of the Pledgor.
The Pledgor hereby represents and warrants to, and/or covenants and agrees
with, the Agent as follows:
5.1 the Pledgor is duly organized and validly existing in
good standing under the laws of the State of Delaware and is in good
standing as a foreign corporation in all jurisdictions where the nature of
its properties or business requires it to be qualified. The Pledgor has
the corporate power to own its properties and carry on its business as now
being conducted, to execute, deliver and perform its obligations under
this Pledge Agreement and to pledge to the Agent and to grant to the Agent
a security interest in the Collateral;
5.2 the execution, delivery and performance of this Pledge
Agreement and the pledge to the Agent and the grant to the Agent of a
security interest in the Collateral (i) have been duly authorized by all
necessary corporate action on the part of the Pledgor, (ii) will not
violate, or involve the Agent or any of the Purchasers in a violation of,
any provision of any law or regulation or any order of any governmental
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authority or any judgment of any court applicable to the Pledgor or its
properties and assets, (iii) will not violate any provision of the
Certificate of Incorporation or By-Laws of the Pledgor or any indenture,
any agreement for borrowed money, any bond, note or other similar
instrument or any other material agreement to which the Pledgor is a party
or by which the Pledgor or any of its property is bound or affected, (iv)
will not be in conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement for borrowed money, bond, note, instrument or other agreement,
and (v) will not result in the creation, or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any property or assets of the
Pledgor other than pursuant to this Pledge Agreement;
5.3 this Pledge Agreement constitutes the legal, valid and
binding obligation of the Pledgor, enforceable in accordance with its
terms, subject (i) as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency and other laws affecting creditors
rights generally and to moratorium laws from time to time in effect, and
(ii) to general equitable principles;
5.4 the Pledged Securities represent all of the issued and
outstanding shares of the capital stock of MIC, all of which are owned
beneficially and of record by the Pledgor;
5.5 the Pledgor has good title to the Collateral;
5.6 the Collateral is not subject to any other liens,
security interests or encumbrances;
5.7 the Pledgor has the right to pledge and to grant the
security interest in the Collateral free of any encumbrances, and without
the consent of the creditors of the Pledgor or any other person or any
governmental authority whatsoever;
5.8 there is no material pending legal or governmental
proceeding to which the Pledgor is a party or to which any of its
properties is subject, which proceeding will materially affect (i) the
Pledgor s ability to perform its obligations hereunder or (ii) the
Collateral;
5.9 this Pledge Agreement creates in favor of the Agent a
valid, binding and enforceable security interest in, and lien upon, all
right, title and interest of the Pledgor in the Collateral and, upon
delivery of the Collateral to the Agent, the Agent will have a fully
perfected first and prior security interest in and lien upon all right,
title and interest of the Pledgor in the Collateral; and
5.10 the Pledgor will not create or permit to exist any
lien, security interest or encumbrance on the Collateral except as
permitted by this Agreement.
6. Voting Rights; Dividends; Etc.
6.1 The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers accruing to owners of the
Pledged Securities or any part thereof for any purpose not inconsistent
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with the terms hereof, at all times, except as expressly provided in
Section 6.3 below.
6.2 Any dividends or distributions of any kind whatsoever
(in cash or otherwise) received by the Pledgor, whether declared on a
regular, periodic basis or resulting from a subdivision, combination, or
reclassification of the outstanding capital stock of the issuer, in
respect of the Pledged Securities, or received in exchange for the Pledged
Securities, or other Collateral or any part thereof or as a result of any
merger, consolidation, acquisition, or other exchange of assets to which
the issuer may be a party, or otherwise, shall, be and become part of the
Collateral pledged hereunder and shall immediately be delivered to the
Agent to be held subject to the terms hereof.
6.3 Upon the occurrence and during the continuance of an
Event of Default, all rights of the Pledgor to exercise the voting and/or
consensual rights and powers which it is entitled to exercise pursuant to
Section 6.1 shall cease, and all such rights shall thereupon become vested
in the Agent, which shall have the sole and exclusive right and authority
to exercise such voting and/or consensual rights and powers.
7. Remedies Upon Default.
7.1 If an Event of Default shall have occurred and be
continuing, the Agent may sell the Collateral, or any part thereof, at
public or private sale or at any broker s board or on any securities
exchange, for cash, upon credit or for future delivery as the Agent shall
deem appropriate subject to the terms hereof or as otherwise provided in
the New York Uniform Commercial Code. The Agent shall be authorized at
any such sale (if it deems it advisable so to do) to restrict to the full
extent permitted by applicable law the prospective bidders or purchasers
to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Agent shall have the right to assign, transfer, and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of the Pledgor.
7.2 The Agent shall give the Pledgor ten calendar days
written notice of its intention to make any such public or private sale,
or sale at any broker s board or on any such securities exchange, or of
any other disposition of the Collateral. Such notice, in the case of
public sale, shall state the time and place for such sale and, in the case
of sale at a broker s board or on a securities exchange, shall state the
board or exchange at which such sale is to be made and the day on which
the Collateral, or portion thereof, will first be offered for sale at such
board or exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places as the
Agent may fix and shall state in the notice of such sale. At any such
sale, the Collateral, or portion thereof, to be sold may be sold in one
lot as an entirety or in separate parcels, as the Agent may (in its sole
and absolute discretion) determine. The Agent shall not be obligated to
make any sale of the Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Collateral may have been
given. The Agent may, without notice or publication, adjourn any public
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or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same
was so adjourned. In case the sale of all or any part of the Collateral
is made on credit or for future delivery, the Collateral so sold shall be
retained by the Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Agent shall not incur any liability in case
any such purchaser or purchasers shall fail to take up and pay for the
Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any sale or sales made pursuant to
this Section 7, the Agent may bid for or purchase, free from any claim or
right of whatsoever kind, including any equity of redemption, of the
Pledgor, any such demand, notice, claim, right or equity being hereby
expressly waived and released, any or all of the Collateral offered for
sale, and may make any payment on the account thereof by using any claim
for moneys then due and payable to the Purchasers by the Pledgor as a
credit against the purchase price; and the Agent, upon compliance with the
terms of sale, may hold, retain and dispose of the Collateral without
further accountability therefor to the Pledgor or any, third party. The
Agent shall in any such sale make no representations or warranties with
respect to the Collateral or any part thereof and shall not be chargeable
with any of the obligations or liabilities of the Pledgor with respect
thereto. As an alternative to exercising the power of sale herein
conferred upon it, the Agent may proceed by a suit or suits at law or in
equity to foreclose upon the Collateral under this Pledge Agreement and to
sell the Collateral, or any portion thereof, pursuant to a judgment or
decree of a court or courts having competent jurisdiction.
8. Application of Proceeds of Sale. The proceeds of sale of
the Collateral sold pursuant to Section 7 hereof shall be distributed by
the Agent (after deduction of all costs and expenses incurred by the Agent
while enforcing its rights pursuant to this Pledge Agreement, including,
without limitation, reasonable attorneys fees and expenses) to the holder
of the Note, to be applied by the holder to the Obligations in such manner
as it may deem appropriate.
9. Agent Appointed Attorney-in-Fact. Upon the occurrence and
during the continuance of an Event of Default, the Pledgor hereby appoints
the Agent its attorney-in-fact for the purpose of carrying out the
provisions of this Pledge Agreement and the pledge of, and the grant of a
security interest in, the Collateral hereunder and the taking of any
action and the execution of any instrument which the Agent may deem
n e c essary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, the Agent shall have the right and power
to receive, endorse and collect all checks and other orders for the
payment of money made payable to the Pledgor representing any dividend or
other distribution payable in respect of the Collateral or any part
thereof and to give full discharge for the same.
10. Federal Securities Laws. In view of the position of the
Pledgor in relation to the Collateral, or because of other present or
future circumstances, a question may arise under the Securities Act of
1933, as amended, as now or hereafter in effect, or any similar statute
hereafter enacted analogous in purpose or effect (such Act and any such
similar statute as from time to time in effect being hereinafter called
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the "Federal Securities Laws"), with respect to any disposition of the
Collateral permitted hereunder. The Pledgor understands that compliance
with the Federal Securities Laws may very strictly limit the course of
conduct of the Agent if the Agent were to attempt to dispose of all or any
part of the Collateral, and may also limit the extent to which or the
manner in which any subsequent transferee of any Collateral may dispose of
the same. Similarly, there may be other legal restrictions or limitations
affecting the Agent in any attempt to dispose of all or any part of the
Collateral under applicable blue sky or other state securities laws, or
similar laws analogous in purpose or effect. Under applicable law, in the
absence of an agreement to the contrary, the Agent may perhaps be held to
have certain general duties and obligations to the Pledgor to make some
effort towards obtaining a fair price even though the Obligations may be
discharged or reduced by the proceeds of a sale at a lesser price. The
Pledgor clearly understands that the Agent is not to have any such general
duty or obligation to it, and the Pledgor will not attempt to hold the
Agent responsible for selling all or any part of the Collateral at an
inadequate price, even if the Agent shall accept the first offer received
or does not approach more than one possible purchaser. Without limiting
the generality of the foregoing, the provisions of this Section 10 would
apply if, for example, the Agent were to place all or any part of the
Collateral for private placement by an investment banking firm, or if such
investment banking firm purchased all or any part of the Collateral for
its own account, or if the Agent placed all or any part of the Collateral
privately with a purchaser or purchasers.
11. Financing Statements. So long as the Obligations are
outstanding and the security interest hereunder shall not have terminated
in accordance with Section 13 hereof, the Pledgor agrees to execute and
deliver to the Agent such UCC financing statements and any amendments
thereto or continuations thereof and any other documents or instruments
and to give such notices as the Agent may deem necessary or desirable to
perfect the lien of the Agent on the Collateral. If the Pledgor does not
execute and deliver to the Agent any such financing statement, amendment
or other document or instrument or give such notice within five calendar
days after requested by the Agent, then the Secured Party is hereby
authorized by the Pledgor to file such items or give such notice, without
the signature of the Pledgor or to execute such items as attorney-in-fact
for the Pledgor. The Pledgor further authorizes the Agent, upon the
occurrence and during the continuation of an Event of Default, to notify
any obligors on instruments that all sums payable to the Pledgor relating
to the collateral shall be paid directly to the Agent.
12. Further Assurances. Upon the request of the Agent, the
Pledgor hereby agrees duly to execute and deliver, or cause to be duly
executed and delivered, from time to time, at the cost and expense of the
Pledgor, such further instruments as may be necessary or proper, in the
reasonable judgment of the Agent, to carry out the provisions and purposes
of this Pledge Agreement and to do all things necessary or advisable, in
the judgment of the Agent, to perfect and preserve the pledge and the
security interests of the Agent hereunder and in the Collateral or any
portion thereof.
13. Release of Collateral.
13.1 The pledge and grant of the security interest in all
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of the Collateral hereunder shall terminate upon payment in full of the
Obligations or conversion, redemption or prepayment in full of all of the
Notes pursuant to Section 2 of the Purchase Agreement.
13.2 At such time as the pledge and security interest
hereunder shall terminate, the Agent shall, if requested by the Pledgor,
execute such UCC termination statements or other documents as Pledgor may
reasonably request, and assign and deliver to the Pledgor, or to such
person or persons as the Pledgor shall designate, against receipt, such of
the Collateral (if any) as shall not have been sold or otherwise applied
by the Agent pursuant to the terms hereof, together with appropriate
i n s t r uments of reassignment and release and share certificates
representing the Collateral and any stock power or instrument of transfer
executed in blank, as the case may be, then remaining in the possession or
under the control of the Agent. Any such reassignment shall be without
recourse upon or warranty by the Agent (other than as to such Collateral
being free of any lien or encumbrance created by the Agent) and at the
expense of the Pledgor.
14. Notices. Notices and other communications provided for
herein shall be in writing and shall be delivered by hand or shall be sent
by telecopy (and if sent by telecopy, shall be confirmed by registered
mail, return receipt requested, or by overnight mail or courier, postage
and delivery charges prepaid), to the following addresses:
if to the Pledgor:
Metalclad Corporation
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
Phone: (714) 719 1234
Fax No.: (714) 719 1240
Attention: Mr. Grant Kesler, President
with a copy to:
Gibson, Haglund & Johnson
Koll Center Irvine
2010 Main Street, Suite 400
Irvine, California 92614
Phone: (714) 752 1100
FAX: (714) 752 7144 or (714) 752 1188
Attention: Bruce H. Haglund, Esq.
if to the Agent:
Gilmartin, Poster & Shafto
Attention: Donald B. Shafto, Esq.
One William Street, 5th Floor
New York, New York 10004
Phone: (212) 425 3220
Fax No.:(212) 482 0848 or (212) 425 3130
with a copy to:
Sundt & Co. Ltd.
Attention: Nick Murphy
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11 St. James s Square
London SW1Y 4LB United Kingdom
Phone: 011 44 171 930 5757
Fax No.: 011 44 171 930 1784
with a copy to each of the Purchasers at their addresses for receipt of
notices set forth in the Purchase Agreement.
Whenever any notice is required to be given hereunder, such notice shall
be deemed given and such requirement satisfied only when such notice is
delivered or, if sent by telecopy, when received. Addresses may be
changed upon notice of such change given as provided in this Section 14.
15. Survival of Representations and Warranties. All covenants,
agreements, representations and warranties made herein and in any
certificates delivered pursuant hereto shall survive the purchase by the
Purchasers, and the execution and delivery, of the Notes pursuant to the
Purchase Agreement, and shall continue in full force and effect until the
payment in full of the Obligations or the, conversion, redemption or
prepayment of all of the Notes pursuant to Section 2 of the Purchase
Agreement, regardless of the release of part or all of the Collateral
pursuant to the provisions of Section 13 hereof.
16. Successors. Whenever in this Pledge Agreement any of the
parties hereto is referred to such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of the parties which are contained in this
Pledge Agreement shall bind and inure to the benefit of the successors and
assigns of all other parties.
17. Reimbursement of Agent. The Pledgor agrees to pay to the
Agent an amount equal to the amount of all costs and expenses, including
reasonable legal fees and disbursements, resulting from any Collateral,
this Pledge Agreement (including the preparation of this Pledge Agreement
and all related documents whether or not the transactions contemplated
hereby are consummated) or the administration and enforcement or exercise
of any right or remedy granted to the Agent hereunder or thereunder. The
foregoing indemnity agreement includes any reasonable costs incurred by
the Agent in connection with any action or proceeding which may be
instituted in respect of the foregoing by the Agent, or by any other
person either against the Agent or in connection with which any officer,
agent or employee of the Agent is called as a witness or deponent,
including, but not limited to, the reasonable fees and disbursements of
any counsel to the Agent, and any reasonable out-of-pocket costs incurred
by the Agent in appearing as a witness or in otherwise complying with
legal process served upon it.
If the Pledgor shall fail to do any act or thing which it has covenanted
to do hereunder or any representation or warranty of the Pledgor shall be
breached, the Agent may (but shall not be obligated to) do the same or
cause it to be done or remedy any such breach and there shall be added to
the obligations of the Pledgor secured hereby, the cost or expense
incurred by the Agent in so doing, and any and all amounts expended by the
Agent in taking such action shall be repayable to it upon its demand
therefor and shall bear interest at 15% per annum from the date advanced
to the date of repayment.
<PAGE> 8
<PAGE>
The Pledgor s obligations contained in this Section 17 shall survive the
expiration or earlier termination of this Pledge Agreement.
18. Indemnification by Pledgor. The Pledgor hereby indemnities
and holds harmless the Agent and the Purchasers (to the fullest extent
permitted by applicable law) from and against, and agrees that the Agent
and the Purchasers shall have no liability or obligation arising out of,
any and all claims, demands, losses, judgments, liabilities, penalties and
expenses (including, without limitation, reasonable attorneys fees and
disbursements) of any nature whatsoever, arising out of or related to this
Pledge Agreement or the Collateral, including with respect to the
Collateral any such claims (i) asserted before the taking of actual
possession or control of the relevant Collateral by the Agent pursuant to
this Pledge Agreement, (ii) arising out of any act of, or omission to act
on the part of, any party prior to such taking of actual possession or
control by the Agent (whether asserted before or after such taking of
possession or control), or (iii) arising out of any act on the part of the
Pledgor, its agents or affiliates before or after the commencement of such
actual possession or control by the Agent.
All indemnities contained in this Section 18 shall survive the expiration
or earlier termination of this Pledge Agreement.
19. Governing Law. This Pledge Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York (other
than any conflict of laws rule which might result in the application of
the laws of any other jurisdiction).
20. Failure to Act Not a Waiver. Neither any failure to
exercise, nor any delay on the part of the Agent in exercising, any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall
a single or partial exercise thereof preclude any other or further
exercise of any right, power or privilege.
21. Modification. No modification, amendment or waiver of any
provision of this Pledge Agreement, and no consent to any departure by the
Pledgor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Agent, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Pledgor in any case shall entitle
the Pledgor to any other or further notice or demand in the same, similar
or other circumstances.
22. Severability. In case any one or more of the provisions
contained in this Pledge Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected
or impaired thereby. To the extent permitted by applicable law, the
parties hereby waive any provision of law which may render any provision
hereof invalid, illegal or unenforceable in any respect.
23. Counterparts. This Pledge Agreement may be executed by the
parties hereto in separate counterparts, each of .which when so executed
and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument, and all signatures need
not appear on any one counterpart.
<PAGE> 9
<PAGE>
24. Headings. The headings and captions of this Pledge
Agreement are for convenience of reference only and shall not define,
limit or otherwise affect any of the terms or provisions hereof.
25. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THE
PLEDGOR HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY
AGREES THAT, SUBJECT TO THE ELECTION OF THE AGENT, ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS PLEDGE AGREEMENT OR THE SUBJECT MATTER HEREOF
MAY BE LITIGATED IN SUCH COURTS. THE PLEDGOR ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS PLEDGE AGREEMENT AND THE SUBJECT
MATTER HEREOF. THE PLEDGOR HEREBY AGREES THAT SERVICE UPON IT BY
REGISTERED MAIL, RETURN RECEIPT REQUESTED, SHALL CONSTITUTE SUFFICIENT
NOTICE AND SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE AGENT TO BRING
PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE PLEDGOR IN THE
COURTS OF ANY OTHER JURISDICTION.
26. WAIVER OF JURY TRIAL. THE PLEDGOR AND THE AGENT HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS PLEDGE AGREEMENT OR THE SUBJECT
MATTER HEREOF OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER
OF THIS TRANSACTION. THE PLEDGOR AND THE AGENT ALSO WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF THE AGENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND
THAT RELATE TO THE SUBJECT MATTER OF THIS PLEDGE AGREEMENT, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE PLEDGOR AND THE AGENT
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS PLEDGE
AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.
<PAGE> 10
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Agent have caused this
Secondary Pledge Agreement to be executed by their respective duly
authorized officers, all as of day and year first above written.
The Company: METALCLAD CORPORATION
By:
-------------------------
Name: Grant S. Kesler
Title: President
Agent: GILMARTIN, POSTER & SHAFTO
By:
-------------------------
Name:
Title:
11
<PAGE>
<TABLE> <S> <C>
<S><C> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 524
<SECURITIES> 0
<RECEIVABLES> 951
<ALLOWANCES> (134)
<INVENTORY> 177
<CURRENT-ASSETS> 1911
<PP&E> 5183
<DEPRECIATION> (552)
<TOTAL-ASSETS> 9050
<CURRENT-LIABILITIES> 2287
<BONDS> 2842
<COMMON> 3057
0
0
<OTHER-SE> 812
<TOTAL-LIABILITY-AND-EQUITY> 9050
<SALES> 10004
<TOTAL-REVENUES> 10009
<CGS> 11905
<TOTAL-COSTS> 14590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (187)
<INCOME-PRETAX> (4778)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2477)
<DISCONTINUED> (2301)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4778)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
