<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 June 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 August 12, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
June 30, 1998 and December 31, 1997
Unaudited
<TABLE>
<CAPTION>
ASSETS 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 469,946 $ 73,516
Accounts receivable 2,150,698 5,043,423
Inventory 5,088,098 4,545,752
Prepaid expenses 1,170,276 973,329
------------ ------------
Total current assets 8,879,018 10,636,020
Buildings and equipment:
Buildings 2,601,041 3,194,058
Equipment 2,491,460 2,025,552
------------ ------------
5,092,501 5,219,610
Less accumulated depreciation (1,728,206) (1,664,540)
------------ ------------
3,364,295 3,555,070
Land 111,468 211,468
------------ ------------
Total property and equipment, net 3,475,763 3,766,538
Other assets:
Cost in excess of net assets acquired, net of accumulated
amortization of $284,690 and $267,608 respectively 1,081,777 1,098,859
Other 658,257 646,256
------------ ------------
1,740,034 1,745,115
============ ============
TOTAL ASSETS $ 14,094,815 $ 16,147,673
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
CASCO INTERNATIONAL, INC.
BALANCE SHEETS
June 30, 1998 and December 31, 1997
Unaudited
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
------------ ------------
<S> <C> <C>
Liabilities:
Accounts payable $ 438,078 $ 1,062,112
Short-term subordinated debenture -- 100,000
Accrued liabilities 167,010 320,157
Advanced deposits-current 1,951,471 1,951,471
------------ ------------
Total current liabilities 2,556,559 3,433,740
------------ ------------
Long-term debt 2,362,500 --
Advanced deposits-noncurrent 2,552,999 2,558,517
Subordinated debenture -- 4,900,000
Deferred tax liability 587,250 67,650
------------ ------------
Total Liabilities 8,059,308 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 (399,911) (1,247,652)
------------ ------------
Total stockholders' equity 6,035,507 5,187,766
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,094,815 $ 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 six months ended June 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
Three Months Six Months
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 4,666,217 $ 4,227,065 $ 9,530,711 $ 8,443,149
Operating costs and expenses:
Cost of goods sold 2,747,126 2,524,362 5,327,014 4,780,213
Selling, general and administrative 1,908,107 1,874,555 3,847,542 3,861,680
Depreciation and amortization 108,074 87,825 210,584 174,147
----------- ----------- ----------- -----------
Total operating costs and expenses 4,763,307 4,486,742 9,385,140 8,816,040
Operating income (loss) (97,090) (259,677) 145,571 (372,891)
Other income and (expenses)
Interest expense (74,751) (119,032) (127,086) (257,863)
Loss on sale of building -- -- (151,144) --
----------- ----------- ----------- -----------
Total other income and (expenses) (74,751) (119,032) (278,230) (257,863)
Income (loss) before income taxes and extraordinary item (171,841) (378,709) (132,659) (630,754)
Deferred (provision) benefit for income taxes 65,300 144,700 50,400 241,000
----------- ----------- ----------- -----------
Income (loss) before extraordinary gain on retirement of debt (106,541) (234,009) (82,259) (389,754)
----------- ----------- ----------- -----------
Extraordinary gain on retirement of debt (less applicable
income taxes of $570,000) -- -- 930,000 --
Net Income (Loss) $ (106,541) $ (234,009) 847,741 $ (389,754)
=========== =========== =========== ===========
EARNINGS PER SHARE BASIC AND DILUTIVE
Income (loss) before income taxes and extraordinary item $ (0.06) $ (0.23) $ (0.05) $ (0.39)
Extraordinary gain on retirement of debt $ -- $ -- $ 0.52 $ --
----------- ----------- ----------- -----------
Net Income (Loss) $ (0.06) $ (0.23) 0.47 $ (0.39)
=========== =========== =========== ===========
Weighted average common shares outstanding 1,783,200 1,003,431 1,783,200 1,003,431
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
CASCO INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1998 and 1997
Unaudited
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 847,741 $ (389,754)
Adjustments to reconcile net (loss) income to cash
provided by operating activities:
Depreciation and amortization 210,584 174,147
Loss of sale of building 151,144 --
Extraordinary gain on retirement of debt (930,000) --
Deferred provision (benefit) 519,600 (241,000)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 2,892,725 3,090,740
Inventory (542,346) 1,506,872
Prepaid expenses and other assets (209,967) (38,465)
Increase (decrease) in liabilities:
Accounts payable and accrued liabilities (777,181) (1,343,834)
Advance deposits (5,518) (441,190)
----------- ------------
Total adjustments 1,309,041 2,707,270
----------- ------------
Net cash provided by operating activities 2,156,782 2,317,516
----------- ------------
Cash flows from investing activities:
Sale of building 421,187 --
Payments for purchases of property and equipment (474,037) (37,770)
----------- ------------
Cash in investing activities (52,850) (37,770)
Cash flows from financing activities:
Proceeds from debt obligation 5,663,767 10,573,563
Principal payments on debt (7,371,269) (12,839,294)
----------- ------------
Cash used in financing activities (1,707,502) (2,265,731)
Increase (decrease) in cash 396,430 14,015
Cash, beginning of period 73,516 130,971
----------- ------------
Cash, end of period $ 469,946 $ 144,986
=========== ============
Other Cash Flow Information:
Cash payments during the year for:
Interest $ 74,751 $ 170,363
Income taxes, net of refunds -- --
Noncash 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 $ -- $ 870,025
stock from spin-off
</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.
Also 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.
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.
During the three months ended June 30, 1998, options were granted
under the Company's 1997 Incentive 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 June 30, 1998 was $2.4375 and $3.5464, respectively.
Date Shares
Granted or Reserved and Exercise
Issued Exercisable Price
------ ----------- -----
INCENTIVE STOCK OPTION PLAN
April 1, 1998 6,000 $3.50
<PAGE> 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Quarter and Six Months Ended June 30, 1998 Compared to Quarter and Six Months
Ended June 30, 1997:
Revenues for the three months ended June 30, 1998 approximated $4.67
million, compared to $4.23 million in revenues for the three months ended June
30, 1997, an increase of 10.4% or approximately $440,000. The increase is
attributable to strong retention of existing customers coupled with new
customers in the new markets with employed recognition consultants.
Revenues for the six months ended June 30, 1998 approximated $9.53
million, compared to $8.44 million in revenues for the six months ended June 30,
1997, an increase of 12.91% or approximately $1.09 million. The increase is
attributable to strong retention of existing customers coupled with new
customers in the new markets with employed recognition consultants.
Cost of goods sold for the three months ended June 30, 1998
approximated $2.7 million, compared to approximately $2.5 million of cost of
goods sold for the three months ended June 30, 1997, an increase of 8% or
approximately $200,000. 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 58.9% for the three months ended June 30, 1998, from 59.7% for the
three months ended June 30, 1997. The .8% 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.
Cost of goods sold for the six months ended June 30, 1998
approximated $5.33 million, compared to approximately $4.78 million of cost of
goods sold for the six months ended June 30, 1997, an increase of 11.5% or
approximately $550,000. 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 55.9% for the six months ended June 30, 1998, from 56.6% for the
six months ended June 30, 1997. The 0.7% 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 June 30, 1998 approximated $1.91 million, compared to $1.87 million for
the three months ended June 30, 1997, an increase of 2.1% or approximately
$40,000. The increase in selling, general, and administrative expense was
attributable to the increase in revenues. As a percentage of revenues, selling,
general and administrative decreased to 40.9% for the 3 months ended June 30,
1998, from 44.4% for the 3 months ended June 30, 1997. The 3.5% decrease as a
percentage of revenues were principally attributable to benefits obtained from
aggressive cost containment policies.
Selling, general and administrative expense for the six months ended
June 30, 1998 approximated $3.85 million, compared to $3.86 million for the six
months ended June 30, 1997, a decrease of 0.3% or approximately $10,000. As a
percentage of revenues, selling, general, and administrative expenses decreased
to 40.4% for the six months ended June 30, 1998, from 45.7% for the six months
ended June 30, 1997. The 5.4% decrease as a percentage of revenues was
principally attributable to benefits obtained from aggressive cost containment
policies.
Interest expense was approximately $75,000 for the three months ended
June 30, 1998, compared to $119,000 for the three months ended June 30, 1997, a
decrease of approximately $44,000. For the six months ended June 30, 1998
interest expense was approximately $127,000 compared to approximately $258,000
for the six months ended June 30, 1997, a decrease of approximately $131,000.
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 second quarter in 1998 approximated $2.38
million compared to $1.34 million for the second quarter in 1997. Additionally,
the average interest rate for the second quarter in 1998 approximated 9.0%
compared to approximately 9.5% for the same period in 1997.
<PAGE> 8
Depreciation and amortization expense was approximately $108,000 for
the three months ended June 30, 1998, compared to $88,000 for the three months
ended June 30, 1997, an increase of 22.7% or approximately $20,000. Depreciation
and amortization expense was approximately $210,600 and $174,000 for the six
months ended June 30, 1998 and 1997 respectively, and increase of 21% or
approximately $36,600. 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 $50,400 for the three months ended June 30,
1998, compared to an income tax benefit of $241,000 for the six months ended
June 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.
Net working capital increased to $6,322,459 as of June 30, 1998 from
net working capital of $3,706,984 as of June 30, 1997. The increase was
primarily attributed to reduced borrowings and the proceeds from the public
offering, as well as a reduction in inventory carrying levels.
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.
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
<PAGE> 9
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 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.
<PAGE> 10
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
The Company's annual meeting of stockholders was held on May 20,
1998. The matters voted upon were the election of five directors, the approval
of the Company's 1997 Employee Stock Option Plan. The votes cast at the meeting
numbered as follows:
Votes Cast
Nominees For Against Withheld
-------- --- ------- --------
S. Robert Davis 1,670,657 0 1,416
Charles R. Davis 1,671,009 0 1,064
Robert V. Boylan 1,671,285 0 788
Michael P. Beauchamp 1,671,285 0 788
David J. Richards 1,671,285 0 788
1997 Employee Stock Option Plan
Votes Cast
For Against Withheld
--- ------- --------
666,104 13,826 2,859
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
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
4.2 Warrant Agreement 1
4.3 Form of Warrant Certificate 1
4.4 Form of Warrant-R.L. Renck & Company 1
<PAGE> 11
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 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.
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: August 13, 1998 By: /s/ Jeffrey A. Ross
-------------------------------
Jeffrey A. Ross
Principal Financial and
Accounting Officer
<PAGE> 1
EXHIBIT 10.9
REVOLVING CREDIT PROMISSORY NOTE
$5,000,000.00 July 30, 1998
FOR VALUE RECEIVED, the undersigned, CASCO International, Inc.
("Borrower"), hereby promises to pay to the order of BRANCH BANKING AND TRUST
COMPANY ("Bank"), at its branch office in Shelby, North Carolina, in lawful
money of the United States and in immediately available funds, the principal
amount of FIVE MILLION DOLLARS ($5,000,000.00) or, if less, the aggregate unpaid
principal balance outstanding upon the termination of the Loan Agreement, as
defined herein below, and to pay interest (computed on the basis of a year
consisting of 360 days for the actual number of days for which a principal
balance is outstanding hereunder) from the date hereof on the unpaid principal
balance from time to time outstanding at a rate per annum equal to the Prime
Rate, as hereinafter defined, plus one half (1/2%) per annum, payable on the
first day of each month commencing September 1, 1996, through maturity.
Any principal amount which is not paid when due, whether at maturity,
by acceleration or otherwise, shall bear interest from the date when due until
such principal amount is paid in full at a rate per annum equal to the Default
Rate, as defined below. If any payment is to be made on a day other than a day
on which Bank is open for business ("Business Day"), the maturity shall be
extended to the next succeeding Business Day, and interest shall be payable at
the rate in effect during such extension.
The term "Prime Rate" used in this Note means the prime rate of
interest of Bank as established and adjusted by Bank from time to time and is
only one of several interest rate bases used by Bank, and it is understood that
Bank lends at rates above, at and below its announced prime rate. The term
"Default Rate" as used in this Note means the fluctuating rate of interest per
annum equal to the Prime Rate plus 3.50%.
This Note evidences the indebtedness and obligations of Borrower
under that certain Loan and Security Agreement between the Borrower and Bank
dated as of July 30, 1998 ("Loan Agreement"), and is secured by certain
collateral described therein, including without limitation, all of Borrower's
now owned and hereafter acquired accounts, contract rights, inventory,
documents, instruments, chattel paper and general intangibles. Reference is made
to the Loan Agreement for a complete description of the collateral and the
rights of the parties therein. The Loan Agreement has an initial term of one
year from the date hereof and shall be automatically renewed from successive
periods of one year unless Borrower has committed an Event of Default or the
Loan Agreement is otherwise terminated in accordance with its terms.
If there is a default in the payment of any sum due under this Note
as it becomes due or if there is a default in the performance of any covenant,
agreement or condition contained in the Loan Agreement or any other document or
agreement, then, in such event, Bank shall have the option of declaring the
entire outstanding principal balance of this Note and all accrued interest
immediately due and payable. If, after default or maturity, this Note is
referred to an attorney for
-1-
<PAGE> 2
collection or enforcement, Borrower shall pay all costs and expenses of
collection or enforcement including, without limitation, reasonable attorneys'
fees.
No delay or omission on the part of the holder of this Note in
exercising any right hereunder shall operate as a waiver of such right or of any
other right of such holder, nor any delay, omission, or waiver on any one
occasion be deemed a bar to or a waiver of the same or of any other right on
any future occasion. Borrower and each endorser of this Note, regardless of the
time, order or place of signing, waives presentment, demand, protest and notices
of every kind, and consents to any one or more extensions or postpones of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral if at any time there shall be available to the holder
collateral for this Note, and to the additions or releases of any other parties
or person primarily or secondarily liable herefor.
From time to time the maturity date of this Note may be extended. or
this Note may be renewed in whole or in part, or a new note of different form
may be substituted for this Note, or the rate of interest may be modified, or
changes may be made in consideration of loan extensions, and the holder hereof
from time to time may waive or surrender, either in whole or in part any rights,
guaranties, secured interest, or liens, given for the benefit of the holder in
connection with the payment and the securing the payment of this Note; but no
such occurrence shall in any manner affect, limit, modify, or otherwise impair
any rights or security of the holder not specifically waived, released, or
surrendered in writing, nor shall the Borrower, any endorser, or any person who
is or might be liable hereon, either primarily or contingently, be released from
such liability by reason of the occurrence of any such event.
This Note is made in and shall be governed by the laws of North
Carolina, and shall be binding on the successors and assigns of the Borrower.
IN WITNESS WHEREOF, the Borrower's duly authorized officer has
executed this Note on behalf of the Borrower and its Secretary has attested his
signature and affixed the corporate seal on the date first shown above.
CASCO International, Inc.
ATTEST:
By: /s/ Jeffrey A. Ross By: /s/ Charles R. Davis
-------------------------- --------------------------
Secretary President
[CORPORATE SEAL]
-2-
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