<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997
REGISTRATION NO. 333-32897
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CASCO INTERNATIONAL, INC.
(formerly CA Short Company)
(Exact name of small business issuer as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8742-0202 56-0526145
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
4205 EAST DIXON BOULEVARD
SHELBY, NC 28150
(704) 482-9591
(Address and telephone number of principal executive offices and principal place
of business)
CHARLES R. DAVIS, PRESIDENT
4205 EAST DIXON BOULEVARD
SHELBY, NC 28150
(704) 482-9591
(Name, address and telephone number of agent for service)
Copies to:
<TABLE>
<C> <C>
STEVEN F. WASSERMAN PHILIP M. SHASTEEN, ESQUIRE
BERNSTEIN & WASSERMAN JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS,
950 THIRD AVENUE, 10TH FLOOR P.A.
NEW YORK, NY 10022 100 NORTH TAMPA STREET, SUITE 1800
(212) 826-0730 P.O. BOX 1100
TAMPA, FL 33601-1100
(813) 225-2500
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE
AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS
750,000 UNITS
CASCO INTERNATIONAL, INC.
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND TWO REDEEMABLE CLASS A WARRANTS
---------------------
This Prospectus relates to the offering (the "Offering") of 750,000 units
(the "Units") by CASCO INTERNATIONAL, INC., a Delaware corporation (the
"Company"), each Unit consisting of one share (each a "Share" and collectively,
the "Shares") of common stock, $0.01 par value per share (the "Common Stock"),
and two Redeemable Class A Warrants (each a "Warrant" and, collectively, the
"Warrants"). The Units, the Shares and the Warrants are sometimes hereinafter
collectively referred to as the "Securities." The Shares and the Warrants
included in the Units are detachable and will trade separately twelve months
after issuance, subject to earlier separability in the discretion of the
Underwriter. Each Warrant entitles the registered holder thereof (a
"Warrantholder") to purchase one share of Common Stock at an initial exercise
price equal to $5.50 at any time during the period commencing one (1) year after
the effective date of this Prospectus and terminating four (4) years thereafter
(the "Warrant Exercise Period"). The Warrant exercise price is subject to
adjustment under certain circumstances. All, but not less than all, of the
Warrants are subject to redemption by the Company, at $0.05 per Warrant, at any
time during the Warrant Exercise Period on thirty (30) days prior written notice
to the Warrantholders if the per share closing bid price of the Common Stock as
reported by NASDAQ equals or exceeds $8.75 for any twenty (20) consecutive
trading days ending within five (5) days of the notice of redemption.
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol CASC. The Company has applied for inclusion of the Units and the
Warrants on the Nasdaq SmallCap Market under the symbols CASCU and CASW,
respectively. There can be no assurance that a public market for the Units or
the Warrants will develop after completion of the offering or, if developed,
that it will be sustained. Additionally, if the Units and the Warrants are
accepted for quotation and active trading of the Units and Warrants develops,
continued quotation will be conditioned upon the Company maintaining certain
minimum criteria established by Nasdaq and there can be no assurance that the
Company will be able to continue to fulfill such criteria. See "Risk Factors."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE SHARES AND SHOULD BE
CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
========================================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit................ $5.00 $.50 $4.50
- ------------------------------------------------------------------------------------------------------------------------
Total(3)................ $3,750,000 $375,000 $3,375,000
========================================================================================================================
</TABLE>
(1) Does not include additional compensation payable to Biltmore Securities,
Inc. (the "Underwriter") in the form of (i) a non-accountable expense
allowance of $112,500 (or $129,375 if the Underwriter's Overallotment Option
(as defined below) is fully exercised and (ii) an option (exercisable for a
period of four years commencing one year after the Effective Date) entitling
the Underwriter to purchase 75,000 Units at $6.00 per Unit ("Underwriter's
Purchase Option"). See "Underwriting" for information concerning
indemnification and contribution arrangements with, and compensation payable
to, the Underwriter.
(2) Before deducting estimated expenses of approximately $397,500 payable by the
Company, including the non-accountable expense allowance payable to the
Underwriter.
(3) The Company has granted to the Underwriter an option (the "Over-Allotment
Option"), exercisable within 30 days after the date of this Prospectus, to
purchase up to an aggregate of 112,500 additional Units upon the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
If the Over-Allotment Option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $4,132,500,
$413,250 and $3,719,250, respectively. See "Underwriting."
The Units are being offered by the Underwriter, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter, and subject to
approval of certain legal matters by its counsel and subject to certain other
conditions, including the right of the Underwriter to withdraw, cancel or modify
the Offering and to reject any order in whole or in part. It is expected that
delivery of the certificates representing the Units offered hereby will be made
against payment at the offices of Biltmore Securities, Inc., Ft. Lauderdale,
Florida, on or about , 1997.
BILTMORE SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 3
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN INTENTION TO PARTICIPATE IN
THE OFFERING, ALL OR A SIGNIFICANT NUMBER OF THE SECURITIES TO BE SOLD IN THIS
OFFERING MAY BE SOLD, IN THE ORDINARY COURSE OF BUSINESS, TO CUSTOMERS OF THE
UNDERWRITER WHICH MAY AFFECT THE MARKET FOR AND LIQUIDITY OF THE COMPANY'S
SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-DEALERS DO NOT MAKE A MARKET IN
THE COMPANY'S SECURITIES. ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN
INTENTION TO MAKE A MARKET IN THE COMPANY'S SECURITIES FOLLOWING THE OFFERING,
THERE CAN BE NO ASSURANCE THAT ANY OF SUCH BROKER-DEALERS WILL ACTUALLY COMMENCE
SUCH MARKET-MAKING ACTIVITIES OR, IF COMMENCED, THAT SUCH ACTIVITIES WILL BE
MAINTAINED. BASED UPON THE UNDERWRITER'S EXPERIENCE IN PAST OFFERINGS, IT IS
EXPECTED THAT SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF THE SECURITIES COVERED THEREBY THROUGH AND/OR WITH THE
UNDERWRITER. NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST WITH
RESPECT TO THE PURCHASE OR RESALE OF THE SECURITIES TO BE SOLD IN THIS OFFERING
THROUGH OR WITH THE UNDERWRITER AND/OR ITS AFFILIATES.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME TO
TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE COMPANY'S
SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY BECOME A
DOMINATING INFLUENCE IN THE MARKET FOR THE SHARES AND CLASS A WARRANTS. HOWEVER,
THERE IS NO ASSURANCE THAT THE UNDERWRITER WILL OR WILL CONTINUE TO BE A
DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED
HEREUNDER MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE OF THE UNDERWRITER'S
PARTICIPATION IN SUCH MARKET. THE UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT
ANY TIME OR FROM TIME TO TIME. SEE "RISK FACTORS -- LACK OF PRIOR MARKET FOR
SECURITIES OF THE COMPANY" AND "UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE
ADVERSE CONSEQUENCES."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise specified, all
information in this Prospectus assumes no exercise of any Warrants or options to
purchase shares of Common Stock described herein. Investors should carefully
consider the information set forth under "Risk Factors" prior to making an
investment in the Securities.
THE COMPANY
The Company creates, markets, and administers recognition programs which
address specific needs in employee recognition. Programs offered by the Company
include safety, years of service recognition, and a host of other programs using
merchandise and jewelry as the principal means for the reinforcement of employee
behavior. The common objective of all the Company's programs is to increase
employee productivity through recognition, to create a critical link between
performance and the clients' overall business objectives.
The Company was organized under the laws of the State of North Carolina in
1950. In November, 1996, the Company reincorporated in the State of Delaware.
The Company was a wholly-owned subsidiary of Pages, Inc., a Delaware corporation
("Pages") until the close of business on December 31, 1996, when Pages
distributed all of the shares of Company Common Stock to the Pages shareholders.
Until July 28, 1997, the Company's name was CA Short Company. The Company's
executive offices are located at 4205 East Dixon Boulevard, Shelby, North
Carolina 28150. Its telephone number is (800) 535-5690.
THE OFFERING
Securities offered
hereby..................... 750,000 Units, each Unit consisting of one Share
and two Warrants, at an initial public offering
price of $5.00 per Unit. The Shares and the
Warrants included in the Units are detachable and
will trade separately twelve months after
issuance subject to earlier separability in the
discretion of the Underwriter. Each Warrant
entitles the registered holder thereof to
purchase at any time during the Warrant exercise
Period one share of Common Stock at an exercise
price of $5.50 per share. The Warrants are
subject to redemption by the Company for $0.05
per Warrant at any time during the Warrant
Exercise Period, on 30 days written notice,
provided that the closing bid price of the Common
Stock equals or exceeds $8.75 per share for any
20 consecutive trading days ending within five
(5) days of the notice of redemption to the
Warrantholders.
Outstanding Securities before the Offering:
Units................. None
Common Stock(1)....... 1,003,431 Shares
Outstanding Securities after the Offering:(2)
Units................. 750,000 Units
Common Stock(1)....... 1,753,431 Shares
Warrants.............. 1,500,000 Warrants
Symbol:
Common Stock.......... CASC
3
<PAGE> 5
Proposed Symbols:
Units................. CASCU
Warrants.............. CASCW
Use of Proceeds............ The net proceeds (after payment of underwriting
discounts and a non-accountable expense allowance
to the Underwriter and other expenses of the
Offering) to the Company from the sale of the
Units offered hereby at a public offering price
of $5.00 per Unit are expected to be
approximately $2,977,500. Such net proceeds will
be used principally for hiring additional sales
representatives, the purchase of computer
hardware and software, the development of the
Company's internet presence, warehouse
automation, the reduction of the Company's
revolving credit facility, general corporate
purposes and for working capital. See "Use of
Proceeds."
Risk Factors............... An investment in the Securities offered hereby
involves risk. This Prospectus contains
forward-looking information which involves risks
and uncertainties. The Company's actual results
could differ materially from those anticipated by
such forward-looking information as a result of
various factors, including those discussed under
"Risk Factors" in this Prospectus. See "Risk
Factors."
- ---------------
(1) Does not include shares of Common Stock issuable upon the exercise of (i)
the Warrants; (ii) the Over-Allotment Option; (iii) options granted to the
Underwriter to purchase up to 75,000 Units (the "Underwriter's Option");
(iv) options to purchase 85,000 shares of Common Stock reserved for issuance
under the Company's 1996 Incentive Stock Option Plan (the "Incentive Option
Plan"); and (v) options to purchase 40,000 shares of Common Stock reserved
for issuance under the Company's Non-Employee Director Stock Option Plan
(the "Director Option Plan").
(2) Common Stock and Warrants outstanding after the Offering includes the Shares
and Warrants which are part of the Units. The Shares and the Warrants
included in the Units will be detachable and will trade separately twelve
months after issuance, subject to earlier separability in the discretion of
the Underwriter.
4
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information set forth below is derived from the
Company's more detailed financial statements appearing elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements and the notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- -------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $ 22,620 $ 21,959 $ 10,053 $ 8,443
Income (loss) before income taxes and cumulative
effect of change in accounting principle...... (676) (583) (171) (631)
(Provision) benefit for income taxes............ 249 195 57 241
Cumulative effect of change in accounting
principle..................................... -- 597 597 --
---------- ---------- ---------- ----------
Net Income (Loss)............................... (427) 209 483 (390)
Pro forma net income (loss) per dollar(1)(2).... $ (.43) $ .20 $ .48 $ (.39)
Weighted average common and equivalent shares
outstanding(1)................................ 1,003,431 1,003,431 1,003,431 1,003,431
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 145 $ 1,923
Working capital............................................. 3,707 5,485
Total assets................................................ 13,567 15,345
Total stockholders' equity.................................. 2,063 5,041
</TABLE>
- ---------------
(1) Adjusted to give effect to an 8% stock dividend paid to stockholders of
record on July 16, 1997.
(2) Represents pro forma earnings per common and common equivalent shares both
on a primary and a fully diluted basis.
(3) Adjusted to reflect (i) the sale of the Units offered hereby and the net
proceeds therefrom (at an initial public offering price of $5.00 per Unit
and after deducting the underwriting discounts and commissions and estimated
expenses of the Offering totaling approximately $772,500 and assuming no
exercise of the Over-Allotment Option) and (ii) the repayment of certain
indebtedness from the proceeds of this offering. See "Use of Proceeds." Does
not include the proceeds from the sale of shares of Common Stock pursuant to
the exercise of any Warrants, the Underwriter's Option, and any options
granted pursuant to the Incentive Option Plan and the Director Option Plan.
5
<PAGE> 7
RISK FACTORS
An investment in the Securities offered hereby involves risk. In addition
to the other information contained in this Prospectus, the following factors
should be considered carefully in evaluating the Company and its business before
purchasing the Securities offered hereby. This Prospectus contains
forward-looking information which involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated by such
forward-looking information as a result of various factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
Net Losses; Accumulated Deficit. The Company experienced net losses of
$427,674 and $283,954 for the years ended December 31, 1995, and 1994,
respectively. Although the Company experienced net income of $208,733 for the
year ended December 31, 1996, it experienced a net loss of $389,754 for the six
months ended June 30, 1997. At June 30, 1997, the Company had an accumulative
deficit of $1,219,679. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Continuing Control of the Company by Management. Upon completion of the
Offering, the Company's executive officers and directors will beneficially own
approximately 21% of the outstanding Common Stock (approximately 20% if the
Over-Allotment Option is exercised in full), assuming that they do not purchase
Units in the Offering. As a result of their holdings, the Company's executive
officers and directors currently exert, and are likely to continue to exert,
significant control over the Company.
Broad Discretion in Application of Proceeds; Unspecified
Acquisitions. Approximately $1.78 million (60%) of the estimated net proceeds
from the Offering has been allocated to an investment in the Company's sales
organization, an investment in information technology, system upgrades and
automation, and working capital and general corporate purposes. Accordingly, the
Company will have broad discretion as to the application of such proceeds
without prior stockholder approval. In addition, the management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of the Offering, including funds received upon exercise of the
Warrants, in order to address changed circumstances and business opportunities.
Such business opportunities may include the acquisition of other companies or
their businesses. Investors in the Securities will not have the opportunity to
evaluate any of such future acquisitions. As a result of the foregoing, the
business of the Company will be substantially dependent upon the discretion and
judgment of the management of the Company with respect to the application and
allocation of the net proceeds hereof. See "Use of Proceeds."
Immediate and Substantial Dilution. The Company had a net tangible book
value of $947,340 or $.94 per share, derived from the Company's June 30, 1997
balance sheet and based upon 1,003,431 shares (adjusted for a subsequent stock
dividend) being outstanding immediately prior to the closing of this offering.
After projecting the effect of the sale of the Units offered hereby at an
offering price of $5.00 per Unit, after deducting underwriting discounts and
estimated offering expenses, adjusted net tangible book value will be $3,924,840
or $2.24 per share. The result will be an immediate increase in net tangible
book value per share of $1.30 to existing shareholders and an immediate dilution
to new investors of $2.76 per share (55%). See "Dilution."
Dependence Upon Key Personnel. The Company's future success depends to a
significant degree upon the continued service of key senior management
personnel, none of whom is covered by an employment agreement or an insurance
policy of which the Company is the beneficiary. The Company's future success
also depends on its continuing ability to attract, retain and motivate highly
qualified, managerial and sales personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to retain
its existing employees or attract, retain and motivate highly qualified
personnel in the future. If the Company is unable to retain or hire the
necessary personnel, its operating results could be adversely effected. See
"Management."
Restrictions Imposed by Credit Facility. The Company's credit facility
contains a number of significant covenants that restrict the ability of the
Company to dispose of assets, merge, incur debt, pay dividends, repurchase or
redeem capital stock and indebtedness, create liens, make capital expenditures
and make certain investments or acquisitions and otherwise restrict corporate
activities. In addition, the credit facility contains,
6
<PAGE> 8
among other covenants, requirements that the Company maintain specified
financial ratios, including a minimum capital base, and minimum pre-tax profits
from operations. The ability of the Company to comply with such provisions may
be affected by events beyond the Company's control. The breach of any of these
covenants could result in a default under the credit facility. In the event of
any such default, the lender could elect to declare all amounts borrowed under
the credit facility, together with accrued interest and other fees, to be due
and payable. If the indebtedness under the credit facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to pay such indebtedness in full. See "Business -- Financing."
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results may fluctuate significantly in the future as a result of a
variety of factors, some of which are outside of the Company's control. These
factors include seasonal factors (including the level of sales related to the
Company's holiday gift programs), general economic conditions, capital
expenditures and other costs relating to the expansion of operations, and
changes in marketing strategies by the Company or its competitors. These factors
could also have an adverse effect on the Company's annual results of operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's Dividend Policy. In addition to the restrictions contained
in the Company's credit facility on the payment of dividends, the payment and
level of cash dividends, if any, by the Company is at the discretion of the
Company's Board of Directors, based primarily upon the earnings, cash flow and
financial requirements of its business. The Company currently does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The future dividend policy will be determined on the basis of various factors,
including the Company's results of operations, financial condition, capital
requirements, and investment opportunities. See "Dividend Policy."
Short Term Customer Contracts. All of the contracts the Company has with
its customers are cancelable by them upon ninety-days notice. Accordingly, the
Company is vulnerable to competition from other providers of similar services.
See "Business -- Customer Contracts."
Competition. The Company's business is highly competitive. Many of the
Company's competitors are significantly larger and better capitalized than the
Company. See "Business -- Competition."
Seasonality. The Company's business is highly seasonal, with approximately
40% 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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Litigation Involving Underwriter May Affect Securities. The Company has
been advised by the Underwriter, that on or about May 22, 1995, the Underwriter
and Elliot Loewenstern and Richard Bronson, principals of the Underwriter, and
the Securities and Exchange Commission (the "Commission") agreed to an offer of
settlement (the "Offer of Settlement") in connection with a complaint filed by
the Commission in the United States District Court for the Southern District of
Florida alleging violations of the federal securities laws, Section 17(a) of the
Securities Act of 1933, as amended (the "Securities Act"), Section 10(b) and
15(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rules 10b-5, 10b-6 and 15cl-2 promulgated thereunder. The complaint also
alleged that in connection with the sale of securities in three (3) initial
public offerings ("IPOs") in 1992 and 1993, the Underwriter engaged in
fraudulent sales practices. The proposed Offer of Settlement was consented to by
the Underwriter and Messrs. Loewenstern and Bronson without admitting or denying
the allegations of the complaint. The Offer of Settlement was approved by Judge
Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final Judgment"),
the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount was
paid in four (4) equal installments on or before June 22, 1995;
- agreed to the appointment of an independent consultant ("Consultant").
7
<PAGE> 9
Such Consultant was obligated, on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in six (6)
areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter that
the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance manual
for the Underwriter, or to amend the Underwriter's existing manual; and
- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees of
the Underwriter. The Final Judgment further provides that, within thirty
(30) days of the Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain any and all
policies, practices and procedures set forth in the Report.
On or about December 19, 1996, the Consultant completed the Report which
was thereafter delivered to the Underwriter. The Report addresses the areas
relating to compliance and sales practices referred to above. The Underwriter is
reviewing the Report and undertaking steps to implement the recommendations and
procedures in the Report, in accordance with the provisions of the Final
Judgment.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson agreed to a suspension from associating in
any supervisory capacity with any broker, dealer, municipal securities dealer,
investment advisor or investment company for a period of twelve (12) months,
dating from the beginning of such suspension. Mr. Loewenstern agreed to a
suspension from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months commencing upon the expiration of Mr. Bronson's
suspension. Both the suspensions have been completed.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Securities,
and additional broker-dealers do not make a market in the Company's Securities,
the market for, and the liquidity of, the Company's securities may be adversely
affected. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999. See "Underwriting."
Recent State Action Involving the Underwriter -- Possible Loss of
Liquidity. The State of Indiana commenced an action seeking, among other
things, to revoke the Underwriter's license to do business in such state. The
action was settled and the Underwriter agreed to, among other things, resolve
certain customer claims, the payment of a fine and costs and restrictions with
respect to the sale of securities to Indiana residents. Specifically, the
Underwriter agreed that it will not sell any securities to Indiana residents (i)
which
8
<PAGE> 10
are not listed on the New York Stock Exchange, the American Stock Exchange or
Nasdaq; (ii) for which the Underwriter has served as lead underwriter or as a
member of the selling syndicate; or (iii) for which the Underwriter is a market
maker. Under the terms of the settlement agreement, the Underwriter continues to
maintain its license in the State of Indiana. The Company does not intend to
seek qualification for the sale of the Securities in the state of Indiana. See
"Underwriting."
Limitation on Director Liability. As permitted by the Delaware General
Corporation Law ("DGCL"), the Company's Restated Certificate of Incorporation
limits the liability of its directors to the Company or to its stockholders for
monetary damages for breach of a director's fiduciary duty, including breaches
which constitute gross negligence, subject to certain limitations imposed by the
DGCL. As a result, under certain circumstances, neither the Company nor the
stockholders will be able to recover damages, even if directors take action
which harms the Company. See "Management" and "Underwriting."
Indemnification of Directors and Officers. The Company's Certificate of
Incorporation and Bylaws provide for the indemnification of the Company's
directors and officers to the fullest extent authorized by law. The Company has
entered into indemnification agreements with its directors and executive
officers. The indemnification agreements may require the Company, among other
things, to indemnify such directors and officers against certain liabilities
that may arise by reason of their status as directors and officers (other than
liabilities arising from willful misconduct of a culpable nature), and to
advance their expenses as a result of any proceeding against them as to which
they could be indemnified. As a result of these provisions, under certain
circumstances, neither the Company nor the Stockholders will be able to recover
damages, even if the directors and officers take action which harms the Company.
See "Management."
Thinly Traded Market for Common Stock; Lack of Public Market for Units and
Warrants. Although the Common Stock is traded on the Nasdaq SmallCap Market,
only 646,087 shares are held by non-affiliates of the Company and the Company
had only approximately 550 shareholders as of July 15, 1997. As a result, the
Common Stock is thinly traded and the holders of Common Stock might not be able
to liquidate their shares in a short period of time at prevailing market prices.
See "Market Matters."
Although the Company has applied for listing of the Units and the Warrants
on the Nasdaq SmallCap Market under the symbols CASCU and CASCW, respectively,
there can be no assurance that they will be quoted on such system or under such
symbols or that an active public market for the Securities will be developed or
be sustained after the Offering. Since the Units are not detachable and will not
trade separately until twelve months after issuance (subject to earlier
separability in the discretion of the Underwriter), investors might not be able
to liquidate their investment in a short period of time. In addition, trading
prices of the Securities could be subject to wide fluctuations in response to
variations in the Company's operating results, announcements by the Company or
others, developments affecting the Company or its competitors, suppliers or
customers and other events or factors. In addition, the over-the-counter stock
market has experienced extreme price and volume fluctuations in recent years.
These fluctuations have had a substantial impact on the market prices of many
companies, often unrelated to their performance, and may adversely affect the
market prices for any or all of the Securities. See "Underwriting."
Current Prospectus and State Registration Required to Exercise
Warrants. The Company will be able to issue shares of Common Stock upon
exercise of the Warrants only if there is a current prospectus relating to such
Common Stock under an effective registration statement filed with the Commission
and only if such shares of Common Stock are qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which the various Warrantholders reside. Although the Company has agreed to use
its best efforts to meet such regulatory requirements, there can be no assurance
that the Company will be able to do so. Although the Warrants will not knowingly
be sold to purchasers in jurisdictions in which the Warrants are not registered
or otherwise qualified for sale, purchasers may buy Warrants in the after market
or may move to jurisdictions in which the Common Stock issuable upon exercise of
the Warrants is not so registered or qualified. In this event, the Company would
be unable to issue shares of Common Stock to those Warrantholders upon exercise
of the Warrants unless and until the Common Stock issuable upon exercise of the
Warrants are qualified for sale or exempt from qualification in jurisdictions in
which such holders reside. Accordingly, the Warrants may be deprived of any
value if a then current prospectus covering the Common
9
<PAGE> 11
Stock issuable upon exercise of the Warrants is not effective pursuant to an
effective registration statement or if such Common Stock is not qualified or
exempt from qualification in the jurisdictions in which the Warrantholders
reside. There is no assurance that the Company will be able to effect any
required registration or qualification.
Potential Adverse Effect of Redemption of Warrants; Market
Overhang. During the Warrant Exercise Period the Company may redeem all, but
not less than all, of the Warrants for $0.05 per Warrant on thirty (30) days
prior written notice to the Warrantholders if the per share closing bid price of
the Common Stock as reported by NASDAQ equals $8.75 for any twenty (20)
consecutive trading days ending within five (5) days of the notice of
redemption. Redemption of the Warrants could force the Warrantholders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, to sell the Warrants at the then current
market price when they might otherwise wish to hold the Warrants for possible
additional appreciation, or to accept the redemption price, which is likely to
be substantially less than the market value of the Warrants at the time of
redemption. Any Warrantholder who does not exercise its Warrants prior to their
expiration or redemption, as the case may be, will forfeit such holder's right
to purchase the shares of Common Stock underlying the Warrants.
Delaware Anti-Takeover Statute; Issuance of Preferred Stock; Barriers to
Takeover. The Company is a Delaware corporation and thus, upon the consummation
of the Offering, will become subject to the prohibitions imposed by Section 203
of the DGCL, which is generally viewed as an anti-takeover statute. In general,
this statute will prohibit the Company from entering into certain business
combinations without the approval of its Board of Directors and, as such, could
prohibit or delay mergers or other attempted takeovers or changes in control
with respect to the Company. Such provisions may discourage attempts to acquire
the Company. In addition, the Company's authorized capital consists of 5,300,000
shares of capital stock of which 5,000,000 shares are designated as Common Stock
and 300,000 shares are designated as preferred stock. No class other than the
Common Stock is currently designated and there is no current plan to designate
or issue any such securities. The Board of Directors, without any action by the
Company's stockholders, is authorized to designate and issue shares in such
classes or series (including classes or series of preferred stock) as it deems
appropriate and to establish the rights, preferences and privileges of such
shares, including dividends, liquidation and voting rights. The rights of
holders of preferred stock and other classes of Common Stock that may be issued
may be superior to the rights granted to the holders of the existing classes of
Common Stock. Further, the ability of the Board of Directors to designate and
issue such undesignated shares could impede or deter an unsolicited tender offer
or takeover proposal regarding the Company and the issuance of additional shares
having preferential rights could adversely affect the voting power and other
rights of holders of Common Stock. Issuance of preferred stock, which may be
accomplished though a public offering, or a private placement, may dilute the
voting power of holders of Common Stock (such as by issuing preferred stock with
super voting rights) and may render more difficult the removal of current
management, even if such removal may be in the stockholders' best interests. Any
such issuance of preferred stock could prevent the holders of Common Stock from
realizing a premium on their shares. See "Description of Securities."
Potential Adverse Impact on Market Price of Securities; Shares Eligible for
Future Sale; Additional Registered Securities. Sale of substantial amounts of
the Company's securities in the public market after the Offering or the
perception that such sales may occur could materially adversely affect the
market price of the Securities and may impair the Company's ability to raise
additional capital by the sale of its equity securities. Upon consummation of
the Offering, there will be a total of 1,753,431 shares of Common Stock issued
and outstanding and 1,500,000 Warrants issued and outstanding. In addition, the
Company has reserved for issuance 2,050,000 shares of Common Stock issuable upon
the exercise of outstanding options and warrants. After the exercise of all the
Warrants and the options, the Company will have 3,803,431 shares of Common stock
outstanding. Any issuance of additional shares of Common Stock may cause current
stockholders of the Company to suffer significant dilution which may adversely
affect the market price of the Company's securities. The sale or availability
for sale of significant quantities of the Company's securities could materially
adversely affect the market price of the Securities.
Of the 1,753,431 shares of Common Stock and the 1,500,000 Warrants to be
outstanding upon completion of the Offering 750,000 Shares and 1,500,000
Warrants which are part of the Units will, when they
10
<PAGE> 12
are detachable, be immediately freely tradable without restriction under the
Securities Act. See "Shares Eligible for Future Sale."
S. Robert Davis, the Company's Chairman of the Board and Charles R. Davis,
a Director and President of the Company, will execute an agreement ("Lock-Up
Agreement") relating to securities beneficially owned as of the date of this
Prospectus pursuant to which they agree not to, directly or indirectly, issue,
offer, agree to offer to sell, sell or grant an option for the purchase or sale
of, transfer, pledge, assign, hypothecate, distribute or otherwise dispose of or
encumber such securities or options, rights, warrants or other securities
convertible into, exchangeable or exercisable for or evidencing any right to
purchase or subscribe for shares of Common Stock (whether or not beneficially
owned by such person) or any beneficial interest therein for a period of
eighteen (18) months after the date of this Prospectus without the consent of
the Underwriter. However, S. Robert Davis is permitted to sell 15,000 of his
shares during the first twelve months after the date of this Prospectus and an
additional 10,000 shares during the following six months, and Charles R. Davis
is permitted to sell 10,000 of his shares during the first twelve months after
the date of this Prospectus and an additional 5,000 shares during the following
six months. Accordingly, approximately 272,309 shares of Common Stock subject to
the Lock-up Agreement will become eligible for sale beginning in 1999.
See "Shares Eligible For Future Sale."
Underwriter's Potential Influence on the Market. A significant number of
the Securities offered hereby may be sold to customers of the Underwriter. Such
customers may engage in transactions for the sale or purchase of such Securities
through or with the Underwriter. Although it has no obligation to do so, the
Underwriter intends to make a market in the Securities and may otherwise effect
transactions in such securities. If it participates in such market, the
Underwriter may influence the market, if one develops, for the Securities. Such
market-making activity may be discontinued at any time. Moreover, if the
Underwriter sells the Securities issuable upon exercise of the Underwriter's
Option or acts as warrant solicitation agent for the Warrants, it may be
required under the Exchange Act, to temporarily suspend its market-making
activities. The prices and liquidity of the Securities may be significantly
affected by the degree, if any, of the Underwriter's participation in such
market.
No Assurance of Public Market. The Company's Common Stock is traded on the
Nasdaq SmallCap Market, but has been thinly traded. There can be no assurance
that a more liquid trading market for any of the Securities will develop after
the completion of the Offering. If a more liquid trading market does in fact
develop, there can be no assurance given that it will be sustained. In
connection with the Offering, application has been made to list the Units and
the Warrants on the Nasdaq SmallCap Market under the symbols CASCU and CASCW,
respectively. If, for any reason, a more liquid trading market does not develop,
purchasers of such Securities may have difficulty selling their securities
should they desire to do so. See "Market Matters."
"Penny Stock" Regulations May Impose Certain Restrictions on Marketability
of Securities. The Commission has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined) of
less than $5.00 per share, subject to certain exceptions. Initially, it is
anticipated that the Securities offered hereby will not fall within the
definition of a "penny stock" both because of the initial offering price of the
Units, the current trading price of the Common Stock and because the Common
Stock is traded on the Nasdaq SmallCap Market. However, there can be no
assurance that the Securities will continue to remain exempt from the "penny
stock" rules. If the Securities offered hereby are subject to the "penny stock"
rules, such Securities will become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such Securities to persons
other than established customers and accredited investors (generally, those
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchase of the Securities and have received the purchaser's written consent to
the transaction prior to the purchase. Additionally, for any transaction
involving a "penny stock", unless exempt, the rules require the delivery, prior
to the transaction, of a risk disclosure document mandated by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose
11
<PAGE> 13
this fact and the broker-dealer's presumed control over the market. Finally,
monthly statements must be sent disclosing recent price information for the
"penny stock" held in the account and information on the limited market in
"penny stocks." Consequently, the "penny stock" rules may restrict the ability
of broker-dealers to sell the Securities and may affect the ability of
purchasers in the Offering to sell the Securities in the secondary market. In
such event, holders of the Securities may encounter substantially greater
difficulty in disposing of them; securities and/or in obtaining accurate
quotations as to the prices of the Securities.
Benefits of Offering to Underwriter. The Underwriter will receive
substantial benefits from the Company in connection with the Offering. These
benefits include underwriting discounts/commissions, a non-accountable expense
allowance, and the Underwriter's Option to purchase 75,000 Units. The
Underwriter has been granted certain rights under the Underwriter's Options,
which rights include the ability to require the Company to include the
securities underlying the Underwriter's Option in a registration statement under
the Securities Act. The exercise of these rights will result in the Company
incurring substantial expenses and may cause the Company to register an offering
of its securities at a time which is detrimental to the Company's plans.
Finally, the Company has entered into a five (5) year agreement with the
Underwriter pursuant to which the Underwriter will be paid a finder's fee
ranging from 1% to 5% of the transaction amount if the Company completes a
merger, acquisition, joint venture, and/or any other capital business
transaction for the Company in which the Underwriter introduces the Company to
the other party. At the present time, the Company has no plans to enter into any
such transactions. See "Underwriting."
Risks Associated with Forward-Looking Statements Included in this
Prospectus. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based, in part, on assumptions involving that there will be no
unanticipated material adverse change in the Company's business. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
12
<PAGE> 14
MARKET MATTERS
Prior to January 1, 1997, the Company was a wholly-owned subsidiary of
Pages. From that time until May 30, 1997, the Common Stock was traded on the OTC
Bulletin Board under the symbol "CASC." On June 2, 1997, the Common Stock began
trading on the Nasdaq SmallCap Market under the same symbol. During the first
quarter of 1997, bids for the Common Stock ranged from $3.50 per share to $4.50
per share. Those quotations reflect inter-dealer prices without retail mark-up,
mark-down or commissions and may not represent actual transactions. During the
period commencing on April 1, 1997 and continuing through May 30, 1997, bids for
the Common Stock ranged from $3.27 to $4.50 per share. During the period
commencing on June 2, 1997 and continuing through June 30, 1997, the high and
low sales prices for the Common Stock were $5.25 and $4.25, respectively. The
sales prices have been retroactively adjusted to reflect an 8% stock dividend
payable to shareholders of record on July 16, 1997.
As of July 15, 1997, there were approximately 550 holders of record of the
Common Stock.
The Company has not paid any cash dividends since it ceased to be a
wholly-owned subsidiary of Pages, and anticipates that, for the foreseeable
future, it will not pay any cash dividends but will retain earnings in order to
finance the expansion and development of its business. Furthermore, the
Company's ability to pay dividends is restricted by the terms of its revolving
credit facility.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 Units being
offered hereby, after deduction of underwriting discounts and estimated offering
expenses totaling $772,500, are estimated to be approximately $2,977,500
($3,483,750 if the Over-Allotment Option is exercised in full). The Company
intends to apply the net proceeds as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Investment in employee sales organization(1)................ $1,000,000 33.6%
Investment in information technology, system upgrades and
automation................................................ 750,000 25.2
Reduce balance of revolving credit facility(2).............. 1,200,000 40.3
Working capital and general corporate purposes.............. 27,500 .9
---------- -----
$2,977,500 100.0%
</TABLE>
- ---------------
(1) Includes the payroll expense of hiring additional employees as sales
representatives.
(2) The reduction will be effected by wire transfer of funds to The Huntington
National Bank, to be applied toward the outstanding balance of the line of
credit.
The investment in the Company's sales organization includes the expense of
hiring additional sales representatives in strategic markets and associated
marketing expenses. The investment in technology includes the purchase of
computer hardware and software, the development of the Company's internet
presence, and warehouse automation. The uses of proceeds described above are
estimates and approximations only and do not represent firm commitments by the
Company.
It is anticipated that at the date of this Prospectus, the aggregate
outstanding principal balance of the Company's revolving credit facility (the
"Credit Facility") and accrued interest thereon will be approximately
$1,200,000. Indebtedness under the Credit Facility matures on June 30, 1998,
accrues interest at a floating rate based on the prime lending rate of The
Huntington National Bank (8.5% at July 15, 1997) plus 1% per annum and was
incurred to fund the operations of the Company. Following the completion of the
Offering, the Company expects to draw down amounts under the Credit Facility as
needed to support its operations and possibly to fund future acquisitions or for
other corporate purposes. The Company has no specific commitments regarding any
future material acquisitions.
The foregoing represents the Company's best estimate of its expected use of
the net proceeds of the Offering. The amounts actually expended for certain
purposes described above may vary significantly depending on numerous factors,
including, but not limited to, the success of the Company's expansion strategy
and changed circumstances and business opportunities, which may include the
acquisition of other companies or their businesses. The Company's cash
requirements may vary because of the timing of its expansion into additional
territories and the success of the Company's sales representatives in expanding
the Company's client base. The Company reserves the right to reallocate the net
proceeds among the foregoing uses.
Pending the use of any net proceeds, the Company intends to invest the net
proceeds from the Offering in short-term, investment-grade, interest-bearing
securities. Any net proceeds from the exercise of the Over-Allotment Option or
the Warrants, will be added to working capital.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the company as of June
30, 1997, and as adjusted to reflect the sale of the Securities offered hereby
and the application of the net proceeds therefrom as described under "Use of
Proceeds." The table should be read in conjunction with the Financial
Statements, the notes thereto and the pro forma financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
AS
ACTUAL ADJUSTED(1)(2)(3)
----------- -----------------
<S> <C> <C>
Debt:
Short-term debt........................................... $ 1,404,015 $ 204,015
Short-term subordinated debenture......................... 100,000 100,000
Subordinated Debenture.................................... 4,900,000 4,900,000
----------- -----------
Total Debt........................................ 6,404,015 5,204,015
----------- -----------
Stockholders' Equity:
Preferred shares: $.01 par value, 300,000 authorized;
non-issued............................................. 0 0
Common shares: $.01 par value; 5,000,000 authorized;
929,103 shares outstanding and 1,753,431 shares
outstanding, as adjusted............................... 9,291 17,534
Capital in excess of par value............................ 3,273,669 6,242,926
Accumulated deficit....................................... (1,219,679) (1,219,679)
----------- -----------
Total Stockholders' Equity........................ 2,063,281 5,050,781
----------- -----------
Total Capitalization........................................ $ 8,467,296 $10,244,796
=========== ===========
</TABLE>
- ---------------
(1) Adjusted to reflect (i) the sale of 750,000 Units, each Unit consisting of
one Share and two Warrants by the Company and the net proceeds therefrom and
the uses thereof (after deducting the underwriting discounts and commissions
and expenses of this offering estimated at $772,500 and (ii) the reduction
of certain indebtedness from the net proceeds. Does not include the proceeds
from the sale of shares pursuant to the exercise of any Warrants or the
exercise of the Underwriter's Purchase Option. See "Underwriting."
(2) Assumes no exercise of (i) the Warrants; (ii) the Underwriter's
Over-Allotment Option to purchase up to 112,500 Units; and (iii) the
Underwriter's option to purchase up to 75,000 Units. See "Description of
Securities" and "Underwriting."
(3) Adjusted to give retroactive effect to the 8% stock dividend paid to
stockholders of record July 16, 1997.
DIVIDEND POLICY
The Company has not declared or paid any cash dividend on its Common Stock
and does not anticipate paying any such dividends in the foreseeable future. The
Company intends to retain future earnings, if any, to fund ongoing operations
and future capital requirements of its business.
15
<PAGE> 17
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data of the Company presented below have been
derived from the financial statements of the Company, which have been audited by
Hausser + Taylor, independent public accountants. The following selected
financial information should be read in conjunction with the financial
statements and the related notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------ --------------------------
1995 1996 1996 1997
------- ------- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $22,620 $21,959 $10,053 $8,443
Costs and expenses.............................. 23,296 22,542 10,224 9,074
Income (loss) before income taxes and
cumulative effect of change in accounting
principle.................................. (676) (583) (171) (631)
(Provision) benefit for income taxes.......... 249 195 57 241
Income (loss) before cumulative effect of
change in accounting principle............. (427) (388) (114) (390)
Cumulative effect of change in accounting
principle, net of tax of $398.............. -- 597 597 --
Net income (loss)............................... $ (427) $ 209 $ 483 $ (390)
PRO FORMA PER SHARE DATA(1):
Income (loss) before cumulative effect of
change in accounting principle............. $ (.43) $ (.39) $ (.11) $ (.39)
Cumulative effect of change in accounting
principle.................................. -- .59 .59 --
Income (loss) per common share(2)............. $ (.43) $ .20 $ .48 $ (.39)
Weighted average common and common equivalent
shares.....................................1,003,431 1,003,431 1,003,431 1,003,431
</TABLE>
<TABLE>
<CAPTION>
AT
AT JUNE 30, 1997
DECEMBER 31, ----------------------------
----------------- PRO FORMA
1995 1996 HISTORICAL AS ADJUSTED(3)
------- ------- ---------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 3,774 $ 5,025 $ 3,707 $ 5,485
Total assets........................................ 19,512 18,249 13,567 15,345
Stockholders' equity................................ 3,119 3,328 2,063 5,041
</TABLE>
- ---------------
(1) Adjusted to give effect to 8% stock dividend paid to stockholders of record
on July 16, 1997.
(2) Represents pro forma earnings per common and common equivalent shares both
on a primary and a fully diluted basis.
(3) Adjusted to reflect (i) the sale of the Units offered hereby and the net
proceeds therefrom (at an initial public offering price of $5.00 per Unit
and after deducting the underwriting discounts and commissions and estimated
expenses of the Offering totaling approximately $772,500 and assuming no
exercise of the Over-Allotment Option) and (ii) the repayment of certain
indebtedness from the proceeds of this offering. See "Use of Proceeds." Does
not include the proceeds from the sale of shares of Common Stock pursuant to
the exercise of any Warrants, the Underwriter's Option, and any options
granted pursuant to the Incentive Option Plan and the Director Option Plan.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as applicable to all forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section and
in "Risk Factors."
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in other sections of this
Prospectus, which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results and those presently anticipated or projected. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results and could cause the Company's actual financial performance to
differ materially from that expressed in any forward-looking statement: (i) the
competitive conditions that currently exist in the Company's industry could
adversely impact sales and erode gross margins; (ii) the Company's loan
agreement contains a number of significant covenants that restrict the ability
of the Company to engage in certain activities, including the payment of
dividends, and requires that the Company maintain specified financial ratios,
including a minimum capital base, and minimum pre-tax profits from operations;
and (iii) the inability of the Company to carry out its marketing and sales
plans would have a material adverse affect on the Company's profitability. The
foregoing list should not be construed as exhaustive and the Company disclaims
any obligations subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
ACCOUNTING CHANGE
Effective January 1, 1996, the Company changed its method of accounting for
the recognition of revenues relating to advanced deposits. Previously, the
Company recognized such deferred revenue at the conclusion of the respective
prepaid safety award programs. Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The corresponding deferred commission costs
have also been recognized in association with this change in the same direct
proportion as the revenue recognition.
17
<PAGE> 19
RESULTS OF OPERATIONS
The table below sets forth certain financial data expressed as a percentage
of revenues (percentage may not total 100% due to rounding):
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
----------------------------------------------
SIX MONTHS
TWELVE MONTHS TWELVE MONTHS ENDED
ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------
1995 1996 1996 1997
------------- ------------- ----- -----
<S> <C> <C> <C> <C>
Total revenue............................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.......................... 61.3 61.6 59.3 56.6
----- ----- ----- -----
Gross profit................................ 38.7 38.4 40.7 43.4
Selling, general, and administration........ 36.1 36.7 37.9 45.7
Interest.................................... 1.8 0.6 0.3 3.1
Depreciation and amortization............... 1.6 1.5 1.7 2.1
Management fee.............................. 2.2 2.3 2.5 --
----- ----- ----- -----
Loss from continuing operations before
income taxes.............................. (3.0)% (2.7)% (1.7)% (7.5)%
===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to the Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 approximated $8.44 million,
compared to $10.05 million in revenues for the six months ended June 30, 1996, a
decrease of 16.02% or approximately $1.61 million. The decline in revenue was
due to disappointing holiday sales and a decrease in volume from certain
existing customers coupled with delayed redemptions on new accounts.
Cost of goods sold for the six months ended June 30, 1997 approximated
$4.78 million, compared to approximately $5.96 million of cost of goods sold for
the six months ended June 30, 1996, a decrease of 19.80% or approximately $1.18
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 56.62%
for the six months ended June 30, 1997, from 59.31% for the six months ended
June 30, 1996. The 2.69% decrease in the cost of goods sold, as a percentage of
revenues was principally attributable to a change in product mix and improved
inventory purchasing strategy.
Selling, general, and administrative expense for the six months ended June
30, 1997 approximated $3.86 million, compared to $3.81 million for the six
months ended June 30, 1996, an increase of 1.3% or approximately $50,000. The
increase in selling, general, and administrative expense was primarily due to a
restructuring of the Company's sales force.
For the six months ended June 30, 1997 interest expense approximated
$258,00, compared to approximately $33,000 for the six months ended June 30,
1996, an increase of approximately $225,000. 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 six months in 1997 approximated
$1.65 million compared to $1.52 million for the first six months in 1996.
Additionally, the average interest rate for the first six months in 1997
approximated 9.38% compared to approximately 9.04% for the same period in 1996.
Depreciation and amortization expense was approximately $174,000 and
$167,000 for the six months ended June 30, 1997 and 1996, respectively, an
increase of 4.2%, or approximately $7,000. The increase in depreciation and
amortization expense was principally attributable to the depreciation of newly
acquired assets in 1996.
Income tax benefit was $241,000 for the six months ended June 30, 1997,
compared to $57,300 for the six months ended June 30, 1996. The provisions for
income tax benefit were calculated through the use of estimated income tax rates
based upon the loss before taxes.
18
<PAGE> 20
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues for the year ended December 31, 1996, approximated $22.0 million,
compared to $22.6 million in revenues for the year ended December 31, 1995, a
decrease of 3% or approximately $600,000. The decline in revenue was due to
disappointing year-end holiday sales and a decrease in volume on certain
existing customers coupled with delayed redemption on new accounts.
Cost of goods sold for the year ended December 31, 1996, approximated $13.5
million, compared to approximately $13.9 million of cost of goods sold for the
year ended December 31, 1995, a decrease of 3% 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 increased to 61.6% in 1996 from
61.3% in 1995. The 0.3% increase in cost of goods sold was principally
attributable to a change in product mix.
Selling, general, and administrative expense for the year ended December
31, 1996 approximated $8.1 million compared to approximately $8.2 million for
the year ended December 31, 1995, a decrease of 1% or approximately $100,000.
The decrease in selling, general and administrative expenses was due to
decreased sales and continued cost reduction efforts implemented by the Company.
Interest expense was approximately $129,000 for the year ended December 31,
1996, compared to $416,200 for the year ended December 31, 1995, a decrease of
69% or approximately $287,200. The average outstanding debt by month in 1996
approximated $1.9 million compared to $3.9 million for 1995. Additionally, the
average interest rate for 1996 approximated 9.15% compared to approximately 9.3%
for 1995.
Depreciation and amortization expense was approximately $338,200 for the
year ended December 31, 1996, compared to $362,500 for the year ended December
31, 1995, a decrease of 7% or approximately $24,300. The decrease in
depreciation and amortization expense is principally attributable to the
amortization of the remaining deferred loan costs during 1996.
Income tax benefit was $195,100 for the year ended December 31, 1996,
compared to $248,600 for the year ended December 31, 1995. 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.
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 its credit facility, will cover
operating expenditures and meet the short-term debt obligations. The Company's
credit facility was renewed on June 30, 1997 and is due and payable on June 30,
1998.
The Company also entered into a $5 million, 7% subordinated debenture with
Pages simultaneously with the distribution by Pages of all of its shares of
common stock of the Company, in satisfaction of amounts due to Pages by the
Company. The $875,025 excess of the $5,000,000 subordinated debenture over the
amount due Pages at the time of distribution was recorded as a reduction of
capital in excess of par. Principal payments are $100,000 per year for the first
four years, and a final payment due at the end of the fifth year for the
remaining principal balance. Interest is at 7% per annum, payable quarterly.
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
19
<PAGE> 21
material way. The Company is aware of no legal or other contingencies, the
effect of which are believed by management to be reasonably likely to have a
material adverse effect on the Company's financial statements.
SEASONALITY
The Company's business is highly seasonal, with approximately forty 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 diminished. The business segments 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, 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 from suppliers by increases in the selling prices of the Company's
products and services.
20
<PAGE> 22
BUSINESS
The following discussion contains forward-looking information which
involves risks and uncertainties. The Company's actual results could differ
materially from those anticipated by such forward-looking information as a
result of various factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
General. The Company creates, markets, and administers recognition
programs which address specific needs in associate recognition. Programs offered
by the Company include safety, years of service recognition, and a host of other
programs using merchandise and jewelry as the principal means for the
reinforcement of associate behavior. The common objective of all the Company's
programs is to increase associate productivity through recognition, to create a
critical link between performance and the client's overall business objectives.
The Company begins a typical assignment by determining realistic
performance goals and establishing an appropriate budget. Next, the Company and
the client select from one of the industry's largest selections of merchandise
and jewelry, carefully matching the Company's programs with the demographic
composition of the client. The Company is, to the best of the Company's
knowledge, the only company in the recognition industry that has no product bias
with regard to the type of items incorporated in the client's programs. This
distinctive competitive advantage allows the Company to build custom programs
with flexibility and allows the client to choose items their associates truly
value. Upon approval, the Company publishes and distributes all materials
(including appealing, full color catalogues and brochures) necessary to execute
the program. As the client's associates become eligible to receive awards, the
Company processes their requests and, in most cases, ships the items directly to
the associates from the Company's distribution center in Shelby, North Carolina.
The Company then invoices the client as the items are shipped.
Program Categories. The Company's programs fall into two broad categories;
length of service, and safety incentive and recognition. They include safety,
sales incentive, quality control, production, service recognition, attendance,
birthday, and corporate holiday gift programs. Virtually every program employs
general merchandise or jewelry, or both, depending on the clients' needs. The
common objective of all of the Company's programs is to design a custom program
to satisfy these specific needs.
Over the past three years, the recognition programs industry has changed
significantly, requiring the Company to redefine its strategies, focus on
specific product lines, and exploit certain niches within its market. The
Company has made adjustments to accommodate changes in its industry, including
the installment of a total quality management program, the development of a
strategic marketing group, the implementation of an aggressive cash management
program, and the development of new core capabilities necessary to promote
growth. The Company believes that with intense marketing and the employment of a
skilled, well-managed field sales organization, the Company will be able to
increase the brand recognition of its products and increase its penetration into
specific markets.
Years of Service Recognition Programs. Most business people agree that
their greatest challenge is attracting and retaining competent people. Most
business people also agree that recognition is perhaps the single most important
element in retaining these precious resources. As companies downsize,
re-engineer and reorganize they are realizing that in order to retain market
share and increase shareholder value they must take care of their most valuable
assets -- their human assets and earn their loyalty back. In the past, there was
a deeply ingrained corporate paradigm stating "longevity-equals-seniority." For
decades, years of service awards programs were designed to reinforce this
paradigm.
Today, the paradigm has changed to "longevity-equals-individual
performance." Companies are leaner, and management must constantly balance the
contemporary reality of achieving more with less. In order for an associate to
endure the period between recognition periods they must perform and perform
well. With this in mind the entire recognition industry is changing. Different
types of programs are required to maintain the same levels of recognition. The
Company helps its clients develop their own custom program with this new
paradigm in mind. The Company, having no "product bias", is able to truly listen
to the client and deliver exactly what the client's associates want. The
Company's goal is to increase the "Recognitional Impact"(TM) of each of its
clients.
21
<PAGE> 23
Safety Awareness/Incentive and Recognition Programs. Accidents in the
workplace injure thousands of workers each year and cost billions of dollars in
worker's compensation premiums, health care costs, and lost productivity. The
Company designs, implements and administers safety programs to reduce the direct
and indirect costs associated with accidents or lack of safety awareness.
Coupled with worker safety training and work place safety initiatives, safety
incentive and recognition programs have proven to be an essential contributor to
overall safety awareness. By increasing awareness and recognizing those in the
workplace who have safe work habits, the successful clients can achieve
significant returns on their incentive investments. Because each client has its
own unique set of safety concerns, the Company designs each safety awareness and
recognition program to meet the specific needs and goals of the client. A
typical safety program would grant an award for each recipient who met the
client's specific goal. As a consequence of the present regulatory environment,
clients are placing increasing emphasis on safety and the Company has received a
number of client testimonials regarding the efficiency of the safety programs it
has designed. The Company's market share of this industry is minimal.
Other Programs. The Company utilizes its reputation in both outstanding
merchandise selection and the timely delivery of such merchandise to design,
administer and fulfill numerous types of customer specific programs for its
clients. These ancillary programs include attendance, holiday, birthday, sales
incentives, and generic points programs that add incremental revenue without
diluting the Company's focus on its core businesses. In developing close ties
with the Company's clients many opportunities for these types of programs become
apparent. The Company intends to continue to work in these ancillary markets as
long as its client's needs demand its services.
Merchandise Selection and Brochures. The Company markets its merchandise
and jewelry in full-color catalogs and brochures. All are designed and produced
in-house by the Company's marketing group. The merchandise offered by the
Company includes the most popular items found in a cross section of America's
most popular department stores and mail order catalogs, including branded
consumer electronics, housewares, hardware, lawn and garden merchandise,
sporting goods, costume jewelry, manufactured fine jewelry, porcelain and fine
crystals. The Company monitors the quality and increases the value perception of
its programs by including name brand products such as Sony, RCA, Waterford,
Lladro, Howard Miller and Hamilton. Unlike its competitors in the service award
business which bear the financial burden and lack of flexibility ascribed to
some manufacturing environments, the Company has no "product bias," allowing it
to find the most reasonably priced, highest quality supplier of merchandise for
its programs. The items are separated into various price levels thus allowing
the client to select price levels which fit their budget. The items in each of
the price levels selected by the client are presented to associates in separate
brochures corresponding to the applicable award level. The selection of
merchandise within each price level is carefully chosen to appeal to a wide
segment of the industry workforce. Products are grouped by the Company within a
particular price level based on the Company's determination of the relative
value of all merchandise offered by the Company, rather than on the Company's
cost of those items. This results in different markups over the Company's cost
for each item, and greatly reduces, and in some cases eliminates, costs
associated with product obsolescence.
Sales and Marketing. The Company has redefined the way in which it goes to
market. It has made a transition from independent sales reps to full-time
company employees. Further, the Company has clearly defined and identified
target prospects in strategic metropolitan statistical areas across the country.
In addition to prospecting activities, the marketing and sales group has
developed an aggressive account initiative involving account retention. This
change in the Company's philosophy was needed due to a significant change in its
mission: "To have the best trained, most responsive, performance based sales
force in America." The Company realized the existing sales force would be unable
to take the Company to the next level of performance. In the past eighteen
months the Company has identified major markets and replaced 90% of its
independent sales staff with employed full-time sales people. The Company has
prepared for any short term ramifications by developing a fully staffed inside
sales group to assist in regulating the change to an employed field sales group,
and will utilize independent field representatives in special situations.
The hiring of additional sales representatives is expected to increase the
Company's selling, general and administrative expenses in the third and fourth
quarters of 1997. Since the training period for sales
22
<PAGE> 24
representatives is approximately six months, the anticipated increase in
selling, general and administrative expenses during those and possibly
subsequent periods could adversely affect earnings until sales increase as a
result of the additional sales representatives.
Internet Website. Recently, the Company has established a website on the
internet at www.cashort.com. The website has three primary sales and marketing
objectives. First, the site provides detailed information about Company history
and strategic intent, and a comprehensive account of the Company's product and
service offerings. Second, the website facilitates the transfer of timely
contemporary articles and other publications through its "research library"
function, and provides linkages to notable industry resources such as the
National Safety Council and the Society of Human Resource Managers. Finally, the
website provides customers the ease and flexibility of communicating with the
Company electronically; whether it be for order entry, the transfer of points or
other administrative information, order status, or a host of other customer
inquiries necessary in the day-to-day interaction between the Company and its
customer base. The Company is also in the process of developing other websites
for selling merchandise to the general public.
Growth Strategy. The Company has divided the Country into specific
territories. The territories were defined by existing accounts and target
prospects within each area. Each territory is serviced by a full-time Company
employed territory manager. Within each territory area the Company has segmented
the potential clients into specific prospect groups based on size and type of
program. Each prospect group will be marketed in the method proven most likely
to engage the client. All territory managers receive intense training and are
measured on a number of criteria including sales performance and territory
market share penetration. For the first time in the Company's history, the
Company will work the markets on a proactive, systematic basis and each
territory manager's employment will be based on his or her individual
performance and market penetration. The Company has also developed a marketing
plan and strategy to exploit the changes in the Company's markets.
Competition. The recognition industry includes two completely different
markets -- the recognition awards market and the safety incentive awards
market -- which must be sold and managed individually. Both markets are highly
fragmented. The years of service award market is approaching a billion dollar
industry with three major competitors, O.C. Tanner, Jostens, and The Robbins
Company, which have combined annual sales of $400 - $500 million. All three of
these competitors are strong, well-capitalized companies with large jewelry
manufacturing facilities. The service award market is highly competitive. The
safety incentive industry is estimated to be a billion dollar industry, but is
fragmented with no dominant market force. The Company is not aware of any
competitor in the safety incentive industry possessing the same core
competencies as the Company. The Company competes in both the recognition awards
and in the safety incentive awards markets on the basis of program design,
customer service, product quality, full program administration and flexibility.
Employees. As of July 15, 1997, the Company employed a total of 130
regular employees. The number of seasonal employees fluctuated during 1996 from
a high of 302 to a low of 9 due to the seasonal nature of the Company's
business. The Company's employees are not represented by a union and no work
stoppages have occurred since the purchase of the Company by Pages in 1990.
Properties. The Company's principal properties are its 134,000 square foot
warehouse and offices located in Shelby, North Carolina and its 163,700 square
foot warehouse located in Kings Mountain, North Carolina, both of which are
owned by the Company.
Financing. The Company has a revolving credit facility from The Huntington
National Bank in the maximum principal amount of $4.5 million. Borrowings under
the credit facility are limited to the sum of (i) the lesser of 60% of the
Company's eligible inventory or an inventory cap which is up to the sum of $3.5
million for the months of January through and including May each calendar year
and $4.5 million for the months of June through and including December of each
calendar year, plus (ii) up to 75% of eligible real estate. The foregoing
percentages are subject to increase or decrease by the lender upon thirty days
notice. 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. The credit facility also includes certain financial covenants,
including covenants that the Company maintain certain financial ratios including
a minimum tangible capital base and a minimum pre-tax profit from
23
<PAGE> 25
operations. In addition, the credit facility contains limitations on capital
expenditures, fixed asset sales, loans and/or advances to shareholders, payment
of dividends, and employees and restrictions on operating leases.
Customer Contracts. Although it is difficult for the Company's customers
to discontinue a program once it has been initiated by the Company, all of the
contracts the Company has with its customers are cancelable by the customer upon
ninety-days notice.
24
<PAGE> 26
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
DIRECTOR OR
NAME AGE POSITION EXECUTIVE OFFICER SINCE
- ---- --- -------- -----------------------
<S> <C> <C> <C>
S. Robert Davis(1)............ 58 Chairman of the Board 1990(2)
Charles R. Davis(1)........... 35 President and Director 1990(2)
Robert V. Boylan.............. 34 Chief Operating Officer and 1997
Director
Jeffrey A. Ross............... 30 Chief Financial Officer and 1996
Secretary
David J. Richards............. 45 Director 1997
Michael P. Beauchamp.......... 51 Director 1997
</TABLE>
- ---------------
(1) S. Robert Davis is the father of Charles R. Davis.
(2) Including the period prior to the Company's domicile change merger in 1996.
Executive officers serve at the pleasure of the Board of Directors.
Directors are elected at the annual meeting of shareholders to serve for one
year and until their successors are duly elected and qualify, or until their
earlier resignation, removal from office, or death. The remaining directors may
fill any vacancy in the Board of Directors for an unexpired term.
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
S. Robert Davis has been the Chairman of the Board and President of Pages,
Inc., a Company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 ("Pages") for the past five years. Until
December 31, 1996, the Company was a wholly-owned subsidiary of Pages. Mr. Davis
was a founder of Arthur Treacher's Fish & Chips, Inc. He also was one of three
original shareholders and directors of Wendy's International, was a founder,
shareholder and director of Orange-Co., Inc., a manufacturer of frozen orange
juice concentrate, and is a former Chairman of the Board of Buckeye Financial
Corporation and a former member of the Board of Directors of Buckeye Federal
Savings & Loan Association. Except for the Company and Pages, Mr. Davis no
longer serves as a director of any of the aforementioned entities.
Charles R. Davis has served as the President of the Company since
September, 1992. From 1978 until 1980, Mr. Davis was Vice President of Real
Estate of Orange & Co., Inc. and from 1983 until 1996, he was a director and
executive officer of Pages, Inc. Mr. Davis received his bachelor's degree in
business administration from Franklin University.
Robert V. Boylan joined the Company in August, 1996, as Executive Vice
President of Sales, and was promoted to Chief Operating Officer in March of
1997. From April 1987 until August, 1996, Mr. Boylan served in various sales and
marketing capacities with Certainteed Corporation, a diversified building
products manufacturer. Certainteed is not a parent, subsidiary, or other
affiliate of the Company. Mr. Boylan has also served as a contract consultant
for the American Management Association from 1992 through 1995, and from 1992
until August, 1996, for Beauvestco Consulting, specializing in sales development
and sales management. Mr. Boylan received his MBA from Wake Forest University.
Jeffrey A. Ross is a certified public accountant. He joined the Company as
its controller in June, 1993 and was promoted to Chief Financial Officer in
November, 1996. Mr. Ross was employed as an accountant by a large public
accounting and consulting firm from September, 1989, until June, 1993.
David J. Richards has been the President and a director of NetMed, Inc. for
over five years. NetMed is not a parent, subsidiary or other affiliate of the
Company. NetMed is a company with a class of securities registered pursuant to
section 12 of the Securities Exchange Act of 1934.
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<PAGE> 27
Michael P. Beauchamp has been the President of Beauvestco, a management
consulting firm, since 1989. Beauvestco is not a parent, subsidiary, or other
affiliate of the Company.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the DGCL provides in relevant part that "a corporation
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful." With respect to derivative actions, Section 145(b) of the
DGCL provides in relevant part that "[a] corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor . . . [by reason of his service
in one of the capacities specified in the preceding sentence] against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was bought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper." The Company's Certificate of Incorporation
provides for such indemnification to the fullest extent provided for by the
DGCL.
The Company's Certificate of Incorporation provides that no director of the
Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director except as limited by
the DGCL. The Certificate of Incorporation also provides that no amendment or
repeal of such provision shall apply to or have any effect on the right to
indemnification permitted thereunder with respect to claims arising from acts or
omissions occurring in whole or in part before the effective date of such
amendment or repeal whether asserted before or after such amendment or repeal.
The Company's Bylaws provide that the Company shall indemnify to the
fullest extent authorized by law each of its directors and officers against
expenses incurred in connection with any proceeding arising by reason of the
fact that such person is or was an agent of the corporation.
The Company has entered into indemnification agreements with Messrs. S.
Robert Davis, Charles Davis, Richards, Beauchamp, Boylan and Ross. The Company
may enter into separate indemnification agreements with other officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in the Company's Amended and
Restated Certificate of Incorporation and Bylaws. The indemnification agreements
may require the Company, among other things, to indemnify such directors and
officers against certain liabilities that may arise by reason of their status as
directors and officers (other than liabilities arising from willful misconduct
of a culpable nature) and to advance their expenses as a result of any
proceeding against them as to which they could be indemnified. The Company
believes these agreements are necessary to attract and retain qualified persons
as directors and officers. Insofar as indemnification for liabilities under the
Securities Act may be provided to officers, directors or persons controlling the
Company, the Company has been informed that in the opinion of the Commission,
such indemnification is against public policy and is therefore unenforceable.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
26
<PAGE> 28
CERTAIN TRANSACTIONS
In connection with the distribution on December 31, 1996, by Pages of all
of the Company Common Stock owned by it, Pages and the Company entered into a
Distribution Agreement. The form of the Distribution Agreement was filed by the
Company with the Securities and Exchange Commission as an Exhibit to the
Company's Form 10. S. Robert Davis is the Chairman of the Board of Pages and he
and Charles R. Davis are substantial shareholders of Pages. The following is in
summary of the terms of the Distribution Agreement, which is qualified in its
entirety by reference to Distribution Agreement.
The Distribution Agreement provides, among other things, for the
indemnification by each party of the other against certain liabilities,
including certain tax liabilities. In addition, the Distribution Agreement
provides for the execution and delivery by the Company to Pages of a
subordinated debenture in the principal amount of $5 million bearing interest at
7% per annum payable quarterly, with principal payments of $100,000 each due at
the end of each of the first four years, and a final payment of $4,600,000 due
at the end of the fifth year. The Distribution Agreement also provides that
Pages and the Company is granted access to certain records and information in
the possession of the other, and requires the retention by each for a period of
five years following the Distribution of all such information in its possession.
The Distribution Agreement also provides for the allocation of certain
taxes. In general, Pages is responsible for filing all tax returns and paying
all taxes relating to the Company for periods through the Distribution Date, and
the Company is responsible for filing all such tax returns and paying all such
taxes for period beginning after the Distribution Date. Pages and the Company
agree to cooperate with one another and to share information in preparing such
tax returns and in dealing with other tax matters.
DIRECTOR COMPENSATION
Each director who is not an officer of the Company receives a fee of $500
for attendance at each Board meeting, a fee of $250 for attendance at each
telephonic Board meeting, and a fee of $250 for attendance at each meeting of a
Board committee of which he is a member. Directors who are also officers of the
Company receive no additional compensation for their services as directors. The
Company has adopted a Non-Employee Director Stock Option Plan (the "Director
Option Plan"), which provides for the grant, at the discretion of the Company's
Board of Directors, of options to purchase up to 40,000 shares of Common Stock
upon such terms as are determined by the Board in its discretion. In June, 1997,
options to purchase 10,000 shares of Common Stock at a purchase price of $4.50
per share were granted under the Director Option Plan.
EXECUTIVE COMPENSATION
The Company's President, Charles R. Davis, was paid a salary of $132,315,
$147,896 and $140,000 in each of the 1996, 1995, and 1994 fiscal years,
respectively. Mr. Davis exercised options to purchase Pages common stock during
1996 and 1995, the difference between the fair market value of the Pages common
stock received and the option exercise price of which was $134,040 and $103,389,
respectively. He did not receive any other compensation from the Company in
those years and he did not receive any grants of options to purchase Pages
common stock in those years. In March, 1997, the Company granted to Mr. Davis
options under its 1996 Incentive Stock Option Plan to purchase 35,000 shares of
Common Stock at a purchase price of $3.50 per share. On July 17, 1997, the
Company agreed to grant to Mr. Davis performance options to purchase 200,000
shares of Company Common Stock, 50,000 of which will be granted if the Company
has pre-tax earnings of at least $1 million in any fiscal year, 75,000 of which
will be granted if the Company has pre-tax earnings of at least $1.5 million in
any fiscal year, and 75,000 of which will be granted if the Company has pre-tax
earnings of at least $2 million in any fiscal year, in each case as long as Mr.
Davis was employed by the Company at the end of the applicable fiscal year. The
performance options are exercisable at the market price of the Common Stock at
the date of the grant, which will be the date that the Company files its Form
10-K with its audited financial statements showing that the required earnings
plateau is satisfied. Mr. Davis' compensation is established by the Board of
Directors. No other executive officer of the Company received compensation
exceeding $100,000 during fiscal years 1996, 1995, and 1994.
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<PAGE> 29
1996 INCENTIVE STOCK OPTION PLAN
The Company has adopted a 1996 Incentive Stock Option Plan (the "Incentive
Plan") which provides for the grant, at the discretion of the Board of
Directors, of options to purchase up to 85,000 shares of Common Stock to key
employees of the Company. It is intended that options granted under the
Incentive Plan qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended. The selection of participants,
allotment of shares, determination of exercise price and other considerations
relating to the grant of options under the Incentive Plan is determined by the
Board of Directors, at its discretion. Options granted under the Incentive Plan
are exercisable for a period of up to ten years after the date of grant at an
exercise price which is not less than the fair market value of the shares on the
date of grant, except that the term of an incentive stock option granted under
the Incentive Plan to a shareholder owning more than 10% of the outstanding
shares may not exceed five years and its exercise price may not be less than
110% of the fair market value of the shares on the date of grant. In January,
1997, the Company granted options under the Incentive Plan to purchase 29,500
shares of Common Stock at a purchase price of $4.00 per share and on two
different occasions in March, 1997, the Company granted options under the
Incentive Plan to purchase 40,000 shares of Common Stock at a purchase price of
$3.50 per share and 5,000 shares of Common Stock at a purchase price of $4.00
per share. Options currently outstanding under the Incentive Plan are not
exercisable until the expiration of one year after the date of grant.
PRINCIPAL STOCKHOLDERS
The table below sets forth the number and percentage of outstanding shares
of the Company's Common Stock beneficially owned by (i) each person who
beneficially owns more than 5% of the outstanding Common Stock, (ii) each
director of the Company, (iii) the President of the Company (the only executive
officer of the Company whose cash and non-cash compensation for services
rendered to the Company for the year ended December 31, 1996, exceeded $100,000)
and (iv) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENT OF
CLASS(2)
-------------------
AMOUNT AND NATURE OF BEFORE AFTER
NAME AND ADDRESS BENEFICIAL OWNERSHIP(1) OFFERING OFFERING
- ---------------- ----------------------- -------- --------
<S> <C> <C> <C>
S. Robert Davis................................... 213,020(3) 21% 12%
801 94th Avenue North
St. Petersburg, FL 33702
Charles R. Davis.................................. 105,016(4) 10% 6%
4205 E. Dixon Blvd.
Shelby, NC 28150
All directors and executive officers as a group
(6 persons)..................................... 367,344(5) 37% 21%
</TABLE>
- ---------------
(1) Represents sole voting and investment power unless otherwise indicated.
(2) Based on 1,003,431 shares of Common Stock outstanding as of July 15, 1997,
plus, as to each person listed, that portion of unissued shares of Common
Stock subject to outstanding options which may be exercised by such person
within the next 60 days, and as to all directors and executive officers as a
group, unissued shares of Common Stock as to which the members of such group
have the right to acquire beneficial ownership upon the exercise of stock
options within the next 60 days. Assumes no exercise of the Warrants, the
Over-Allotment Option, or the Underwriter's Option. See "Shares Eligible for
Future Sale."
(3) Includes 4,066 shares owned by Mr. Davis' wife as to which Mr. Davis
disclaims beneficial ownership.
(4) Includes 936 shares owned by Mr. Davis' wife and 725 shares owned by Mr.
Davis' children as to which Mr. Davis disclaims beneficial ownership.
(5) The number of shares of Common Stock beneficially owned by all directors and
executive officers as a group includes all the shares of Common Stock listed
above including 10,000 unissued shares of Common
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<PAGE> 30
Stock as to which the Company's two non-employee directors have the right to
acquire beneficial ownership upon the exercise of stock options within the
next 60 days, 26,709 shares of Common Stock owned by Mr. Richards, a
director of the Company, and 5,967 shares of Common Stock owned by Mr.
Beauchamp, a director of the Company, 4,536 shares of Common Stock owned by
Robert V. Boylan, an executive officer of the Company, and 2,095 shares of
Common Stock owned by Jeffrey A. Ross, an executive officer of the Company.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 5,000,000 shares of Common Stock and
300,000 shares of Preferred Stock. At July 15, 1997, there are 1,003,341 shares
of Common Stock outstanding held of record by approximately 550 stockholders and
no shares of Preferred Stock outstanding. There can be no assurance given that a
more liquid trading market for the Common Stock will develop or that a regular
trading market for any of the Securities will develop after the completion of
the Offering. If a more liquid or regular trading market does in fact develop,
there can be no assurance given that it will be sustained. In connection with
the Offering, application has been made to list the Units and the Warrants on
the Nasdaq SmallCap Market under the symbols CASCU and CASCW, respectively. If,
for any reason, a liquid or regular trading market does not develop, purchasers
of such Securities may have difficulty selling their securities should they
desire to do so.
UNITS
Each Unit offered hereby consists of one share of Common Stock and two
Warrants. The Shares and the Warrants included in the Units will be detachable
and will trade separately twelve (12) months after issuance. Should the Warrants
included in the Units be exercised, of which there is no assurance, the Company
will receive the proceeds therefrom, aggregating up to an additional $9.49
million.
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of the existing stockholders should additional shares
of Common Stock be issued. In addition, the rights of holders of the shares of
Common Stock may become subject in the future to prior and superior rights and
preferences in the event the Board of Directors establishes one or more
additional classes of Common Stock or one or more series of Preferred Stock. The
Board of Directors has no present plan to establish any such additional class or
series. See "Risk Factors -- Delaware Anti-Takeover Statute; Issuance of
Preferred Stock; Barriers to Takeover." Holders of the Common Stock are entitled
to receive such dividends, if any, as may be declared by the Board of Directors
out of assets legally available therefor and to share ratably in the assets of
the Company available upon liquidation.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions, such as most
amendments to the certificate of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of a
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present or represented by proxy at the particular
stockholders' meeting. Prior to the completion of this Offering, the Company's
directors, officers and greater than 5% stockholders as a group beneficially own
approximately 37% of the outstanding Common Stock of the Company. Upon
completion of this Offering, such persons will beneficially own approximately
21% of the outstanding shares (20% if the Over-Allotment Option is exercised in
full). See "Principal Stockholders." Accordingly, such persons will continue to
be able to control the Company's affairs, including, without limitation, the
sale of equity or debt securities of the Company, the appointment of officers,
the determination of officers' compensation and the determination whether to
cause a registration statement to be filed.
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<PAGE> 31
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the stockholders) to issue preferred stock in one or more series and
to fix the voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. Satisfaction of any dividend preferences
of outstanding preferred stock would reduce the amount of funds available for
the payment of dividends, if any, on the Common Stock. Also holders of the
preferred stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding up of the Company before
any payment is made to the holders of Common Stock. In addition, under certain
circumstances, the issuance of preferred stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities, or the removal of
incumbent management. The Board of Directors of the Company, without stockholder
approval, may issue preferred stock with voting and conversion rights which
could adversely affect the holders of Common Stock. On the date of this
Prospectus, none of the 300,000 authorized shares of preferred stock are
outstanding and the Company has no present intention to issue any shares of
preferred stock.
REDEEMABLE CLASS A WARRANTS
The Units being offered hereby include 1,500,000 Warrants. Warrants will be
issued under and governed by the provisions of a Warrant Agreement (the "Warrant
Agreement") between the Company and American Stock Transfer & Trust Company, as
warrant agent (the "Warrant Agent") and will be evidenced by warrant
certificates in registered form. The following summary of the Warrant Agreement
is not complete and is qualified in its entirety by reference to the Warrant
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at an initial price of $5.50 per share during the Warrant Exercise
Period -- the period commencing one year after the date of this Prospectus and
terminating four years thereafter. The shares of Common Stock underlying the
Warrants will, upon exercise of the Warrants, be validly issued, fully paid and
nonassessable. The Warrants are redeemable by the Company at any time during the
Warrant Exercise Period for $0.05 per Warrant if the average closing price or
bid price of a share of Common Stock, as reported by NASDAQ, equals or exceeds
$8.75 for any twenty (20) consecutive trading days ending within five (5) day
prior to the date of the notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrantholders will be unable to exercise the
Warrants and the Warrants may become valueless. Moreover, if the shares of
Common Stock underlying the Warrants are not registered or qualified for sale in
the state in which a Warrantholder resides, such holder might not be permitted
to exercise the Warrants. In the event that the Warrants are called for
redemption, the Warrantholders may not be able to exercise their Warrants in the
event that the Company has not updated this Prospectus in accordance with the
requirements of the Securities Act or the Warrants have not been qualified for
sale under the laws of the state where the Warrantholder resides. In addition,
in the event that the Warrants have been called for redemption, such call for
redemption could force the Warrantholder to either (i) assuming the necessary
updating to the Prospectus and state blue sky qualifications have been effected,
exercise the Warrants and pay the exercise price at a time when, in the event of
a decrease in market price from the period preceding the issuance of the call
for redemption, it may be less than advantageous economically to do so, or (ii)
accept the redemption price, which, in the event of an increase in the price of
the Common Stock, could be substantially less than the market value thereof at
the time of redemption. See "Risk Factors -- Current Prospectus and State
Registration Required to Exercise Warrants" and "Potential Adverse Effect of
Redemption of Warrants; Market Overhang."
The Warrantholders are not entitled to vote, receive dividends, or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Warrants are in registered form and may be presented for transfer, exchange or
exercise at the office of the Warrant Agent.
30
<PAGE> 32
Assuming there is a current effective registration statement covering the
shares of Common Stock underlying such Warrants, each Warrant may be exercised
by surrendering the Warrant certificate, with the form of election to purchase
on the reverse side of the Warrant certificate properly completed and executed,
together with payment of the exercise price to the Warrant Agent. The Warrants
may be exercised from time to time in whole or in part. If less than all of the
Warrants evidenced by a Warrant certificate are exercised, a new Warrant
certificate will be issued for the remaining number of Warrants.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution in the event of stock dividends and
distributions, stock splits, recapitalizations, mergers, consolidations and
similar transactions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Securities of the Company is
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Units, the Common
Stock or the Warrants and no predictions can be made for the effect, if any,
that market sales of the Units, the Common Stock or the Warrants, or the
availability of any of such Securities for sale will have on the market price
prevailing from time to time. Sales of substantial amounts of the Units, the
Common Stock and the Warrants in the public market could adversely affect
prevailing market prices for the Units, the Common Stock and the Warrants and
impair the Company's ability to raise equity capital in the future.
Upon completion of the Offering, there will be 1,753,431 shares of Common
Stock issued and outstanding (1,865,931 if the Over-Allotment Option is
exercised in full) and 1,500,000 Warrants (1,725,000 if the Over-Allotment
Option is exercised in full). Of these securities, the 1,003,431 currently
outstanding Shares and the 750,000 Shares and 1,500,000 Warrants which are part
of the Units offered hereby (862,500 Shares and 1,725,000 Warrants if the
Over-Allotment Option is exercised in full) will be freely tradable without
registration or other restriction under the Securities Act, except for any
shares held or purchased by an "affiliate" (as defined in the Securities Act) of
the Company. Shares of Common Stock purchased by an "affiliate" of the Company
will be subject to Rule 144.
In general, under Rule 144 as amended, persons deemed to be affiliates may
sell such securities in brokers' transactions or directly to market makers,
provided that the number of shares sold in any three-month period does not
exceed the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. S. Robert Davis
and Charles R. Davis will enter into a Lock-Up Agreement relating to securities
beneficially owned as of such date pursuant to which they agree not to, directly
or indirectly, issue, offer, agree to offer to sell, sell or grant an option for
the purchase of, sale, transfer, pledge, assign, hypothecate, distribute or
otherwise dispose of or encumber such securities or options, rights, warrants or
other securities convertible into, exchangeable or exercisable for or evidencing
any right to purchase or subscribe for shares of Common Stock (whether or not
beneficially owned by such person) or any beneficial interest therein for a
period of eighteen (18) months after the date of this Prospectus without the
consent of the Underwriter. However, S. Robert Davis is permitted to sell 15,000
of his shares during the first twelve months after the date of this Prospectus
and an additional 10,000 shares during the following six months, and Charles R.
Davis is permitted to sell 10,000 of his shares during the first twelve months
after the date of this Prospectus and an additional 5,000 shares during the
following six months, in each case, with the timing of the sale of such shares
subject to the approval of the Underwriter.
31
<PAGE> 33
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriter has agreed to purchase from the Company
750,000 Units offered hereby on a "firm commitment" basis. The Units are being
offered to the public at a price of $5.00 per Unit. The Underwriter had advised
the Company that sales to certain dealers who are NASD members may be made at
the public offering price less concessions not to exceed $ per Unit.
After the public offering, the public offering prices, concessions and
reallowances may be changed by the Underwriter. The Underwriter does not intend
to sell any of the Units to accounts over which it exercises discretionary
authority.
The Company has granted an option to the Underwriter, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 112,500 additional Units at the offering price, less the underwriting
discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of $112,500 equal to three percent (3%) of the aggregate offering
price of the Units offered hereby (or $129,375 assuming exercise of the
Over-Allotment Option). The Underwriter's expenses in excess of the stated
expense allowance will be borne by the Underwriter. To the extent that the
expenses of the Underwriter are less than the stated expense allowance, the
difference may be deemed compensation to the Underwriter in addition to the
sales commission payable to the Underwriter.
The Company has agreed to grant to the Underwriter, or its designees, an
option to purchase up to an aggregate of 75,000 Units ("Underwriter's Option")
which are being registered in connection with this Offering. The Underwriter's
Option shall be exercisable during the four-year period commencing one (1) year
after the date of this Prospectus. The Underwriter's Option may not be assigned,
transferred, sold or hypothecated by the Underwriter after the date of this
Prospectus, except to officers or partners of the Underwriter or any of the
underwriters and selling group members in the Offering. Any profits realized by
the Underwriter upon the sale of the securities issuable upon exercise of the
Underwriter's Option may be deemed to be additional underwriting compensation.
The exercise price of the Units issuable upon exercise of the Underwriter's
Option during the period of exercisability shall be 120% of the initial public
offering price of such Units. The exercise price of the Underwriter's Option and
the number of shares of Common Stock underlying the Underwriter's Option are
subject to adjustment in certain events to prevent dilution. The holders of the
Underwriter's Option are given, at a nominal cost, the opportunity to profit
from a rise in the market price of the Company's Common Stock and Warrants with
a resulting dilution in the interest of other stockholders. The Company may find
it more difficult to raise capital for its business if the need should arise
while the Underwriter's Option is outstanding. At any time when the holders of
the Underwriter's Option might be expected to exercise it, the Company would
probably be able to obtain additional capital on more favorable terms.
The Company has agreed to pay the Underwriter a warrant solicitation fee of
4% of the exercise price of any of the Warrants exercised beginning one year
after the effective date of the Registration Statement (not including Warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price of
the Warrant, (b) the exercise of the Warrant was solicited by the Underwriter
and the holder of the Warrant designates the Underwriter in writing as having
solicited such Warrant, (c) the Warrant is not held in a discretionary account,
(d) disclosure of the compensation arrangement is made upon the sale and
exercise of the Warrants, (e) soliciting the exercise is not in violation of
Registration M under the Securities Exchange Act of 1934, and (f) solicitation
of the exercise is in compliance with the NASD Notice to Members 81-38
(September 22, 1981).
S. Robert Davis and Charles R. Davis have agreed in writing not to sell,
assign or transfer any of the Company's securities without the Underwriter's
prior written consent for a period of eighteen (18) months
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<PAGE> 34
after the date of this Prospectus. However, S. Robert Davis is permitted to sell
15,000 of his shares during the first twelve months after the date of this
Prospectus and an additional 10,000 shares during the following six months, and
Charles R. Davis is permitted to sell 10,000 of his shares during the first
twelve months after the date of this Prospectus and an additional 5,000 shares
during the following six months, in each case, with the timing of the sale of
such shares subject to the approval of the Underwriter, which approval must be
given within 30 days after a request for same.
The Company has also agreed that, if it enters into a transaction
(including a merger, joint venture or the acquisition of another entity)
introduced to the Company by the Underwriter within five (5) years after the
date of this Prospectus, the Company will pay the Underwriter a fee equal to
five percent of the first $3 million of consideration received by the Company,
four percent of the next $3 million, three percent of the next $2 million, two
percent of the next $2 million and one percent of the excess, if any, over $10
million. At the present time, the Company has no plans to enter into any such
transaction.
Following the consummation of the Offering, the Underwriter intends to seek
others to make a market in the Company's Securities in addition to the
Underwriter.
LITIGATION INVOLVING UNDERWRITER MAY AFFECT SECURITIES.
The Company has been advised by the Underwriter, that on or about May 22,
1995, the Underwriter and Elliot Loewenstern and Richard Bronson, principals of
the Underwriter, and the Securities and Exchange Commission (the "Commission")
agreed to an offer of settlement (the "Offer of Settlement") in connection with
a complaint filed by the Commission in the United States District Court for the
Southern District of Florida alleging violations of the federal securities laws,
Section 17(a) of the Securities Act of 1933, as amended (the "Securities Act"),
Section 10(b) and 15(c) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rules 10b-5, 10b-6 and 15cl-2 promulgated thereunder. The
complaint also alleged that in connection with the sale of securities in three
(3) initial public offerings ("IPOs") in 1992 and 1993, the Underwriter engaged
in fraudulent sales practices. The proposed Offer of Settlement was consented to
by the Underwriter and Messrs. Loewenstern and Bronson without admitting or
denying the allegations of the complaint. The Offer of Settlement was approved
by Judge Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final
Judgment"), the Underwriter:
- was required to disgorge $1,000,000 to the Commission, which amount was
paid in four (4) equal installments on or before June 22, 1995;
- agreed to the appointment of an independent consultant ("Consultant").
Consultant was obligated, on or before November 1, 1996:
- to review the Underwriter's policies, practices and procedures in six (6)
areas relating to compliance and sales practices;
- to formulate policies, practices and procedures for the Underwriter that
the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
- to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
- to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
- to prepare, if necessary, a supervisory procedures and compliance manual
for the Underwriter, or to amend the Underwriter's existing manual; and
- to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees of
the Underwriter. The Final Judgment further provides that, within thirty
(30) days of the Underwriter's receipt of the Report, unless such time is
extended, the Underwriter shall adopt, implement and maintain any and all
policies, practices and procedures set forth in the Report.
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<PAGE> 35
On or about December 19, 1996, the Consultant completed the Report which
was thereafter delivered to the Underwriter. The Report addresses the areas
relating to compliance and sales practices referred to above. The Underwriter is
reviewing the Report and undertaking steps to implement the recommendations and
procedures in the Report, in accordance with the provisions of the Final
Judgment.
The Final Judgment also provides that an independent auditor ("Auditor")
shall conduct four (4) special reviews of the Underwriter's policies, practices
and procedures, the first such review to take place six (6) months after the
Report has been delivered to the Underwriter and thereafter at six-month
intervals. The Auditor is also authorized to conduct a review, on a random basis
and without notice to the Underwriter, to certify that any persons associated
with the Underwriter who have been suspended or barred by any Commission order
are complying with the terms of such orders.
On July 10, 1995, the action against Messrs. Loewenstern and Bronson was
dismissed with prejudice. Mr. Bronson agreed to a suspension from associating in
any supervisory capacity with any broker, dealer, municipal securities dealer,
investment advisor or investment company for a period of twelve (12) months,
dating from the beginning of such suspension. Mr. Loewenstern agreed to a
suspension from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months commencing upon the expiration of Mr. Bronson's
suspension. Both suspensions have been completed.
In the event that the requirements of the foregoing judgment adversely
affect the Underwriter's ability to act as a market maker for the Securities,
and additional broker-dealers do not make a market in the Company's Securities,
the market for, and the liquidity of, the Company's securities may be adversely
affected. In the event that other broker-dealers fail to make a market in the
Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to such an
extent that public security holders may not have anyone to purchase their
securities when offered for sale at any price. In such event, the market for,
liquidity and prices of the Company's securities may not exist. For additional
information regarding the Underwriter, investors may call the National
Association of Securities Dealers, Inc. at (800) 289-9999.
RECENT STATE ACTION INVOLVING THE UNDERWRITER-POSSIBLE LOSS OF LIQUIDITY.
The State of Indiana commenced an action seeking, among other things, to
revoke the Underwriter's license to do business in such state. The action was
settled and the Underwriter agreed to, among other things, resolve certain
customer claims, the payment of a fine and costs and restrictions with respect
to the sale of securities to Indiana residents. Specifically, the Underwriter
agreed that it will not sell any securities to Indiana residents (i) which are
not listed on the New York Stock Exchange, the American Stock Exchange or
Nasdaq; (ii) for which the Underwriter has served as lead underwriter or as a
member of the selling syndicate; or (iii) for which the Underwriter is a market
maker. Under the terms of the settlement agreement, the Underwriter continues to
maintain its license in the State of Indiana. The Company does not intend to
seek qualification for the sale of the Securities in the state of Indiana.
LEGAL MATTERS
The validity of the Securities being offered hereby will be passed upon for
the Company by Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A., Tampa,
Florida. Certain legal matters will be passed upon for the Underwriter by
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York 10022.
CHANGE OF ACCOUNTANTS
On July 17, 1997, the Company dismissed Deloitte & Touche LLP as its
principal independent accountant. The reports of Deloitte & Touche LLP on the
Company's financial statements for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty or audit scope. The report dated March 3, 1997 of Deloitte &
Touche LLP on the Company's 1996 and 1995 financial statements expressed an
unqualified opinion, and included an explanatory paragraph
34
<PAGE> 36
for a change in accounting principle. The Company's Board of Directors
participated in and approved the decision to change independent accountants. In
connection with its audits for the two most recent fiscal years and through July
17, 1997, there have been no disagreements with Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Deloitte & Touche LLP would have caused them to make reference
thereto in their report on the financial statements for such years. During the
two most recent fiscal years and through July 17, 1997, there have been no
reportable events by Deloitte & Touche LLP.
The Company engaged Hausser + Taylor as its new independent accountants as
of July 18, 1997. During the two most recent fiscal years and through July 18,
1997, the Company has not consulted with Hausser + Taylor on items which were or
should have been subject to Statement on Auditing Standards No. 50 or which
concerned the subject matter of a disagreement or reportable event with the
former auditors.
EXPERTS
The Company's balance sheet as of December 31, 1996 and the Company's
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1996 and 1995 have been included herein and in the
Registration Statement in reliance upon the report of Hausser + Taylor,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the
Securities Act with the Commission with respect to the Securities offered
hereby. This Prospectus filed as a part of the Registration Statement does not
contain all of the information contained in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Securities offered hereby, reference is made to
such Registration Statements including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other documents are not necessarily complete, and in each instance,
reference is made to such contract, agreement or other documents filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company and the Registration Statement and exhibits may
be inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W, Washington, D.C. 20549, as well as at the New York regional office of the
Commission at Seven World Trade Center, 14th Floor, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Sheet, Suite 1400, Chicago, Illinois
60661. Registration statements transmitted throughout the Commission's
Electronic Data Gathering Analysis and Retrieval System are also publicly
available through the Commission's Internet site on the Web
(http://www.sec.gov). Copies of such material can also be obtained from the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W, Washington, D.C. 20549. Application has been made to list the
Units, the Common Stock and the Warrants in the Bulletin Board. The foregoing
material also should be available for inspection at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W, Washington, D.C. 20006.
35
<PAGE> 37
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Audited Financial Statements:
Statements of Operations --
Six Months Ended June 30, 1997 and 1996 (unaudited),
and Years ended December 31, 1996 and December 31,
1995.................................................. F-3
Balance Sheets --
June 30, 1997 (unaudited) and December 31, 1996........ F-4
Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996 (unaudited),
and Years ended December 31, 1996 and 1995............ F-5
Statements of Stockholders' Equity --
Six Months Ended June 30, 1997 (unaudited), and Years
ended December 31, 1996 and 1995...................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
CASCO INTERNATIONAL, INC.
Shelby, North Carolina
We have audited the accompanying balance sheet of CASCO INTERNATIONAL, INC.
(the "Company") (formerly CA Short Company) as of December 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based upon 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 the Company as of December
31, 1996, and the results of its operations and its cash flows for the years
ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, effective January 1,
1996, the Company changed its method of accounting for the recognition of
referred revenue for the prepaid safety award programs.
/s/ HAUSSER + TAYLOR
--------------------------------------
Columbus, Ohio
July 29, 1997
F-2
<PAGE> 39
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
JUNE 30, 1997 JUNE 30, 1996 1996 1995
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................... $8,443,149 $10,052,824 $21,959,396 $22,620,011
---------- ----------- ----------- -----------
Costs and Expenses:
Cost of goods sold........................ 4,780,213 5,962,436 13,523,932 13,862,313
Selling, general and administrative....... 3,861,680 3,811,809 8,051,446 8,155,260
Interest.................................. 257,863 32,961 128,965 416,189
Depreciation and amortization............. 174,147 167,092 338,234 362,523
Management fee paid to Pages.............. -- 250,000 500,000 500,000
---------- ----------- ----------- -----------
9,073,903 10,224,298 22,542,577 23,296,285
---------- ----------- ----------- -----------
Loss before income taxes and cumulative
effect of change in accounting
principle.............................. (630,754) (171,474) (583,181) (676,274)
Benefit for income taxes.................. 241,000 57,300 195,100 248,600
---------- ----------- ----------- -----------
Loss before cumulative effect of change in
accounting principle................... (389,754) (114,174) (388,081) (427,674)
Cumulative effect of change in accounting
principle, net of tax of $397,850...... -- 596,814 596,814 --
---------- ----------- ----------- -----------
NET INCOME (LOSS)................. $ (389,754) $ 482,640 $ 208,733 $ (427,674)
========== =========== =========== ===========
PRO FORMA INCOME (LOSS) PER COMMON SHARE:
Loss before cumulative effect of change in
accounting principle................... $ (.39) $ (.11) $ (0.39) $ (0.43)
Cumulative effect of change in accounting
principle.............................. -- .59 .59 --
---------- ----------- ----------- -----------
NET INCOME(LOSS).................. $ (.39) $ .48 $ 0.20 $ (0.43)
========== =========== =========== ===========
PRO FORMA AMOUNTS ASSUMING THE NEW
ACCOUNTING METHOD IS APPLIED
RETROACTIVELY:
Net Loss.................................. $ -- $ -- $ (388,081) $ (169,802)
========== =========== =========== ===========
Loss per common share..................... $ -- $ -- $ (0.39) $ (0.17)
========== =========== =========== ===========
Pro forma weighted average common and
common equivalent shares............... 1,003,431 1,003,431 1,003,431 1,003,431
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 40
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 144,986 $ 130,971
Accounts receivable....................................... 1,553,287 4,644,027
Inventory................................................. 5,461,493 6,968,365
Prepaid expenses.......................................... 844,573 818,108
----------- -----------
Total current assets.............................. 8,004,339 12,561,471
----------- -----------
Buildings and equipment:
Buildings................................................. 3,194,058 3,194,058
Equipment................................................. 1,903,892 1,866,122
----------- -----------
5,097,950 5,060,180
Less accumulated depreciation............................. (1,496,913) (1,339,848)
----------- -----------
3,601,037 3,720,332
Land........................................................ 211,468 211,468
----------- -----------
Total property and equipment, net................. 3,812,505 3,931,800
----------- -----------
Other assets:
Cost in excess of net assets acquired, net of accumulated
amortization of $250,526 and $233,444, respectively.... 1,115,941 1,133,023
Other..................................................... 634,256 622,256
----------- -----------
1,750,197 1,755,279
----------- -----------
TOTAL ASSETS...................................... $13,567,041 $18,248,550
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 344,650 $ 1,572,020
Short-term debt........................................... 1,404,015 3,669,746
Short-term subordinate debenture.......................... 100,000 --
Accrued liabilities....................................... 225,692 342,156
Advanced deposits......................................... 2,222,998 1,952,317
----------- -----------
Total current liabilities......................... 4,297,355 7,536,239
----------- -----------
Due to Pages................................................ -- 4,124,975
Advanced deposits........................................... 2,223,755 2,935,626
Subordinated debenture...................................... 4,900,000 --
Deferred tax liability...................................... 82,650 323,650
----------- -----------
Total Liabilities................................. 11,503,760 14,920,490
----------- -----------
Commitments and contingencies............................... -- --
Stockholders' equity:
Preferred shares: $.01 par value, 300,000 authorized, none
issued and outstanding................................. -- --
Common shares(1).......................................... 9,291 3
Capital in excess of par value............................ 3,273,669 4,157,982
Accumulated deficit....................................... (1,219,679) (829,925)
----------- -----------
Total stockholders' equity........................ 2,063,281 3,328,060
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $13,567,041 $18,248,550
=========== ===========
</TABLE>
- ---------------
(1) At June 30, 1997 and December 31, 1996 -- par value $.01,
authorized -- 5,000,000, issued and outstanding -- 929,103 and 334.91,
respectively.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 41
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (389,754) $ 482,640 $ 208,733 $ (427,674)
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:
Depreciation and amortization...... 174,147 167,092 338,234 362,523
Deferred provision................. (241,000) (57,300) 202,750 (248,600)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable.............. 3,090,740 4,040,514 1,457,602 1,176,556
Inventory........................ 1,506,872 1,159,583 (187,953) 2,929,577
Prepaid expenses and other
assets........................ (38,465) (121,615) (18,377) (22,151)
Increase (decrease) in liabilities:
Accounts payable and accrued
liabilities................... (1,343,834) (1,162,132) 243,124 (2,151,502)
Advance deposits................. (441,190) (951,690) (760,164) 1,433,220
------------ ------------ ------------ ------------
Total adjustments............. 2,707,270 3,074,452 1,275,216 3,479,623
------------ ------------ ------------ ------------
Net cash provided by operating
activities............................ 2,317,516 3,557,092 1,483,949 3,051,949
------------ ------------ ------------ ------------
Cash flows from investing activities:
Payments for purchases of property and
equipment.......................... (37,770) (219,615) (421,740) (161,676)
------------ ------------ ------------ ------------
Cash used in investing activities....... (37,770) (219,615) (421,740) (161,676)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Due to Pages.......................... -- -- -- (2,488,397)
Proceeds from debt obligation......... 10,573,563 11,712,321 24,813,186 30,982,347
Principle payments on debt............ (12,839,294) (15,234,621) (25,971,102) (31,170,959)
------------ ------------ ------------ ------------
Cash used in financing activities....... (2,265,731) (3,522,300) (1,157,916) (2,677,009)
------------ ------------ ------------ ------------
Increase (decrease) in cash............. 14,015 (184,823) (95,707) 213,264
Cash beginning of period................ 130,971 226,678 226,678 13,414
------------ ------------ ------------ ------------
Cash end of period...................... $ 144,986 $ 41,855 $ 130,971 $ 226,678
============ ============ ============ ============
Other cash flow information:
Cash payments during the year for:
Interest........................... $ 170,363 $ 68,952 $ 166,657 $ 442,638
Income taxes, net of refunds....... -- -- $ 18,100 --
Non cash financing activities:
Subordinated debenture with Pages
assumed 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 common stock from
spin-off........................... $ 870,025 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 42
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED
SHARES STOCK PAR VALUE DEFICIT TOTAL
------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1994................ 334.91 $33,491 $4,124,494 $ (610,984) $3,547,000
Net loss................................. (427,674) (427,674)
------- ------- ---------- ----------- ----------
Balance December 31, 1995................ 334.91 33,491 4,124,494 (1,038,658) 3,119,327
Change in par value of common stock...... (33,488) 33,488
Net income............................... 208,733 208,733
------- ------- ---------- ----------- ----------
Balance December 31, 1996................ 334.91 3 4,157,982 (829,925) 3,328,060
------- ------- ---------- ----------- ----------
Spin Off from Pages (unaudited).......... 929,768 9,288 (884,313) (875,025)
Net loss (unaudited)..................... (389,754) (389,754)
------- ------- ---------- ----------- ----------
Balance June 30, 1997 (unaudited)........ 929,103 $ 9,291 $3,273,669 $(1,219,679) $2,063,281
======= ======= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 43
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is engaged in the design, implementation, and fulfillment of
incentive awards and recognition programs for businesses throughout the United
States. The Company's corporate headquarters is located in Shelby, North
Carolina.
BASIS OF PRESENTATION
On February 28, 1990, in a transaction accounted for as a purchase, all of
the outstanding stock of the Company was acquired by Pages, Inc. ("Pages").
These financial statements were prepared under the resulting new basis of
accounting that reflects the fair values of assets acquired and liabilities
assumed.
Effective at the close of business on December 31, 1996, a tax free spin
off of the Company's common stock from its 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' stockholders.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying interim financial statements
reflect all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation of the Company's unaudited financial
statements as of June 30, 1997 and for the six months ended June 30, 1997 and
1996. Operating results for the six month periods are not necessarily indicative
of the results for the entire year.
USE OF MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain 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. The reported amounts of revenues and expenses during the reporting
period may be affected by the estimates and assumptions management is required
to make. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues from the sale of incentive awards are generally recognized upon
shipment and delivery of the related merchandise except for revenue recognized
relating to advanced deposits. Revenues from services are insignificant. Returns
from the sales of incentive awards and from services are insignificant.
Effective January 1, 1996, the Company changed its method of accounting for
the recognition of revenues relating to advanced deposits to more appropriately
recognize revenue and related expenses over the contract period. Previously, the
Company recognized such deferred revenue at the conclusion of the respective
prepaid safety award programs. Effective with the change, revenues are
recognized over the course of the programs based on the Company's historical and
expected redemption percentages. The corresponding deferred commission costs
have also been recognized in association with this change in the same direct
proportion as the revenue recognition.
The effect of this accounting change in 1996 was to increase income before
income taxes and cumulative effect of change in accounting principle by $120,947
and $209,190, net of associated commission expense of
F-7
<PAGE> 44
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$16,352 and $32,704 for the six months ended June 30, 1996 and the year ended
December 31, 1996, respectively.
ACCOUNTS RECEIVABLE
The Company sells its products to numerous commercial and industrial
customers, across the United States and Canada. The accounts receivable are well
diversified and are expected to be repaid in the normal course of business.
INVENTORY
Inventory consists of general retail merchandise. Inventory is valued at
the lower of cost or market using the first-in, first-out (FIFO) method.
PREPAID EXPENSES
Prepaid expenses at June 30, 1997 and December 31, 1996 include $654,272
and $701,021, respectively, of prepaid selling costs that include costs for
commissions paid to salespeople that relate to advanced deposits for the sales
of incentive and recognition awards programs. Such costs are directly
attributable to obtaining specific future commitments and are expensed in direct
proportion to the revenue recognition.
Deferred loan costs are amortized using the straight line method over the
terms of the related contracts which are short term in nature. Amortization
expense totaled $0, $1,239, $1,239 and $50,107 for the six months ended June 30,
1997 and 1996 and years ended December 31, 1996 and 1995, respectively.
BUILDINGS AND EQUIPMENT
Buildings and equipment are recorded at cost and depreciated over their
estimated useful life on the straight-line method. Estimated useful lives range
from three to thirty-one years. Major repairs and betterments are capitalized;
minor repairs are expensed as incurred. Depreciation expense for the six months
ended June 30, 1997 and 1996 and the years ended December 31, 1996 and 1995
totaled $174,147, $167,092, $302,832 and $278,254, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER ASSETS
Cost in excess of net assets acquired are amortized on a straight line
basis over 40 years. Management periodically evaluates its accounting for cost
in excess of net assets acquired by considering such factors as historical
performance, current operating results and future operating income. At each
balance sheet date, the Company evaluates the realizability of cost in excess of
net assets acquired based upon estimated nondiscounted cash flows. Based upon
its most recent analysis, the Company believes that no material impairment of
cost in excess of net assets acquired exists at December 31, 1996 or June 30,
1997. Based on this periodic review, management believes that the carrying value
of cost in excess of net assets acquired is reasonable and the amortization
period is appropriate. Amortization expense on cost in excess of net assets
acquired for the six months ended June 30, 1997 and 1996 and years ended
December 31, 1996 and 1995 totaled $17,082, $17,082, $34,162 and $34,162,
respectively.
Other assets include cash surrender value of life insurance.
DUE TO PAGES
Amounts due to Pages are net borrowings which occurred in the ordinary
course of business. No interest has been recorded on the outstanding balance
(See Notes 2 and 5).
F-8
<PAGE> 45
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company employs SFAS No. 109, "Accounting for Income Taxes". Under SFAS
No. 109, the liability method is used in accounting for income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. As noted above, the Company was a wholly-owned subsidiary of Pages
through December 31, 1996 when a tax-free spin off was completed. The Company
was included in Pages consolidated income tax returns for 1996 and 1995.
PER SHARE DATA
Per share amounts have been computed based on the weighted average number
of common shares outstanding during the period, and have been adjusted to give
retroactive effect to the distribution of shares to Pages' stockholders and to
the 8% stock dividend paid to stockholders of record on July 16, 1997. The
common stock equivalents (stock options) outstanding would be anti-dilutive for
the six months ended June 30, 1997. No options were outstanding at December 31,
1996.
PROFIT SHARING PLANS
The Company has a noncontributory profit sharing retirement plan (the
"Plan"), covering a significant number of employees for which accrued costs are
funded. Company contributions to the Plan are discretionary. There were no
Company contributions for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996 and 1995.
COMMON AND PREFERRED STOCK
The Company increased its common shares authorized from 334.91 to 5,000,000
on November 12, 1996 while decreasing par value from $100.00 to $.01 per share.
Additionally, 300,000 shares of preferred stock $.01 par value was authorized.
On May 21, 1997, the Company declared an 8% stock dividend to stockholders of
record on July 16, 1997 and all stock related data reflects the stock dividend
for all periods presented. The stock dividend excluded all stock option plans.
PUBLIC OFFERING
On July 7, 1997, the Board of Directors authorized the Company to proceed
with an offering of 862,500 Units (750,000 Units to the public and 112,500 Units
to the underwriter as an "Over-allotment Option"). Additionally, the Underwriter
was granted an option (the "Underwriter's Option") to purchase 75,000 Units. A
unit consists of one share of Common Stock and two Class A Warrants to purchase
one share per Warrant of common stock.
STOCK OPTIONS
The Company has adopted a 1996 Incentive Stock Option Plan ("Incentive
Plan") effective January 1, 1997 and amended on March 12, 1997 which provides
for the grant, at the discretion of the Board of Directors, of options to
purchase up to 85,000 shares of common stock to key employees of the Company. It
is intended that options granted under such Plan qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended.
The Company has also adopted a Non-Employee Director Stock Option Plan
("Director Plan"), which provides for the grant, at the discretion of the
Company's Board of Directors, of options to purchase up to 40,000 shares of
common stock upon such terms as are determined by the Board in its discretion.
F-9
<PAGE> 46
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During the six months ended June 30, 1997, options were granted under the
Incentive Plan and under the Director Plan as shown on the following table. The
ending and average market price of the Company's stock for the six months ended
June 30, 1997 was $5.25 and $3.91, respectively.
INCENTIVE PLAN
<TABLE>
<CAPTION>
SHARES RESERVED EXERCISE
DATED GRANTED OR ISSUED AND EXERCISABLE PRICE
- ----------------------- --------------- --------
<S> <C> <C>
January 17, 1997............................................ 29,500 $4.00
March 12, 1997.............................................. 40,000 $3.50
March 26, 1997.............................................. 5,000 $4.00
------
Total Incentive Plan Options...................... 74,500
======
</TABLE>
DIRECTOR PLAN
<TABLE>
<CAPTION>
DATED GRANTED OR ISSUED
- -----------------------
<S> <C> <C>
June 25, 1997............................................... 10,000 $4.50
======
Total Director Plan Options....................... 10,000
------
Total Options Outstanding June 30, 1997........... 84,500
======
</TABLE>
On July 17, 1997, the Company agreed to grant to Mr. Davis, President,
performance options to purchase 200,000 shares of Company Common Stock, 50,000
of which will be granted if the Company has pre-tax earnings of at least $1
million in any fiscal year, 75,000 of which will be granted if the Company has
pre-tax earnings of at least $1.5 million in any fiscal year, and 75,000 of
which will be granted if the Company has pre-tax earnings of at least $2 million
in any fiscal year, in each case as long as Mr. Davis was employed by the
Company at the end of the applicable fiscal year. The performance options are
exercisable at the market price of the Common Stock at the date of the grant,
which will be the date that the Company files its Form 10-K with its audited
financial statements showing that the required earnings plateau is satisfied.
LONG-LIVED ASSETS
The Financial Accounting Standards Board has issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" which requires adoption in 1996. The general requirements of
SFAS No. 121 apply to the fixed and intangible assets of the Company and require
impairment to be considered whenever assets are disposed of or whenever events
or change in circumstances indicate that the carrying amount of the asset will
not be recoverable based on expected future cash flows of the asset. The
adoption of SFAS No. 121 in 1996 did not have any impact on the Company's
financial position or results of operations at December 31, 1996 or June 30,
1997.
STOCK BASED COMPENSATION
The Company has adopted the provisions of Accounting Principles Board
("APB") No. 25, "Accounting for Stock Issued to Employees" which utilizes the
intrinsic value based method. The Financial Accounting Standards Board ("FASB")
Statement No. 123, "Accounting for Stock-Based Compensation", which utilizes a
fair value based method is effective for the Company's year beginning January 1,
1996. The FASB requires disclosure for new employee stock options of the impact
to the financial statements of utilizing the intrinsic value versus the fair
value based method.
F-10
<PAGE> 47
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company utilizes the intrinsic value method under APB No. 25 to account
for employee stock options. If the Company had utilized the fair value based
method under FASB No. 123, the impact would not be significant to the financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of amounts reported in the financial statements
have been determined using available market information and valuation
methodologies, as applicable. The carrying value of all current assets and
liabilities approximates the fair value because of their short term nature. The
fair values of non-current assets and liabilities approximate their carrying
value based on current market prices.
RECLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform with the
current year's presentation.
2. DEBT OBLIGATIONS
Short-term debt obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Line of credit with interest at prime plus 1 percent;
interest payable monthly, maturing on June 30, 1998 after
amendment on June 30, 1997, collateralized by
substantially all assets of the Company ($3,095,985
available at June 30, 1997)............................... $1,404,015 $3,669,746
Subordinated Debenture...................................... $ 100,000 --
</TABLE>
The interest rate for the line as of June 30, 1997 and 1996 and December
31, 1996 was prime plus 1 percent. As of December 31, 1996, the line was due in
full by June 30, 1997, subject to annual renewals.
The prime interest rate at June 30, 1997 and 1996 and December 31, 1996 was
8 1/2, 8 1/4 and 8 3/4 percent, respectively.
Effective December 31, 1996, and as amended June 30, 1997, the Company has
obtained a revolving line of credit for $4.5 million. Under the credit facility,
borrowings are limited to the sum of 80% of the Company's accounts receivable
less than 90 days old plus 60% of eligible inventory, plus 75% of the appraised
value of the Company's real estate. Eligible inventory is limited to $3.5
million from January through May, and $4.5 million from June through December.
To the extent that the Company has unused availability on this total borrowing
base, which may exceed the $4.5 million without limit, Pages may utilize up to
$5 million of the unused total availability. Therefore, the Company's access to
it's full line will be limited to the extent of the difference between the
Company's total borrowing base and Pages' usage of the total availability. As of
June 30, 1997, the entire $4.5 million borrowing base was available to the
Company.
The credit facility has an expiration date of June 30, 1998 and will bear
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. The credit facility also includes certain financial covenants,
including covenants the Company maintain certain financial ratios including a
minimum tangible capital base and a minimum net profit from operations. In
addition, the credit facility contains limitations on capital expenditures,
dividends, fixed asset sales, loans and/or advances to shareholders and
employees and restrictions on operating leases.
Effective January 1, 1997, the Company also entered into a $5 million 7%
subordinated debenture with Pages subsequent to the Distribution in satisfaction
of amounts due to Pages by the Company. The $875,025 excess of the $5,000,000
subordinated debenture over the amount due Pages at the time of distribution was
recorded as a reduction of capital in excess of par. Principal payments will be
$100,000 per year for the first
F-11
<PAGE> 48
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
four years, with a balloon payment due at the end of the fifth year for the
remaining principle balance. Interest will be 7% per annum and the interest will
be payable quarterly.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under various noncancelable operating leases.
Operating leases are principally for office and warehouse facilities, equipment
and vehicles. Rent expense under operating leases amounted to $84,541, $82,137,
$144,719 and $151,608, for the six months ended June 30, 1997 and 1996 and years
ended December 31, 1996 and 1995, respectively. The approximate future minimum
rentals under non-cancelable operating leases during subsequent fiscal years are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------
<S> <C>
1997........................................................ $ 94,130
1998........................................................ 24,988
1999........................................................ 9,109
--------
$128,227
========
</TABLE>
The Company is also involved in certain legal proceedings in the ordinary
course of its business which, if determined adversely to the Company would, in
the opinion of management, not have a material adverse effect on the Company or
its operations.
4. INCOME TAXES
As discussed in Note 1, the Company was included in Pages consolidated
income tax return for 1996 and 1995.
Temporary differences between income for financial reporting purposes and
tax reporting purposes relate primarily to accounting methods for inventory
costs, accrued and prepaid expenses and reserves, and depreciation.
For the years presented, the (benefit) provision for income taxes consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current..................................................... -- --
Deferred
Federal................................................... $(165,850) $(211,300)
State and Local........................................... (29,250) (37,300)
--------- ---------
Net deferred benefit.............................. $(195,100) (248,600)
--------- ---------
Net benefit for taxes............................. $(195,100) $(248,600)
========= =========
</TABLE>
F-12
<PAGE> 49
CASCO INTERNATIONAL, INC.
(FORMERLY CA SHORT COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For the years presented, a reconciliation of income taxes based upon the
application of the federal statutory tax rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Benefit for taxes at statutory rate......................... $(198,300) $(229,000)
Change in effective tax rate.............................. -- --
Goodwill amortization..................................... 13,650 13,650
State taxes net of federal benefit........................ (34,950) (40,550)
Other..................................................... 24,500 8,200
--------- ---------
Total benefit for income taxes.................... $(195,100) $(248,600)
========= =========
</TABLE>
The components of net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Assets:
Inventory costs capitalized for tax purposes.............. $ 101,150
Accruals and reserves to be expensed as paid for tax
purposes............................................... 85,200
Other..................................................... 7,850
Net operating loss carryforwards.......................... 207,850
---------
Deferred tax asset................................ 402,050
Liabilities:
Excess of tax over financial accounting depreciation and
amortization........................................... (725,700)
---------
Net deferred tax liability........................ $(323,650)
=========
</TABLE>
At December 31, 1996, the Company has operating loss carryforwards of
approximately $520,000 available, which will expire, if unused, beginning in
2010.
5. RELATED PARTY TRANSACTIONS
For the years ended 1996 and 1995 Pages has provided services to and
incurred costs on behalf of the Company. Prior to the Distribution, Pages'
management fee was intended to encompass the element of Pages' financing costs
to provide non-interest bearing advances to the Company. Such element
approximated $450,000 and $450,000, respectively, based on the prime interest
rate as applied to the average outstanding balance due to Pages for the years
ended December 31, 1996 and 1995. The remaining costs are for certain services,
including, but not limited to, administrative services, transportation, tax
services, accounting and reporting, management consultation, legal services, and
general corporate expenses, which have also been allocated to the Company. The
allocation of costs and expenses for these services were based on methods that
management believes are reasonable. The portion of such costs which management
believes will continue to be incurred subsequent to the Distribution
approximates $30,000 annually. The balance of nonrecurring costs relates to
duplicative management responsibilities for financing and operating activities,
as well as other transportation and administrative costs eliminated by the
Distribution. See note 2 regarding additional changes as a result of the
Distribution.
Pages allocated general corporate expenses to the Company for the six
months ended June 30, 1996 and the years ended December 31, 1996 and 1995 in the
amounts of $250,000, $500,000 and $500,000, respectively.
F-13
<PAGE> 50
======================================================
NO UNDERWRITER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL MODIFICATION
OF THE OFFERING WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO THE
REGISTRATION STATEMENT. IN ADDITION, THE RIGHT IS RESERVED BY THE COMPANY TO
CANCEL ANY CONFIRMATION OF SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE
OPINION OF THE COMPANY, COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE
SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., WASHINGTON, D.C. 20006.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Market Matters........................ 13
Use of Proceeds....................... 14
Capitalization........................ 15
Dividend Policy....................... 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 25
Principal Stockholders................ 28
Description of Securities............. 29
Shares Eligible for Future Sale....... 31
Underwriting.......................... 32
Legal Matters......................... 34
Change of Accountants................. 34
Experts............................... 35
Available Information................. 35
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
750,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF COMMON STOCK
AND TWO REDEEMABLE CLASS A WARRANTS
CASCO
INTERNATIONAL,
INC.
-------------------------
PROSPECTUS
-------------------------
BILTMORE
SECURITIES, INC.
, 1997
======================================================
<PAGE> 51
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation (the "Certificate") provides
that a Director shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except, (a) for any breach of the duty of loyalty; (b) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
laws; (c) for liability under Section 174 of the Delaware General Corporation
Law (the "Delaware GCL") (relating to certain unlawful dividends, stock
repurchases or stock redemptions); or (d) for any transaction from which the
Director derived any improper personal benefit. The Company's Certificate,
provides that the Company shall indemnify each Director and such of the
Company's officers, employees and agents as the Board of Directors shall
determine from time to time to the fullest extent authorized by the Delaware
GCL.
The Company's Bylaws, provide, in general, that the Company shall indemnify
its directors and officers and officers under the circumstances specified in the
Delaware GCL and give authority to the Company to purchase insurance with
respect to such indemnification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 4,600.00
NASD Fee.................................................... 2,100.00
Nasdaq listing Fee.......................................... 23,000.00
Accounting Fees and Expenses................................ 50,000.00
Legal Fees and Expenses..................................... 35,000.00
Printing and Engraving Expenses............................. 50,000.00
Blue Sky Fees and Expenses (including Legal Fees)........... 65,000.00
Transfer Agent and Registrar Fees and Expenses.............. 2,500.00
Miscellaneous............................................... 52,800.00
-----------
TOTAL............................................. $285,000.00
===========
</TABLE>
The Registrant will bear all expenses listed above.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company granted options to certain of its key employees and to its
directors pursuant to its 1996 Incentive Stock Option Plan and its Non-Employee
Director Stock Option Plan as follows:
1996 Incentive Stock Option Plan: options to purchase 29,500 shares of
Company Common Stock were granted on January 17, 1997, at an exercise price
of $4.00 per share, options to purchase 40,000 shares of Company Common
Stock were granted on March 12, 1997 at an exercise price of $3.50 per
share, and an option to purchase 5,000 shares of Company common stock was
granted on March 26, 1997 at an exercise price of $4.00 per share.
Non-employee Director Stock Option Plan: options to purchase 10,000
shares of Company Common Stock were granted on June 25, 1997, at an
exercise price of $4.50 per share.
All of the foregoing options were granted pursuant to the exemption
provided by Section 4(2) of the Securities Act of 1933 to persons who were, at
the time of grant, key employees and/or directors of the Company.
II-1
<PAGE> 52
ITEM 27. EXHIBITS
<TABLE>
<S> <C> <C>
1 -- Form of Underwriting Agreement
3(i)(1) -- Certificate of Incorporation
3(ii)(1) -- Bylaws
4.1(1) -- Specimen Stock Certificate
4.2+ -- Form of Warrant Agreement
4.3+ -- Form of Underwriter's Option
5+ -- Form of Legal Opinion of Johnson, Blakely, Pope, Bokor,
Ruppel & Burns, P.A. concerning the legality of the
securities being offered
10.1(1) -- Form of Distribution Agreement
10.2(1) -- 1996 Incentive Stock Option Plan
10.3(1) -- Subordinated Debenture
10.4(1) -- Security Agreement
10.5(1) -- Huntington Loan Documents:
10.5.1(1) -- Loan and Security Agreement
10.5.2(1) -- Revolving Note
10.5.3(1) -- Commercial Letter of Credit Reimbursement Agreement
10.5.4(1) -- Deed of Trust, Assignment of Rents and Security Agreement
10.5.5(1) -- Debt Subordination and Intercreditor Agreement
10.5.6+ -- First Amendment to Loan and Security Agreement
10.5.7+ -- Note Modification and Extension Agreement
10.6(1) -- Non-Employee Director Stock Option Plan
10.7+ -- Agreement to grant Performance Options
10.8+ -- Amendment to 1996 Incentive Stock Option Plan(2)
10.9+ -- Form of Warrant Exercise Fee Agreement
11+ -- Statement re: Computation of per share Earnings
23.1+ -- Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A. (included in Exhibit 5)
23.2+ -- Consent of Hausser + Taylor
24+ -- Power of Attorney (included in signature page)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
10, File Number 0-21717, filed in Washington, D.C.
(2) Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997, filed in Washington, D.C.
+ Previously Filed
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the Registration Statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule L 424(b) if, in
the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement.
II-2
<PAGE> 53
(iii) Include any additional or changed material information on the
plan of distribution.
(2) That for determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time shall
be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act, and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby further undertakes:
(1) That for determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act as part of this Registration Statement as of the time
the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered, and that offering of the
securities at that time as the initial bona fide offering of those
securities.
II-3
<PAGE> 54
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of Amendment No. 1 filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Shelby, State of North Carolina on September 2, 1997.
CASCO INTERNATIONAL, INC.
By: /s/ CHARLES R. DAVIS
------------------------------------
Charles R. Davis, President
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on August , 1997, by the
following persons in the capacities indicated and each of the undersigned
persons, in any capacity, hereby severally constitutes S. Robert Davis and
Charles R. Davis, and each of them singularly, his true and lawful attorney with
full power to them and each of them to sign for him and in his name and in the
capacity indicated below, this Registration Statement and any and all amendments
thereto.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ S. ROBERT DAVIS Chairman of the Board and September 2, 1997
- ------------------------------------------------ Director
S. Robert Davis
/s/ CHARLES R. DAVIS President and Director September 2, 1997
- ------------------------------------------------ (principal executive officer)
Charles R. Davis
/s/ JEFFREY A. ROSS Chief Financial Officer September 2, 1997
- ------------------------------------------------ (principal financial officer
Jeffrey A. Ross and principal accounting
officer)
/s/ ROBERT V. BOYLAN Chief Operating Officer and September 2, 1997
- ------------------------------------------------ Director
Robert V. Boylan
/s/ DAVID J. RICHARDS Director September 2, 1997
- ------------------------------------------------
David J. Richards
/s/ MICHAEL P. BEAUCHAMP Director September 2, 1997
- ------------------------------------------------
Michael P. Beauchamp
</TABLE>
II-4
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------------ ----------- ------------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement
3(i)(1) -- Certificate of Incorporation
3(ii)(1) -- Bylaws
4.1(1) -- Specimen Stock Certificate
4.2+ -- Form of Warrant Agreement
4.3+ -- Form of Underwriter's Option
5+ -- Form of Legal Opinion of Johnson, Blakely, Pope, Bokor,
Ruppel & Burns, P.A. concerning the legality of the
securities being offered
10.1(1) -- Form of Distribution Agreement
10.2(1) -- 1996 Incentive Stock Option Plan
10.3(1) -- Subordinated Debenture
10.4(1) -- Security Agreement
10.5(1) -- Huntington Loan Documents:
10.5.1(1) -- Loan and Security Agreement
10.5.2(1) -- Revolving Note
10.5.3(1) -- Commercial Letter of Credit Reimbursement Agreement
10.5.4(1) -- Deed of Trust, Assignment of Rents and Security Agreement
10.5.5(1) -- Debt Subordination and Intercreditor Agreement
10.5.6+ -- First Amendment to Loan and Security Agreement
10.5.7+ -- Note Modification and Extension Agreement
10.6(1) -- Non-Employee Director Stock Option Plan
10.7+ -- Agreement to grant Performance Options
10.8+ -- Amendment to 1996 Incentive Stock Option Plan(2)
10.9+ -- Form of Warrant Exercise Fee Agreement
11+ -- Statement re: Computation of per share Earnings
23.1+ -- Consent of Johnson, Blakely, Pope, Bokor, Ruppel & Burns,
P.A. (included in Exhibit 5)
23.2+ -- Consent of Hausser + Taylor
24+ -- Power of Attorney (included in signature page)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
10, File Number 0-21717, filed in Washington, D.C.
(2) Incorporated by reference to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1997, filed in Washington, D.C.
+ Previously Filed
<PAGE> 1
EXHIBIT 1
750,000 Units, each Unit consisting of
one (1) Share of Common Stock, par value $.01 per share
and
two (2) Class A Redeemable Common Stock Purchase Warrants
CASCO INTERNATIONAL, INC.
UNDERWRITING AGREEMENT
New York, New York
____________, 1997
Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
CASCO INTERNATIONAL, INC., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter"), an aggregate of 750,000
Units, each consisting of one (1) share of Common Stock, par value $.01 per
share ("Common Stock") and two (2) Class A Redeemable Common Stock Purchase
Warrants ("Warrants"). The Units may be referred to hereinafter as the
"Securities". Each Warrant entitles the registered holder thereof to purchase
one (1) share of Common Stock, par value $.01 per share ("Common Stock") at an
exercise price of $5.50 per share for a period of four (4) years, commencing
________, 1998, one (1) year from the effective date of the public offering
("Effective Date") through _______, 2002. The Warrants are subject to
redemption by the Company at any time commencing _______, 1998 (twelve (12)
months from the Effective Date) at $.05 per Warrant, if the closing bid price
per share of Common Stock has equaled or exceeded 175% of the initial public
offering price of the Common Stock for any 20 consecutive trading days ending
within 10 days of the written notice of redemption. In addition, the Company
proposes to grant to the Underwriter the option referred to in Section 2(b) to
purchase all or any part of an aggregate of 112,500 additional Units.
You have advised the Company that you desire to purchase the
Securities. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
<PAGE> 2
(a) A registration statement (File No. 333-________) on Form
SB-2 relating to the public offering of the Securities, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by you prior to the execution of this Agreement,
or (ii) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment to
such registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Company" means CASCO
INTERNATIONAL, INC. and/or each of its subsidiaries ("Subsidiaries"); the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant
to Rule 430A under the Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the
prospectus as so supplemented, or both, as the case may be.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on
the First Closing Date (as hereinafter defined) or the Option Closing Date, as
the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished
2
<PAGE> 3
to the Company by or on behalf of the Underwriter specifically for use in the
preparation thereof. It is understood that the statements set forth in the
three bold faced paragraphs on page 2 of the Prospectus with respect to
stabilization, under the heading "Underwriting", the Risk Factors entitled
"Litigation Involving Underwriter May Affect Securities" and "Underwriter's
Influence on the Market May Have Adverse Consequences", and the Risk Factor
entitled "Underwriter and Selling Securityholders to Receive Substantial
Benefits in Connection with the Offering" insofar as it relates to the
Underwriter, and the identity of counsel to the Underwriter under the heading
"Legal Matters" constitute for purposes of this Section and Section 6(b) the
only information furnished in writing by or on behalf of the Underwriter for
inclusion in the Registration Statement and Prospectus, as the case may be.
(c) The Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation with full corporate
power and authority to own their properties and conduct their business as
described in the Prospectus and are duly qualified or licensed to do business
as foreign corporations and are in good standing in each other jurisdiction in
which the nature of their business or the character or location of their
properties require such qualification, except where the failure to so qualify
will not materially adversely affect the Company's or Subsidiaries' business,
properties or financial condition.
(d) The authorized, issued and outstanding capital stock of
the Company and its Subsidiaries, including the predecessors of the Company, is
as set forth in the Company's financial statements contained in the
Registration Statement; the shares of issued and outstanding capital stock of
the Company and its Subsidiaries set forth therein have been duly authorized,
validly issued and are fully paid and nonassessable; except as set forth in the
Prospectus, no options, warrants, or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company or its Subsidiaries
have been granted or entered into by the Company or its Subsidiaries; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The shares of Common Stock underlying the Units, when
paid for, issued and delivered pursuant to this Agreement, will have been duly
authorized, issued and delivered and will constitute valid and legally binding
obligations of the Company enforceable in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the right of creditors generally or by general equitable principles,
and entitled to the rights and preferences provided by the Certificate of
Incorporation, which will be in the form filed as an exhibit to the
Registration Statement. The terms of the Common Stock conform to the
description thereof in the Registration Statement and Prospectus.
The Warrants when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability
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<PAGE> 4
may be limited by bankruptcy, insolvency or other laws affecting the right of
creditors generally or by general equitable principles, and entitled to the
benefits provided by the warrant agreement pursuant to which such Warrants are
to be issued (the "Warrant Agreement"), which will be substantially in the form
filed as an exhibit to the Registration Statement. The shares of Common Stock
issuable upon exercise of the Warrants have been reserved for issuance upon the
exercise of the Warrants and when issued in accordance with the terms of the
Warrants and Warrant Agreement, will be duly and validly authorized validly
issued, fully paid and non-assessable and free of preemptive rights. The
Warrant Agreement has been duly authorized and, when executed and delivered
pursuant to this Agreement, assuming due authorization, execution and delivery
by the transfer agent, will have been duly executed and delivered and will
constitute the valid and legally binding obligation of the Company enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the rights of creditors
generally or by general equitable principles. The Warrants and Warrant
Agreement conform to the respective descriptions thereof in the Registration
Statement and Prospectus.
The Purchase Option (as defined in the Registration
Statement), when paid for, issued and delivered pursuant to this Agreement will
constitute valid and legally binding obligations of the Company enforceable in
accordance with its terms and entitled to the benefits provided by the Purchase
Option, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally or by general equitable
principles. The Securities issuable upon exercise of the Purchase Option (and
the shares of Common Stock issuable upon exercise of the Warrants) when issued
and paid for in accordance with this Agreement, the Purchase Option and the
Warrant Agreement, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights.
(f) This Agreement has been duly and validly authorized,
executed and delivered by the Company. The Company has full power and authority
to authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any governmental authority is required in connection with
such authorization, execution and delivery or in connection with the
authorization, issuance and sale of the Securities or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its
Subsidiaries are not in violation, breach or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or its Subsidiaries pursuant to
the terms of any material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or its Subsidiaries is a
party or by which the
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<PAGE> 5
Company or its Subsidiaries may be bound or to which any of the property or
assets of the Company or its Subsidiaries is subject, nor will such action
result in any violation of the provisions of the certificate of incorporation
or the by-laws of the Company or its Subsidiaries, as amended, or any statute
or any order, rule or regulation applicable to the Company or its Subsidiaries
of any court or of any regulatory authority or other governmental body having
jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus,
the Company and its Subsidiaries have good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to their business; all of
the material leases and subleases under which the Company or its Subsidiaries
is the lessor or sublessor of properties or assets or under which the Company
and its Subsidiaries holds properties or assets as lessee or sublessee as
described in the Prospectus are in full force and effect, and, except as
described in the Prospectus, the Company and its Subsidiaries are not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and, to the best knowledge of the Company,
no claim has been asserted by anyone adverse to rights of the Company or its
Subsidiaries as lessor, sublessor, lessee or sublessee under any of the leases
or subleases mentioned above, or affecting or questioning the right of the
Company or its Subsidiaries to continued possession of the leased or subleased
premises or assets under any such lease or sublease except as described or
referred to in the Prospectus; and the Company and its Subsidiaries own or
lease all such properties described in the Prospectus as are necessary to their
operations as now conducted and, except as otherwise stated in the Prospectus,
as proposed to be conducted as set forth in the Prospectus.
(i) Hausser + Taylor, which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to the Company, independent public accountants as
required by the Act and the Rules and Regulations.
(j) The financial statements, and schedules together with
related notes, set forth in the Prospectus or the Registration Statement
present fairly the financial position and results of operations and changes in
cash flow position of the Company and its Subsidiaries on the basis stated in
the Registration Statement, at the respective dates and for the respective
periods to which they apply. Said statements and schedules and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a basis which is consistent during the periods involved except as
disclosed in the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus and except as
otherwise disclosed or contemplated therein, the Company and its Subsidiaries
have not incurred any liabilities or obligations, direct or contingent, not in
the ordinary course of business, or entered into any transaction not in the
ordinary course of business, which would have a Material Adverse Effect, and
there has not been any change in the capital stock of, or any incurrence of
short-term or long-term debt by, the
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<PAGE> 6
Company or its Subsidiaries or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or its Subsidiaries or any
material adverse change or any development involving, so far as the Company or
its Subsidiaries can now reasonably foresee a prospective adverse change in the
condition (financial or otherwise), net worth, results of operations, business,
key personnel or properties of it which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any Material
Adverse Effect in the financial condition, business prospects, net worth, or
properties of the Company or its Subsidiaries, nor are there any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company and
its Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the party, may be asserted against the Company or its
Subsidiaries.
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of such
businesses and have not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company and its Subsidiaries are in
violation of, or cause the Company or its Subsidiaries to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or body of the United States or of any state, county or
locality, the violation of which would have a Material Adverse Effect.
(o) The Company and its Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's and Subsidiaries' internal accounting
controls and procedures are sufficient to cause
6
<PAGE> 7
the Company and its Subsidiaries to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer
or other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Securities to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been complied with in all material
respects.
(q) All contracts and other documents of the Company which
are, under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
(t) Except as previously disclosed in writing by the
Company to the Underwriter or as disclosed in the Registration Statement, no
officer, director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter and the
Underwriter agrees to buy from the Company at $4.50 per Unit, at the place and
time hereinafter specified, 750,000 Units (the "First Securities").
Delivery of the First Securities against payment therefor
shall take place at the offices of Bernstein & Wasserman, LLP, 950 Third
Avenue, New York, New York (or at such other place as may be designated by
agreement between the Underwriter and the Company) at 9:00 a.m., New York time,
on ____________, 1997, such time and date of payment and delivery for the First
Securities being herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of
this Agreement, and upon the basis of the representations, warranties and
agreements herein contained, the Company hereby
7
<PAGE> 8
grants an option to the Underwriter (the "Over-Allotment Option") to purchase
all or any part of an aggregate of an additional 112,500 Units to cover over
allotments at the same price per Unit as the Underwriter shall pay for the
First Securities being sold pursuant to the provisions of subsection (a) of
this Section 2 (such additional Securities being referred to herein as the
"Option Securities"). This option may be exercised within 30 days after the
effective date of the Registration Statement upon written notice by the
Underwriter to the Company advising as to the amount of Option Securities as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Securities are to be registered and the time and
date when such certificates are to be delivered. Such time and date shall be
determined by the Underwriter but shall not be earlier than four nor later than
ten full business days after the exercise of said option (but in no event more
than 40 days after the First Closing Date), nor in any event prior to the First
Closing Date, and such time and date is referred to herein as the "Option
Closing Date." Delivery of the Option Securities against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, NY 10022 (or at such other place as may be designated by agreement
between the Underwriter and the Company). The option granted hereunder may be
exercised only to cover over-allotments in the sale by the Underwriter of First
Securities referred to in subsection (a) above. No Option Securities shall be
delivered unless all First Securities shall have been delivered to the
Underwriter as provided herein.
(c) The Company will make the certificates for the Securities
to be purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least three full business days prior to the Closing Dates. Delivery
of the certificates at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities
to be purchased by the Underwriter hereunder will be delivered by the Company
to you for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer or certified or bank
cashier's checks in immediately available funds, payable to the order of the
Company or in accordance with the Company's written instructions.
In addition, in the event the Underwriter exercises the
option to purchase from the Company all or any portion of the Option Securities
pursuant to the provisions of subsection (b) above, payment for such Securities
shall be made to or upon the order of the Company by wire transfer or certified
or bank cashier's checks payable in immediately available funds at the offices
of Bernstein & Wasserman, LLP, 950 Third Avenue, New York, N.Y., at the time
and date of delivery of such Securities as required by the provisions of
subsection (b) above, against receipt of the certificates for such Securities
by you for your account registered in such names and in such denominations as
you may reasonably request.
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<PAGE> 9
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously have been advised and furnished with a copy or to which you or your
counsel shall have reasonably objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by the Underwriter of the distribution of the Securities
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel to the
Company and the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Securities.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
an amendment of the Registration Statement or for supplementing of the
Prospectus or for additional information with respect thereto, of the issuance
by the Commission or any state or regulatory body of any stop order or other
order or threat thereof suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering in any jurisdiction, or of the institution of any proceedings for any
of such purposes, and will use its best efforts to prevent the issuance of any
such order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Securities for such period as in the opinion of counsel to the
Underwriter and the Company the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any
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<PAGE> 10
time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by the Underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company
and counsel for the Underwriter should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Securities or in case it shall be necessary to amend or supplement the
Prospectus to comply with law or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you copies of
such amended Prospectus or of such supplement to be attached to the Prospectus,
in such quantities as you may reasonably request, in order that the Prospectus,
as so amended or supplemented, will not contain any untrue statement of a
material fact or omit to state any material facts necessary in order to make
the statements in the Prospectus, in the light of the circumstances under which
they are made, not misleading. The preparation and furnishing of any such
amendment or supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriter, except that in case the Representative is required, in connection
with the sale of the Securities to deliver a Prospectus nine months or more
after the effective date of the Registration Statement, the Company will upon
request of and at the expense of the Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange Act") and
the rules and regulations thereunder in connection with the offering and
issuance of the Securities.
(b) The Company will furnish such information as may be
required and to otherwise cooperate and use its best efforts to qualify or
register the Securities for sale under the securities or "blue sky" laws of
such jurisdictions as you may designate and will make such applications and
furnish such information as may be required for that purpose and to comply with
such laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Securities. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to
the Company and the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, but not as a result of any change in the terms of
this Agreement including, without limitation, a change in the price provided
for in paragraph 2(a), the Company shall pay all costs and expenses incurred by
the Underwriter which are incident to the performance of the Company's
obligations hereunder, including but not limited to, all of the expenses
itemized in Section 8, including the
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<PAGE> 11
accountable expenses of the Underwriter, up to $100,000 (including the
reasonable fees and expenses of counsel to the Underwriter).
(d) The Company will use its best efforts to obtain and keep
current a listing in the Standard & Poors or Moody's OTC Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, but no earlier than the filing of such information with the Commission a
balance sheet of the Company and any of its Subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any Subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, but no earlier than the filing of
such information with the Commission, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are publicly available, a copy of all reports (financial or other)
mailed to security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with
the Commission or any securities exchange or automated quotation system on
which any class of securities of the Company is listed; and (v) such other
information as you may from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon your order, from time to time
until the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Underwriter on the effective date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under
the Act, from time to time, as many copies of the Prospectus, in final form, or
as thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request.
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(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as
soon as it is practicable to do so but in no event later than 90 days after the
end of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of
the Securities substantially for the purposes set forth under "Use of Proceeds"
in the Prospectus, and will file such reports with the Commission with respect
to the sale of the Securities and the application of the proceeds therefrom as
maybe required pursuant to Rule 463 under the Act.
(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) Upon completion of this offering, the Company will make
all filings required to obtain the listing of the Units, Common Stock and the
Warrants in the NASDAQ SmallCap Market system, and will use its best efforts to
effect and maintain such listing for at least five years from the date of this
Agreement.
(m) Except for the transactions contemplated by this
Agreement and as disclosed in the Prospectus, the Company represents that it
has not taken and agrees that it will not take, directly or indirectly, any
action designed to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price
of any of the Securities.
(n) On the First Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to you the
Purchase Option. The Purchase Option will be substantially in the form filed as
an Exhibit to the Registration Statement.
(o) Intentionally omitted.
(p) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in
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<PAGE> 13
compliance with the Act and without any lapse of time between the effectiveness
of any such post-effective amendments and cause a copy of each Prospectus, as
then amended, to be delivered to each holder of record of a Warrant and to
furnish to the Underwriter as many copies of each such Prospectus as such
Underwriter or dealer may reasonably request. The Company shall not call for
redemption of any of the Warrants unless a registration statement covering the
securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
(q) Intentionally omitted.
(r) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price
of the Warrant, (b) the exercise of the Warrant was solicited by the
Underwriter and the holder of the warrant designates the Underwriter in writing
as having solicited such Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Regulation M under the Securities Exchange Act of 1934, and (f)
solicitation of the exercise is in compliance with the NASD Notice to Members
81-38 (September 22, 1981).
(s) For a period of three years from the Effective Date, at
the request of the Underwriter, the Company shall provide promptly, at the
expense of the Company, copies of the Company's daily transfer sheets furnished
to it by its transfer agent and copies of the securities position listings
provided to it by the Depository Trust Company.
(t) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the
Underwriter, equal to five percent (5%) of the first $3,000,000 of the
consideration involved in any transaction, 4% of the next $3,000,000 of
consideration involved in the transaction, 3% of the next $2,000,000, 2% of the
next $2,000,000 and 1% of the excess, if any, over $10,000,000, for future
consummated transactions, if any, introduced by the Underwriter (including
mergers, acquisitions, joint ventures, and any other capital business
transaction for the Company introduced by the Underwriter) consummated by the
Company (an "Introduced Consummated Transaction"), in which the Underwriter
introduced the other party to the Company during a period ending five years
following the First Closing Date. For the purposes hereof, a party shall not be
deemed to be introduced by you unless (A) such party was not previously known
by the Company; and (B) such party shall have commenced substantive
negotiations with the Company relating to an Introduced Consummated Transaction
during such five (5) year period, and
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(ii) That any such finder's fee due hereunder will
be paid in cash or other consideration that is acceptable to the Underwriter,
at the closing of the particular Introduced Consummated Transaction for which
the finder's fee is due.
(u) (i) For a period of eighteen (18) months after the
First Closing Date, neither S. Robert Davis nor Charles R. Davis will, directly
or indirectly, offer, sell (including any short sale), grant any option for the
sale of, acquire any option to dispose of, or otherwise dispose of any shares
of Common Stock without the prior written consent of the Underwriter, other
than as set forth in this Agreement and in the Registration Statement.
Provided, however; (i) S. Robert Davis shall be permitted to sell 15,000 of his
shares of Common Stock during the first twelve (12) months after the date of
the Prospectus and an additional 10,000 shares of Common Stock during the
following six (6) months, (ii) Charles R. Davis shall be permitted to sell
10,000 of his shares of Common Stock during the first twelve (12) months after
the date of the Prospectus and an additional 5,000 shares of Common Stock
during the following six (6) months, and (iii) in all cases, the timing of such
sales shall be subject to the prior approval of the Underwriter, which approval
shall not be unreasonably withheld and in any case, the Underwriter shall not
be permitted to delay any such sale for more than thirty (30) days. In order to
enforce this covenant, the Company shall impose stop-transfer instructions with
respect to the shares owned by every shareholder prior to the offering until
the end of such period (subject to any exceptions to such limitation on
transferability set forth in the Registration Statement).
(ii) Except for the issuance of shares of capital
stock by the Company in connection with a dividend, recapitalization,
reorganization or similar transactions or as result of the exercise of warrants
or options disclosed in or issued or granted pursuant to plans disclosed in the
Registration Statement, the Company shall not, for a period of eighteen (18)
months following the First Closing Date, directly or indirectly, offer, sell,
issue or transfer any shares of its capital stock, or any security exchangeable
or exercisable for, or convertible into, shares of the capital stock, without
the prior written consent of the Underwriter, which shall not be unreasonable
withheld.
(v) On the Effective Date, the Company will have in
force key person life insurance on the life of Charles R. Davis in an amount of
not less than $1,000,000.00, payable to the Company, and will use its best
efforts to maintain such insurance for a three year period.
4. Conditions of Underwriter's Obligation. The obligations
of the Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective
and you shall have received notice thereof not later than 10:00 A.M., New York
time, on the day following the date
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<PAGE> 15
of this Agreement, or at such later time or on such later date as to which you
may agree in writing; on or prior to the Closing Dates no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that or a similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the satisfaction of the
Commission; and no stop order shall be in effect denying or suspending
effectiveness of such qualification nor shall any stop order proceedings with
respect thereto be instituted or pending or threatened. If required, the
Prospectus shall have been filed with the Commission in the manner and within
the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Johnson, Blakely, Pope, Bokor,
Ruppel & Burns, P.A., counsel for the Company, in form and substance
satisfactory to counsel for the Underwriter, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their
business as described in the Registration Statement and Prospectus and are duly
qualified or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the ownership or leasing of their
properties or conduct of their business requires such qualification except
where the failure to qualify or be licensed will not have a Material Adverse
Effect;
(ii) the authorized capitalization of the Company
as of ____________, 1997 is as set forth in the Registration Statement; the
Securities as set forth in the Registration Statement have been duly authorized
and upon payment of consideration therefor, will be validly issued, fully paid
and non-assessable and conform in all material respects to the description
thereof contained in the Prospectus; to such counsel's knowledge the
outstanding shares of capital stock of the Company and its Subsidiaries have
not been issued in violation of the preemptive rights of any shareholder and to
such counsel's knowledge the shareholders of the Company do not have any
preemptive rights or other rights to subscribe for or to purchase, nor are
there any restrictions upon the voting or transfer of any of the capital stock
except as provided in the Prospectus or as required by law. The Securities, the
Purchase Option and the Warrant Agreement conform in all material respects to
the respective descriptions thereof contained in the Prospectus; and the shares
of Common Stock issuable upon exercise of Warrants, the Purchase Option, and
the Warrant Agreement will have been duly authorized and, when issued and
delivered in accordance with their respective terms, will be duly and validly
issued, fully paid, non-assessable, free of preemptive rights to the best of
their knowledge; to the best of their knowledge, all prior sales by the Company
of the Company's securities, have been made in compliance with or under an
exemption from registration under the Act and applicable state securities laws;
a sufficient number of shares of Common Stock has been reserved for issuance
upon exercise of the Warrants and Common Stock has been reserved for issuance
upon exercise
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<PAGE> 16
of the Warrants contained in the Purchase Option and to the best of such
counsel's knowledge, neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement gives rise
to any registration rights for or relating to the registration of any shares of
Common Stock other than those which have been waived or satisfied;
(iii) this Agreement, the Purchase Option, and the
Warrant Agreement have been duly and validly authorized, executed and delivered
by the Company;
(iv) the certificates evidencing the Securities as
described in the Registration Statement comply in all material respects with
the descriptions set forth therein, and comply with the Delaware General
Corporation Law, as in effect on the date hereof; each Warrant will be
exercisable for one share of the Common Stock of the Company, respectively, and
at the prices provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the
Registration Statement, such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company or its Subsidiaries are a party
which would have a Material Adverse Effect; or which question the validity of
the Securities, this Agreement, the Warrant Agreement or the Purchase Option,
or of any action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement or the Purchase Option; to such counsel's
knowledge there are no governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement,
the Purchase Option or the Warrant Agreement and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under the certificate of incorporation or
by-laws of the Company or its Subsidiaries, or to the best knowledge of counsel
after due inquiry, in the performance or observance of any material
obligations, agreement, covenant or condition contained in any bond, debenture,
note or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or instrument
to which the Company or its Subsidiaries is a party or by which they or any of
their properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality or court,
domestic or foreign the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become
effective under the Act, and to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for that purpose have been instituted or are pending before,
or threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data contained
therein, or omitted therefrom, as to which such counsel need express no
opinion) as of the Effective Date comply as
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<PAGE> 17
to form in all material respects with the applicable requirements of the Act
and the Rules and Regulations;
(viii) in the course of preparation of the
Registration Statement and the Prospectus such counsel has participated in
conferences with the President of the Company with respect to the Registration
Statement and Prospectus and such discussions did not disclose to such counsel
any information which gives such counsel reason to believe that the
Registration Statement or any amendment thereto at the time it became effective
contained any untrue statement of a material fact required to be stated therein
or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
or any supplement thereto contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make statements therein,
in light of the circumstances under which they were made, not misleading
(except, in the case of both the Registration Statement and any amendment
thereto and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information (including without
limitation, the pro forma financial information) and schedules contained
therein, as to which such counsel need express no opinion);
(ix) all descriptions in the Registration
Statement and the Prospectus, and any amendment or supplement thereto, of
contracts and other agreements to which the Company or its Subsidiaries is a
party are accurate and fairly present in all material respects the information
required to be shown, and such counsel is familiar with all contracts and other
agreements referred to in the Registration Statement and the Prospectus and any
such amendment or supplement or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or agreements to
which the Company or its Subsidiaries is a party of a character required to be
summarized or described therein or to be filed as exhibits thereto which are
not so summarized, described or filed;
(x) no authorization, approval, consent, or
license of any governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or delivery of the
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the taking
of any action contemplated herein, or the issuance of the Purchase Option or
the Securities underlying the Purchase Option, other than registrations or
qualifications of the Securities under applicable state or foreign securities
or Blue Sky laws and registration under the Act; and
(xi) the Units, shares of Common Stock and the
Warrants have been duly authorized for quotation on the NASDAQ SmallCap Market
System ("NASDAQ").
Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to
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<PAGE> 18
you, in which case the opinion shall state that they have no reason to believe
that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters
relating to this Agreement, the Registration Statement, the Prospectus and
other related matters shall be satisfactory to or approved by Bernstein &
Wasserman, LLP, counsel to the Underwriter.
(e) You shall have received a letter prior to the Effective
Date and again on and as of the First Closing Date from Hausser + Taylor
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(f) At the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects with the same effect as if made on and as of the
Closing Dates taking into account for the Option Closing Dates the effect of
the transactions contemplated hereby and the Company or its Subsidiaries shall
have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no Material Adverse Effect,
or to the Company or its Subsidiaries's knowledge, any development involving a
prospective Material Adverse Effect, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company or its Subsidiaries from that
set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company or its
Subsidiaries shall not have incurred any material liabilities or entered into
any material agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company or its Subsidiaries which
would be required to be set forth in the Registration Statement, and no
proceedings shall be pending or threatened against the Company or its
Subsidiaries before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or finding
would materially and adversely affect the business, property, condition
(financial or otherwise), results of operations or general affairs of the
Company or its Subsidiaries, and (v) you shall have received, at the First
Closing Date, a certificate signed by each of the President and the principal
operating officer of the Company or
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<PAGE> 19
its Subsidiaries, dated as of the First Closing Date, evidencing compliance
with the provisions of this subsection (f).
(g) Upon exercise of the Over-Allotment Option provided for
in Section 2(b) hereof, the obligations of the Underwriter to purchase and pay
for the Option Securities referred to therein will be subject (as of the date
hereof and as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be contemplated by the Commission, and
any reasonable request on the part of the Commission for additional information
shall have been complied with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have
been delivered to you the signed opinion of Johnson, Blakely, Pope, Bokor,
Ruppel & Burns, P.A., counsel to the Company, dated as of the Option Closing
Date, in form and substance reasonably satisfactory to Bernstein & Wasserman,
LLP, counsel to the Underwriter, which opinion shall be substantially the same
in scope and substance as the opinion furnished to you at the First Closing
Date pursuant to Sections 4(b) hereof, except that such opinion, where
appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date there shall have
be delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have
been delivered to you a letter in form and substance satisfactory to you from
Hausser + Taylor, dated the Option Closing Date and addressed to the
Underwriter confirming the information in their letter referred to in Section
4(e) hereof and stating that nothing has come to their attention during the
period from the ending date of their review referred to in said letter to a
date not more than five business days prior to the Option Closing Date, which
would require any change in said letter if it were required to be dated the
Option Closing Date.
(v) All proceedings taken at or prior to the
Option Closing Date in connection with the sale and issuance of the Option
Securities shall be reasonably satisfactory in form and substance to you, and
you and Bernstein & Wasserman, LLP, counsel to the Underwriter, shall have been
furnished with all such documents, certificates, and opinions as you may
reasonably request in connection with this transaction in order to evidence the
accuracy and
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<PAGE> 20
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for members of the NASD to execute transactions (as principal or
agent) in the Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge of the
Underwriter or the Company, shall be contemplated by the Commission or the
NASD. The Company and the Underwriter represent that at the date hereof each
has no knowledge that any such action is in fact contemplated against it by the
Commission or the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company. The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree
in writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for
in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the Securities on
exercise of the Over-Allotment Option provided for in Section 2(b) hereof shall
be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to
which such Underwriter or such controlling person may become subject, under the
Act or otherwise, and (ii)
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<PAGE> 21
to reimburse, as incurred, the Underwriter and such controlling persons for any
legal or other expenses reasonably incurred in connection with investigating,
defending against or appearing as a third party witness in connection with any
losses, claims, damages or liabilities; insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) relating to (i) and (ii) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (B) any
blue sky application or other document executed by the Company specifically for
that purpose containing written information specifically furnished by the
Company and filed in any state or other jurisdiction in order to qualify any or
all of the Securities under the securities laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"), or
arise out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Company will not be required to
indemnify the Underwriter and any controlling person or be liable in any such
case to the extent, but only to the extent, that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation of the Registration
Statement or any such amendment or supplement thereof or any such Blue Sky
Application or any such preliminary Prospectus or the Prospectus or any such
amendment or supplement thereto, provided, further that the indemnity with
respect to any Preliminary Prospectus shall not be applicable on account of any
losses, claims, damages, liabilities or litigation arising from the sale of
Securities to any person if a copy of the Prospectus was not delivered to such
person at or prior to the written confirmation of the sale to such person. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and reasonable attorneys' fees) to which the Company
or any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application in reliance upon
and in conformity with written information furnished to the Company by the
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<PAGE> 22
Underwriter specifically for use in the preparation thereof and for any
violation by the Underwriter in the sale of such Securities of any applicable
state or federal law or any rule, regulation or instruction thereunder relating
to violations based on unauthorized statements by Underwriter or its
representative; provided that such violation is not based upon any violation of
such law, rule or regulation or instruction by the party claiming
indemnification or inaccurate or misleading information furnished by the
Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section. In case any such action is brought against any indemnified
party, and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the reasonable fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the employment
of such counsel has been specifically authorized in writing by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party and in
the reasonable judgment of the counsel to the indemnified party, it is
advisable for the indemnified party to be represented by separate counsel (in
which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in light of all
factors of importance to such indemnified party. If it is ultimately determined
that indemnification is not permitted, then an indemnified party will return
all monies advanced to the indemnifying party.
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<PAGE> 23
7. Contribution.
In order to provide for just and equitable contribution under
the Act in any case in which the indemnification provided in Section 6 hereof
is requested but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of Section 6 provide for indemnification in such case, then the
Company and each person who controls the Company, in the aggregate, and the
Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Underwriter is responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount for each of the
Securities appearing on the cover page of the Prospectus bears to the public
offering price appearing thereon and the Company shall be responsible for the
remaining portion; provided, however, that if such allocation is not permitted
by applicable law then allocated in such proportion as is appropriate to
reflect relative benefits but also the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or
the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant to this Section 7 were to be determined by pro rata or per
capita allocation of the aggregate damages or by any other method of allocation
that does not take account of the equitable considerations referred to in this
Section 7. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company, its officers, directors and
controlling persons, and the Company, its officers, directors and controlling
persons shall be entitled to contribution from the Underwriter to the full
extent permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however, that
such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
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8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the
sale of the Securities to the Underwriter is consummated, the Company will pay
all costs and expenses incident to the performance of this Agreement by the
Company including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to
the preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Securities contemplated
hereby; all expenses, including reasonable fees and disbursements of counsel to
the Underwriter, in connection with the qualification of the Securities under
the state securities or blue sky laws which the Underwriter shall designate
(not to exceed $40,000 excluding disbursements); the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, and the Blue Sky
Memorandum, any fees relating to the listing of the Common Stock and Warrants
on NASDAQ or any other securities exchange, the cost of printing the
certificates representing the Securities; fees for bound volumes and prospectus
memorabilia and the fees of the transfer agent and warrant agent. The Company
shall pay any and all taxes (including any transfer, franchise, capital stock
or other tax imposed by any jurisdiction) on sales to the Underwriter
hereunder. The Company will also pay all costs and expenses incident to the
furnishing of any amended Prospectus or of any supplement to be attached to the
Prospectus as called for in Section 3(a) of this Agreement except as otherwise
set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall
at the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $112,500. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon
exercise of the overallotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder required to be fulfilled
by the Company is not fulfilled) the Company shall not be liable for any
expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company being unable to perform its obligations hereunder in all material
respects, but not as a result of any change in the terms of this Agreement
including, without limitation, a change in the price provided for in paragraph
2(a), the Company shall be liable for the actual accountable out-of-pocket
expenses of the Underwriter, including reasonable legal fees, not to exceed in
the aggregate $100,000.
(c) Except as disclosed in the Registration Statement, no
person is entitled either directly or indirectly to compensation from the
Company, from the Underwriter or from any other person for services as a finder
in connection with the proposed offering, and the
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Company agrees to indemnify and hold harmless the Underwriter, against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all reasonable attorneys' fees), to which the
Underwriter or person may become subject insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a finder's fee in
connection with the proposed offering by reason of such person's or entity's
influence or prior contact with the indemnifying party.
9. Effective Date.
The Agreement shall become effective upon its execution
except that you may, at your option, delay its effectiveness until 11:00 A.M.,
New York time on the first full business day following the effective date of
the Registration Statement, or at such earlier time on such business day after
the effective date of the Registration Statement as you in your discretion
shall first commence the public offering of the Securities. The time of the
initial public offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Securities, or the time when the
Securities are first generally offered by you to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by you at any
time before it becomes effective as provided above, except that Sections 3(c),
6, 7, 8, 12, 13, 14 and 15 shall remain in effect notwithstanding such
termination.
10. Termination.
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment (i) the
Company has sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree, (ii) trading in securities on
the New York Stock Exchange or the American Stock Exchange having been
suspended or limited, (iii) material governmental restrictions have been
imposed on trading in securities generally (not in force and effect on the date
hereof), (iv) a banking moratorium has been declared by federal or New York
state authorities, (v) an outbreak of major international hostilities involving
the United States or other substantial national or international calamity has
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification has been
received by the Company of the threat of any such proceeding or action, which
would have a Material Adverse Effect on the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body of similar impact, of any act or measure, or the adoption of
any orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Underwriter to have a material
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adverse impact on the business, financial condition or financial statements of
the Company; (ix) any material adverse change in the financial or securities
markets beyond normal market fluctuations having occurred since the date of
this Agreement, or (x) any material adverse change having occurred, since the
respective dates of which information is given in the Registration Statement
and Prospectus, in the earnings, business prospects or general condition of the
Company, financial or otherwise, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell
the Underwriter or its designees for a consideration of $75, and upon the terms
and conditions set forth in the form of Purchase Option annexed as an exhibit
to the Registration Statement, a Purchase Option to purchase an aggregate of
75,000 Units, each Unit consisting of one (1) share of Common Stock, par value
$.01 per share, and two (2) Class A Redeemable Common Stock Purchase Warrants.
In the event of conflict in the terms of this Agreement and the Purchase Option
with respect to language relating to the Purchase Option, the language of the
Purchase Option shall control.
12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that
it is registered as a broker-dealer with the Securities and Exchange Commision
and in all jurisdictions in which it is offering the Securities and that it
will comply with all applicable state or federal laws relating to the sale of
the Securities, including but not limited to, violations based on unauthorized
statements by the Underwriter or its representatives. Except as described in
the Prospectus, there is not now pending or threatened against the Underwriter
any action or proceeding of whichit has been advised, either in any court of
competent jurisdiction, before the Securities and Exchange Commission or any
state securities commission concerning its activities as a broker or dealer,
nor has the Underwriter been named as a "cause" in any such action or
proceeding.
13. Representations, Warranties and Agreements to Survive
Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter and the
undertakings set forth in or made pursuant to this Agreement will remain in
full force and effect until three years from the date of this Agreement,
regardless of any investigation made by or on behalf of the Underwriter, the
Company or any of its officers or directors or any controlling person and will
survive delivery of and payment of the Securities and the termination of this
Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Biltmore Securities, Inc., 6700 North Andrews Avenue,
Suite 500, Fort Lauderdale, FL 33309, with a copy sent to Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York 10022,
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Attention: Steven F. Wasserman, or if sent to the Company, will be mailed,
delivered or telecopied and confirmed to it at 4205 East Dixon Blvd, Shelby, NC
28105 with a copy sent to Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.,
100 North Tampa Street, Suite 1800, PO Box 1100, Tampa, FL 33601-1100,
Attention: Philip M. Shasteen, Esq. Notice shall be deemed to have been duly
given if mailed or transmitted by any standard form of telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit
of the Underwriter, the Company, any person controlling the Company or the
Underwriter, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser,
as such purchaser, from the Underwriter of the Securities.
16. Applicable Law.
This Agreement will be governed by, and construed in
accordance with, of the laws of the State of New York applicable to agreements
made and to be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts
each of which shall be deemed to constitute an original and shall become
effective when one or more counterparts have been signed by each of the parties
hereto and delivered to the other parties (including by fax, followed by
original copies by overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the
parties hereto and supersedes all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in writing, signed by the Underwriter and
the Company.
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with
its terms.
CASCO INTERNATIONAL, INC.
By:
-------------------------------
Name: Charles R. Davis
Title: President
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
BILTMORE SECURITIES, INC.
By:
-------------------------------
Elliot Loewenstern
Chief Executive Officer
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