<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21717
CASCO INTERNATIONAL, INC.
formerly CA Short Company, Inc.
Incorporated - Delaware I.R.S. Identification No. 56-0526145
4205 East Dixon Boulevard, Shelby, North Carolina 28150
Registrant's Telephone Number (704) 482-9591
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of latest practicable date 1,783,200 common shares outstanding,
each with par value $0.01, as of November 6, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
September 30, 1998 and December 31, 1997
Unaudited
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 132,593 $ 73,516
Accounts receivable 1,971,551 5,043,423
Inventory 5,489,028 4,545,752
Prepaid expenses 1,219,950 973,329
------------ ------------
Total current assets 8,813,122 10,636,020
Buildings and equipment:
Buildings 2,601,563 3,194,058
Equipment 2,674,029 2,025,552
------------ ------------
5,275,592 5,219,610
Less accumulated depreciation (1,844,571) (1,664,540)
------------ ------------
3,431,021 3,555,070
Land 111,468 211,468
------------ ------------
Total property and equipment, net 3,542,489 3,766,538
Other assets:
Cost in excess of net assets acquired, net of
accumulated amortization of $307,971 and
$267,608 respectively 2,385,129 1,098,859
Other 672,567 646,256
------------ ------------
3,057,696 1,745,115
------------ ------------
TOTAL ASSETS $ 15,413,307 $ 16,147,673
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
September 30, 1998 and December 31, 1997
Unaudited
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ ------------
<S> <C> <C>
Liabilities:
Accounts payable $ 415,942 $ 1,062,112
Short-term debt obligations 1,537,938 --
Short-term subordinated debenture -- 100,000
Accrued liabilities 128,939 320,157
Advanced deposits-current 1,951,471 1,951,471
------------ ------------
Total current liabilities 4,034,290 3,433,740
------------ ------------
Long-term debt 2,562,500 --
Advanced deposits-noncurrent 2,674,956 2,558,517
Subordinated debenture -- 4,900,000
Deferred tax liability 404,850 67,650
------------ ------------
Total Liabilities 9,676,596 10,959,907
Commitments and contingencies -- --
Stockholders' equity:
Preferred Shares: $.01 par value; authorized
300,000 shares; none issued and outstanding -- --
Common Shares par value $.01, authorized
5,000,000, issued 1,783,200 17,832 17,832
Capital in excess of par value 6,417,586 6,417,586
Accumulated deficit (698,707) (1,247,652)
------------ ------------
Total stockholders' equity 5,736,711 5,187,766
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,413,307 $ 16,147,673
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
CASCO INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the three months and the nine months ended
September 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Nine Months
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenue $ 3,545,052 $ 3,469,869 $ 13,075,763 $ 11,913,018
Operating costs and expenses:
Cost of goods sold 2,025,705 2,027,581 7,352,719 6,807,794
Selling, general and administrative 1,748,148 1,917,565 5,595,690 5,779,248
Depreciation and amortization 141,172 91,683 351,756 265,830
----------- ----------- ------------ ------------
Total operating costs and expenses 3,915,025 4,036,829 13,300,165 12,852,872
Operating income (loss) (369,973) (566,960) (224,402) (939,854)
Other income and (expenses)
Interest expense (111,223) (94,022) (238,309) (351,885)
Loss on sale of building -- -- (151,144) --
----------- ----------- ------------ ------------
Total other income and (expenses) (111,223) (94,022) (389,453) (351,885)
Income (loss) before income taxes and
extraordinary item (481,196) (660,982) (613,855) (1,291,739)
Deferred (provision) benefit for income taxes 182,400 252,000 232,800 493,000
----------- ----------- ------------ ------------
Income (loss) before extraordinary gain on
retirement of debt (298,796) (408,982) (381,055) (798,739)
----------- ----------- ------------ ------------
Extraordinary gain on retirement of debt (less
applicable income taxes of $570,000) -- -- 930,000 --
----------- ----------- ------------ ------------
Net Income (Loss) $ (298,796) $ (408,982) $ 548,945 $ (798,739)
=========== =========== ============ ============
EARNINGS PER SHARE BASIC AND DILUTIVE
Income (loss) before extraordinary item $ (0.16) $ (0.37) $ (0.22) $ (0.77)
Extraordinary gain on retirement of debt $ -- $ -- $ 0.52 $ --
----------- ----------- ------------ ------------
Net Income (Loss) $ (0.16) $ (0.37) $ 0.30 $ (0.77)
=========== =========== ============ ============
Weighted average common shares outstanding 1,783,200 1,112,232 1,783,200 1,040,207
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CASCO INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
1998 1997
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 548,945 $ (798,739)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 351,756 265,830
Loss of sale of building 151,144 --
Extraordinary gain on retirement of debt (930,000) --
Deferred provision (benefit) 337,200 (493,000)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 3,071,872 3,083,973
Inventory (943,276) 1,706,710
Prepaid expenses and other assets (275,477) (7,580)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (837,388) (1,383,495)
Advance deposits 116,439 (549,651)
----------- ------------
Total adjustments 1,042,270 2,622,787
----------- ------------
Net cash provided by operating activities 1,591,215 1,824,048
----------- ------------
Cash flows from investing activities:
Sale of building 421,187 --
Payments for purchases of property and equipment (657,128) (100,098)
Payment for acquisition (1,126,633) --
----------- ------------
Cash used in investing activities (1,362,574) (100,098)
Cash flows from financing activities:
Proceeds from debt obligation 9,013,472 14,905,007
Principal payments on debt (9,183,036) (18,574,753)
Issuance of Common Stock Units -- 3,310,928
----------- ------------
Cash used in financing activities (169,564) (358,818)
Increase (decrease) in cash 59,077 1,365,132
Cash, beginning of period 73,516 130,971
----------- ------------
Cash, end of period $ 132,593 $ 1,496,103
=========== ============
Other Cash Flow Information:
Cash payments during the year for:
Interest $ 262,397 $ 351,885
Income taxes, net of refunds -- --
Noncash Financing Activities:
Note Payable Acquisition $ 200,000 $ --
Goodwill $ 200,000 $ --
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.
<PAGE> 6
CASCO INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Unaudited
The accompanying financial statements have not been audited, but
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of financial position, results of operations and cash flows
for the periods presented. All adjustments are of a normal and recurring nature.
These consolidated financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 1997.
Effective at the close of business on December 31, 1996, a tax free
spin off of the Company's common stock from its former parent, Pages, was
completed (the "Distribution"). In the Distribution, for every ten shares of
Pages common stock outstanding on the record date, one and one-half shares of
the Company's common stock was distributed to Pages shareholders.
On January 23, 1998 the Company redeemed, at a discount, the
subordinated debenture due to Pages on January 1, 2002. The debenture in the
original principal amount of $5 million was redeemed for $3.5 million.
Also on January 23, 1998, Huntington National Bank increased the
Company's line of credit from $2 million to $5.5 million from which funds became
available to redeem the subordinated debenture due to Pages. On July 30, 1998,
the Company replaced the line of credit with the Huntington National Bank with a
$5 million line of credit with Branch Banking & Trust.
On March 4, 1998 the Company sold its 167,000 sq. ft. Kings Mountain
warehouse. The sale netted the Company approximately $425,000. Also on March 4,
1998 the Company obtained financing from First National Bank secured by a first
deed of trust on the Shelby facilities. The loan is in the amount of $2,362,500
at an interest rate of prime plus 1/2% and will not increase or decrease more
than two percent. The term of the loan is fifteen years, callable after 5 years.
On July 30, 1998 the Company entered into an agreement with Awards &
Gifts, Inc. and Richard W. Terlau, Jr., providing for the purchase of
substantially all assets and certain liabilities of Awards & Gifts by the
Company. Under the terms of the Asset Purchase Agreement, the assets included
Awards & Gifts customer list, machinery and equipment, inventories, Awards &
Gifts intellectual property assets, prepaid expenses, and general intangibles,
the liabilities included the assumption of an equipment lease and a real
property lease. The purchase price for the assets was $1.5 million with certain
adjustments made for pro-rated items, with $1.3 million in cash and a $200,000
promissory note. The note is secured by an Irrevocable Standby Letter of Credit
issued by Branch Banking & Trust Company. The purchase price under the Asset
Purchase Agreement was determined by arm's length negotiations between the
parties based on the market value of the assets purchased and sold. The
acquisition was financed with proceeds from its revolving credit facility with
Branch Banking & Trust Company.
<PAGE> 7
During the three months ended September 30, 1998, options were
granted under the Company's 1998 Incentive Stock Option Plan and under the
Non-Employee Director Stock Option Plan as shown on the following table. The
ending and average market price of the Company's stock for the three months
ended September 30, 1998 was $1.5937 and $2.2662, respectively.
<TABLE>
<CAPTION>
Date Shares
Granted or Reserved and Exercise
Issued Exercisable Price
--------------------------- ----------------------- ------------------
<S> <C> <C>
INCENTIVE STOCK OPTION PLAN
September 2, 1998 65,000 $2.00
NON-EMPLOYEE DIRECTOR STOCK
OPTION PLAN
September 2, 1998 15,000 $2.00
</TABLE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Quarter and Nine Months Ended September 30, 1998 Compared to Quarter and Nine
Months Ended September 30, 1997:
Revenues for the three months ended September 30, 1998 approximated
$3.55 million, compared to $3.47 million in revenues for the three months ended
September 30, 1997, an increase of 2.2% or approximately $75,000. The increase
is attributable to new customers in the new markets with employed recognition
consultants and the acquisition of Awards & Gifts, Inc., on July 30, 1998.
Revenues for the nine months ended September 30, 1998 approximated
$13.08 million, compared to $11.91 million in revenues for the nine months ended
September 30, 1997, an increase of 9.76% or approximately $1.16 million. The
increase is attributable to strong retention of existing customers coupled with
new customers in the new markets with employed recognition consultants, and the
acquisition of Awards & Gifts, Inc. on July 30, 1998.
Cost of goods sold for the three months ended September 30, 1998
approximated $2.03 million, compared to approximately $2.03 million of cost of
goods sold for the three months ended September 30, 1997. As a percentage of
revenues, cost of goods sold decreased to 57.14% for the three months ended
September 30, 1998, from 58.43% for the three months ended September 30, 1997.
The 1.29% decrease in the cost of goods sold as a percentage of revenues was
principally attributable to a change in product mix and the initial phases of an
improved inventory purchasing strategy.
<PAGE> 8
Cost of goods sold for the nine months ended September 30, 1998
approximated $7.35 million, compared to approximately $6.81 million of cost of
goods sold for the nine months ended September 30, 1997, an increase of 8.00% or
approximately $545,000. The increase in cost of goods sold was attributable to
the increase in revenues. As a percentage of revenues, cost of goods sold
decreased to 56.23% for the nine months ended September 30, 1998, from 57.15%
for the nine months ended September 30, 1997. The 0.92% decrease in the cost of
goods sold, as a percentage of revenues was principally attributable to a change
in product mix, and an improved inventory purchasing strategy.
Selling, general, and administrative expense for the three months
ended September 30, 1998 approximated $1.75 million, compared to $1.92 million
for the three months ended September 30, 1997, a decrease of 8.8% or
approximately $170,000. The decrease in selling, general, and administrative
expense were principally attributable to benefits obtained from aggressive cost
containment policies. As a percentage of revenues, selling, general and
administrative decreased to 49.31% for the three months ended September 30,
1998, from 55.26% for the three months ended September 30, 1997. The 5.95%
decrease as a percentage of revenues were principally attributable to benefits
obtained from aggressive cost containment policies, and the increase in revenues
generated by the employed sales force.
Selling, general and administrative expense for the nine months ended
September 30, 1998 approximated $5.60 million, compared to $5.78 million for the
nine months ended September 30, 1997, a decrease of 3.18% or approximately
$184,000. As a percentage of revenues, selling, general, and administrative
expenses decreased to 42.79% for the nine months ended September 30, 1998, from
48.51% for the nine months ended September 30, 1997. The 5.72% decrease as a
percentage of revenues was principally attributable to benefits obtained from
aggressive cost containment policies, and the increase in revenues generated by
the employed sales force.
Interest expense was approximately $111,000 for the three months
ended September 30, 1998, compared to $94,000 for the three months ended
September 30, 1997, an increase of approximately $17,000. For the nine months
ended September 30, 1998 interest expense was approximately $238,000 compared to
approximately $352,000 for the nine months ended September 30, 1997, a decrease
of approximately $114,000. The reduction in interest expense was primarily due
to the early redemption of the Company's subordinated debenture due to Pages on
January 1, 2002. The debenture in the original amount of $5 million was redeemed
for $3.5 million. The average outstanding debt for the first nine months in 1998
approximated $2.7 million compared to $6.4 million for the first nine months in
1997. Additionally, the average interest rate for the first nine months in 1998
approximated 9.11% compared to approximately 7.51% for the same period in 1997.
Depreciation and amortization expense was approximately $141,000 for
the three months ended September 30, 1998, compared to $92,000 for the three
months ended September 30, 1997, an increase of 53.98% or approximately $49,500.
Depreciation and amortization expense was approximately $352,000 and $266,000
for the nine months ended September 30, 1998 and 1997 respectively, an increase
of
<PAGE> 9
32.32% or approximately $86,000. The increase in depreciation and amortization
expense was principally attributable to the depreciation of newly acquired
assets in 1997 and 1998.
Income tax benefit was $232,800 for the nine months ended September
30, 1998, compared to an income tax benefit of $493,000 for the nine months
ended September 30, 1997. The provisions for income tax benefit were calculated
through the use of estimated income tax rates based upon the loss before taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash generated
from operating activities and amounts available under its existing credit
facility and proceeds from the public offering of units consisting of common
stock and warrants during the third quarter of 1997. The Company's primary uses
of funds consist of financing inventory and receivables and for acquisitions.
The Company has adopted a growth strategy, which will be accomplished
through increased efforts of the Company's existing, highly trained sales force,
in order to expand current market share and enter into new markets.
The Company anticipates that operating cash flows during the next
twelve months, coupled with its ability to borrow under the credit facility and
the proceeds from the sale of the Kings Mountain warehouse and the first deed of
trust on the Shelby facility, will cover operating expenditures and meet the
short-term debt obligations. The Company's credit facility is due and payable in
full on July 30, 1999. Although the lender has not issued a commitment to do so,
the Company's relationship with its lender is favorable and the Company
anticipates that the credit facility will be renewed when due.
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. The Company entered into a
$5 million, 7% subordinated debenture with Pages simultaneously with the
Distribution in satisfaction of amounts due to Pages by the Company. The excess
of the amount due to Pages as of the Distribution over the $5 million
subordinated debenture was recorded as paid in capital. Based on the
consummation of the Distribution effective January 1, 1997, the amounts due to
Pages previously recorded as current were reclassified to long term, thus
significantly increasing the Company's net working capital, as described earlier
in this section. The Company discharged the debenture in full in January 1998
for $3.5 million.
The Company does not anticipate any material expenditures for
property and equipment during the next twelve months.
<PAGE> 10
The Company is aware of no trends or demands, commitments or
uncertainties that will result in, or that management believes are reasonably
likely to result in, the Company's liquidity increasing or decreasing in any
material way. The Company is aware of no legal or other contingencies, the
effects of which are believed by management to be reasonably likely to have a
material adverse effect on the Company's financial statements.
SEASONALITY
The Company's business is highly seasonal, with approximately 39% 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 diminish. The business categories on which the Company has
chosen to focus offer steadier revenue flows, as well as more consistent
requirements for working capital.
INFLATION
Although the Company cannot determine the precise effects of
inflation, inflation has an influence on the cost of the Company's products and
services, supplies, 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding matters that are not historical facts and "forward looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1996) and because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Those statements include remarks regarding the
intent, belief, or current expectations of the Company, its directors, or its
officers with respect to, among other things: (i) future operating cash flows;
(ii) the Company's financing plans, and (iii) the Company's growth strategy,
including the expansion of current market share and the entrance into new
markets. Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a
<PAGE> 11
result of various factors. The accompanying information contained in this Form
10-Q, including without limitation and information set forth under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", identifies important factors that could cause such differences.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The Company is not involved in any material pending legal
proceedings, other than ordinary, routine litigation incidental to its business.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
Exhibit Method
Number Description of filing
------- ----------- ---------
1 Underwriting Agreement 1
2 Agreement and Plan of Merger 1
3(i).1 Certificate of Incorporation 1
3(i).2 Certificate of Amendment to
Certificate of Incorporation 1
3(ii) Bylaws 1
4.1 Form of Stock Certificate 1
<PAGE> 12
4.2 Warrant Agreement 1
4.3 Form of Warrant Certificate 1
4.4 Form of Warrant-R.L. Renck & Company 1
10.1 1996 Incentive Stock Option Plan 1
10.2 Employee Stock Option Plan 1
10.3 Huntington Loan Documents:
10.3.1 Loan and Security Agreement 1
10.3.2 Revolving Note 1
10.3.3 Commercial Letter of Credit
Reimbursement Agreement 1
10.3.4 Deed of Trust, Assignment of
Rents and Security Agreement 1
10.3.5 Debt Subordination and
Intercreditor Agreement 1
10.3.6 Third Amendment to Loan
and Security Agreement 1
10.3.7 Third Note Modification
and Extension Agreement 1
10.4 Non-Employee Director Stock Option Plan 1
10.5 Amendment to 1996 Incentive
Stock Option Plan 1
10.6 1997 Incentive Stock Option Plan 1
10.7 Charles R. Davis' Performance
Option Agreement 1
10.8 First National Bank Loan Document 1
10.9 Branch Banking & Trust Loan Document 1
10.10 1998 Incentive Stock Option Plan 2
10.11 Non-Employee Director Stock Option Plan 2
27 Financial Data Schedule 2
1. Incorporated by reference to the Company's registration statement on Form 10,
file number 0-271717, filed in Washington, D.C.
<PAGE> 13
2. Filed herewith.
(b) Reports on Form 8-K
A report on Form 8-K was dated and filed on August 14, 1998, under Item 2
on the acquisition of all the assets of Awards & Gifts, Inc.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CASCO INTERNATIONAL, INC.
Registrant
Date: November 12, 1998 By: /s/ Jeffrey A. Ross
------------------------
Jeffrey A. Ross
Principal Financial and
Accounting Officer
<PAGE> 1
EXHIBIT 10.10
CASCO INTERNATIONAL, INC.
1998 EMPLOYEE STOCK OPTION PLAN
SECTION 1-PURPOSE
1.1 The purpose of this Employee Stock Option Plan ("Plan") is to further
the success of CASCO INTERNATIONAL, INC., a Delaware corporation
("Company") by making available Common Stock of the Company for
purchase by certain officer and employees of the Company and its
affiliates, and thus to provide an additional incentive to such
individuals to continue in the service of the Company or its affiliates
and to give them a greater interest as Stockholder in the success of
the Company. Subject to compliance with the provision of the Plan and
the Internal Revenue Code of 1986, as amended, Incentive Stock Options
as authorized by Section 422 of the Code and stock options which do not
qualify under Section 422 of the Code are authorized and may be granted
under the Plan.
SECTION 2-DEFINITIONS:
2.1 As used in this Plan, the following terms shall have the meanings
indicated as follows:
2.1.1 "Board" means the Board of Directors of the Company.
2.1.2 "Code" means the Internal Revenue Code of 1986, as amended.
2.1.3 "Committee" means the Committee administering the Plan
described in Section 3 hereof.
2.1.4 "Common Stock" means the Company's Common Stock, par value
$.01 per share.
2.1.5 "Date of Grant" means the date on which an option is granted
under a written option agreement executed by the Company and a
Participant pursuant to the Plan.
2.1.6 "Effective Date" means the effective date of this Plan
specified in Paragraph 13 hereof.
2.1.7 "Exchange Act" means the Securities Exchange Act of 1934, as
it may be amended from time to time.
2.1.8 "Incentive Stock Option" means an option qualifying under
Section 422 of the Code.
2.1.9 "Non-Employee Director" means a person who meets the
definition of a "non-Employee Director" as defined in Rule
16b-3 promulgated under the Exchange Act or any successor
provision.
2.1.10 "Parent" means a parent corporation of the Company as defined
in Section 424(e) of the Code.
2.1.11 "Participants" means the employees and officers of the
Company, its Subsidiaries and its Parents, and those directors
of the Company who are also employees of the Company, its
subsidiaries or its Parents.
2.1.12 "Subsidiary" means a subsidiary corporation of the Company as
defined in Section 424(f) of the Code.
SECTION 3-ADMINISTRATION OF THE PLAN:
3.1 The Board of Directors of the Company shall appoint a committee
("Committee") comprised of two (2) or more directors to administer the
Plan. Only directors who are Non-Employee Directors shall be eligible
to service as members of the Committee. The Committee shall report all
action
<PAGE> 2
taken by it to the Board which shall review and ratify or approve those
actions that are, by law, required to be so reviewed and ratified or
approved by the Board. The Committee shall have full and final
authority in its discretion, subject to the provisions of the Plan, to
determine the Participants to whom, and the time or times at which
options shall be granted and the number of shares and purchase price of
Common Stock covered by each option; to construe and interpret the Plan
and any agreements made pursuant to the Plan; to determine the terms
and provisions (which need not be identical or consistent with respect
to each Participant) of the respective option agreements and any
agreement ancillary thereto including , but without limitation, terms
covering the payment of the option price; and to make all other
determinations and to take all other actions deemed necessary or
advisable for the proper administration of the Plan. All such actions
and determinations shall be conclusively binding for all purposes and
upon all persons.
SECTION 4-OPTIONS AUTHORIZED:
4.1 The options granted under this Plan may be Incentive Stock Options or
stock options that do not qualify as Incentive Stock Options (sometimes
referred to as "non-qualified options" or "non-qualified stock
options"). The Committee shall have the full power and authority to
determine which options shall be non-qualified stock options and which
shall be Incentive Stock Options; to grant only Incentive Stock Options
or, alternatively, only non-qualified stock options; and to, in its
sole discretion, grant to the holder of an outstanding option in
exchange for the surrender and cancellation of such option, a new
option having purchase price lower than that provided in the option so
surrendered and cancelled and containing such other terms and
conditions as the Committee may prescribe in accordance with the
provisions of the Plan. No options may be granted under the Plan prior
to the Effective Date. In additions to any other limitations set forth
herein, the aggregate fair market value, determined in accordance with
Paragraph 7(A) of the Plan as of the time the option is granted, of the
stock with respect to which Incentive Stock Options are exercisable for
the first time by a Participant in any calendar year (under all plans
of the Company and of any Parent or Subsidiary) shall not exceed
$100,000.
SECTION 5-COMMON STOCK SUBJECT TO OPTIONS:
5.1 The aggregate number of shares of the Company's Common Stock which may
be issued upon the exercise of options shall not exceed one hundred
thousand, (100,000), subject to adjustment under the provisions of
Paragraph 8. The shares of Common Stock to e issued upon the exercise
of options may be authorized but unissued shares, or shares issued and
reacquired by the Company. In the event any option shall, for any
reason, terminate or expire or be surrendered without having been
exercised in full, the shares subject to such option shall again be
available for options to be granted under the Plan, except that shares
for which relinquished options (or portions thereof) are exercisable
shall not again be available for options under the Plan.
SECTION 6-PARTICIPANTS:
6.1 Except as hereinafter provided, options may be granted under the Plan
to any Participant. In determining the Participants to whom options
shall be granted and the number of shares to be covered by such option,
the Committee may take into account the nature of the services rendered
by the respective Participants, their present and potential
contributions to the Company's success, and such other factors as the
Committee, in its discretion, shall deem relevant. A participant who
has been granted an option under the Plan may be granted an additional
option(s) under the Plan, in the Committee's discretion.
SECTION 7-TERMS AND CONDITIONS OF OPTIONS:
7.1 The grant of an option under the Plan shall be evidenced by a written
agreement executed by the Company and the applicable participant and
shall contain such terms and be in such form as the Committee may, from
time to time, approve, subject to the following limitations and
conditions:
<PAGE> 3
7.1.1 Option Price: The option price per share with respect to each
option shall be determined by the Committee, but shall in no
instance be less that the par value of the shares subject to
the option. In addition, the option price per share with
respect to Incentive Stock Options granted here under shall in
no instance be less that the fair market value of the shares
of Common Stock subject to the option as determined by the
Committee. The Committee shall, in good faith, determine the
fair market value of the shares of Common Stock (without
regard to any restrictions other than a restriction which, by
its terms, will never lapse) based upon a reasonable method of
valuation adopted by the Committee, or such other method as
may be permitted by the Code, or regulations or rulings
promulgated thereunder. The Committee may permit the option
purchase price to be payable by any of the following means or
any combination thereof: (i) cash; (ii) certified or cashier's
check payable to the Company; (iii) the delivery of whole
shares of Common Stock owned by the Option holder; or (iv) by
requesting that the Company withhold whole shares of Common
Stock then issuable upon exercise of the Option (for purposes
of such a transaction the value of the shares of Common Stock
shall be deemed to be equal to the fair market value, as
determined by the Committee in good faith, of the shares on
the date of the exercise of the Option) in which case the
Option with respect to the shares withheld shall be deemed to
be surrendered and cancelled.
7.1.2 Period of Option: The expiration date of each option shall be
fixed by the Committee but, notwithstanding any provision of
the Plan to the contrary, such expiration date shall not be
more than five (5) years after the Date of Grant.
7.1.3 Vesting of Stockholder Rights: Neither the optionee nor
his/her successor in interest shall have any of the rights of
a Stockholder of the Company until the shares relating to the
option hereunder are issued by the Company and are properly
delivered to such optionee or successor.
7.1.4 Exercise of Option: Each option shall be exercisable from time
to time, but not less than six (6) months after the Date of
Grant, over such period and upon such terms and conditions as
the Committee shall determine, but not at any time as to less
than twenty-five (25) shares unless the remaining shares which
have become so purchasable are less than twenty-five (25)
shares. After the death of the optionee, an option may be
exercised as provided in Paragraph 15 hereof.
7.1.5 Non-tranferability of Option: No option shall be transferable
or assignable by an optionee, other than by will or the laws
of descent and distribution or pursuant to a qualified
domestic relations order and each option shall be exercisable,
during the optionee's lifetime, only by him/her or, during
periods of legal disability, by his/her legal representative.
No option shall be subject to execution, attachment, or
similar process.
7.1.6 Disqualifying Disposition: The option agreement evidencing any
Incentive Stock Options granted under this Plan shall provide
that if the optionee makes a disposition, within the meaning
of Section 424(C) of the Code and regulations promulgated
thereunder, of any share(s) of Common Stock issued to him/her
pursuant to exercise of the option within the two (2) year
period commencing on the day after the date of issuance of the
share(s) to him/her pursuant to the exercise of such option,
he/she shall, within ten (10) days after such disposition
date, notify the company of the sales price or other value
ascribed to or used to measure the disposition of the share(s)
thereof and immediately deliver to the Company any amount of
federal income tax withholding required by law.
7.1.7 Limitation on Grants to Certain Stockholders: An Incentive
Stock Option may be granted to a participant only if such
Participant, at the time the option is granted, does not own,
after application of the attribution rules of Code Section
424, stock possessing more than ten percent (10%) of the total
combined voting power of all classes of Common
<PAGE> 4
Stock of the company or of its parent or Subsidiary. The
preceding restriction shall not apply if at the time the
option is granted, the option price is at least one hundred
ten percent (110%) of the fair market value, ad defined in
Paragraph 7(A) above, of the common Stock subject to the
option and such option by its terms is not exercisable after
the expiration of five (5) years after the Date of Grant.
7.1.8 Consistency with Code: Notwithstanding any other provision in
this Plan to the contrary, the provisions of all agreements
granting incentive stock options pursuant to the Plan shall
not violate the requirements of the Code applicable to the
Incentive Stock Options authorized hereunder.
SECTION 8-ADJUSTMENTS:
8.1 The Committee, in its discretion, may make such adjustments in the
option price and the number of shares covered by outstanding options
that are required to prevent any dilution or enlargement of the rights
of the holders of such options that would otherwise result form any
reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, issuance of rights, or
any other change in the capital structure of the Company. The
Committee, in its discretion, may also make such adjustments in the
aggregate number of shares that may be the subject of options which are
appropriate to reflect any transaction or event described in the
preceding sentence.
SECTION 9-RESTRICTION OF ISSUING SHARES:
9.1 The exercise of each option shall be subject to the condition that if
at any time the company shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities, or
that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange
or under any state or federal law, or that the consent or approval of
any regulatory body is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase of shares
pursuant thereto, then in any such event, such exercise shall not be
effective unless such withholding, listing, registration,
qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
SECTION 10-USE OF PROCEEDS:
10.01 The proceeds received by the Company from the sale of Common Stock
pursuant to the exercise of options granted under the Plan shall be
added to the Company's general funds and used for general corporate
purposes.
SECTION 11-AMENDMENT, SUSPENSION, AND TERMINATION OF PLAN:
11.1 The Board may, at any time, suspend or terminate the Plan or may amend
it form time to time in such respects as the Board may deem advisable
in order that the options granted thereunder may conform to any changes
in the law or in any other respect that the Board may deem to be in the
best interests of the Company provided, however, that without approval
by the Stockholders of the Company voting the proper percentage of its
voting power, no such amendment shall make any change in the Plan for
which Stockholder approval is required of the Company in order to
comply with:
11.1.1 The Code or regulatory provisions dealing with Incentive Stock
Options;
11.1.2 Any rules listed companies promulgated by any national stock
exchange on which the Company's stock is traded; or
11.1.3 Any other applicable rule of law.
<PAGE> 5
11.2 Unless sooner terminated hereunder, the Plan shall terminate then (10)
years after the Effective Date. No option may be granted during any
suspension or after the termination of the Plan. Except as provided in
Paragraph 12, no amendment, suspension, or termination of the Plan
shall, without an optionee's consent, impair or negate any of the
rights or obligations under any option thertofore granted to such
optionee under the Plan.
SECTION 12-TAX WITHHOLDING:
12.1 The Committee may, in its sole discretion:
12.1.1 Require an optionee to remit to the Company a cash amount
sufficient to satisfy, in whole or in part, any federal,
state, or local withholding tax requirements prior to the
delivery of any certificate shares pursuant to the exercise of
an option hereunder; or
12.1.2 Satisfy such withholding requirements through another lawful
method.
SECTION 13-EFFECTIVE DATE OF PLAN:
13.1 This Plan shall become effective (the "Effective Date") upon adoption
by the Board, and in the case of Incentive Stock Options, subject to
approval within (12) months after such adoption by holders of a
majority of the shares of Common Stock present in person or by proxy
and entitles to vote at a duly held Stockholders meeting. Options,
including Incentive Stock Options, may be granted under the Plan prior
to the receipt of such approval.
SECTION 14-TERMINATION OF EMPLOYMENT:
14.1 In the event of the retirement, with the written consent of the
company, or other termination of the employment of an employee to whom
an option has been granted under the Plan other than:
14.1.1 A termination that is either (i) for cause or (ii) voluntary
on the part of the employee and without the written consent of
the Company; or,
14.1.2 A termination by reason of death.
14.2 The employee may, unless otherwise provided in his/her option
agreement, exercise his/her option at any time within three (3) months
after such retirement or other termination of employment (or within one
(1) year after termination of employment due to disability within the
meaning of Code Section 422(C)(6), or within such other time as the
Committee shall authorize, but in no event after five (5) years after
the date of granting thereof, or such lesser period as may be specified
in the stock option agreement), but only to the extent of the number of
shares of which his/her options were exercisable by him/her at the date
of the termination of his/her employment.
14.3 In the event of the termination of the employment of an employee to
whom an option has been granted under the Plan that is either for
cause, or voluntary on the part of the employee and without the written
consent of the company, any option held by him/her under the Plan, to
the extent not previously exercised, shall forthwith terminate on the
date of such termination of employment Options granted under the Plan
shall not be affected by any change of employment so long as the holder
continues to be an employee of the Company, a Subsidiary, or Parent.
The option agreement may contain such provisions as the Committee shall
approve with respect to the effect of approved leaves of absence.
Nothing in the Plan, or in any option granted pursuant to the Plan,
shall confer on any individual any right to continue in the employ of
the Company or any of its Subsidiaries or Parents, or interfere in any
way with the right of the company or any of its Subsidiaries or Parents
to terminate his employment at any time.
<PAGE> 6
SECTION 15-DEATH OF HOLDER OF OPTION:
15.1 In the event an employee to whom an option has been granted under the
Plan dies during or within three (3) months after the termination of
his/her employment by the Company or a subsidiary or Parent, such
option, unless it shall have been previously terminated pursuant to
the provision of the Plan, or unless otherwise provided in his/her
option agreement, may be exercised to the extent of the entire number
of shares covered by the option whether or not purchasable by the
employee at the date of his/her death, by the executor or
administrator of the optionee's estate or by the person(s) to whom
the optionee shall have transferred such option by will or by the
laws of descent and distribution, at any time within a period of one
(1) year after this death, but not after the exercise termination
date set forth in the relevant stock option agreement.
SECTION 16-LOANS TO ASSIST IN EXERCISE OF OPTIONS:
16.1 If approved by the Board, the Company or any Parent or Subsidiary may
lend money or guarantee loans by third parties to an individual to
finance the exercise of any option granted under the Plan to carry
Common Stock thereby acquired. No such loans to finance the exercise
of an Incentive Stock Option shall have an interest rate or other
terms that would cause any part of the principal amount to be
characterized as interest for purpose of the Code.
SECTION 17-RULE 16b-3 PLAN:
17.1 This Plan is intended and has been drafted to comply in all respects
with Rule 16b-3, as amended, under the Exchange Act. If any provision
of this Plan does not comply with Rule 16b-3, as amended, this Plan
shall be automatically amended to comply with Rule 16b-3, as amended.
SECTION 18-INDEMNIFICATION:
18.1 The members of the Committee shall be indemnified by the Corporation
against the reasonable expenses incurred in connection with the
defense of any action, suite or proceeding, or in connection with any
appeal thereof, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the
Plan or any Option, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by legal
counsel selected by the Corporation) or paid by them in satisfaction
of a judgement in any such action, suit or proceeding. A member of
the Committee shall not be entitle to indemnification with respect to
any matter or claim arising out of gross negligence or willful
misconduct by such member in the performance of his duties. As a
condition of any indemnification, a Committee member shall in writing
offer the Corporation the opportunity, at its expense, to handle and
defend any suit or claim against him/her.
<PAGE> 1
EXHIBIT 10.11
CASCO INTERNATIONAL
1998 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of the CASCO INTERNATIONAL, INC. 1998
Non-Employee Director Stock Option Plan (the "Plan") is to provide for the
receipt by Non-Employee Directors of the Company of stock options in order to
further align their interests with those of the shareholders by increasing their
proprietary interest in the Company.
2. Shares Subject to the Plan. Subject to the provisions of Section 10
of the Plan, 50,000 shares of common stock of the Company shall be reserved and
may be optioned under the Plan. The reserved shares may be authorized and
unissued shares or treasury shares of the Company or any combination of both as
determined by the Board of Directors (the "Board") of the Company. If an option
granted under the Plan ceases to be exercisable in whole or in part, the shares
representing such option shall be available under the Plan for the grant of
options in the future.
3. Administration of the Plan. The Plan shall be administered by the
Board. Subject to and not inconsistent with the provisions of the Plan, the
Board shall have complete authority in its discretion to interpret all
provisions of the Plan consistently with the law, to prescribe the form of the
instrument evidencing any option granted under the Plan, to adopt, amend, and
rescind general and special rules and regulations for the administration of the
Plan, and to make all other determinations necessary or advisable for
administration of the Plan.
4. Eligibility and Grant of Options Under the Plan. Options may be
granted at such times, in such amounts, and, to the extent not inconsistent with
the Plan, on such terms as the Board shall determine. However, options shall be
granted only to members of the Board who are not, at the time of such grant,
employees of the Company or any of its subsidiaries.
5. Terms and Conditions of Options Granted Under the Plan. Each option
granted under the Plan shall be evidenced by an agreement, in a form determined
by the Board, which agreement shall set forth, among other things, the number of
shares of the Company's common stock subject to the option and the price to be
paid upon exercise of the option. Such agreement shall be subject to such other
terms and conditions as the Board may deem appropriate. Provided, however, that
at least six months must elapse between the date of the grant of any option
pursuant to the Plan and the date of disposition of the shares of common stock
of the Company issued pursuant to the exercise of such options. The option price
per share shall be determined by the Board at the time an option is granted.
Each option shall provide that the purchase price of the shares for which an
option may be exercised shall be paid to the Company at the time of exercise by
any of the following methods or any combination thereof: (a) cash, (b) certified
or cashier's check payable to the order of the Company, (c) the delivery of
whole shares of Company common stock owned by the option holder, or (d) by
requesting that the Company withhold whole shares of common stock of the Company
issuable upon exercise of the option (for purposes of such a transaction, the
value of the shares of Company common stock shall be determined by the Board in
good faith).
6. Exercise. All or a portion of an exercisable option shall be deemed
exercised upon delivery to the Secretary of the Company at the Company's
principal office all of the following: (a) a written notice of exercise
specifying the number of shares to be purchased signed by the Non-Employee
Director or other person then entitled to exercise the option, (b) full payment
of the exercise price by any of the means set forth in Section 5 of the Plan,
(c) such representations and documents as the Board, in its sole discretion,
deems necessary or advisable to effect compliance with all applicable provisions
of the Securities Act of 1933, as amended, and any other federal or state
securities laws or regulations, (d) in the event that the option shall be
exercised pursuant to the last sentence of this Section 6 by any person or
persons other than the Non-Employee Director, appropriate proof of the right of
such person or persons to exercise the option, and (e) such representations and
documents as the Board, in its sole discretion, deems necessary or advisable.
Options granted under the Plan shall be exercisable only by the Non-Employee
Director during his or her lifetime or by his/her guardian, conservator or other
legal representative and shall
<PAGE> 2
not be transferable other than by will or the laws of descent and distribution
or pursuant to a valid qualified domestic relations order.
7. Issuance of Shares. No shares shall be issued and delivered upon
exercise of any option unless and until (a) in the opinion of the Company's
legal counsel, any applicable registration requirements of the Securities Act of
1933, any applicable listing requirement of any securities exchange on which the
common stock of the same class is then listed, and any other requirements of law
or any regulatory bodies having jurisdiction over such issuance and delivery,
shall have been fully complied with, (b) the lapse of such reasonable time
period following the exercise of the option as the Board may deem necessary for
administrative convenience, and (c) the receipt by the Company of full payments
for such shares.
8. Amendment of the Plan. The Plan may be terminated, suspended or
amended by the Board as it deems advisable. However, no amendment, termination
or suspension may revoke or alter in any manner adverse to the Non-Employee
Director any stock options then outstanding or due and owing to a director but
not yet granted, nor may the Plan be amended without shareholder approval where
the absence of such approval would cause the Plan to fail to comply with any
requirement of applicable law or regulation.
9. Term of Plan. The Plan shall expire when all options have been
granted hereunder and all shares subject to options issued under the Plan shall
have been issued.
10. Changes in Capitalization. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
spin-off, consolidation, rights offering, or any other change in the corporate
structure or shares of the Company, appropriate adjustments in the number and
kind of shares authorized by the Plan, in the manner and kind of shares covered
by, and in option price of outstanding stock options under this Plan shall be
made so as to preserve the value of such options.
11. Compliance with SEC Regulations. It is the Company's intent that
the Plan comply in all respect with Rule 16b-3 of the Securities Act of 1933, as
amended, and any regulations promulgated thereunder. If any provision of the
Plan is later found not to be in compliance with the Rule, the provision shall
be deemed null and void. All grants and exercises of stock options under the
Plan shall be exercised in accordance with the requirements of Section 16 of the
Act, as amended, and any regulations promulgated thereunder. To the extent that
any of the provisions contained herein do not conform with Rule 16b-3 of the Act
or any amendments thereof or any successor regulation, then the Board may make
such modifications as to conform the Plan any stock options granted thereunder
to the Rule's requirements.
12. Right to Service. No Non-Employee Director shall have any claim or
right to be granted a stock option under the Plan. Neither the Plan nor any
action pursuant thereto shall be construed as giving any Non-Employee Director a
right to be retained in the service of the Company. The adoption of this Plan
shall not affect any other compensation, retirement or other benefit program in
effect for the Company.
13. Effective Date. The Plan, which is subject to shareholder approval,
shall be effective <<EffectiveDate>> or such other date as shareholder approval
is obtained; however, options may be granted under the plan prior to shareholder
approval and the subsequent approval by the shareholders shall constitute a
ratification of such grants.
14. Validity. In the event that any provision of the Plan or any
related agreement is held to be invalid, void or unenforceable, the same shall
not affect, in any respect whatsoever, the validity of any other provision of
the Plan or any related agreement.
15. Inurement of Rights and Obligations. The rights and obligations
under the Plan and any related agreements shall inure to the benefit of, and
shall be binding upon the Company, its successors and assigns, and the
Non-Employee Directors and their beneficiaries.
16. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of the Plan.
<PAGE> 3
17. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the laws of the State of Delaware.
18. Arbitration. Any claim, dispute or other matter in question of any
kind relating to the Plan shall be settled by arbitration in accordance with the
Rules of the American Arbitration Association. Notice of demand for arbitration
shall be made in writing to the opposing party and to the American Arbitration
Association within a reasonable time after the claim, dispute or other matter in
question has arisen. In no event shall a demand for arbitration be made after
the date when the applicable statue of limitation would bar the institution of a
legal or equitable proceeding based on such claim, dispute, or other matter in
question. The decision of the arbitrators shall be final and may be enforced in
any court of competent jurisdiction.
Dated: <<TodaysDate>>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 132,593
<SECURITIES> 0
<RECEIVABLES> 1,971,551
<ALLOWANCES> 0
<INVENTORY> 5,489,028
<CURRENT-ASSETS> 8,813,122
<PP&E> 5,275,592
<DEPRECIATION> 1,844,571
<TOTAL-ASSETS> 15,413,307
<CURRENT-LIABILITIES> 4,034,290
<BONDS> 0
0
0
<COMMON> 17,832
<OTHER-SE> 5,718,879
<TOTAL-LIABILITY-AND-EQUITY> 15,413,307
<SALES> 13,075,763
<TOTAL-REVENUES> 13,075,763
<CGS> 7,352,719
<TOTAL-COSTS> 13,300,165
<OTHER-EXPENSES> 151,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238,309
<INCOME-PRETAX> (613,855)
<INCOME-TAX> 232,800
<INCOME-CONTINUING> (381,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 930,000
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<NET-INCOME> 548,945
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