UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
Commission file number 0-4479
THE OHIO ART COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-4319140
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 111, Bryan, Ohio 43506
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (419) 636-3141
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 _____
At May 31, 1998 there were 891,784 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 21
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<TABLE>
FORM 10-Q
PART I - FINANCIAL INFORMATION
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
--------------------
April 30 March 31
1998 1997
------- -------
(In thousands, except
per share data)
<S> <C> <C>
Net Sales $ 6,286 $ 6,111
Other Income 279 177
------- -------
6,565 6,288
Costs and Expenses:
Cost of products sold 4,690 5,380
Selling, administrative and general 2,462 2,631
Interest 321 158
------- -------
7,473 8,169
------- -------
LOSS BEFORE INCOME TAXES (908) (1,881)
Income Tax Credit - (658)
------- -------
NET LOSS $ (908) $(1,223)
======= =======
Net Loss Per Share (Note 3) $ (1.04) $ (1.34)
Dividends Per Share (Note 3) $ .04 $ .08
Average Shares Outstanding (Note 3) 870 914
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 2 of 21
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30 December 31
1998 1997
-------- --------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current Assets
Cash (Overdraft) $ (146) $ 1,846
Accounts receivable less allowance
(1998 - $489; 1997 - $415) 5,056 8,295
Inventories - Note 2
On first-in, first-out cost method:
Finished products 4,632 3,582
Products in process 99 312
Raw materials 3,582 2,357
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,465) (2,447)
------- -------
5,848 3,804
Recoverable income taxes 1,071 1,066
Prepaid expenses 1,146 1,524
Deferred federal income taxes 1,470 533
------- -------
Total Current Assets 14,445 17,068
Property, Plant and Equipment
Cost 36,510 35,978
Less allowances for depreciation (24,393) (23,737)
------- -------
12,117 12,241
Other Assets 2,531 2,422
------- -------
$29,093 $31,731
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
NOTE: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
</FN>
</TABLE>
Page 3 of 21
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30 December 31
1998 1997
-------- --------
(Unaudited) (Note)
(Thousands of dollars)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,514 $ 3,437
Other current liabilities 2,300 2,460
------- -------
Total Current Liabilities 3,814 5,897
Deferred Federal Income Taxes 1,470 533
Long-Term Obligations 17,079 16,633
Stockholders' Equity (Note 3)
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1998 - 891,784; 1997 - 892,271
shares (excluding treasury shares of
67,976 and 67,489 respectively) 892 892
Additional paid-in capital 204 205
Retained earnings 5,634 7,571
------- -------
6,730 8,668
------- -------
$29,093 $31,731
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements
NOTE: The balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
</FN>
</TABLE>
Page 4 of 21
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FORM 10-Q
<TABLE>
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<CAPTION>
Three Months Ended
--------------------
April 30 March 31
1998 1997
-------- --------
(Thousands of dollars)
<S> <C> <C>
Operating Activities
Net loss $ (908) $(1,223)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 499 434
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (3,329) (1,120)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (3,738) (1,909)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (391) (852)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (391) (852)
Financing Activities
Borrowings 1,375 2,400
Payments of debt (169) (600)
Purchase of common stock for treasury (1) (187)
Cash dividends 0 (36)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 1,205 1,577
-------- --------
Cash
Decrease during period (2,924) (1,184)
At beginning of period 2,778 1,078
-------- --------
(OVERDRAFT) AT END OF PERIOD $ (146) $ (106)
======== ========
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
</TABLE>
Page 5 of 21
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FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
April 30, 1998
Note 1 - Basis of Presentation
The accompanying condensed consolidated unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 1997.
All adjustments necessary (consisting of normal adjustments), in the
opinion of management, for a fair statement of results for the periods
indicated have been made.
Due to the seasonal nature of the toy business in which the Company is
engaged and the factors set forth in Management's Discussion and
Analysis, the results of interim periods are not necessarily indicative
of a full calendar year.
Note 2 - Inventories
The Company takes a physical inventory annually at each location. The
amounts shown in the quarterly financial statements have been determined
using the Company's standard cost accounting system. An estimate, based
on past experience, of the adjustment which may result from the next
physical inventory has been included in the financial statements.
Inventories are priced at the lower of cost or market under the last-in,
first-out (LIFO) cost method. Since inventories under the LIFO method
can only be determined at the end of each fiscal year based on
quantities and costs at that time, interim inventory valuation must be
based on estimates of quantities and costs at year-end.
Note 3 - Average Shares Outstanding
Unallocated ESOP shares are deducted from outstanding shares of Common
Stock to arrive at average shares outstanding.
Page 6 of 21
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FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
April 30, 1998
Note 4 - Change in Fiscal Year
The Board of Directors approved a fiscal year-end change from December
31st to January 31st beginning February 1, 1998 through January 31,
1999. The following is condensed information regarding the consolidated
results of operations for the transition period of January 1, 1998 to
January 31, 1998 (in thousands, except per share data):
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS:
Net sales and other income $ 1,442
Costs and expenses:
Cost of products sold 1,590
Selling, administrative and general 825
Interest 111
--------
2,526
--------
Net loss $(1,084)
========
Net loss per share $ (1.25)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW:
Net cash provided from operating activities $ 1,843
Net cash used in investing activities (141)
Net cash used in financing activities (770)
--------
Net increase in cash 932
Cash at beginning of period 1,846
--------
Cash at end of period $ 2,778
========
Page 7 of 21
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FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- ----------
Net sales for the three months ended April 30, 1998 increased slightly
to $6,286,000 from $6,111,000 for the three months ended March 31, 1997.
Toy segment sales decreased approximately $800,000 while the diversified
products segment increased approximately $1,000,000. The decrease in
toy segment sales was primarily in our Making Creativity Funr catagory
which includes our Etch A Sketchr line of products, classic, travel,
pocket, and hot pocket. The increase in the diversified products
segment was primarily in our metal lithography area. The Company had
expanded its lithography capacity by installing a new lithography line
in 1996, but experienced start-up production problems in the first
quarter of 1997.
The Company's business is seasonal, with approximately 60-70% of its
sales being made in the last six months of the calendar year in recent
years. Because of the seasonality of the Company's business, the dollar
order backlog at the end of May is not necessarily indicative of
expectations of sales for the full year. Subject to industry practice
and comments as detailed in the Registrant's annual Form 10-K for the
year ended December 31, 1997, order backlog as of May 31st is
approximately $26,200,000 versus $12,100,000 at the same date in 1997,
or approximately 117% ahead of the prior year.
Gross profit margin (percentage) for the three months ended April 30,
1998 (25.4%) increased from the three months ended March 31, 1997
(12.0%) and was primarily due to higher lithography production and toy
production at the Bryan, Ohio facility which resulted in a decrease in
manufacturing overhead variances.
Selling, administrative, and general expenses for the three months ended
April 30, 1998 decreased to $2,462,000 from $2,631,000 for the three
months ended March 31, 1997. The primary reason is a decrease in
advertising expense. Advertising expense is budgeted based on the level
of toy sales, which have decreased for the three months ended April 30,
1998 compared to the three months ended March 31, 1997.
Interest expense increased to $321,000 for the three month period ending
April 30, 1998 from $158,000 for the three month period ending March 31,
1997 because of the higher level of debt carried over from the end of
1997.
No benefit was recorded for income taxes for the three month period
ended April 30, 1998 because of the inability to carryback any loss
generated for 1998. Income taxes are recorded based upon estimates of
the full fiscal year effective tax rate.
Page 8 of 21
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FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
- -------------------
The Company's current ratio increased from 2.9 to 1 at December 31, 1997
to 3.8 to 1 at April 30, 1998. This change was the result of using cash
on hand, cash from the collection of accounts receivable, and the non-
current line of credit to finance the buildup of inventories and to
finance the loss for the four months of calendar year 1998, and a
reduction of accounts payable, which was primarily the payment of
advertising which had been accrued at December 31, 1997.
On May 20, 1998, the Company renewed and increased its three-year
$13,000,000 Revolving Credit Agreement to $18,000,000 and extended the
maturity date until May 30, 2001.
Certain of the matters discussed in Management's Discussion and Analysis
contain certain forward-looking statements concerning the Company's
operations, economic performance, and financial condition. These
statements are based on the Company's expectations and are subject to
various risks and uncertainties. Actual results could differ materially
from those anticipated.
PART II - OTHER INFORMATION
Item 4. (a) The annual meeting of stockholders of The Ohio Art
Company was held on May 5, 1998.
(c) Set forth below is the tabulation of the votes on each
nominee for election as a director:
WITHHOLD
FOR AUTHORITY
--------- ---------
Neil H. Borden, Jr. 862,979 866
William C. Killgallon 862,979 866
Wayne E. Shaffer 862,459 1,386
Item 5. The following exhibits are filed as part of this Form 10-Q
quarterly report:
(1) Second Amendment to Credit Agreement dated May 20, 1998
(2) Revolving Note dated May 20, 1998
Item 6. Exhibits and reports on Form 8-K - The Company did not
file any reports on Form 8-K during the four months ended
April 30, 1998.
The information called for in Items 1, 2, and 3 are not applicable.
Page 9 of 21
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FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE OHIO ART COMPANY
--------------------
(Registrant)
Date: June 10, 1998 /s/ William C. Killgallon
-------------------------
William C. Killgallon
Chairman of the Board
Date: June 10, 1998 /s/ M. L. Killgallon II
-----------------------
M. L. Killgallon II
President
Date: June 10, 1998 /s/ Paul R. McCusty
-------------------
Paul R. McCusty
Vice President Finance
Page 10 of 21
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FORM 10-Q
EXHIBITS
ITEM 5 - EXHIBIT 1
SECOND AMENDMENT TO
CREDIT AGREEMENT
This Second Amendment to the Credit Agreement (the "Amendment") is
entered as of this 20th day of May 1998, by and between THE FIFTH THIRD
BANK OF NORTHWESTERN OHIO, N.A., a national banking association (the
"Bank") and THE OHIO ART COMPANY, an Ohio corporation (the "Borrower").
WHEREAS, The Fifth Third Bank and Borrower entered into that
certain Credit Agreement, dated as of January 24, 1994 (the
"Agreement"); and
WHEREAS, all of The Fifth Third Bank's interest in the Agreement
was assigned by The Fifth Third Bank to Bank pursuant to two Agreements,
both dated effective as of January 1, 1995; and
WHEREAS, Bank and Borrower desire to amend the Agreement, subject
to the terms and conditions set forth herein;
NOW THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
1. Amendments.
(a) Section 2, Subsection 2.1 is hereby amended and
restated in its entirety as follows:
2.1 $18,000,000 Revolving Credit Loans. (a) Subject
to the terms and conditions hereof, Bank hereby extends
to Borrower a line of credit facility under which Bank
may make loans (the "Revolving Loans") to Borrower at
Borrower's request from time to time during the term of
this Agreement in the amount of up to $18,000,000 (the
$18,000,000 Facility). Borrower may borrow, prepay
(without penalty or charge), and reborrow under the
$18,000,000 Facility, provided that the principal amount
of all Revolving Loans outstanding at any one time under
the $18,000,000 Facility will not exceed $18,000,000. If
the amount of Revolving Loans outstanding at any time
under the $18,000,000 Facility exceeds the limit set
forth above, borrower will immediately pay the amount of
such excess to bank in cash.
(b) Borrower may request a Revolving Loan by telephone
notice to Bank. Bank will make Revolving Loans by
crediting the amount thereof to Borrower's account at
Bank. Loan proceeds will be used for general working
capital purposes.
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FORM 10-Q
EXHIBITS
(c) On the date hereof, Borrower will duly issue and
deliver to Bank a Revolving Note in the form of Exhibit
2.1, in the principal amount of $18,000,000 bearing
interest as specified in the Revolving Note (the
$18,000,000 Revolving Note).
(d) The term of the $18,000,000 Facility will expire
on May 30, 2001 and will become payable in full on that
date. However, in Bank's sole discretion and so long as
no Event of Default exists, on the date which is one (1)
year from the Closing Date of this Agreement and on each
one (1) year anniversary date thereafter, Bank will renew
the $18,000,000 Facility for an additional one (1) year
term from the then existing maturity date. Borrower may
prepay the principal balance of the $18,000,000 Revolving
Note in whole or part at any time.
(b) Section 7, Subsection 7.1 (a) is hereby amended and
restated in its entirety as follows:
Executed version of the $18,000,000 Revolving Note in
the form of Exhibit 2.1 attached hereto.
(c) Section 7, Subsection 7.1 (f) is hereby added to state:
An open-end mortgate in a form acceptable to Bank on
real estate located at One Toy Street, Bryan, Ohio.
(d) Section 7, Subsection 7.2 (c) is hereby amended and
restated in its entirety as follows:
The aggregate unpaid principal amount of the Revolving
Loan after giving effect to such Revolving Loan will not
violate the lending limits set forth in Section 2.1 of
this Agreement.
(e) The following Definitions set forth in Exhibit 1 to the
Agreement are amended and restated in their entirety as
follows:
13. "Loans" means the Revolving Loans and Term Loan as
set forth in Section 2.1 and Section 2.2 of this
Agreement.
14. "Notes" means the $18,000,000 Revolving Note and the
$6,000,000 Term Note.
17. "Revolving Loan" has the meaning assigned to that
term in Section 2.1 of this Agreement.
Page 12 of 21
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FORM 10-Q
EXHIBITS
18. "$18,000,000 Revolving Loan" has the meaning
assigned to that term in Section 2.1 of this
Agreement.
2. Representations, Warranties and Covenants of Borrower. To
induce Bank to enter into this Amendment, Borrower represents
and warrants as follows:
(a) The representations, warranties and covenants of Borrower
contained in Sections 3 and 4 of the Agreement are
deemed to have been made again on and as of the date of
execution of this Amendment and are true and correct as
of the date of execution hereof.
(b) Section 5, Subsection 5.3 is hereby amended and restated
in its entirety as follows:
5.3 Indebtedness to Tangible Net Worth. Borrower will
not permit its ratio of outstanding Indebtedness to
Tangible Net Worth, on a consolidated basis, to exceed
3.00:1.00 as of January 31, 1999, 2.80:1.00 as of January
31, 2000 and 2.60:1.00 as of January 31, 2001.
(c) Section 5, Subsection 5.4 is hereby amended and restated
in its entirety as follows:
5.4 Minimum Tangible Net Worth. Borrower will not
permit its Tangible Net Worth, on a consolidated basis, to
be less than $6,500,000.00 as of April 30, 1998,
$6,000,000.00 as of July 31, 1998, $7,500,000.00 as of
October 31, 1998 and $9,000,000.00 as of January 31, 1999.
(d) Section 5, Subsection 5.6 is hereby amended and restated
in its entirety as follows:
5.6 Current Ratio. Borrower will not permit its
Current Ratio, on a consolidated basis, to be less than
1.75:1.00 at the end of each fiscal year of Borrower
during the term of this Agreement.
(e) Section 5, Subsection 5.7 is hereby added as follows:
5.7 Negative Pledge on Real Estate. Borrower may not
and will not, pledge, hypothecate, lien or mortgage, the
real estate owned by it at One Toy Street, Bryan, Ohio to
any other creditor, or mortgagor without the prior written
consent of Bank. Should a lien or any restriction of
Page 13 of 21
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FORM 10-Q
EXHIBITS
record be filed against the real estate involuntarily,
Borrower will take all necessary steps to have such lien
or restriction removed from the property with 30 days of
its notice of same. Upon knowledge of any involuntary
lien being placed against the property, Borrower agrees
that it will immediately notify Bank and a hold will be
placed upon the Line of Credit in the amount of the lien
or restriction of record. Should the lien or restriction
of record be unremoved, or suitable steps not taken to
facilitate such removal, Bank, at its sole discretion,
will terminate the Line of Credit for breach of this
condition.
(f) No Event of Default (as such term is defined in Section 6
of the Agreement) or event or condition which, with the
lapse of time or giving of notice or both, would
constitute an Event of Default exists on the date hereof.
(g) The person executing this Amendment and the Note, is a
duly elected and acting officer of Borrower and is duly
authorized by the Board of Directors of Borrower to
execute and deliver this Amendment and such Note on
behalf of Borrower.
3. Conditions. Bank's obligations under this Amendment are
subject to the following conditions:
(a) Borrower shall have executed and delivered to Bank the
$18,000,000 Revolving Note.
(b) The Bank shall have been furnished copies, certified by
the Secretary or assistant Secretary of Borrower, of
resolutions of the Board of Directors of Borrower
authorizing the execution of this Amendment, the Exhibits
hereto and all other documents executed in connection
herewith.
(c) The representations and warranties of Borrower in Section
2 hereof shall be true and correct on the date of
execution of this Amendment.
(d) First National Bank of Northwest Ohio accepts from Bank
a participation of $3,000,000.00 in the Revolving Note.
(e) Borrower shall pay all expenses and attorneys' fees
incurred by Bank in connection with the preparation,
execution and delivery of this Amendment and related
documents.
Page 14 of 21
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FORM 10-Q
EXHIBITS
4. General.
(a) Except as expressly modified hereby, the Agreement remains
unaltered and in full force and effect. Borrower
acknowledges that Bank has made no oral representations
to Borrower with respect to the Agreement and this
Amendment thereto and that all prior understandings
between the parties are merged into the Agreement as
amended by this writing. All Loans outstanding on the
dated of execution of this Amendment shall be considered
for all purposes to be Loans outstanding under the
Agreement as amended by this Amendment.
(b) Capitalized terms used and not otherwise defined herein
will have the meanings set forth in the Agreement.
(c) Nothing contained herein will be construed as waiving any
default or Event of Default under the Agreement or will
affect or impair any right, power or remedy of the Bank
under or with respect to the Loans, the Agreement, as
amended, the Note, or any agreement or instrument
guaranteeing, securing or otherwise relating to the
Loans.
(d) This Amendment shall be considered an integral part of the
Agreement, and all references to the Agreement in the
Agreement itself or any document referring thereto shall,
on and after the date of execution of this Amendment, be
deemed to be references to the Agreement as amended by
this Amendment.
(e) This Amendment will be binding upon and inure to the
benefit of Borrower and Bank and their respective
successors and assigns.
(f) All representations, warranties and covenants made by
Borrower herein will survive the execution and delivery
of this Amendment.
(g) This Amendment will, in all respects, be governed and
construed in accordance with the laws of the State of
Ohio.
(h) This Amendment may be executed in one or more
counterparts, each of which will be deemed an original
and all of which together will constitute one and the
same instrument.
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FORM 10-Q
EXHIBITS
(i) Borrower authorizes any attorney of record to appear for
it in any court of record in the State of Ohio, after an
Obligation becomes due and payable whether by its terms
or upon default, waives the issuance and service of
process, releases all errors and rights of appeal, and
confesses a judgment against it in favor of the holder of
such Obligation, for the principal amount of such
Obligation plus interest thereon, together with court
costs and attorneys' fees. Stay of Execution and all
exemptions are hereby waived. If an Obligation is
referred to an attorney for collection, and the payment
is obtained without the entry of a judgment, the obligors
will pay to the holder of such Obligation its attorneys'
fees.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement
as of the date first above written.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
By: Paul R. McCusty
Its: Vice President Finance/Treasurer
THE FIFTH THIRD BANK OF
NORTHWESTERN OHIO, N.A.
By: William J. Behe
Its: Senior Vice President
Page 16 of 21
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FORM 10-Q
EXHIBITS
ITEM 5 - EXHIBIT 2
OHIO AFFILIATES A FIFTH THIRD BANCORP BANK 2
REVOLVING
NOTE
OFFICER No ____ NOTE NO. _____________
$18,000,000 May 20, 1998
Toledo, Ohio (Effective Date)
On or before the Due Date below, the undersigned, a corporation, for
value received, and if more than one, jointly and severally, promise to
pay to the order of The Fifth Third Bank of Northwestern Ohio, N.A., 606
Madison Avenue, Toledo, Ohio 43604 (hereinafter referred to as "Bank")
the sum of Eighteen Million and 00/100 Dollars ($18,000,000.00)
(hereinafter referred to as the Borrowing) plus interest as provided
herein, less such amounts as shall have been repaid in accordance with
this note. The outstanding balance of this note will appear on a
supplemental bank record and is not necessarily the face amount of this
note. Such record shall be conclusive as to the balance due of this
note at any time.
The principal sum outstanding shall bear interest per annum at the
"Prime Rate" (the rate announced by the Bank from time to time) on the
above Effective Date. In the event of a change in said Prime Rate, the
rate of this note shall be changed immediately to that rate which shall
be greater than the new Prime Rate by the amount stated in this clause.
Interest shall be computed based on a year of 360 days and charged for
the actual number of days elapsed.
Prior to the Due Date, Bank may (but is not obligated to) lend to the
undersigned such amounts as may from time to time be requested by the
undersigned provided that the principal amount borrowed shall not at
any time exceed the Borrowing and further provided that no Event of
Default as defined herein shall exist.
Principal shall be due and payable at Maturity.
Interest shall be due and payable on the 25th day of each Month
beginning May 25, 1998.
To secure repayment of this note and all modifications, extensions and
renewals thereof, and all other Obligations (as herein defined) of the
undersigned to Bank, the undersigned grants Bank a security interest in
all of the undersigned's, now owned or hereafter acquired interests in
all property in which Bank is at any time, granted a lien for any
Obligation, and all property in possession of Bank including, without
limitation, money, securities, instruments, documents, letters of
credit, chattel paper, or other property delivered to Bank in transit,
Page 17 of 21
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FORM 10-Q
EXHIBITS
for safekeeping, or for collection or exchange for other property, all
distributions, dividends, warrants, securities and other rights in
addition to such property, all rights to payment from and claims against
Bank and all proceeds thereof, and all real and personal property
described below ("Collateral"). The undersigned agrees to immediately
deliver such additional dividends, warrants, securities or other
property or rights thereto to Bank immediately upon receipt as
additional Collateral and until delivery to hold same in trust for Bank.
The undersigned agrees that the Bank may, at any time, call for
additional Collateral satisfactory to it. All documents executed in
connection with this note and all collateral, including without
limitation the following, further secure the Obligations:
All business assets and negative pledge and open-end mortgage on real
estate located at One Toy Street, Bryan, Ohio.
The Obligations secured by the Collateral (herein, the "Obligations")
shall include this note and each and every liability of the undersigned
jointly or severally to Bank and all affiliates of Fifth Third Bancorp
however created, direct or contingent, due or to become due, whether now
existing or hereafter arising, participated in whole or in part, created
by trust agreement, lease, overdraft, agreement, or otherwise, in any
manner by the undersigned. The undersigned also grants Bank a security
interest in all of the Collateral as agent for all affiliates of Fifth
Third Bancorp for all Obligations of the undersigned to such affiliates.
Said security interest shall not be enforced to the extent prohibited by
the Truth in Lending Act as implemented by Federal Reserve Regulation Z.
The undersigned certifies that the proceeds of this loan are to be used
for business purposes. If this note is a renewal, in whole or in part,
of a previous Obligation, the acceptance by Bank of this note shall not
effectuate a payment but rather a continuation of the previous
Obligation.
Events of Default:
This note, and all other Obligations of the undersigned to Bank, shall
be and become immediately due and payable at the option of the Bank,
without any demand or notice whatsoever, upon the occurrence of any of
the following described events, each of which shall constitute an Event
of Default:
1) Any failure to make any payment when due of the principal or interest
on this note, the occurrence of any event of default as therein
defined on any other Obligations of the undersigned, or a default in
the obligations under any security documents.
2) The death or dissolution of the undersigned of any endorser or
guarantor, or if the undersigned is a partnership, the death or
dissolution of a general partner.
Page 18 of 21
<PAGE>
FORM 10-Q
EXHIBITS
3) Any failure to submit to Bank current financial information upon
request.
4) The creation of any lien (except a lien to Bank) or the issuance of
an attachment against or seizure of any of the property of, or the
entry of a judgment against, the undersigned.
5) In the judgment of Bank, any adverse change occurs in the ability of
the undersigned to repay the Obligations, or the Bank deems itself
insecure.
6) An assignment for the benefit of the creditors of, or the
commencement of any bankruptcy, receivership, insolvency,
reorganization, or liquidation proceedings by or against the
undersigned or any endorser or guarantor hereof.
7) The institution of any garnishment proceedings by attachment, levy
or otherwise, against any Collateral, deposit balance maintained or
any property deposited with the Bank by the undersigned or any
endorser or guarantor hereof.
8) Bank has called for additional security and the undersigned has not
furnished satisfactory additional security on demand.
Upon the occurrence of an Event of Default herein described Bank may, at
its option cease making advances hereunder, declare this note and all
other Obligations of the undersigned to be fully due and payable in
their aggregate amount together with accrued interest plus any
applicable prepayment premiums, fees, and charges.
In addition to any other remedy permitted by law, the Bank may at any
time, without notice, apply the Collateral to this note or such other
Obligations, whether due or not, and Bank may, at its option, proceed to
enforce and protect its rights by an action at law or in equity or by
any other appropriate proceedings. Notwithstanding any other legal or
equitable rights of Bank, Bank, in the Event of Default, is (a) hereby
irrevocably appointed and constituted attorney in fact, with full power
of substitution, to exercise all rights of ownership with respect to
Collateral including, but not limited to, the right to collect all
income or other distributions arising therefrom and to exercise all
voting rights connected with the Collateral; and (b) is hereby given
full power to collect, sell, assign, transfer and deliver all of said
Collateral or any part thereof, or any substitutes therefor, or any
additions thereto, through any private or public sale without either
demand or notice to the undersigned, or any advertisement, the same
being hereby expressly waived, at which sale Bank is authorized to
purchase said property or any part thereof, free from any right of
redemption on the part of the undersigned, which is hereby expressly
waived and released. In case of sale for any cause, after deducting all
costs and expenses of every kind, Bank may apply, as it shall deem
proper, the residue of the proceeds of such sale toward the payment of
any one or more or all of the Obligations of the undersigned, whether
due or not due, to Bank; after such application and the return of any
Page 19 of 21
<PAGE>
FORM 10-Q
EXHIBITS
surplus, the undersigned agrees to be and remains liable to Bank for any
and every deficiency after application as aforesaid upon this and any
other Obligation. The undersigned shall pay all costs of collection
incurred by Bank, including its attorney's fees, if this note is
referred to an attorney for collection, whether or not payment is
obtained before entry of judgment, which costs and fees are Obligations
secured by the Collateral.
If any payment is not paid when due (whether by acceleration or
otherwise) or within 10 days thereafter, undersigned agrees to pay to
Bank a late payment fee as provided for in any loan agreement or 5% of
the payment amount, whichever is greater with a minimum fee of $20.00.
After an Event of Default, the undersigned agrees to pay to Bank a fixed
charge of $25.00, or the undersigned agrees that Bank may, without
notice, increase the above stated interest rate by 6%, whichever is
greater. Under no circumstances shall said interest rate be raised to a
rate which shall be in excess of the maximum rate of interest allowable
under the state and/or federal usury laws in force at the time of such
change.
The undersigned may prepay all or part of this note, which prepaid
amounts shall be applied to the amounts due in reverse order of their
due dates. Partial prepayments shall not excuse any subsequent payment
due.
ENTIRE AGREEMENT: The undersigned agrees that there are no conditions
or understandings which are not expressed in this note and the documents
referred to herein.
WAIVER: No failure on the part of the Bank to exercise any of its
rights hereunder shall be deemed a waiver of any such rights or of any
default. Demand, presentment, protest, notice of dishonor, notice of
protest and notice of default are hereby waived. Each of the
undersigned, including but not limited to all co-makers and
accommodation makers of this note, hereby waives all suretyship defenses
including but not limited to all defenses based upon impairment of
collateral and all suretyship defenses described in Section 3-605 of the
Uniform Commercial Code, as revised in 1990 (the "UCC"). Such waiver is
entered to the full extent permitted by Section 3-605(i) of the UCC.
JURY WAIVER: THE UNDERSIGNED, AND ANY ENDORSER OR GUARANTOR HEREOF,
WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
The declaration of invalidity of any provision of this note shall not
effect any part of the remainder of the provisions.
Page 20 of 21
<PAGE>
FORM 10-Q
EXHIBITS
This note is supplemented by the terms and conditions of a credit
agreement dated January 24, 1994 and any amendments thereto between the
undersigned and Bank.
Warrant of attorney: The undersigned, jointly and severally, authorizes
any attorney-at-law to appear in any court of record after maturity of
this note, whether by acceleration or otherwise, waive the issuance and
service of process and to confess judgment against them in favor of the
Bank for the principal sum due hereon together with interest, charges,
court costs and attorney's fees, and to waive and release all errors,
rights of appeal, exemptions and stays of execution. The undersigned
also agrees that the attorney acting for the undersigned as set forth in
this paragraph may be compensated by Bank for such services, and the
undersigned waive any conflict of interest caused by such representation
and compensation arrangement. This warrant of attorney to confess
judgment shall be construed under the laws of the State of Ohio.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREMENT, OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
DATE DUE May 30, 2001 By: Paul R. McCusty
ADDRESS One Toy Street Its Vice President Finance/Treasurer
Bryan, Ohio 43506
Page 21 of 21
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
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<INVENTORY> 5,848
<CURRENT-ASSETS> 14,445
<PP&E> 36,510
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<TOTAL-ASSETS> 29,093
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0
0
<COMMON> 892
<OTHER-SE> 5,838
<TOTAL-LIABILITY-AND-EQUITY> 29,093
<SALES> 6,286
<TOTAL-REVENUES> 6,565
<CGS> 4,690
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<INTEREST-EXPENSE> 321
<INCOME-PRETAX> (908)
<INCOME-TAX> 0
<INCOME-CONTINUING> (908)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (908)
<EPS-PRIMARY> (1.04)
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