<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21717
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
Incorporated-Delaware I.R.S. Identification No. 56-0526145
4205 East Dixon Boulevard, Shelby, North Carolina 28150
Registrant's Telephone Number (704) 482-9591
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of latest practicable date: 1,783,200 common shares
outstanding, each with par value $0.01, as of October 27, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,496,103 $ 130,971
Accounts Receivable 1,560,054 4,644,027
Inventory 5,261,655 6,968,365
Prepaid expenses 807,688 818,108
Deferred Tax Asset 169,350 --
------------ ------------
Total current assets $ 9,294,850 $ 12,561,471
Buildings and equipment:
Buildings 3,194,058 3,194,058
Equipment 1,966,220 1,866,122
------------ ------------
5,160,278 5,060,180
Less accumulated depreciation (1,580,056) (1,339,848)
------------ ------------
3,580,222 3,720,332
Land 211,468 211,468
------------ ------------
Total property and equipment, net 3,791,690 3,931,800
Other assets:
Cost in excess of net assets acquired, net of
accumulated
amortization of $250,526 and
$233,444 respectively 1,107,400 1,133,023
Other 640,256 622,256
------------ ------------
1,747,656 1,755,279
============ ============
TOTAL ASSETS $ 14,834,196 $ 18,248,550
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 3
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
BALANCE SHEETS
September 30, 1997 and December 31, 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 322,399 $ 1,572,020
Short-term debt obligations -- 3,669,746
Short-term subordinated debenture 100,000 --
Accrued liabilities 208,282 342,156
Advanced deposits-current 2,222,998 1,952,317
------------ ------------
Total current liabilities 2,853,679 7,536,239
------------ ------------
Due Pages -- 4,124,975
Advanced deposits-noncurrent 2,115,294 2,935,626
Subordinated debenture 4,900,000 --
Deferred tax liability -- 323,650
------------ ------------
Total Liabilities 9,868,973 14,920,490
Commitments and contingencies -- --
Stockholders' equity:
Preferred shares: $.01 par value; authorized
300,000 shares; none issued and outstanding
Common shares $.01 authorized 5,000,000; issued
1,783,200 and 334.91 shares respectively 17,832 3
Capital in excess of par value 6,576,055 4,157,982
Accumulated deficit (1,628,664) (829,925)
------------ ------------
Total stockholders' equity 4,965,223 3,328,060
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 14,834,196 $ 18,248,550
============ ============
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 4
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
STATEMENT OF OPERATIONS
For the three months and the nine months ended September 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $3,469,869 $3,823,218 $11,913,018 $13,876,040
Cost and Expenses:
Cost of goods sold 2,027,581 2,433,905 6,807,794 8,396,341
Selling, general and administrative 1,917,565 1,935,190 5,779,248 5,747,000
Interest 94,022 24,968 351,885 57,929
Depreciation and amortization 91,683 85,021 265,830 252,114
Management fee paid to Pages -- 125,000 -- 375,000
---------- ---------- ----------- -----------
4,130,851 4,604,084 13,204,757 14,828,384
Loss from continuing operations before
income taxes and cumulative effect
of change in accounting principle (660,982) (780,866) (1,291,739) (952,344)
Benefit for income taxes 252,000 290,000 493,000 347,300
---------- ---------- ----------- -----------
Loss before cumulative effect of change in
accounting principle $ (408,982) $ (490,866) $ (798,739) $ (605,044)
Cumulative effect of change in accounting principle
net of income tax of $397,850 -- -- -- 596,814
---------- ---------- ----------- -----------
NET LOSS $ (408,982) $ (490,866) $ (798,739) $ (8,230)
---------- ---------- ----------- -----------
LOSS PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle $ (0.37) $ (0.49) $ (0.77) $ (0.60)
Cumulative effect of change in accounting principle -- -- -- .59
---------- ---------- ----------- -----------
Net loss $ (0.37) $ (0.49) $ (0.77) $ (0.01)
========== ========== =========== ===========
Weighted average common shares outstanding 1,112,232 1,040,207
========== ===========
Proforma common shares outstanding 1,003,200 1,003,200
========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 5
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
STATEMENTS OF CASH FLOWS
For the nine months end September 30, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (798,739) $ (8,230)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 265,830 252,114
Deferred provision (493,000) (347,300)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 3,083,973 3,932,877
Inventory 1,706,710 237,760
Prepaid expenses and other assets (7,580) (128,008)
Increase (decrease) in liabilities
Accounts payable and accrued liabilities (1,383,495) (741,255)
Advance deposits (549,651) (579,387)
------------ ----------
Total adjustments 2,622,787 2,626,801
------------ ----------
Net cash provided by operating activities 1,824,048 2,618,571
Cash flows from investing activities
Payments for purchases of property and equipment (100,098) (388,335)
------------ ----------
Cash used in investing activities (100,098) (388,335)
Cash flows from financing activities:
Proceeds from debt obligation 14,905,007 17,433,276
Principal payments on debt (18,574,753) (19,813,258)
Issuance of Units $ 3,310,928 $ --
------------ ------------
Cash used in financing activities (358,818) (2,379,982)
Increase (decrease) in cash 1,365,132 (149,746)
Cash, beginning of period 130,971 226,678
Cash, end of period $ 1,496,103 $ 76,932
============ ============
Other Cash Flow Information:
Cash payments during the year for:
Interest $ 351,885 $ 93,920
Income taxes, net of refunds -- --
Non-cash Financing Activities:
Subordinated debenture with Pages assumed at at spin off $ 5,000,000 $ --
Due to Pages replaced with subordinated debenture $ 4,124,975 $ --
Decrease in capital in excess of par value and $ 870,025 $ --
common stock from spin off
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE> 6
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS
Unaudited
The accompanying financial statements have not been audited, but reflect
all adjustments which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash flows for the
periods presented. All adjustments are of a normal and recurring nature. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1996.
Effective at the close of business on December 31, 1996, a tax free spin
off of the Company's common stock from it former parent, Pages, was completed
(the "Distribution"). In the Distribution, for every ten shares of Pages' common
stock outstanding on the record date, one and one-half shares of the Company's
common stock was distributed to Pages shareholders.
NEW BANK AGREEMENT
On June 30, 1997, the Company renewed its credit facility in the form of a
$4.5 million revolving line of credit. The credit facility has an expiration
date of June 30, 1998 and bears interest at the lender's prime rate of interest
plus one percent floating daily. All business assets of the Company are pledged
as collateral for the credit facility.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Quarter and Nine Months Ended September 30, 1997 Compared to Quarter and Nine
Months Ended September 30, 1996:
Revenues for the three months ended September 30, 1997 approximated $3.47
million, compared to $3.82 million in revenues for the three months ended
September 30, 1996, a decrease of 9.16% or approximately $350,000. The decline
in revenue was due to a decrease in volume on certain existing customers coupled
with delayed redemptions on new accounts as well as the continuing efforts of
the company to reposition its business in more profitable and stable segments.
Revenues for the nine months ended September 30, 1997 approximated $11.91
million, compared to $13.88 million in revenues for the nine months ended
September 30, 1996, a decrease of 14.19% or approximately $1.97 million. The
decline in revenue was due to a decrease in volume on certain existing customers
coupled with delayed redemptions on new accounts as well as the continuing
efforts of the company to reposition its business in more profitable and stable
segments.
Cost of goods sold for the three months ended September 30, 1997
approximated $2.03 million, compared to approximately $2.43 million of cost of
goods sold for the three months ended September 30, 1996, a decrease of 16.46%
or approximately $400,000. The decrease in cost of goods sold was attributable
to the decrease in revenues. As a percentage of revenues, cost of goods sold
decreased to 58.43% for the three months ended September 1997, from 63.66% for
the three months ended September 30, 1996. The 5.23% decrease in the cost of
goods sold, as a percentage of revenues was principally attributable to a change
in product mix, improved inventory purchasing strategy, and the change in
accounting principle adopted in 1996.
Cost of goods sold for the nine months ended September 30, 1997
approximated $6.81 million, compared to approximately $8.40 million of cost of
goods for the nine months ended September 30, 1996, a decrease of 18.93% or
approximately $1.59 million. The decrease in cost of goods sold was attributable
to the decrease in revenues. As a percentage of revenues, cost of goods sold
decreased to 57.15% for the nine months ended September 30, 1997, from 60.51%
for the nine months ended September 30, 1996. The 3.36% decrease in the cost of
goods sold, as a percentage
<PAGE> 7
of revenues was principally attributable to a change in product mix, improved
inventory purchasing strategy, and the change in account principle adopted in
1996.
Selling, general, and administrative expense for the three months ended
September 30, 1997 approximated $1.92 million, compared to $1.94 million for the
three months ended September 30,1996, a decrease of approximately $20,000. The
decrease in selling, general, and administrative expense was primarily due to a
decrease in selling expenses and commissions due to the decrease in sales volume
as well as efficiencies in operating expenses.
Selling, general, and administrative expense for the nine months ended
September 30, 1997 approximated $5.78 million, compared to $5.75 million for the
nine months ended September 30, 1996, an increase of .52% or approximately
$30,000. The increase in selling, general, and administrative expense was
primarily due to a restructuring of the company's sales force.
Interest expense was approximately $94,000 for the three months ended
September 30, 1997, compared to $25,000 for the three months ended September 30,
1996, an increase of approximately $69,000. For the nine months ended September
30, 1997 interest expense approximated $352,000, compared to approximately
$58,000 for the nine months ended September 30, 1996 an increase of
approximately $294,000. The increase was primarily due to the new subordinated
debenture, which was entered into effective January 1, 1997. The average
outstanding debt for the first nine months in 1997 approximated $1.4 million
compared to $1.5 million for the first nine months in 1996. Additionally, the
average interest rate for the first nine months in 1997 approximated 9.42%
compared to approximately 8.55% for the same period in 1996.
Depreciation and amortization expense was approximately $92,000 for the
three months ended September 30, 1997, compared to $85,000 for the three months
ended September 30, 1996, an increase of 8.24% or approximately $7,000.
Depreciation and amortization expense was approximately $266,000 and $252,000
for the nine months ended September 30, 1997 and 1996 respectively, an increase
of 5.56%, or approximately $14,000. The increase in depreciation and
amortization expense was principally attributable to the depreciation of newly
acquired assets in 1996.
Income tax benefit was $493,000 for the nine months ended September 30,
1997, compared to $347,300 for the nine months ended September 30, 1996. The
provisions for income tax benefit were calculated through the use of estimated
income tax rates based upon the loss before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash generated from
operating activities and amounts available under its existing credit facility
and the proceeds from the September 1997 offering. The Company's primary uses of
funds consist of financing inventory and receivables, and the expansion of the
sales force.
The Company has adopted a growth strategy, which will be accomplished
through increased efforts of the Company's existing, highly trained sales force,
in order to expand current market share and enter into new markets.
The Company anticipates that operating cash flows during the next twelve
months, coupled with its ability to borrow under the credit facility, will cover
operating expenditures and meet the short-term debt obligations. The Company's
credit facility is due and payable in full on June 30, 1998. Although the lender
has not issued a commitment to do so, the Company's relationship with its lender
is favorable and the Company anticipates that the credit facility will be
renewed when due.
<PAGE> 8
The Company does not anticipate any material expenditures for property and
equipment during the next twelve months.
The Company is aware of no trends or demands, commitments or uncertainties
that will result in, or that management believes are reasonably likely to result
in, the Company's liquidity increasing or decreasing in any material way. The
Company is aware of no legal or other contingencies, the effects of which are
believed by management to be reasonably to have a material adverse effect on the
Company's financial statements.
SEASONALITY
The Company's business is highly seasonal, with approximately 40 percent of
its revenues and most of its profits recorded in the months of November,
December, and January. As a result, the Company's working capital requirements
are highest during November and December when the combination of receivables and
inventory are at peak levels. The Company typically experiences losses in its
second and third quarters.
As the results from the Company's growth strategy develop, the effects of
seasonality should be highly diminished. The business categories on which the
Company has chosen to focus offer steadier revenue flows, as well as more
consistent requirements for working capital.
INFLATION
Although the Company cannot determine the precise effects of inflation,
inflation has an influence on the cost of the company's products and services,
supplies and salaries, and benefits. The Company attempts to minimize or offset
the effects of inflation through increased sales volumes and sales prices,
improved productivity, alternative sourcing of products and supplies, and
reduction of other costs. The Company generally has been able to offset the
impact of price increases in the selling prices of the Company's products and
services.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding matters that are not historical facts and "forward looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1996) and because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Those statements include remarks regarding the
intent, belief, or current expectations of the Company, its directors, or its
officers with respect to, among other things: (i) future operating cash flows;
(ii) the Company's financing plans, and (iii) the Company's growth strategy,
including the expansion of current market share and the entrance into new
markets. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
accompanying information contained in this form 10-Q, including without
limitation and information set forth under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations", identified
important factors that could cause such differences.
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not involved in any material pending legal
proceedings,other than ordinary, routine litigation incidental to
its business.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
Effective August 1, 1997 CA Short Company changed its name to CASCO
INTERNATIONAL, INC. The Company will still conduct business under
the CA Short Company name.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit Number Description Method of Filing
- -------------- ----------- ----------------
1 Underwriting Agreement 1
3(ii) Amendment to Bylaw *
4.2 Warrant Agreement 1
4.3 Underwriter's Option 1
10.9 Warrant Exercise Fee Agreement 1
10.10** Indemnification *
27 Financial Data *
*Filed herewith
1 Incorporated by reference to the Company's Registration Statement on
Form SB-2, Number 333-32897, filed in Washington, D.C.
** Pursuant to Instruction 2 to Item 601 of Regulation 5K, only one of 5
Indemnification Agreements are filed. The Company also entered into
Indemnification Agreements with David Richards, Michael Beauchamp,
Robert V. Boylan, Charles R. Davis and S. Robert Davis.
<PAGE> 10
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CASCO INTERNATIONAL, INC.
(formerly CA SHORT COMPANY)
Registrant
Date: November 12, 1997 By: /s/ Jeff Ross
---------------------------------- --------------------------------
<PAGE> 1
EXHIBIT 3(ii)
RESOLVED that Section 3 of the Company's Bylaws be amended to read in
its entirety as follows:
"Section 3. Special Meetings of Stockholders. Special meetings
of the stockholders entitled to vote may be called by the Chairman of
the Board, the President or any Vice President, the Secretary, the
Board of Directors, or by the holders of not less than 10% of the
Corporation's common stock."
<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made as of this _____ day of
_________, 1997, by and between CASCO INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and David J. Richards ("Indemnitee").
PRELIMINARY STATEMENTS
A. The Company desires that it retain the services of the Indemnitee as
a director and/or officer of the Company.
B. Highly competent persons are becoming more reluctant to serve or to
continue to serve corporations as directors or in other capacities unless they
are provided with adequate protection through insurance and/or adequate
indemnification against claims and actions against them arising out of their
service to and activities on behalf of such corporations.
C. It is reasonable, prudent, and necessary for the Company
contractually to obligate itself to indemnity such persons so that they will
serve or continue to serve the Company free from undue concern that they will
not be so indemnified, and Indemnitee is willing to serve for or on behalf of
the Company on the condition that he be so indemnified.
AGREEMENT
In consideration of the mutual covenants contained herein, together
with other valuable consideration, the receipt, sufficiency, and adequacy of
which is hereby acknowledged, and intending to be legally bound hereby, and in
order to induce Indemnitee to serve or to continue to serve as a director and/or
officer of the Company, the Company and Indemnitee agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) "Expenses" means all expenses, costs, loss, Liability,
amounts paid in settlement, and attorneys' fees, including attorneys' fees for
appeals, incurred in connection with the defense or settlement of a Proceeding.
(b) "Liability" means all obligations to pay a judgment,
settlement, penalty, or fine.
(c) "Proceeding" means any threatened, pending, or completed
action, suit, or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal, and any appeal
thereof, including a grand jury proceeding and an action or suit brought by or
in the right of the Company.
2. MANDATORY INDEMNIFICATION IN ACTIONS, SUITS, AND PROCEEDINGS OTHER
THAN THOSE BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnity and
hold harmless
<PAGE> 2
Indemnitee from and against any Expenses actually and reasonably incurred by
Indemnitee in connection with the investigation, defense or settlement, of any
Proceeding (other than an action by or in the right of the Company) and to which
Indemnitee was or is a party or is threatened to be made a party by reason of
the fact that Indemnitee is or was a director, officer, shareholder, employee,
or agent of the Company, or by reason of anything done or not done by Indemnitee
in any such capacity or capacities, provided that Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
Proceeding, whether by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Company and,
with respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
3. MANDATORY INDEMNIFICATION IN ACTIONS OR SUITS BY OR IN THE RIGHT OF
THE COMPANY. The Company shall indemnity and hold harmless Indemnitee from and
against any expenses (including attorneys' fees, including attorneys' fees in
appeals) and amounts paid in settlement not exceeding, in the judgment of the
Board of Directors of the Company, the estimated expenses of litigating the
proceeding to conclusion, actually and reasonably incurred by him in connection
with the investigation, defense, or settlement of any Proceeding including any
appeals thereof, by or in the right of the Company to procure a judgment in its
favor and to which Indemnitee was or is a party or is threatened to be made a
party by reason of the fact that Indemnitee is or was a director, officer,
shareholder, employee, or agent of the Company, or by reason of anything done or
not done by Indemnitee in such capacity or capacities, provided that Indemnitee
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Company and except that no indemnification
shall be made in respect of any Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and only to the extent that the
court in which such Proceeding was brought (or any other court of competent
jurisdiction) shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, Indemnitee is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
4. REIMBURSEMENT OF EXPENSES FOLLOWING ADJUDICATION OF NEGLIGENCE. The
Company shall reimburse Indemnitee for any expenses (including attorneys' fees,
including attorneys' fees in appeals) or amounts paid in settlement actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of any action or suit described in Section 3 hereof that
results in an adjudication that Indemnitee was liable for negligence (including
gross negligence and recklessness, but not willful misconduct) in the
performance of his duty to the Company; provided, however, that Indemnitee acted
in good faith and in a manner he reasonably believed to be in the best interests
of the Company.
5. DISBURSEMENT/REPAYMENT OF EXPENSES. In addition to the prompt
payment of any expenses to which Indemnitee may be entitled, upon the demand of
Indemnitee, the Company shall promptly (and in any event within five business
days after written demand therefor) advance to or reimburse Indemnitee for all
reasonable Expenses that Indemnitee may incur in responding
2
<PAGE> 3
to, investigating, defending, settlement, or appealing any Proceeding for which
it reasonably appears that Indemnitee may be entitled to indemnification from
the Company, either pursuant to this Agreement or otherwise. Indemnitee hereby
undertakes and agrees to reimburse the Company for all such Expenses in the
event, and only to the extent, that it shall be ultimately determined that
Indemnitee is not entitled to be indemnified by the Company for such Expenses.
Such undertaking to reimburse the Company for amounts advanced if it is
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company is an unlimited general, unsecured and interest-free obligation of
Indemnitee. The Company shall make the advances contemplated by this Section 5
regardless of whether a Determination (as hereinafter defined) has been made and
regardless of Indemnitee's financial ability to make repayment.
6. INDEMNIFICATION PROCEDURE.
(a) PAYMENT/DETERMINATION OF INDEMNIFICATION. Upon any request
from Indemnitee for indemnification from the Company, whether pursuant to this
Agreement or otherwise, the Company shall promptly pay the full amount of such
requested indemnification. If the Company's Board of Directors (the "Board")
reasonably believes that all or any portion of such indemnification pursuant to
this Agreement is prohibited by applicable law, the Company shall in any event
promptly pay the amount of such indemnification, if any, that may reasonably
then be paid and promptly make or cause to be made a determination of whether
the payment of the balance is limited by applicable law (the "Determination").
Such Determination shall be made in the following order of preference:
(i) by the Board by majority vote or consent of a
quorum consisting of directors who are not, at the time of the Determination,
named parties to such Proceeding ("Disinterested Directors"); or
(ii) if such a quorum of Disinterested Directors
cannot be obtained, by majority vote or consent of a committee duly designated
by the Board (in which designation all directors, whether or not Disinterested
Directors, may participate) consisting solely of two or more Disinterested
Directors; or
(iii) if such a committee cannot be established, by
the opinion of the Company's independent legal counsel (who may be the outside
legal counsel regularly employed by the Company); or
(iv) if such legal opinion cannot be obtained, by
vote or consent of the holders of a majority of the shares of common stock of
the Company.
(b) PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. In making
a Determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making the Determination shall presume that
Indemnitee is entitled to indemnification under this Agreement and the Company
shall have the burden of proof to overcome that presumption. The termination of
any claim, action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, be
3
<PAGE> 4
determinative of or create a presumption that Indemnitee is not entitled to
indemnification or reimbursement of expenses hereunder or otherwise.
(c) RELIANCE AS SAFE HARBOR. For purposes of any Determination
hereunder, Indemnitee shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Company or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on (i) the records or books of account of the Company or another enterprise,
including financial statements, (ii) information supplied to him by the officers
of the Company or another enterprise in the course of their duties, (iii) the
advice of legal counsel for the Company or another enterprise, or (iv)
information or records given or reports made to the Company or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Company or another enterprise.
The term "another enterprise" as used in this Section 6(c) shall mean any other
corporation or any partnership, joint venture, trust, employee benefit plan, or
other enterprise of which Indemnitee is or was serving at the request of the
Company as a director, officer, partner, trustee, employee, or agent. The
provisions of this Section 6(c) shall not be deemed to be exclusive or to limit
in any way the other circumstances in which Indemnitee may be deemed to have met
the applicable standard of conduct set forth herein.
(d) SUCCESS ON MERITS OR OTHERWISE. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any Proceeding, or in defense of any
claim, issue, or matter therein, he shall be indemnified against all Expenses
actually and reasonably incurred by him in connection with the investigation,
defense, settlement, or appeal thereof. For purposes of this Section 6(d), the
term "successful on the merits or otherwise" shall include, but not be limited
to, (i) any termination, withdrawal, or dismissal (with or without prejudice) of
any claim, action, suit, or proceeding against Indemnitee without any express
finding of liability or guilt against him, (ii) the expiration of 90 days after
the making of any claim or threat of an action, suit, or proceeding without the
institution of the same and without any promise or payment made to induce a
settlement, or (iii) the settlement of any action, suit, or proceeding pursuant
to which Indemnitee pays less than $50,000.
(e) PARTIAL INDEMNIFICATION OR REIMBURSEMENT. If Indemnitee is
entitled under any provision of this Agreement to indemnification and/or
reimbursement by the Company for some or a portion of the Expenses in connection
with the investigation, defense, settlement, or appeal of any action specified
herein, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify and/or reimburse Indemnitee for the portion thereof to
which Indemnitee is entitled. The party or parties making the Determination
shall determine the portion (if less than all) of such Expenses for which
Indemnitee is entitled to indemnification and/or reimbursement under this
Agreement.
(f) COSTS. All costs of making any Determination required by
this Section 6 shall be borne solely by the Company, including, but not limited
to, the costs of all counsel, proxy or consent solicitations, and judicial
determinations. The Company shall also be solely
4
<PAGE> 5
responsible for paying (i) all reasonable expenses incurred by Indemnitee to
enforce this Agreement including, but not limited to, the costs incurred by
Indemnitee to obtain court-ordered indemnification, regardless of the outcome of
any such application or proceeding; and (ii) all costs of defending any suits or
proceedings challenging payments to Indemnitee under this Agreement including
trial, appellate, and other attorneys' fees and costs.
(g) TIMING OF THE DETERMINATION. The Company shall use its
best efforts to make the Determination contemplated by this Section 6 promptly,
but in all events within the following time periods:
(i) if the Determination is to be made by the Board
or a committee thereof, such Determination shall be made not later than 15 days
after a written request for a Determination (a "Request") is delivered to the
Company by Indemnitee;
(ii) if the Determination is to be made by
independent legal counsel (who may be the outside legal counsel regularly
employed by the Company), such Determination shall be made not later than 30
days after a Request is delivered to the Company by Indemnitee; and,
(iii) if the Determination is to be made by the
Company's shareholders, such Determination shall be made not later than 90 days
after a Request is delivered to the Company by Indemnitee.
The failure to make a Determination within the above-specified time period shall
constitute a Determination that full indemnification is not limited or
prohibited by applicable law. Notwithstanding anything herein to the contrary, a
Determination may be made in advance of (i) Indemnitee's payment (or incurring)
of Expenses with respect to which indemnification or reimbursement is sought,
and/or (ii) final disposition of the action, suit, or proceeding with respect to
which indemnification or reimbursement is sought.
(h) REASONABLENESS OF EXPENSES. The evaluation and finding as
to the reasonableness of Expenses incurred by Indemnitee for purposes of this
Agreement shall be made (in the following order of preference) in all events
within the applicable time periods following Indemnitee's delivery to the
Company of a reasonable accounting of Expenses incurred (which may be part of
the Request or delivered at any time before or after deliver of a request):
(i) within 15 days, if by the Board by a majority
vote or consent of a quorum consisting of Disinterested Directors; or
(ii) within 15 days, if a quorum cannot be obtained
under Section 6(h)(i), by majority vote or consent of a committee duly
designated by the Board (in which designation all directors, whether or not
Disinterested Directors, may participate), consisting solely of two or more
Disinterested Directors; or
5
<PAGE> 6
(iii) within 90 days, if by a Shareholder
Determination because a finding cannot be obtained under either Section 6(h)(i)
or 6(h)(ii).
All Expenses shall be considered reasonable for purposes of this Agreement if
the finding contemplated by this Section 6(h) is not made within the prescribed
time periods. The finding required by this Section 6(h) may be made in advance
of the payment (or incurring) of the Expense for which indemnification or
reimbursement is sought.
(i) SELECTION OF INDEPENDENT LEGAL COUNSEL. If the
Determination required under Section 6 is to be made by independent legal
counsel, such counsel shall be selected by Indemnitee with the approval of the
Board, which approval shall not be unreasonably withheld. The fees and expenses
incurred by counsel in making any Determination (including Determinations
pursuant to Section 6(e) hereof) shall be borne solely by the Company regardless
of the results of any Determination and, if requested by counsel, the Company
shall give such counsel an appropriate written agreement with respect to the
payment of its fees and expenses and such other matters as may be reasonably
requested by counsel.
(j) SHAREHOLDER VOTE ON DETERMINATION. In connection with each
meeting at which a Partner Determination will be made, the Company shall solicit
proxies or consents that expressly include a proposal to indemnify or reimburse
Indemnitee. Subject to the fiduciary duties of its members under applicable law,
the Board will not recommend against indemnification or reimbursement in any
proxy statement or consent solicitation relating to the proposal to indemnify or
reimburse Indemnitee.
(k) RIGHT OF INDEMNITEE TO APPEAL AN ADVERSE DETERMINATION BY
BOARD, COMMITTEE, OR COUNSEL. If a Determination is made by the Board, a
committee thereof, or by independent legal counsel that all or any portion of a
request for indemnification pursuant to this Agreement is prohibited by
applicable law, then upon the written request of Indemnitee, and Indemnitee's
delivery of $1,000 to the Company, the Company shall cause a new Determination
to be made by vote of the owners of a majority of the shares of common stock of
the Company. Such Partner Determination shall be binding and conclusive for all
purposes of this Agreement, but shall not preclude Indemnitee from seeking
court-ordered indemnification or reimbursement.
(l) RIGHT OF INDEMNITEE TO SELECT METHOD OF DETERMINATION. If
at any time subsequent to the date of this Agreement, "Continuing Directors" (as
defined below) do not constitute a majority of the members of the Board, or
there is otherwise a change in control of the Company or the Company (as
contemplated by Item 403(c) of Securities and Exchange Commission Regulation
S-K), then upon the request of Indemnitee, the Company shall cause the
Determination required by this Section 6 to be made by independent legal counsel
designated by Indemnitee and approved by the Board (which approval shall not be
unreasonably withheld), which counsel shall be deemed to satisfy the
requirements of Section 6(a)(iii) hereof. If none of the legal counsel selected
by Indemnitee am willing and/or able to make the Determination, then the Company
shall cause the Determination to be made by a majority vote or consent of a
Board committee consisting solely of Continuing Directors. For purposes of this
Agreement, a
6
<PAGE> 7
"Continuing Director" means either a member of the Board at the date of this
Agreement or a person nominated to serve as a member of the Board by a majority
of the then Continuing Directors.
(m) ACCESS BY INDEMNITEE TO DETERMINATION. The Company shall
afford to Indemnitee and his representatives ample opportunity to present
evidence of the facts upon which Indemnitee relies for indemnification or
reimbursement, together with other information relating to any requested
Determination.
7. SCOPE OF INDEMNITY. Proceedings shall include, for purposes of this
Agreement, any actions that involve, directly or indirectly, activities of
Indemnitee both in his official capacities as a Company director or officer and
actions taken in another capacity while serving as director or officer,
including, but not limited to, actions or proceedings involving (i) compensation
paid to Indemnitee by the Company, (ii) activities by Indemnitee on behalf of
the Company, including actions in which Indemnitee is plaintiff, (iii) actions
alleging a misappropriation of a "corporate opportunity, " (iv) responses to a
takeover attempt or threatened takeover attempt of the Company, (v) transactions
by Indemnitee in Company securities, (vi) Indemnitee's preparation for and
appearance (or potential appearance) as a witness in any Proceeding relating,
directly or indirectly, to the Company, and (vii) dealings by the Company with
physicians. In addition, the Company agrees that, for purposes of this
Agreement, all services performed by Indemnitee on behalf of, in connection
with, or related to the Company shall be deemed to be at the request of the
Company.
8. CONTRIBUTION.
(a) If the indemnification provided in Sections 2 and 3 hereof
is unavailable and may not be paid to Indemnitee for any reason other than it is
prohibited by applicable law, then in respect of any Proceeding in which the
Company is jointly liable with Indemnitee (or would be if joined in such
Proceeding), the Company shall contribute to the amount of Expenses paid or
payable by Indemnitee in such proportion as is appropriate to reflect (i) the
relative benefits received by the Company on the one hand and Indemnitee on the
other hand from the transaction from which such Proceeding arose, and (ii) the
relative fault of the Company on the one hand and of Indemnitee on the other in
connection. with the events that resulted in such Expenses, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information,
and opportunity to correct or prevent the circumstances resulting in such
Expenses. The Company agrees that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
or any other method of allocation that does not take into account the foregoing
equitable considerations.
(b) The determination as to the amount of the contribution, if
any, shall be made by:
7
<PAGE> 8
(i) a court of competent jurisdiction upon the
application of both Indemnitee and the Company (if an action or suit had been
brought in, and final determination had been rendered by, such court);
(ii) the Board by a majority vote of a quorum
consisting of directors who were not parties to such Proceeding; or
(iii) independent legal counsel (who may be the
regular outside counsel of the Company, or both), if a quorum is not obtainable
for purpose of subsection (ii) above, or even if obtainable, a quorum of
Disinterested Directors so directs.
9. DISCLOSURE OF PAYMENTS. Except as expressly required by the
applicable law or by federal securities laws, neither party shall disclose any
payments under this Agreement unless prior approval of the other party is
obtained.
10. COVENANT NOT TO SUE; LIMITATION OF ACTION; RELEASE OF CLAIMS.
Except for actions by the Company seeking to require Indemnitee to reimburse it
for amounts advanced to Indemnitee that are ultimately determined to be amounts
that Indemnitee was not entitled, no legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company against Indemnitee,
his spouse, heirs, executors, personal representatives, or administrators after
the expiration of two years after the date Indemnitee ceases (for any reason) to
serve as either an officer or director of the Company, and any claim or cause of
action of the Company shall be extinguished and deemed released unless asserted
by the filing of a legal action within such two-year period.
11. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, officer, employee, or agent of the Company (or is serving at the
request of the Company as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise), and shall
continue thereafter for so long as Indemnitee shall be subject to any possible
Proceeding, whether civil, criminal, or investigative, by reason of the fact
that Indemnitee was an officer or director of the Company or serving in any
other capacity referred to herein, whether or not the Indemnitee has ceased to
serve in any such capacity due to his resignation, removal by vote of directors,
or shareholders, termination, death, disability or otherwise.
12. INDEMNIFICATION OF INDEMNITEE'S ESTATE. Notwithstanding any other
provision of this Agreement, regardless of whether indemnification of Indemnitee
would be permitted and/or required under this Agreement, if Indemnitee is
deceased, the Company shall indemnify and hold harmless Indemnitee's estate,
spouse, heirs, administrators, personal representatives, and executors
(collectively "Indemnitee's Estate") against, and the Company shall assume, any
and all Expenses actually incurred by Indemnitee or Indemnitee's Estate in
connection with the investigation, defense, settlement, or appeal of any
Proceeding or action described in this Agreement. Indemnification of
Indemnitee's Estate pursuant to this Section 12 shall be mandatory and not
require a Determination or any other finding that Indemnitee's conduct satisfied
a particular standard of conduct.
8
<PAGE> 9
13. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve or to continue to serve as a director and/or
officer of the Company, and acknowledges that Indemnitee is relying on this
Agreement in agreeing to serve or to continue to serve in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce his rights or to collect monies due under t his Agreement and is
successful in such action, the Company shall reimburse Indemnitee for all of
Indemnitee's reasonable fees and expenses in bringing and pursuing such action,
including reasonable attorneys' fees (including trial, appellate, and other
attorneys' fees), court costs, and other related expenses.
14. MISCELLANEOUS.
(a) COOPERATION AND INTENT. The Company shall cooperate in
good faith with Indemnitee and use its best efforts to ensure that Indemnitee is
indemnified and/or reimbursed for Expenses as described herein to the fullest
extent permitted by law.
(b) NONEXCLUSIVITY; SUBROGATION; ENTIRE AGREEMENT. The rights
of indemnification and reimbursement provided in this Agreement shall be in
addition to any rights to which Indemnitee may otherwise be entitled law, the
Company's articles of incorporation or bylaws, a vote of the shareholders, or
otherwise. In the event of any payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including the execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights. The
Company shall not be liable under this Agreement to make any payment of amounts
otherwise indemnifiable hereunder if and to the extent that Indemnitee has
otherwise actually received such payment under any insurance policy, contract,
agreement, or otherwise. This Agreement constitutes the entire agreement between
the Company and Indemnitee with respect to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and discussions,
both written and oral, between the parties hereto with respect to such subject
matter (the "Prior Agreements"); provided, however, that if this Agreement shall
ever be held void or unenforceable for any reasons whatsoever, and is not
reformed pursuant to Section 14(d) hereof, then (i) this Agreement shall not be
deemed to have superseded any Prior Agreements; (ii) all of such Prior
Agreements shall be deemed to be in full force and effect notwithstanding the
execution of this Agreement; and (iii) Indemnitee shall be entitled to maximum
indemnification benefits provided under any Prior Agreements.
(c) EFFECTIVE DATE. The provisions of this Agreement shall
cover claims, actions, suits, and proceedings whether now pending or hereafter
commenced and shall be
9
<PAGE> 10
retroactive to cover acts or omissions or alleged acts or omissions that
heretofore have taken place.
(d) SEVERABILITY; REFORMATION. Each of the provisions of this
Agreement is a separate and distinct agreement and independent of the others, so
that if any provision hereof shall be held to be invalid or unenforceable in
whole or in part for any reason, such invalidity or unenforceability shall not
affect the validity or enforceability of the other provisions hereof. In the
event that all or any portion of this Agreement is ever held void or
unenforceable by a court of competent jurisdiction, then the parties hereto
hereby expressly authorize such court to modify any provision(s) held void or
unenforceable to the extent, and only to the extent, necessary to render it
valid and enforceable.
(e) NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication is directed, or (ii) mailed by certified or
registered mail, postage prepaid, on the third business day after the date on
which it is so mailed:
If to the Indemnitee: To the address set forth on the
signature page hereof
If to the Company: CASCO INTERNATIONAL, INC.
4205 East Dixon Boulevard
Shelby, North Carolina 28150
Attn: President
or to such other address as may have been furnished by either party to the
other.
(f) AMENDMENTS OR MODIFICATIONS. This Agreement may not be
amended or modified in any way except by a written instrument by both of the
parties.
(g) GOVERNING LAW. This Agreement shall be governed by,
interpreted, and enforced in accordance with the laws of the State of Delaware,
without giving effect to the principles of conflicts of law thereof.
(h) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon Indemnitee and the Company, its successors and assigns, and shall inure to
the benefit of Indemnitee, his heirs, personal representatives, and assigns and
to the benefit of the Company, its successors, and assigns.
(i) IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
10
<PAGE> 11
(j) GENDER AND NUMBER. Whenever the context shall so require,
all words herein in the male gender shall be deemed to include the female or
neuter gender, all singular words shall include the plural words, and all plural
words shall include the singular.
(k) HEADINGS. The endings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
THE COMPANY:
CASCO INTERNATIONAL, INC.
a Delaware corporation
By:
------------------------------------------
Its President
THE INDEMNITEE:
---------------------------------------------
David J. Richards
Address: 425 Metro Place North, Suite 140
Dublin, OH 43017
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,496,103
<SECURITIES> 0
<RECEIVABLES> 1,560,054
<ALLOWANCES> 0
<INVENTORY> 5,261,655
<CURRENT-ASSETS> 9,294,850
<PP&E> 5,371,746
<DEPRECIATION> 1,580,056
<TOTAL-ASSETS> 14,834,196
<CURRENT-LIABILITIES> 2,853,679
<BONDS> 0
0
0
<COMMON> 17,832
<OTHER-SE> 4,947,391
<TOTAL-LIABILITY-AND-EQUITY> 14,834,196
<SALES> 11,913,018
<TOTAL-REVENUES> 11,913,018
<CGS> 6,807,794
<TOTAL-COSTS> 13,204,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351,885
<INCOME-PRETAX> (1,291,739)
<INCOME-TAX> 493,000
<INCOME-CONTINUING> (798,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798,739)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
</TABLE>
