<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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)
---------------------
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<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.)
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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:
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<S> <C>
STEPHEN F. WASSERMAN PHILIP M. SHASTEEN, ESQUIRE
BERNSTEIN & WASSERMAN JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A.
950 THIRD AVENUE, 10TH FLOOR 100 NORTH TAMPA STREET, SUITE 1800
NEW YORK, NY 10022 P.O. BOX 1100
(212) 826-0730 TAMPA, FL 33601-1100
(813) 225-2500
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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. [ ]
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
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Units, each consisting of one share of Common
Stock, par value, $0.01 per share and two
Redeemable Class A Warrants to purchase common
stock............................................ 862,500 $5.00 $4,312,500 $1,306.82
Shares of Common Stock included in Units........... 862,500 -- -- --
Redeemable Class A Warrants included in Units...... 1,725,000 -- -- --
Shares of Common Stock issuable upon exercise of
Redeemable Class A Warrants included in
Units(3)......................................... 1,725,000 $5.50 $9,487,500 $2,875.00
Underwriter's Option............................... 75,000 $0.001 $75.00 (4)
Units issuable upon exercise of Underwriter's
Option........................................... 75,000 $6.00 $450,000 $136.36
Shares of Common Stock included in Units underlying
Underwriter's Option............................. 75,000 -- -- --
Redeemable Class A Warrants included in Units
underlying Underwriter's Option.................. 150,000 -- -- --
Shares of Common Stock issuable upon exercise of
Redeemable Class A Warrants included in the Units
underlying the Underwriter's Option.............. 150,000 $5.50 $825,000 $250.00
Total Registration Fee............................. $4,568.18
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(1) Includes 112,500 Units issuable upon exercise of the Underwriter's
Over-Allotment Option.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(3) Pursuant to Rule 416 of the Securities Act, there are also being registered
hereby such additional indeterminate number of shares of Common Stock as may
become issuable pursuant to the anti-dilution provisions of the Redeemable
Class A Warrants and the Underwriter's Option.
(4) No registration fee required pursuant to Rule 457 under the Securities Act.
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Unit................ $5.00 $.50 $4.50
- ------------------------------------------------------------------------------------------------------------------------
Total(3)................ $3,750,000 $375,000 $3,375,000
========================================================================================================================
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(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.
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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>
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JUNE 30, 1997
---------------------------
PRO FORMA
HISTORICAL AS ADJUSTED(3)
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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>
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(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
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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.
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.
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.
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, 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."
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.
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."
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."
6
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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").
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
7
<PAGE> 9
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 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."
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 1,003,341 shares 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 $3,294,840 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%).
Broad Discretion in Application of Proceeds. 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. 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."
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 harm the Company. See "Management" and "Underwriting."
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.
8
<PAGE> 10
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 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
9
<PAGE> 11
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 (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) issued and outstanding. In addition, the following shares of Common Stock
have been reserved for issuance: 1,500,000 shares of Common Stock issuable upon
exercise of the Warrants offered hereby (1,725,000 if the Over-Allotment Option
is exercised in full); 75,000 shares of Common Stock issuable pursuant to the
Underwriter's Option and an additional 150,000 shares issuable upon exercise of
the Warrants included in the Underwriter's Option; 85,000 shares issuable upon
exercise of options that may be granted under the Incentive Option Plan for
executive officers and other key employees; 40,000 shares issuable upon exercise
of options that may be granted to non-employee directors and under the Director
Option Plan. In addition, 200,000 shares of common stock will be reserved for
issuance pursuant to the Company's agreement to grant performance options to
Charles R. Davis. After the exercise of all the Warrants and the options
described herein, the Company will have 4,140,931 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 (1,865,931 shares of Common Stock
and 1,725,000 of Warrants if the Over-Allotment Option is exercised in full),
the 750,000 Shares and 1,500,000 Warrants (862,500 Shares and 1,725,000 Warrants
if the Over-Allotment Option is exercised in full) which are part of the Units
will, when they are detachable, be immediately freely tradable without
restriction under the Securities Act except for any Securities purchased by an
"affiliate" of the Company (as that term is defined under the rules and
regulations of the Securities Act), which will be subject to the resale
limitations of Rule 144 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
10
<PAGE> 12
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.
"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 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
11
<PAGE> 13
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.
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.
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................... $1,000,000 33.6%
Investment in information technology, system upgrades and
automation................................................ 750,000 25.2
Reduce balance of revolving credit facility................. 1,200,000 40.3
Working capital and general corporate purposes.............. 27,500 .9
---------- -----
$2,977,500 100.0%
</TABLE>
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
12
<PAGE> 14
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.
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.
13
<PAGE> 15
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.
14
<PAGE> 16
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.
15
<PAGE> 17
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.
16
<PAGE> 18
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.
17
<PAGE> 19
The Company does not anticipate any material expenditures for property and
equipment during the next twelve months.
The Company is aware of no trends or demands, commitments or uncertainties
that will result in, or that management believes are reasonably likely to result
in, the Company's liquidity increasing or decreasing in any material way. The
Company is aware of no legal or other contingencies, the 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.
18
<PAGE> 20
BUSINESS
The following discussion contains forward-looking information which involve
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.
19
<PAGE> 21
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
20
<PAGE> 22
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.
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 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.
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<PAGE> 23
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.............. 33 Chief Operating Officer and 1997
Director
Jeffrey A. Ross............... 29 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.
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. Prior to joining the Company, 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, as well as 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.
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.
22
<PAGE> 24
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 full
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), to advance their expenses as a result of any proceeding
against them as to which they could be indemnified, and to obtain directors' and
officers' insurance, if available on reasonable terms. 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.
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<PAGE> 25
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> 26
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> 27
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> 28
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.
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<PAGE> 29
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.
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<PAGE> 30
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.
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 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
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<PAGE> 31
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.
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
30
<PAGE> 32
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 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.
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<PAGE> 33
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.
32
<PAGE> 34
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> 35
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> 36
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> 37
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> 38
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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
======================================================
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........................ 12
Use of Proceeds....................... 12
Dividend Policy....................... 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 19
Management............................ 22
Principal Stockholders................ 25
Description of Securities............. 26
Shares Eligible for Future Sale....... 28
Underwriting.......................... 29
Legal Matters......................... 31
Change of Accountants................. 31
Experts............................... 32
Available Information................. 32
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> 48
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> 49
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.
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.
(iii) Include any additional or changed material information on the
plan of distribution.
II-2
<PAGE> 50
(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> 51
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 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 August 5, 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
--------- -------- ----
<S> <C> <C>
/s/ S. ROBERT DAVIS Chairman of the Board and Director August 5, 1997
- ------------------------------------------------
S. Robert Davis
/s/ CHARLES R. DAVIS President and Director (principal August 5, 1997
- ------------------------------------------------ executive officer)
Charles R. Davis
/s/ JEFFREY A. ROSS Chief Financial Officer (principal August 5, 1997
- ------------------------------------------------ financial officer and principal
Jeffrey A. Ross accounting officer)
/s/ ROBERT V. BOYLAN Chief Operating Officer and August 5, 1997
- ------------------------------------------------ Director
Robert V. Boylan
/s/ DAVID J. RICHARDS Director August 5, 1997
- ------------------------------------------------
David J. Richards
/s/ MICHAEL P. BEAUCHAMP Director August 5, 1997
- ------------------------------------------------
Michael P. Beauchamp
</TABLE>
II-4
<PAGE> 52
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.
<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
3
<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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<PAGE> 14
(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). If necessary to
comply with any applicable Blue-sky Law, the shares held by such shareholders
will be escrowed with counsel for the Company or otherwise as required.
(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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<PAGE> 24
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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<PAGE> 25
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
25
<PAGE> 26
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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<PAGE> 27
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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<PAGE> 28
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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<PAGE> 1
EXHIBIT 4.2
WARRANT AGREEMENT
AGREEMENT, dated as of this ______ day of _______, 1997, by and
between CASCO INTERNATIONAL, INC., a Delaware corporation ("Company"), and
American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant
Agent").
WITNESSETH:
WHEREAS, in connection with (A) a public offering of up to 862,500
units, which includes a certain over-allotment option ("Units"), each unit
consisting of one (1) share of the Company's Common Stock, $.01 par value
("Common Stock"), and two (2) Class A Redeemable Common Stock Purchase Warrants
(the "Class A Warrants") pursuant to an underwriting agreement (the
"Underwriting Agreement") dated __________, 1997 between the Company and
Biltmore Securities, Inc. ("Biltmore"), and (B) the issuance to Biltmore or its
designees of a Purchase Option to purchase 75,000 additional Units (the
"Purchase Option"), the Company will issue up to 1,875,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
<PAGE> 2
(a) "Common Stock" shall mean the common stock of the
Company of which at the date hereof consists of 5,000,000 authorized shares,
$.01 par value, and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect to the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Warrants, or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section; or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean _________,
1998.
(e) "Purchase Price" shall mean the purchase price per
share to be paid upon exercise of each Warrant in accordance with the terms
hereof, which price shall be $5.50 per share, for a four (4) year period
commencing one (1) year after the effective date of
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<PAGE> 3
the registration statement (the "Effective Date"), subject to adjustment from
time to time pursuant to the provisions of Section 9 hereof, and subject to the
Company's right, in its sole discretion, upon thirty (30) days' written notice,
to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
(g) "Registered Holder" shall mean as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New
York time) on ____________, 2002 or the Redemption Date as defined in Section
8, whichever is earlier; provided that if such date shall in the State of New
York be a holiday or a day on which banks are authorized or required to close,
then 5:00 P.M. (New York time) on the next following day which in the State of
New York is not a holiday or a day on which banks are authorized or required to
close. Upon thirty (30) days' written notice to all warrantholders, the Company
shall have the right to extend the Warrant Expiration Date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder
of the Warrant representing such Warrant to purchase one share of Common Stock
upon the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or
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<PAGE> 4
an Assistant Secretary, the Warrant Certificates shall be countersigned,
issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 1,875,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder, (ii) those issued on or after the Initial Warrant
Exercise Date, upon the exercise of fewer than all Warrants represented by any
Warrant Certificate, to evidence any unexercised warrants held by the
exercising Registered Holder, (iii) those issued upon any transfer or exchange
pursuant to Section 6; (iv) those issued in replacement of lost, stolen,
destroyed or mutilated Warrant Certificates pursuant to Section 7; (v) those
issued pursuant to the Purchase Option; and (vi) those issued at the option of
the Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Biltmore
may purchase up to 75,000 Units, which include up to 150,000 Class A Warrants.
The Purchase Option shall not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the Effective Date, except that it may be
transferred to persons who are officers of Biltmore or selling group members in
the offering.
3. Form and Execution of Warrant Certificates.
(a) The Class A Warrant Certificates shall be substantially
in the form annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have
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<PAGE> 5
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage or to the requirements of Section 2(b). The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer, exchange or in lieu of mutilated, lost, stolen or destroyed
Warrant Certificates) and issued in registered form. Class A Warrant
Certificates shall be numbered serially with the letters WA.
(b) Warrant Certificates shall be executed on behalf of the
Company by its President, or any Vice President and by its Secretary or an
Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall
cease to be an officer of the Company or to hold the particular office
referenced in the Warrant Certificate before the date of issuance of the
Warrant Certificates or before countersignature by the Warrant Agent and issue
and delivery thereof, such Warrant Certificates may nevertheless be
countersigned by the Warrant Agent, issued and delivered with the same force
and effect as though the person who signed such Warrant Certificates had not
ceased to be an officer of the Company or to hold such office. After
countersignature by the Warrant Agent, Warrant Certificates shall be delivered
by the Warrant Agent to the Registered Holder without further action by the
Company, except as otherwise provided by Section 4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Warrant Exercise Date, but
not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all
5
<PAGE> 6
purposes as the holder of those securities upon the exercise of the Warrant as
of the close of business on the Exercise Date. As soon as practicable on or
after the Exercise Date, the Warrant Agent shall deposit the proceeds received
from the exercise of a Warrant and shall notify the Company in writing of the
exercise of the Warrants. Promptly following, and in any event within five (5)
business days after the date of such notice from the Warrant Agent, the Warrant
Agent, on behalf of the Company, shall cause to be issued and delivered by the
Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a certificate for any remaining unexercised Warrants of the Registered
Holder), unless prior to the date of issuance of such certificates the Company
shall instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Upon the exercise of any Warrant and clearance
of the funds received, the Warrant Agent shall promptly remit the payment
received for the Warrant (the "Warrant Proceeds") to the Company or as the
Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all shares of Common Stock which shall be issuable upon
exercise of the Warrants shall, at the time of delivery, be duly and validly
issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof (other than those which the Company shall
promptly pay or discharge) and that upon issuance such shares shall be listed
on each national securities exchange or eligible for inclusion in each
automated quotation system, if any, on which the other shares of outstanding
Common Stock of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to
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<PAGE> 7
the extent the Purchase Price is less than the Market Price (as hereinafter
defined), in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval and will use its reasonable efforts to
obtain appropriate approvals or registrations under state "blue sky" securities
laws. With respect to any such securities, however, Warrants may not be
exercised by, or shares of Common Stock issued to, any Registered Holder in any
state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for
such time as it is acting as such to requisition the Company's Transfer Agent
from time to time for certificates representing shares of Common Stock issuable
upon exercise of the Warrants, and the Company will authorize the Transfer
Agent to comply with all such proper requisitions. The Company will file with
the Warrant Agent a statement setting forth the name and address of the
Transfer Agent of the Company for shares of Common Stock issuable upon exercise
of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
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<PAGE> 8
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or
his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
(e) All Warrant Certificates surrendered for exercise or
for exchange in case of mutilated Warrant Certificates shall be promptly
canceled by the Warrant Agent and thereafter retained by the Warrant Agent
until termination of this Agreement or resignation as Warrant Agent, or
disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
detachable one (1) year from the Effective Date, or at such time earlier at the
discretion of Biltmore.
7. Loss or Mutilation. Upon receipt by the Company and the
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<PAGE> 9
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Warrants. Applicants for a substitute Warrant Certificate shall
comply with such other reasonable regulations and pay such other reasonable
charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not
less than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the closing bid for the Common
Stock exceeds 175% of the initial public offering price of the Company's Common
Stock (the "Target Price"). No such notice will be given until there is a
current Registration Statement and Prospectus on file with the Securities and
Exchange Commission at the time such notice is given to Warrant Holders and the
notice may not be mailed to Warrant Holders during the aforesaid one-year
period from the Effective Date. Market Price for the purpose of this Section 8
shall mean (i) the average closing bid price for any twenty (20) consecutive
trading days ending within ten (10) days prior to the date of the notice of
redemption, which notice shall be mailed no later than five (5) days
thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the last reported
sale price, for twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within ten (10) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met,
and the Company desires to exercise its right to redeem the
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<PAGE> 10
Warrants, it shall mail a notice of redemption to each of the Registered
Holders of the Warrants to be redeemed, first class, postage prepaid, not later
than the thirtieth day before the date fixed for redemption, at their last
address as shall appear on the records maintained pursuant to Section 6(b). Any
notice mailed in the manner provided herein shall be conclusively presumed to
have been duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the
redemption price, (ii) the date fixed for redemption, (iii) the place where the
Warrant Certificates shall be delivered and the redemption price paid, and (iv)
that the right to exercise the Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrant shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Registered Holders of the Warrants
shall have no further rights except to receive, upon surrender of the Warrant,
the Redemption Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the redemption price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except
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<PAGE> 11
the right to receive payment of the redemption price, shall cease.
(f) If the shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, the Target Price shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of
Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than the Market Price of the Common Stock (as defined in Section 8) on the
date of the sale or issue any shares of Common Stock as a stock dividend to the
holders of Common Stock, or subdivide or combine the outstanding shares of
Common Stock into a greater or lesser number of shares (any such sale,
issuance, subdivision or combination being herein called a "Change of Shares"),
then, and thereafter upon each further Change of Shares, the Purchase Price in
effect immediately prior to such Change of Shares shall be changed to a price
(including any applicable fraction of a cent) determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance of such additional shares and the number of
shares of Common Stock which the aggregate consideration received (determined
as provided in subsection 9(f) below) for the issuance of such additional
shares would purchase at such current market price per share of Common Stock,
and the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares.
Such adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable immediately
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<PAGE> 12
prior to such adjustment multiplied by a fraction, the numerator of which shall
be the Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(b) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in lieu
of the adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of
the Company, cause to be distributed to such Holder in substitution and
replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
(c) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right
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<PAGE> 13
thereafter, by exercising such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new Warrant
Certificates pursuant to Section 2(d) hereof, continue to express the Purchase
Price per share, the number of shares purchasable thereunder and the Redemption
Price therefor as the Purchase Price per share, the number of shares
purchasable and the Redemption Price therefor were expressed in the Warrant
Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth: (i)
the Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
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<PAGE> 14
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Warrant Agent and cause a brief summary
thereof to be sent by ordinary first class mail to Biltmore and to each
registered holder of Warrants at his last address as it shall appear on the
registry books of the Warrant Agent. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity thereof
except as to the holder to whom the Company failed to mail such notice, or
except as to the holder whose notice was defective. The affidavit of an officer
of the Warrant Agent or the Secretary or an Assistant Secretary of the Company
that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall include shares of Common Stock owned or
held by or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall not be
considered a Change of Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase
or decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for
cash of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock without the payment of any further consideration
other than cash, if any (such convertible or exchangeable securities being
herein called
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<PAGE> 15
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants, or options
shall consist of cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (x) the minimum
aggregate consideration payable to the Company upon the exercise of such
rights, warrants or options, plus the consideration received by the Company for
the issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon
the exercise of such rights, warrants or options) is less than the fair market
value of the Common Stock on the date of the issuance or sale of such rights,
warrants or options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b)
hereof and shall be deemed to have been sold for cash in an amount equal to
such price per share.
(iv) In case of the sale by the Company for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
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<PAGE> 16
Common Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than the fair market value of the Common Stock on the date
of the sale of such Convertible Securities, then the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been sold
for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights
of conversion, exchange or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase
Price to be in effect after such modification shall be determined by
multiplying the Purchase Price in effect immediately prior to such event by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding multiplied by the market price on the date prior to the
modification plus the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities affected by the
modification would purchase at the market price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange, or
exercise of the modified securities at the modified rate. Such adjustment shall
become effective as of the date upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants,
options or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock theretofore actually delivered (and
the total consideration received therefor) upon the exercise
16
<PAGE> 17
of such rights, warrants, or options or upon the conversion or exchange of such
Convertible Securities and (b) had adjustments been made on the basis of the
Purchase Price as adjusted under clause (a) for all transactions (which would
have affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities.
(vii) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, the consideration received by the Company therefor
shall be deemed to be the gross sales price therefor without deducting
therefrom any expense paid or incurred by the Company or any underwriting
discounts or commissions or concessions paid or allowed by the Company in
connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to
the number of shares of Common Stock purchasable upon the exercise of each
Warrant will be made, however,
(i) upon the sale or exercise of the Warrants,
including without limitation, the sale or exercise of any of the Warrants or
Common Stock comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock
in the Company's public offering of Units consisting of one share of Common
Stock and two (2) warrants, including, without limitation, shares sold upon the
exercise of any over-allotment option granted to the Underwriters in connection
with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights, warrants or options were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(iv) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on
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<PAGE> 18
the date of the original sale of the Warrants or were thereafter issued or
sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in an exempt transaction unless the issuance or sale
price is less than 85% of the Market Price of the Common Stock on the date of
issuance, in which case the adjustment shall only be for the difference between
85% of the Market Price and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges and/or
consolidates into or is acquired by the Company or from which the Company
acquires assets and some or all of the consideration consists of equity
securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition but only if no adjustment is
required pursuant to any other provision of this Section 9.
(vii) upon the issuance or exercise of options or
upon the issuance or grant of stock awards granted to the Company's directors,
employees or consultants plans or arrangements which are disclosed in the
prospectus relating to the Offering or under a plan or plans which are adopted
by the Company's Board of Directors (but in such latter case, only to the
extent that the aggregate number of shares excluded hereby and issued after the
date hereof shall not exceed ten percent (10%) of the Company's Common Stock at
the time of issuance). For the purposes of determining whether the
consideration received by the Company is less than the Market Price in
connection with any issuance of stock to the Company's directors, employees or
consultants under plans adopted by the Company's Board of Directors and
approved by its stockholders, the consideration received shall be deemed to be
the amount of compensation to the director, employee or consultant reported by
the Company in connection with such issuances.
(viii) upon the issuance of Common Stock to the
Company's directors, employees or consultants under a plan or plans which are
qualified under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona
fide public offering pursuant to a firm commitment underwriting.
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<PAGE> 19
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends and in the distribution of assets upon the voluntary
liquidation, dissolution or winding up of the Company; provided, however, that
the shares issuable upon exercise of the Warrants shall include (i) only shares
of such class designated in the Company's Certificate of Incorporation as
Common Stock on the date of the original issue of the Units or (ii) in the case
of any reclassification, change, consolidation, merger, sale or conveyance of
the character referred to in Section 9(c) hereof, the stock, securities or
property provided for in such section or (iii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding,
the rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number of whole shares of Common Stock
then issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of
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<PAGE> 20
any adjustment which otherwise might be called for pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. In such event, the Company may at its option elect
to round up the number of shares to which the Holder is entitled to the nearest
whole share or to pay cash in respect of fractional shares in accordance with
the following: With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the current value shall
be the last reported sale price of the Common Stock on such exchange on the
last business day prior to the date of exercise of this Warrant or if no such
sale is made on such day, the average of the closing bid and asked prices for
such day on such exchange; or
(ii) If the Common Stock is not listed or
admitted to unlisted trading privileges, the current value shall be the mean of
the last reported bid and asked prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of this
Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any
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<PAGE> 21
time be issuable upon exercise of such Warrants for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the holder of
Warrants, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue or reclassification
of stock, change of par value or change of stock to no par value,
consolidation, merger or conveyance or otherwise), or to receive notice of
meetings, or to receive dividends or subscription rights, until such Holder
shall have exercised such Warrants and been issued shares of Common Stock in
accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
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<PAGE> 22
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split up, combination or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts hereunder as
agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in reliance
on any warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
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<PAGE> 23
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation
for its services hereunder and to reimburse it for its reasonable expenses
hereunder in accordance with the schedule of fees and expenses previously
furnished by the Warrant Agent; it further agrees to indemnify the Warrant
Agent and save it harmless against any and all losses, expenses and
liabilities, including judgments, costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense.
Upon such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction in the State of New York for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the
Company, such new warrant agent shall be vested
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<PAGE> 24
with the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; but if for any reason it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be legally
and validly executed and delivered by the resigning Warrant Agent. Not later
than the effective date of any such appointment the Company shall file notice
thereof with the resigning Warrant Agent and shall forthwith cause a copy of
such notice to be mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its
or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not the
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company if so authorized by the Company or for any
other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may
by supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect
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<PAGE> 25
except with the consent in writing of the Registered Holders of Warrant
Certificates representing not less than fifty percent (50%) of the Warrants
then outstanding; and provided, further, that no change in the number or nature
of the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, 4205 East Dixon Blvd, Shelby, NC 28150, or at such
other address as may have been furnished to the Warrant Agent in writing by the
Company; if to Biltmore, 6700 North Andrews Avenue, Suite 500, Fort Lauderdale,
Florida 33309 and if to the Warrant Agent, 40 Wall Street, 46th Floor, New
York, NY 10005.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
15 hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several
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counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
CASCO INTERNATIONAL, INC.
By:
-----------------------------
Its
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
----------------------------
Its
Authorized Officer
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EXHIBIT A
[Form of Face of Class A Warrant Certificate]
No. WA Class A Warrants
VOID AFTER _______, 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
CASCO INTERNATIONAL, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class A Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share of
Common Stock, $.01 par value ("Common Stock"), of CASCO INTERNATIONAL, INC.
Delaware corporation (the "Company"), at any time between the Separation Date
(as herein defined) and the Expiration Date (as hereinafter defined), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Stock Transfer and Trust Company, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $5.50 per share(the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to CASCO INTERNATIONAL, INC.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement") dated __________,
1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
<PAGE> 28
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Separation Date" shall mean __________, 1998.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
__________, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding and the exercise price of the Warrants is less
than the market price of the Common Stock. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any transfer
fee in addition to any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a
2
<PAGE> 29
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant, at any time after one (1) year from the
Effective Date, provided the closing bid price for the Common Stock issuable
upon exercise of such Warrant shall equal or exceed 175% of the initial public
offering price of the Company's Common Stock for twenty (20) consecutive
trading days ending within ten (10) days of the notice of redemption. Notice of
redemption shall be given not later than the thirtieth day before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the $.05 per Warrant upon surrender
of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
CASCO INTERNATIONAL, INC.
By:
------------------------------
Its
Date:
-----------------------------------------
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
as Warrant Agent
By:
------------------------------------
Its
Authorized Officer
4
<PAGE> 31
[Form of Reverse of Class A Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise _____ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
<PAGE> 32
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints_________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE> 1
EXHIBIT 4.3
Option to Purchase
75,000 Units
CASCO INTERNATIONAL, INC.
PURCHASE OPTION
Dated: __________, 1997
THIS CERTIFIES that Biltmore Securities, Inc., 6700 North Andrews
Avenue, Suite 500, Fort Lauderdale, FL 33309 (hereinafter sometimes referred to
as the "Holder"), is entitled to purchase from CASCO INTERNATIONAL, INC.
(hereinafter referred to as the "Company"), at the prices and during the
periods as hereinafter specified, up to 75,000 Units (the "Units") 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").
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 $6.00 per share. The Warrants (hereinafter, the "Warrants") are exercisable
for a four year period, commencing __________, 1998 (one (1) year from the
Effective Date). Hereinafter, the Units and the securities underlying the
Units, shall be referred to as "Option Securities" or "Securities."
The Securities have been registered under a Registration Statement on
Form SB-2 (File No. 333-________) declared effective by the Securities and
Exchange Commission on __________, 1997 (the "Registration Statement"). This
Option (the "Option") to purchase 75,000 Units was originally issued pursuant
to an underwriting agreement between the Company and Biltmore Securities, Inc.
as underwriter (the "Underwriter"), in connection with a public offering of
750,000 Units each consisting of one (1) share of Common Stock and two (2)
Class A Warrants (the "Public Securities") through the Underwriter, in
consideration of $75.00 received for the Option.
Except as specifically otherwise provided herein, the Common
<PAGE> 2
Stock and the Warrants issued pursuant to this Option shall bear the same terms
and conditions as described under the caption "Description of Securities" in
the Registration Statement, and the Warrants shall be governed by the terms of
the Warrant Agreement dated as of ___________, 1997, executed in connection
with such public offering (the "Warrant Agreement"), except that the holder
shall have registration rights under the Securities Act of 1933, as amended
(the "Act"), for the Option, the Units, the Common Stock and the Warrants
included in the Units, and the shares of Common Stock underlying the Warrants,
as more fully described in paragraph 6 of this Option. In the event of any
reduction of the exercise price of the Warrants included in the Public
Securities, the same changes to the Warrants included in the Option and the
components thereof shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option,
and during the periods as follows:
(a) Between ________, 1998 (one (1) year from the Effective
Date) and _________, 2002, inclusive, the Holder shall have the option to
purchase Units hereunder at an exercise price not less than 120% of the
offering price per unit (subject to adjustment pursuant to paragraph 8 hereof)
(the "Exercise Price").
(b) After _______, 2002, the Holder shall have no right
to purchase any Option Securities hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment to
the Company of the Exercise Price then in effect for the number of Option
Securities specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. This
Option shall be deemed to have been exercised, in whole or in part to the
2
<PAGE> 3
extent specified, immediately prior to the close of business on the date this
Option is surrendered and payment is made in accordance with the foregoing
provisions of this paragraph 2, and the person or persons in whose name or
names the certificates for shares of Common Stock and Warrants shall be
issuable upon such exercise shall become the holder or holders of record of
such Common Stock and Warrants at that time and date. The Common Stock and
Warrants and the certificates for the Common Stock and Warrants so purchased
shall be delivered to the Holder within a reasonable time, not exceeding ten
(10) days, after the rights represented by this Option shall have been so
exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated, except that it may be transferred to successors of the Holder,
and may be assigned in whole or in part to any person who is an officer of the
Holder or selling group member of the offering during such period. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Option Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Preferred
Stock which may be issued as part of the Option Securities purchased hereunder
and the Common Stock which may be issued upon exercise of the Warrants will,
upon issuance, be duly and validly issued, fully paid and nonassessable. The
Company further covenants and agrees that during the periods within which this
Option may be exercised, the Company will at all times have authorized and
reserved a sufficient number of shares of its Preferred Stock to provide for
the exercise of this Option and that it will have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of the
Warrants included in the Option Securities.
5. This Option shall not entitle the Holder to any voting, dividend,
or other rights as a stockholder of the Company.
3
<PAGE> 4
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, whether the Holder holds the
Option or has exercised the Option and holds Option Securities or any of the
securities underlying the Option Securities, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of five
years from the effective date of the Registration Statement, upon the request
of the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the Preferred Stock, or Warrants included in the
Securities or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the Registrable Securities for sale in such states
as such Holder designates provided that the Company shall not be required to
qualify as a foreign corporation or a dealer in securities or execute a general
consent to service of process in any jurisdiction in any action and do any and
all other acts and things which may be reasonably necessary or desirable to
enable such Holders to consummate the public sale or other disposition of the
Registrable Securities, and furnish indemnification in the manner provided in
paragraph 7 hereof. The Holder shall furnish information and indemnification as
set forth in paragraph 7 except that the maximum amount which may be recovered
from the Holder shall be limited to the amount of proceeds received by the
Holder from the sale of the Registrable Securities. The Company shall use its
reasonable efforts to cause the managing underwriter or underwriters of a
proposed underwritten offering to permit the holders of Registrable Securities
requested to be included in the registration to include such securities in such
underwritten offering on the same terms and conditions as any similar
securities of the Company included therein. Notwithstanding the foregoing, if
the managing underwriter or underwriters of such offering advises the holders
of Registrable Securities that the total amount of securities which they intend
to include in such offering is such as to materially and adversely
4
<PAGE> 5
affect the success of such offering, then the amount of securities to be
offered for the accounts of holders of Registrable Securities shall be
eliminated, reduced, or limited to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount, if any,
recommended by such managing underwriter or underwriters (any such reduction or
limitation in the total amount of Registrable Securities to be included in such
offering to be borne by the holders of Registrable Securities proposed to be
included therein pro rata). The Holder will pay its own legal fees and expenses
and any underwriting discounts and commissions on the securities sold by such
Holder and shall not be responsible for any other expenses of such
registration.
(b) If any 50% holder (as defined below) shall give notice to
the Company at any time during the period set forth in paragraph l(a) hereof to
the effect that such holder desires to register under the Act this Option or
any of the underlying securities contained in the Option Securities underlying
the Option under such circumstances that a public distribution (within the
meaning of the Act) of any such securities will be involved then the Company
will promptly, but no later than 60 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option and/or
any of the Securities underlying the Option Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use
its best efforts to cause such registration to become and remain effective for
a period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop order); provided that such holder
shall furnish the Company with appropriate information in connection therewith
as the Company may reasonably request in writing. The 50% holder (which for
purposes hereof shall mean any direct or indirect transferee of such holder)
may, at its option, request the filing of a post-effective amendment to the
current Registration Statement or a new registration statement under the Act
with respect to the Registrable Securities on only one occasion during the term
of this Option. The Holder may at its option request the registration of the
Option and/or any of the securities underlying the Option in a registration
statement made by the Company as contemplated by Section 6(a) or in connection
with a request made pursuant to this Section 6(b) prior to acquisition of the
Securities issuable upon exercise of the Option and even though the Holder has
not given
5
<PAGE> 6
notice of exercise of the Option. The 50% holder may, at its option, request
such post-effective amendment or new registration statement during the
described period with respect to the Option or separately as to the Units
and/or Warrants included in the Option and/or the Common Stock issuable upon
the exercise of the Warrants, and such registration right may be exercised by
the 50% holder prior to or subsequent to the exercise of the Option, subject to
the condition that only one demand registration right may be exercised pursuant
to this Agreement. Within ten business days after receiving any such notice
pursuant to this subsection (b) of paragraph 6, the Company shall give notice
to the other holders of the Options, advising that the Company is proceeding
with such post-effective amendment or registration statement and offering to
include therein the securities underlying the Options of the other holders.
Each holder electing to include its Registrable Securities in any such offering
shall provide written notice to the Company within twenty (20) days after
receipt of notice from the Company. The failure to provide such notice to the
Company shall be deemed conclusive evidence of such holder's election not to
include its Registrable Securities in such offering. Each holder electing to
include its Registrable Securities shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall reasonably request in writing. All
costs and expenses of only one such post-effective amendment or new
registration statement shall be borne by the Company, except that the holders
shall bear the fees of their own counsel and any underwriting discounts or
commissions applicable to any of the securities sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Regulation M under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a
registration statement would have a material adverse effect on the consummation
of such offering or (iv) the Company is subject to an underwriter's lock-up as
a result of an underwritten public offering and such underwriter has refused in
writing, the
6
<PAGE> 7
Company's request to waive such lock-up. In the event of such postponement, the
Company shall be required to file the registration statement pursuant to this
Section 6(b), within 60 days of the consummation of the event requiring such
postponement.
The Company will use its best efforts to maintain such
registration statement or post-effective amendment current under the Act for a
period of at least six months (and for up to an additional three months if
requested by the Holder) from the effective date thereof. The Company shall
supply prospectuses, and such other documents as the Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities, use its best efforts to register and qualify any of the
Registrable Securities for sale in such states as such holder designates,
provided that the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or execute a general consent to service
of process in any jurisdiction in any action and furnish indemnification in the
manner provided in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean
the holder of at least 50% of the Preferred Stock and the Warrants underlying
the Option (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common Stock held by such owner or
owners as well as the number of shares then issuable upon exercise of the
Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter
may become subject, under the Act or otherwise, insofar
7
<PAGE> 8
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 any such registration statement or any
preliminary prospectus or final prospectus constituting a part thereof or any
amendment or supplement thereto, or arise out of or are based upon the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse the Distributing
Holder and each such controlling person and underwriter for any legal or other
expenses reasonably incurred by the Distributing Holder or such controlling
person or underwriter in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the Company
will not be liable in any such case 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 said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages, or liabilities, joint and several, to
which the Company or any such director, officer, or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, 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 said registration
statement, said preliminary prospectus, said final prospectus, or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will
8
<PAGE> 9
reimburse the Company or any such director, officer, or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice 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
Paragraph 7.
(d) In case any such action is brought against any
indemnified party, and it notifies an 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, 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
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make
a distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall
be adjusted so that it shall equal the price determined by multiplying the
Exercise Price by a fraction, the denominator of which shall be the number of
shares of Common Stock
9
<PAGE> 10
outstanding after giving effect to such action, and the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such action. Notwithstanding anything to the contrary contained in the Warrant
Agreement, in the event an adjustment to the Exercise Price is effected
pursuant to this Subsection (a) (and a corresponding adjustment to the number
of Option Securities is made pursuant to Subsection (d) below), the exercise
price of the Warrants shall be adjusted so that it shall equal the price
determined by multiplying the exercise price of the Warrants by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after giving effect to such action and the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
action. In such event, there shall be no adjustment to the number of shares of
Common Stock or other securities issuable upon exercise of the Warrants. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price") (or having
a conversion price per share) less than the current market price of the Common
Stock (as defined in Subsection (e) below) on the record date mentioned below,
the Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the number of shares then comprising an Option
Securities by the product of the Exercise Price in effect immediately prior to
the date of such issuance multiplied by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of Common
Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share of
the Common Stock, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding on such record date and the number of
additional shares of Common Stock offered for subscription or purchase (or into
which the convertible securities so offered are convertible). Such adjustment
shall be made successively whenever such rights or warrants are issued and
shall become effective immediately after the record date for the determination
of
10
<PAGE> 11
shareholders entitled to receive such rights or warrants; and to the extent
that shares of Common Stock are not delivered (or securities convertible into
Common Stock are not delivered) after the expiration of such rights or warrants
the Exercise Price shall be readjusted to the Exercise Price which would then
be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as defined in
Subsection (e) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and the denominator of which shall
be the total number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such distribution.
(d) Whenever the Exercise Price payable upon exercise of
this Option is adjusted pursuant to Subsections (a), (b) or (c) above, the
number of Option Securities purchasable upon exercise of this Option shall
simultaneously be adjusted by multiplying the number of Option Securities
initially issuable upon exercise of this Option by the Exercise Price in effect
on the date hereof and dividing the product so obtained by the Exercise Price,
as adjusted.
(e) For the purpose of any computation under Subsections
11
<PAGE> 12
(b) or (c) above, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for 20
consecutive business days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on such exchange, the average of the highest reported bid
and lowest reported asked prices as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least ten
cents ($0.10) in such price; provided, however, that any adjustments which by
reason of this Subsection (i) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be made
hereunder. All calculations under this Section 8 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. Anything
in this Section 8 to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the Exercise
Price, in addition to those required by this Section 8, as it shall determine,
in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any Federal Income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including Warrants issuable upon exercise of
this Option).
(g) Whenever the Exercise Price is adjusted, as herein
provided, the Company shall promptly, but no later than 10 days after any
request for such an adjustment by the Holder, cause a notice setting forth the
adjusted Exercise Price and adjusted number of Option Securities issuable upon
exercise of this Option and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the Holder, at
the address set forth herein, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the
12
<PAGE> 13
Board of Directors (who may be the regular accountants employed by the Company)
to make any computation required by this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Subsection (a) above, the Holder thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (g), inclusive above.
9. This Agreement shall be governed by and in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, CASCO INTERNATIONAL, INC., has caused this Option
to be signed by its duly authorized officers under its corporate seal, and this
Option to be dated the date first above written.
CASCO INTERNATIONAL, INC.
By:
-----------------------------
Charles R. Davis
President
(Corporate Seal)
13
<PAGE> 14
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder,_________Units of CASCO INTERNATIONAL, INC.,
each Unit consisting of one (1) Share of Common Stock, $.01 per value per
share, and two (2) Class A Redeemable Common Stock Purchase Warrant of CASCO
INTERNATIONAL, INC. herewith makes payment of $______________ therefor, and
requests that the certificates for Units be issued in the name(s) of, and
delivered to _________________________ whose address(es) is (are)
_____________________________________________.
Dated:
<PAGE> 15
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units of
CASCO INTERNATIONAL, INC., in the numbers set forth below represented by the
foregoing Option to the extent of _____ Units and appoints_________________
attorney to transfer such rights on the books of CASCO INTERNATIONAL, INC.,
with full power of substitution in the premises.
Dated:
By:
--------------------------------
Address:
--------------------------------
--------------------------------
--------------------------------
In the presence of:
- ------------------------------
<PAGE> 1
EXHIBIT 5
JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A.
ATTORNEYS AND COUNSELLORS AT LAW
<TABLE>
<S> <C> <C> <C>
E. D. ARMSTRONG III ELIZABETH J. DANIELS ROGER A. LARSON DENNIS G. RUPPEL*
BRUCE W. BARNES LISA B. DODGE JOHN R. LAWSON, JR.* CHARLES A. SAMARKOS
JOHN T. BLAKELY MARION HALE MICHAEL G. LITTLE JOHN A. SCHAEFER
BRUCE H. BOKOR JAMES W. HUMANN MICHAEL C. MARKHAM PHILIP M. SHASTEEN
GUY M. BURNS SCOTT C. ILGENFRITZ STEPHANIE T. MARQUARDT CHARLES M. TATELBAUM
JONATHAN S. COLEMAN FRANK R. JAKES DAVID J. OTTINGER JOAN M. VECCHIOLI
MICHAEL T. CRONIN TIMOTHY A. JOHNSON, JR. F. WALLACE POPE, JR. AMBER WILLIAMS
DUANE A. DAIKER SHARON E. KRICK DARRYL R. RICHARDS JULIUS J. ZSCHAU
*OF COUNSEL
PLEASE REPLY TO TAMPA
FILE NO. 37958.96942
</TABLE>
August 5, 1997
CASCO INTERNATIONAL, INC.
4205 East Dixon Boulevard
Shelby, North Carolina 28150
Dear Sirs:
We have acted as counsel to CASCO INTERNATIONAL, INC., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form SB-2 (the "Registration Statement") filed on
August 5, 1997 with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Act"), to register the offering of (i) 862,500
units (the "Units") and the offering of an additional 112,500 Units if the
over-allotment option is exercised in full), each Unit consisting of one share
of the Company's common stock, par value $.01 per share (the "Common Stock") and
two Redeemable Class A Warrants (the "Redeemable Warrants:) to purchase a share
of Common Stock included in the Units; (ii) 750,000 shares of Common Stock
included in the Units (and an additional 112,500 shares if the over-allotment
option is exercised); (iii) 1,500,000 Redeemable Warrants included in the Units
(and an additional 225,000 Redeemable Warrants if the over-allotment option is
exercised); (iv) 1,500,000 shares of Common Stock underlying the Redeemable
Warrants included in the Units (and the offering of an additional 225,000 shares
of Common Stock if the over-allotment option is exercised in full); (v) options
granted to the Underwriter (the "Underwriter's Options") to purchase 75,000
Units; (vi) 75,000 Units issuable upon exercise of the Underwriter's Option;
(vii) 75,000 shares of Common Stock included in the Units underlying the
Underwriter's Options; and (viii)150,000 Redeemable Warrants included in the
Units underlying, the Underwriter's Options; and (ix) 150,000 shares of Common
Stock underlying the Redeemable Warrants included in the Units which underlie
the Underwriter's Options. (Collectively, the foregoing securities are referred
to herein as the "Registered Securities".) We will also act as counsel for any
and all amendments to the (a) Registration Statement and (b) any Registration
Statement pursuant to Rule 462(b) of the Act for additional Registered
Securities.
CLEARWATER OFFICE TAMPA OFFICE
911 CHESTNUT STREET 100 NORTH TAMPA STREET
POST OFFICE BOX 1368 SUITE 1800
CLEARWATER, FLORIDA 34617-1368 POST OFFICE BOX 1100
TELEPHONE: (813) 461-1818 TAMPA, FLORIDA 33602-5145
TELECOPIER (813) 441-8617 TELEPHONE (813) 225-2500
TELECOPIER (813) 223-7118
<PAGE> 2
JOHNSON, BLAKELY, POPE, BOKOR, RUPPEL & BURNS, P.A.
ATTORNEYS AND COUNSELLORS AT LAW
CASCO INTERNATIONAL, INC.
August 4, 1997
Page 2
In this regard, we have reviewed the Certificate of Incorporation of
the Company, as amended, resolutions adopted by the Company's Board of
Directors, the Registration Statement, the proposed form of the Redeemable
Warrants and the Underwriter's Options, the other exhibits to the Registration
Statement and such other records, documents, statutes and decisions as we have
deemed relevant in rendering this opinion. Based upon the foregoing, we are of
the opinion that:
Each of the Registered Securities being offered pursuant to (a) the
Registration Statement and all amendments thereto and (b) any Registration
Statements pursuant to Rule 462(b) of the Act for additional Registered
Securities has been duly and validly authorized for issuance, and when issued
and sold as contemplated by the Registration Statement or upon exercise of the
Redeemable Warrants or the Underwriter's Option, and when applicable provisions
of the "blue sky" or other state securities laws shall have been complied with,
upon receipt of payment therefor, will be legally issued, fully paid and
non-assessable when issued as contemplated by the Registration Statement.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement and any and all amendments thereto, and any Registration
Statements pursuant to rule 462(b) of the Act for additional Registered
Securities and to the reference to this law firm in the Prospectus which is part
of the Registration Statement under the heading "Legal Matters." In giving such
opinion, we do not thereby admit that we are acting within the category of
persons whose consent is required under Section 7 of the Act or the rules or
regulations of the Securities and Exchange Commission thereunder. Members of
this firm or their affiliates own an aggregate of 1,569 shares of Common Stock
of the Company.
Very truly yours,
JOHNSON, BLAKELY, POPE, BOKOR,
RUPPEL & BURNS, P.A.
<PAGE> 1
EXHIBIT 10.5.6
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") to Loan and Security Agreement
is entered into as of the 30th day of June, 1997, by and between CA Short
Company (the "Borrower") and The Huntington National Bank (the "Bank").
RECITALS:
A. As of December 31, 1996, the Borrower and the Bank executed a
certain Loan and Security Agreement (the "Loan Agreement"), setting forth the
terms of a certain extension of credit to the Borrower; and
B. As of December 31, 1996, the Borrower executed and delivered
to the Bank, inter alia, a Revolving Note in the original principal sum of Four
Million Five Hundred Thousand Dollars ($4,500,000.00) (hereinafter the "Note");
and
C. In connection with the Loan Agreement and the Note, the
Borrower executed and delivered to the Bank certain other loan documents, a
lockbox agreement, consents, assignments, security agreements, an open-end deed
of trust and security agreement, agreements, instruments and financing
statements in connection with the indebtedness referred to in the Loan
Agreement (all of the foregoing, together with the Note and the Loan Agreement,
are hereinafter collectively referred to as the "Loan Documents"); and
D. The Borrower has requested that the Bank amend and modify
certain terms and covenants in the Loan Agreement and extend the maturity of
the Note, and the Bank is willing to do so upon the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereto for
themselves and their successors and assigns do hereby agree, represent and
warrant as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.
2. Section 1.1, "The Revolving Loan and Borrowing Base," of the
Loan Agreement is hereby amended to recite in its entirety as follows:
1.1 The Revolving Loan and Borrowing Base. The Loan shall be
comprised of a revolving credit facility under which the Bank shall
make, subject to the terms and conditions hereof, loans and advances
on a revolving basis up to the principal sum of $4,500,000.00 (the
"Revolving Loan"). The principal balance of the Revolving Loan plus
the aggregate stated value of all issued and outstanding Letters of
Credit
<PAGE> 2
shall not exceed an amount equal to the sum of (i) the lesser of up to
60% of Eligible Inventory or the Inventory Cap, plus (ii) up to 80% of
Eligible Accounts, plus (iii) up to 75% of Eligible Real Estate
(collectively the "Borrowing Base"). The Bank, in its sole discretion,
reserves the right upon 30 days prior written notice to the Borrower
to increase or decrease the foregoing percentages or the Inventory
Cap. "Inventory Cap" shall mean up to the sum of $3,500,000.00 for the
months of January through and including May each calendar year and
$4,500,000.00 for the months June through and including December of
each calendar year.
3. Section 6.12, "Adjusted Tangible Net Worth," of the Loan
Agreement is hereby redesignated "Adjusted Tangible Capital Base," and is
amended to recite in its entirety as follows:
6.12 Adjusted Tangible Captial Base. The Borrower shall maintain
as of the following specified dates an Adjusted Tangible Capital Base
of not less than (a) $6,000,000.00 as of June 30, 1997, (b)
$5,000,000.00 as of September 30, 1997, and (c) $6,200,000.00 as of
December 31, 1997 and continuing at all times thereafter. In addition
to the foregoing requirements, the Borrower shall maintain at all
times an "Adjusted Tangible Capital Base" of not less than
$5,000,000.00. "Adjusted Tangible Capital Base" shall mean as of the
time of determination the Borrower's Tangible Capital Base, plus the
principal sum outstanding of the Subordinated Debt.
"Tangible Capital Base" shall mean the Borrower's shareholders' equity
(excluding treasury stock), minus the sum of all of the following: (i)
the excess of cost over the value of net assets of purchased
businesses, rights, and other similar intangibles, (ii) organizational
expenses, (iii) intangible assets (to the extent not reflected in the
foregoing), (iv) goodwill, (v) deferred charges or deferred financing
costs, (vi) loans or advances to and/or accounts or notes receivable
from Affiliates, (vii) leasehold improvements, (viii) non-compete
agreements, and (ix) any other asset not directly related to the
operation of the business of the Borrower.
4. Section 6.13, "Minimum Pretax Operating Profit or Maximum
Pretax Operating Loss," of the Loan Agreement is hereby amended to recite in
its entirety as follows:
6.13 Minimum Pretax Operating Profit or Maximum Pretax Operating
Loss. Beginning with the fiscal quarter ending December 31, 1996, and
continuing as of the end of each fiscal quarter thereafter, the
Borrower shall, as the case may be, either (a) achieve an Accumulated
Operating Profit during any fiscal year on a year-to-date basis of not
less than the amount set forth below, or (b) not incur an Accumulated
Operating Loss during any fiscal year on a year-to-date basis in
excess of the amount set forth below:
-2-
<PAGE> 3
As of June 30, 1997, Accumulated Operating Loss not to exceed
$200,000.00;
As of September 30, 1997, Accumulated Operating Loss not to
exceed $1,000,000.00; and
As of December 31, 1997 Accumulated Operating Profit of not
less than $200,000.00.
Accumulated Operating Loss and Accumulated Operating Profit shall be
determined on a fiscal year-to-year basis, beginning on the first day
of each fiscal year and shall be calculated through the date of
determination. "Accumulated Operating Loss" shall mean, with respect
to the period of determination, the following calculation, provided
that such calculation results in a number less than zero: (a) the sum
of the Borrower's net income (or loss) after taxes as determined in
accordance with GAAP, plus, the sum of all extraordinary losses (and
any unusual losses arising outside the ordinary course of business not
included in extraordinary losses determined in accordance with GAAP),
minus (b) the sum of all extraordinary gains (and any unusual gains
arising outside the ordinary course of business not included in
extraordinary gains determined in accordance with GAAP). "Accumulated
Operating Profit" shall mean, with respect to the period of
determination, the following calculation, provided that such
calculation results in a number greater than zero: (a) the sum of the
Borrower's net income (or loss) after taxes as determined in
accordance with GAAP, plus, the sum of all extraordinary losses (and
any unusual losses arising outside the ordinary course of business not
included in extraordinary losses determined in accordance with GAAP),
minus (b) the sum of all extraordinary gains (and any unusual gains
arising outside the ordinary course of business not included in
extraordinary gains determined in accordance with GAAP).
5. Conditions of Effectiveness. This Amendment shall become
effective as of June 30, 1997, upon satisfaction of all of the following
conditions precedent:
(a) The Bank shall have received two duly executed copies of the
First Amendment to Loan and Security Agreement and a certain First Note
Modification Agreement, and such other certificates, instruments, documents,
agreements, and opinions of counsel as may be required by the Bank, each of
which shall be in form and substance satisfactory to the Bank and its counsel;
and
(b) The representations contained in paragraph 6 below shall be
true and accurate.
5. Representations. The Borrower represents and warrants that
after giving effect to this Amendment (a) each and every one of the
representations and warranties made by or on behalf of the Borrower in the Loan
Agreement or the Loan Documents is true and correct in all respects on and as
of the date hereof, except to the extent that any of such representations and
warranties related,
-3-
<PAGE> 4
by the expressed terms thereof, solely to a date prior hereto; (b) the Borrower
has duly and properly performed, complied with and observed each of its
covenants, agreements and obligations contained in the Loan Agreement and Loan
Documents; and (c) no event has occurred or is continuing, and no condition
exists which would constitute an Event of Default or a Pending Default.
6. Amendment to Loan Agreement. (a) Upon the effectiveness of
Section 2 and Section 3 hereof, each reference in the Loan Agreement to "Second
Amended and Restated Loan Agreement," "Loan Agreement," "Agreement," the prefix
"herein," "hereof," or words of similar import, and each reference in the Loan
Documents to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as amended hereby. (b) Except as modified herein, all of the
representations, warranties, terms, covenants and conditions of the Loan
Agreement, the Loan Documents and all other agreements executed in connection
therewith shall remain as written originally and in full force and effect in
accordance with their respective terms, and nothing herein shall affect,
modify, limit or impair any of the rights and powers which the Bank may have
thereunder. The amendment set forth herein shall be limited precisely as
provided for herein, and shall not be deemed to be a waiver of, amendment of,
consent to or modification of any of the Bank's rights under or of any other
term or provisions of the Loan Agreement, any Loan Document, or other agreement
executed in connection therewith, or of any term or provision of any other
instrument referred to therein or herein or of any transaction or future action
on the part of the Borrower which would require the consent of the Bank,
including, without limitation, waivers of Events of Default which may exist
after giving effect hereto. The Borrower ratifies and confirms each term,
provision, condition and covenant set forth in the Loan Agreement and the Loan
Documents and acknowledges that the agreement set forth therein continue to be
legal, valid and binding agreements, and enforceable in accordance with their
respective terms.
7. Authority. The Borrower hereby represents and warrants to the
Bank that (a) the Borrower has legal power and authority to execute and deliver
the within Amendment; (b) the officer executing the within Amendment on behalf
of the Borrower has been duly authorized to execute and deliver the same and
bind the Borrower with respect to the provisions provided for herein; (c) the
execution and delivery hereof by the Borrower and the performance and
observance by the Borrower of the provisions hereof do not violate or conflict
with the articles of incorporation, regulations or by-laws of the Borrower or
any law applicable to the Borrower or result in the breach of any provision of
or constitute a default under any agreement, instrument or document binding
upon or enforceable against the Borrower; and (d) this Amendment constitutes a
valid and legally binding obligation upon the Borrower in every respect.
8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be an
original, but all of which together shall constitute one and the same document.
Separate counterparts may be executed with the same effect as if all parties
had executed the same counterparts.
9. Governing Law. This Amendment shall be governed by and
construed in accordance with the law of the State of Ohio.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Borrower and the Bank have hereunto set their
hands as of the date first set forth above.
THE BORROWER:
CA SHORT COMPANY
By: /s/ S. Robert Davis
-------------------------------------
Its: Chairman
------------------------------------
THE BANK:
THE HUNTINGTON NATIONAL BANK
By: /s/ Thomas Myers
-------------------------------------
Its: Vice President
------------------------------------
-5-
<PAGE> 1
EXHIBIT 10.5.7
NOTE MODIFICATION AND EXTENSION AGREEMENT
-----------------------------------------
This Note Modification and Extension Agreement (this "Agreement") is
entered into as of the 30th day of June, 1997, by and between The Huntington
National Bank (hereinafter the "Bank") and CA Short Company (hereinafter the
"Borrower").
WITNESSETH:
A. As of December 31, 1996, the Bank and the Borrower entered into and
executed a certain Loan and Security Agreement (hereinafter the "Loan
Agreement"); and
B. As of December 31, 1996, the Borrower executed and delivered to the
Bank inter alia, a certain Revolving Note in the original principal amount of
Four Million Five Hundred Thousand Dollars ($4,500,000.00) (hereinafter the
"Note"); and
C. To secure the repayment of the Note, the Borrower granted to the
Bank (a) security interest in the collateral described in the Loan Agreement
and (b) a deed of trust upon certain real property owned by the Borrower and
located in Cleveland County, North Carolina (hereinafter collectively the "Real
and Personal Property"); and
D. The Bank's security interests and deed of trust in the Real and
Personal Property were perfected properly by the filing of financing statements
and the recording of a deed of trust and security agreement with various
recording authorities; and
E. In connection with the Loan Agreement and the Note, the Borrower
executed and delivered to the Bank certain other loan documents, a lockbox
agreement, consents, assignments, security agreements, a deed of trust and
security agreement, agreements, instruments and financing statements in
connection with the indebtedness referred to in the Loan Agreement (all of the
foregoing, together with the Note and the Loan Agreement, are hereinafter
collectively referred to as the "Loan Documents"); and
<PAGE> 2
F. The Borrower remains the owner of the Real and Personal Property
and the Bank holds Loan Documents; and
G. The Borrower and the Bank desire and are willing to amend and
modify the terms of the Note and extend the maturity thereof.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the Borrower and the Bank, for
themselves and their successors and assigns do hereby agree, recite, represent
and warrant as follows:
1. The second paragraph on page 1 of the Note is hereby amended to
recite in its entirety that:
This Note is executed and the advances contemplated hereunder
are to be made pursuant to a Loan and Security Agreement by and
between the undersigned and the Bank dated December 31, 1996, and
all amendments, modifications, and supplements thereto from time to
time, including without limitation a certain First Amendment to
Loan and Security Agreement dated as of June 30, 1997 (hereinafter
collectively called the "Loan Agreement"), and all the covenants,
representations, agreements, terms, and conditions contained
therein, including but not limited to additional conditions of
default, are incorporated herein as if fully rewritten.
2. The section titled "Manner of Payment" of the Note is hereby
amended to recite in its entirety that:
MANNER OF PAYMENT
The Principal Sum shall be due and payable on June 30,
1998, and at maturity, whether by demand, acceleration or
otherwise. Accrued interest shall be due and payable monthly
beginning on February 1, 1997, and continuing on the 1st day of
<PAGE> 3
each month thereafter, and at maturity, whether by demand,
acceleration or otherwise.
3. The Borrower hereby covenants and agrees that the Bank's agreement
in this Agreement to extend the maturity of the Note shall not be construed and
shall not be the Bank's agreement to further modify or extend the Note.
4. The Borrower represents and warrants that no "Event of Default," as
defined in the Loan Agreement, has occurred and is continuing, nor will any such
Event of Default occur immediately after the delivery of this Agreement by the
performance or observance of any provision hereof.
5. Nothing contained in this Agreement shall be construed to affect,
modify, or cure in any manner, or effect a waiver of the occurrence and or
continuance of any Event of Default, or default or breach of any term,
condition, convenant or agreement contained in the Loan Agreement, the Note,
the Loan Documents, or any other agreement executed in connection therewith.
6. Except as modified herein, the Note, the Loan Agreement, the Loan
Documents and all other agreements as to payment, guarantee of payment or
security executed in connection therewith shall remain as written originally
and in full force and effect in all respects, and nothing herein shall affect,
modify, limit or impair any of the rights and powers which the bank may have
thereunder.
7. The Borrower agrees to perform and observe all of the covenants,
agreements, stipulations, and conditions to be performed under the Note, the
Loan Agreement, Loan Documents, and all other related agreements as amended
hereby. Except as modified by this
-3-
<PAGE> 4
Agreement, all the terms, conditions and covenants of the Note, the Loan
Agreement, the Loan Documents and any other related agreements shall remain as
originally written.
8. The Borrower agrees to execute such continuation statements,
financing statements or other documents, if any, as may be necessary or
desirable to continue in full force and effect the security interest granted to
the Bank.
9. THIS AGREEMENT shall become effective only upon its execution by
all parties hereto.
IN WITNESS WHEREOF, the Borrower and the Bank have hereunto set their
hands at Columbus, Ohio as of the date first set forth above.
BORROWER:
CA SHORT COMPANY
By: /s/ S. Robert Davis
-----------------------------
Its: Chairman
----------------------------
BANK:
THE HUNTINGTON NATIONAL BANK
By:/s/ Thomas Myers
----------------------------
Its: Vice President
---------------------------
<PAGE> 1
EXHIBIT 10.7
CA SHORT COMPANY
AGREEMENT TO GRANT PERFORMANCE STOCK OPTIONS
THIS AGREEMENT made as of this 17th day of July, 1997, between CA
SHORT COMPANY, a corporation existing under the laws of the State of Delaware
(hereinafter referred to as the "Company"), and Charles R. Davis (hereinafter
referred to as "Optionee").
In consideration of the services to be rendered by Optionee to the
Company as an employee, the parties hereto agree as follows:
1. GRANTS OF OPTIONS. The Company agrees to grant to Optionee
the right and option hereinafter called "Option" to purchase all or any part of
an aggregate of 200,000 shares of its Common Stock (the "Shares") at the
following time and subject to the following conditions:
(a) The Company will grant to Optionee an option to purchase
50,000 Shares at the time that the Company first achieves pre-tax earnings in
the amount of $1 million.
(b) The Company will grant to Optionee an option to purchase
75,000 Shares at the time that the Company first achieves pre-tax earnings in
the amount of $1.5 million.
(c) The Company will grant to Optionee an option to purchase
75,000 Shares at the time that the Company first achieves pre-tax earnings in
the amount of $2 million.
Each of the foregoing options shall be granted on the date that the
Company files its annual report on Form 10-K, which report demonstrates the
required level of earnings. The grant of each option provided for herein is
subject to the condition that Optionee be an employee of the Company on the last
day of the fiscal year covered by the applicable Form 10-K.
2. PURCHASE PRICE. The purchase price of the Shares covered by each
option granted hereunder shall be the fair market value of such Shares as
determined by the Company in its discretion as of the date of each grant.
3. EXPIRATION. Anything to the contrary contained therein
notwithstanding, the options granted hereunder shall expire and shall in no
event be exercisable after ten years after the date of grant.
4. EXERCISE. Options granted hereunder shall not be exercisable
until six months after the date of grant.
<PAGE> 2
5. RECAPITALIZATIONS, ETC. Each agreement granting options provided
for hereby shall provide that in the event after the date of the option of any
change in the outstanding Common Stock of the Company by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination, or exchange of shares, rights offering to purchase the Common Stock
at a price substantially below fair market value, or of any similar change
affecting the Common Stock, the number and kind of shares which thereafter may
be purchased pursuant to the option and the purchase price per share thereof
shall be appropriately adjusted consistent with such change in such manner as
the Company's Board of Directors may deem equitable to prevent substantial
dilution or enlargement of the rights granted under such option. The decision of
the Board of Directors in this respect shall be final and binding as Optionee.
6. METHOD OF EXERCISE; PAYMENT. Options granted hereunder may be
exercised in whole at any time, or in part from time to time with respect to
whole shares only, within the period permitted for the exercise thereof, and
shall be exercised by delivery of written notice of intent to exercise such
option with respect to a specified number of shares delivered to the Company at
its principal office accompanied by payment in full to the Company at said
office of the amount of the purchase price for the number of Shares with respect
to which the option is then being exercised, which payment may be by any of the
following means or any combination thereof: cash, or certified or cashier's
check payable to the Company.
7. RESTRICTIONS ON TRANSFERABILITY OF OPTION. Options granted
hereunder shall not be transferable other than by a will of the Optionee or by
the laws of descent and distribution.
8. RIGHTS IN STOCK BEFORE ISSUANCE AND DELIVERY. Optionee shall not
be entitled to the privileges of stock ownership in respect of any Shares
issuable upon exercise of options granted hereunder, unless and until such
Shares have been issued as fully paid Shares.
9. REQUIREMENTS OF LAW. By accepting any option granted hereunder,
Optionee represents and agrees for himself or herself and his or her transferees
by will or the laws of descent and distribution that, unless a registration
statement under the Securities Act of 1933 is in effect as to Shares purchased
upon exercise of such options, (a) any and all Shares so purchased shall be
acquired for his or her personal account and not with a view to or for a sale in
connection with any distribution, and (b) each notice of the exercise of any
portion of such options shall be accompanied by a representation and warranty in
writing, signed by the person entitled to exercise the same, that the Shares are
being so acquired in good faith for his or her personal account and not with a
view to or for a sale in connection with any distribution. No certificate or
certificates for shares of stock purchased upon exercise of such options shall
be issued and delivered unless and until, in the opinion of legal counsel for
the Company, such Shares may be issued and delivered without causing the Company
to be in violation of or incur any liability under any federal, state or other
securities law or other requirement of law or any regulatory body having
jurisdiction over the Company. Unless registered under applicable securities
laws, certificates evidencing shares of stock purchased upon exercise of such
options shall bear a customary restrictive legend. Optionee understands that the
Common Stock of the Company issued upon exercise of the Option will not be
registered under applicable federal and state securities laws and will therefore
constitute "restricted securities" under applicable securities laws. Such common
stock may not be resold in the absence of registration under applicable
securities laws or exemption therefrom. The Company may require an opinion of
<PAGE> 3
counsel acceptable to it that registration is not required upon any transfer of
the Shares. The undersigned understands that as a condition of exemption from
registration under federal securities laws, Optionee may be required to hold the
Common Stock for a period of one year after such Common Stock is issued and that
Optionee may be required to comply with other applicable provisions of
Securities and Exchange Commission Rule 144.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto concerning the subject matter hereof, and supersedes
all prior agreements, memoranda, correspondence, conversations and negotiations.
11. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Delaware as to all matters, including but not limited to matters of
validity, construction, effect, performance, and remedies. This Agreement shall
be binding upon the successors, assigns, and transferees of the undersigned.
12. NOTICES. All notices given hereunder must be in writing and shall
be deemed to have been properly given if: (i) personally delivered; (ii)
deposited for delivery by federal express or other nationally recognized
overnight courier services; or (iii) sent by registered or certified mail,
return receipt requested, first class postage prepaid; in each case addressed to
the party entitled to receive the same at the address specified below:
If to the Company: CA Short Company
4205 East Dixon Boulevard
Shelby, NC 28150
If to Optionee: Charles R. Davis
12124 Pine Valley Club Drive
Charlotte, NC 28277
Either party may alter the address to which notice is to be sent by
giving notice of such change of address in conformity with the provisions set
forth above providing for the giving of notice.
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement
to be duly executed by its officer thereunto duly authorized, and Optionee has
hereunto set his hand upon this Agreement to be effective as of the date and
year first written above.
OPTIONEE: COMPANY:
CA SHORT COMPANY
/s/ Charles R. Davis By: /s/ Robert V. Boylan
- --------------------------- -----------------------------
(Signature) Robert V. Boylan
Its: Chief Operating Officer
<PAGE> 1
EXHIBIT 10.9
WARRANT EXERCISE FEE AGREEMENT
AGREEMENT dated as of the ____ day of _________, 1997, by and among
Biltmore Securities, Inc., ("Biltmore")CASCO INTERNATIONAL, INC.(the "Company")
and American Stock Transfer & Trust Co. (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 750,000 Units,(a
maximum of 862,500 Units including the over-allotment option), each Unit
consisting of one share of the Company's Common Stock ("Common Stock"), and two
(2) Class A Common Stock Purchase Warrants (the "Warrants"), the Company
proposes to issue, in accordance with an agreement dated as of __________, 1997
by and between the Company and the Warrant Agent (the "Warrant Agreement"),
Warrants to purchase shares of Common Stock; and
WHEREAS, the parties hereto wish to provide Biltmore, a member of the
National Association of Securities Dealers, Inc. ("NASD") with certain rights
on an exclusive basis in connection with the exercise of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
Section 1. Description of the Warrants. The Company's Warrants may be
exercised on or after ___________, 1998 and expire at 5:00 p.m. New York time
on __________, 2002 (the "Expiration Date"), subject to (i) the Company's right
to extend the Expiration Date, at which time all rights evidenced by the
Warrants shall cease and the Warrants shall become void and (ii) certain
redemption rights commencing on or after ____________, 1998. In accordance with
the provisions of the Warrant Agreement, the holder of each Warrant shall have
the right to purchase from the Company, and the Company shall issue and sell to
such holders of Warrants, one fully paid and non-assessable share of the
Company's Common Stock for every Warrant exercised at an Exercise Price of
$5.50, subject to adjustment as provided in the Warrant Agreement.
Section 2. Notification of Exercise. Within five (5) days of the last
day of each month commencing __________, 1998 (one year
<PAGE> 2
from the date of the Company's Prospectus), the Warrant Agent or the Company
will notify Biltmore of each Warrant certificate which has been properly
completed and delivered for exercise by holders of Warrants during each such
month, the determination of the proper completion to be in the sole and
absolute reasonable discretion of the Company and the Warrant Agent. The
Company or the Warrant Agent will provide Biltmore with such information, in
connection with the exercise of each Warrant, as Biltmore shall reasonably
request.
Section 3. Payment to Biltmore. The Company hereby agrees to pay to
Biltmore an amount equal to four (4%) percent of the exercise price for each
Warrant exercised (the "Exercise Fee") a portion of which may be allowed by
Biltmore to the dealer who solicited the exercise (which may also be Biltmore)
provided that:
(a) such Warrant is exercised on or after __________, 1998, which
represents one year from the effective date of the Company's Registration
Statement;
(b) at the time of exercise, the market price of the Company's Common
Stock is higher than the applicable Exercise Price of the Warrant being
exercised;
(c) the holders of Warrants being exercised have indicated in
writing, either in the Form of Election contained on the specimen Warrant
Certificate attached hereto as Exhibit A, or by written documents signed and
dated by the holders and specifically stating that the exercise of such
Warrants were solicited by Biltmore or another member of the NASD; and
(d) Biltmore, and/or the member of the NASD which solicited the
exercise of Warrants delivers a certificate to the Company within five (5)
business days of receipt of information relating to such exercised Warrants
from the Company or the Warrant Agent in the form attached hereto as Exhibit B,
stating that:
(1) the Warrants exercised were not held in a
discretionary account;
(2) Biltmore or the member of the NASD which solicited the
exercise of Warrants did not, (unless granted an exemption by the Securities
and Exchange Commission from the provisions thereof), within the applicable
number of business days under Rule 10b-6 immediately preceding the date of
exercise of the Warrant bid
<PAGE> 3
for or purchase the Common Stock of the Company or any securities of the
Company immediately convertible into or exchangeable for the Common Stock
(including the Warrants) or otherwise engage in any activity that would be
prohibited by Regulation M under the Securities Exchange Act of 1934, as
amended, with one engaged in a distribution of the Company's securities; and
(3) in connection with the solicitation, it disclosed the
compensation it would receive upon exercise of the Warrant.
Section 4. Payment of the Exercise Fee. The Company hereby agrees to
pay over to Biltmore within two (2) business days after receipt by the Company
of the certificate described in Section 3(d) above, the Exercise Fee out of the
proceeds it received from the applicable Exercise Price paid for the Warrants
to which the certificate relates.
Section 5. Inspection of Records. Biltmore may at any time during
business hours, at its expense, examine the records of the Company and the
Warrant Agent which relate to the exercise of the Warrants.
Section 6. Termination. Biltmore shall be entitled to terminate this
Agreement prior to the exercise of all Warrants at any time upon five (5)
business days' prior notice to the Company and the Warrant Agent.
Notwithstanding any such termination notice, Biltmore shall be entitled to
receive an Exercise Fee for the exercise of any Warrant for which it has
already delivered to the Company prior to any such termination the certificate
required by Section 3(d) of this Agreement.
Section 7. Notices. Except as otherwise expressly provided in this
Agreement, (A) whenever notice is required by the provisions hereof to be given
to the Company, such notice shall be given in writing, by certified mail,
return receipt requested, addressed to the Company at 4205 East Dixon
Boulevard, Shelby, NC 28105, copy to Johnson, Blakely, Pope, Bokor, Ruppel &
Burns, P.A., 100 North Tampa Street, Suite 1800, P.O. Box 1100, Tampa, FL
33601-1100, Attention: Philip M. Shasteen, Esq.; and (B) whenever notice is
required by the provisions hereof to be given to the Underwriters, such notice
shall be in writing addressed to the Representative at 6700 North Andrews
Avenue, Suite 500, Fort Lauderdale, Florida 33309, copy to Hartley T.
Bernstein, Esq., Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY
10022, telecopier (212) 371-4730; and (C) if to the Warrant Agent at
3
<PAGE> 4
American Transfer & Trust Company, 40 Wall Street, New York, New York 10005 or
such other address as such party shall have given notice to other parties
hereto in accordance with this Section. All such notices or other
communications shall be deemed given three (3) business days after mailing, as
aforesaid.
Section 8. Supplements and Amendments. The Company, the Warrant Agent
and Biltmore may from time-to-time supplement or amend this Agreement by a
written instrument signed by the party to be charged, without the approval of
any holders of Warrants in order to cure any ambiguity or to correct or
supplement any provisions contained herein or to make any other provisions in
regard to matters or questions arising hereunder which the Company, the Warrant
Agent and Biltmore may deem necessary or desirable and which do not adversely
affect the interests of the holders of Warrants.
Section 9. Assignment. This Agreement may not be assigned by any party
without the express written approval of all other parties, except that Biltmore
may assign this Agreement to its successors.
Section 10. Governing Law. This Agreement will be deemed made under
the laws of the State of New York with respect to matters of contract law and
for all purposes shall be governed by and construed in accordance with the
internal laws of said State, without regard to the conflicts of laws provisions
thereof.
Section 11. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give any person or corporation other than the Company,
the Warrant Agent and Biltmore any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of, and be binding upon, the Company, the Warrant Agent and Biltmore
and their respective successors and permitted assigns.
Section 12. Descriptive Headings. The descriptive headings of the
sections of this Agreement are inserted for convenience only and shall not
control or affect the meanings or construction of any of the provisions hereof.
Section 13. Superseding Agreement. This Agreement supersedes any and
all prior agreements between the parties with respect to the subject matter
hereof.
4
<PAGE> 5
Section 14. Exclusive Agreement. It is understood that this agreement
is on an exclusive basis to solicit the exercise of the Warrants and that the
Company may not engage other broker-dealers to solicit the exercise of Warrants
without the consent of Biltmore.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
CASCO INTERNATIONAL, INC.
By:
--------------------------------
BILTMORE SECURITIES, INC.
By:
--------------------------------
AMERICAN STOCK TRANSFER & TRUST CO.
By:
--------------------------------
5
<PAGE> 6
CERTIFICATE
The undersigned, being the ________________ of Biltmore Securities Inc.
("Biltmore") pursuant to Section 3(d) of the Warrant Exercise Fee Agreement
relating to the exercise of Warrants dated ____________, 1997 between CASCO
INTERNATIONAL, INC. (the "Company") and American Stock Transfer & Trust Co.
(the "Warrant Agent") hereby certifies that:
1. The Company or the Warrant Agent has notified Biltmore
that ______________ Warrants (as defined in the Agreement) have been exercised
during _____________, 199___.
2. The exercise of ______________ of such Warrants was
solicited by Biltmore.
3. Such Warrants were not held in a discretionary account.
4. ______________ did not, within _____ business days immediately
preceding _______________ 199___, bid for or purchase the Common Stock of the
Company or any securities of the Company immediately convertible into or
exchangeable for the Common Stock (including Warrants) or otherwise engage in
any activity that would be prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended, to one engaged in a distribution of the
Company's securities.
5. In connection with the solicitation of the exercise of
the Warrants, _____________ disclosed the compensation it will
receive to holders of the Warrants.
DATED:__________________, 199___
BILTMORE SECURITIES, INC.
By:
--------------------------------
6
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF
PER SHARE EARNINGS
PRIMARY EARNINGS*
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1997 1996 1996 1995
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
SHARES
Weighted average number of common shares
outstanding 1,003,431 1,003,431 1,003,431 1,003,431
Dilutive effect of stock options computed
by use of treasury stock method 3,400 -- -- --
--------- --------- --------- ---------
Average common and common equivalent
shares outstanding 1,006,831 1,003,431 1,003,431 1,003,431
========= ========= ========= =========
Net income (loss) $(389,754) $ 482,640 $ 208,733 $(427,674)
========= ========= ========= =========
Net income (loss) per common share $ (.39) $ .48 $ .20 $ (.43)
========= ========= ========= =========
</TABLE>
* This calculation is submitted in accordance with SEC regulations although not
required by APB 15 because it is anti dilutive.
FULLY DILUTED EARNINGS*
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------- -----------------------
1997 1996 1996 1995
--------- ---------- --------- --------
<S> <C> <C> <C> <C>
SHARES
Weighted average number of common shares
outstanding 1,003,431 1,003,431 1,003,431 1,003,431
Dilutive effect of stock options computed
by use of treasury stock method 21,548 -- -- --
--------- --------- --------- ---------
Average common and common equivalent
shares outstanding 1,024,979 1,003,431 1,003,431 1,003,431
========= ========= ========= =========
Net income (loss) $(389,754) $ 482,640 $ 208,733 $(427,674)
========= ========= ========= =========
Net income (loss) per common share $ (.38) $ .48 $ .20 $ (.43)
========= ========= ========= =========
</TABLE>
* This calculation is submitted in accordance with SEC regulations although not
required by APB 15 because it is anti dilutive.
<PAGE> 1
EXHIBIT 23.2
HAUSSER+TAYLOR
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the heading "Experts" and the use
of our report dated July 29, 1997 in the Registration Statement on Form SB-2
and related Prospectus of CASCO INTERNATIONAL, INC. for the registration of
750,000 units of its common stock and related warrants.
/s/ HAUSSER + TAYLOR
Columbus, Ohio
August 4, 1997
