FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended-- Commission File Number 0-9318
September 28, 1996
SHOPSMITH, INC.
(Name of Registrant)
Ohio 31-0811466
(State of Incorporation) (IRS Employer
Identification Number)
6530 Poe Avenue
Dayton, Ohio 45414
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone 937-898-6070
Not applicable
Former name, former address and former fiscal year, if changed
since last report
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 ____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of October 31, 1996.
Common shares, without par value: 2,662,475 shares.
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SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
September 28, 1996 and March 30, 1996 3-4
Statements of Consolidated Operations and
Retained Earnings (Deficit) - Three and six months
Ended September 28, 1996 and September 30, 1995 5
Consolidated Statements of Cash Flows
Three and six months Ended September 28, 1996 and
September 30, 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. Other Information 12
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 28, March 30,
ASSETS 1996 1996
<S> <C> <C>
Current assets:
Cash............................. $ 553,171 $ 560,201
Restricted cash.................. 11,357 314,635
Short-term investments........... 253,836 740,871
Notes and accounts receivable:
Trade - less allowance for
doubtful accounts; $251,197
at June 29 and $237,007 at
March 30..................... 510,164 292,694
Inventories...................... 1,720,005 1,510,959
Deferred income taxes (Note 2)... 158,000 253,000
Prepaid expenses................. 316,691 177,116
Total current assets...... 3,523,224 3,849,476
Property:
Machinery, equipment & tooling... 6,759,556 6,762,942
Leasehold improvements........... 190,835 190,835
Total..................... 6,950,391 6,953,777
Less accumulated depreciation
and amortization............... 6,404,878 6,345,197
Property - net............ 545,513 608,580
Deferred income taxes (Note 2)..... 668,000 563,000
Other assets....................... 2,158 3,158
Total..................... $ 4,738,895 $ 5,024,214
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 28, March 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
<S> <C> <C>
Current liabilities:
Accounts payable.................... $ 938,039 $ 847,750
Capital lease obligations -
current........................... -- 4,881
Customer advances................... 50,197 53,921
Accrued liabilities:
Compensation and related
accounts........................ 352,316 812,299
Sales tax payable................. 124,342 152,632
Accrued recourse liability
(Note 4)........................ 43,079 352,872
Other............................. 823,258 990,379
Total current liabilities....... 2,331,231 3,214,734
Shareholders' equity:
Preferred shares - without par
value; authorized 500,000......... -- --
Common shares - without par value;
authorized 5,000,000; outstanding
2,662,475 at September 28 and
2,659,175 at March 30............. 2,990,749 2,984,925
Retained deficit.................... (583,085) (1,175,445)
Total shareholders' equity...... 2,407,664 1,809,480
Total........................... $ 4,738,895 $ 5,024,214
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS AND ACCUMULATED DEFICIT
<CAPTION>
Three Months Ended Six Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales............... $ 3,937,062 $ 3,686,689 $ 7,313,276 $ 6,836,415
Cost of products sold... 1,811,976 1,826,166 3,309,117 3,468,786
Gross profit............ 2,125,086 1,860,523 4,004,159 3,367,629
Selling expenses........ 1,105,947 785,853 2,287,362 1,575,145
Administrative expenses. 572,987 635,923 1,164,876 1,176,084
Total selling and
administrative
expenses........... 1,678,934 1,421,776 3,452,238 2,751,229
Income from operations.. 446,152 438,747 551,921 616,400
Interest income (expense) 9,150 (13,524) 24,981 (13,517)
Other income- net....... 9,711 3,898 15,458 8,525
Income before income
taxes and extra-
ordinary item......... 465,013 429,121 592,360 611,408
Income tax benefit...... -- 607,000 -- 607,000
Income before
extraordinary item.... 465,013 1,036,121 592,360 1,218,408
Extraordinary item-
gain from extinguish-
ment of debt -- -- -- 612,612
Net income.............. 465,013 1,036,121 592,360 1,831,020
Accumulated (deficit):
Beginning of period... (1,048,098) (3,408,260) (1,175,445) (4,203,159)
End of period......... $ (583,085) $(2,372,139) $ (583,085) $(2,372,139)
Weighted average number
of common shares
outstanding...........
(Note 6).............. 2,731,917 2,678,870 2,731,034 2,678,403
Income per common share:
Before extraordinary
item................ $ .17 $ .39 $ .22 $ .45
Extraordinary item... $ -- $ -- $ -- $ .23
Net income............ $ .17 $ .39 $ .22 $ .68
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six months Ended
September 28, September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income............................ $ 592,360 $1,831,020
Adjustments to reconcile net
income to cash provided by
(required for) operating activities:
Depreciation & amortization....... 104,861 105,197
Provision for doubtful accounts... 125,055 93,779
Deferred income taxes -- (607,000)
Gain on extinguishment of debt.... -- (612,612)
Cash provided by (required for)
changes in assets & liabilities:
Restricted cash............... 303,278 43,459
Accounts receivable........... (263,141) (108,226)
Inventories................... (209,046) 95,562
Other current assets.......... (139,575) (84,371)
Other assets.................. 1,000 --
Accounts payable & customer
advances.................... 86,565 (673,774)
Other current liabilities..... (1,054,571) (568,893)
Cash (used in)
operating activities.................. (453,214) (485,859)
Cash flows from investing activities:
Short-term investments................ 487,035 741,959
Property additions.................... (41,794) (32,715)
Cash provided by
investing activities............ 445,241 709,244
Cash flows from financing activities:
Common shares issued.................. 5,824 2,476
Decrease in term loan................. -- (29,489)
Decrease in accounts payable long-term -- (496,649)
Decrease in capital leases............ (4,881) (4,029)
Cash provided by (used in)
financing activities............ 943 (527,691)
Net decrease in cash.................... (7,030) (304,306)
Cash at beginning of period............. 560,201 360,915
Cash at end of period................... $ 553,171 $ 56,609
<FN>
See notes to financial statements.
</TABLE>
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SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments (consisting
of only normal and recurring adjustments) have been made
as of September 28, 1996 and September 30, 1995 to present
the financial statements fairly. However, the results of
operations for the three and six months then ended are not
necessarily indicative of results for the fiscal year.
The financial statements and notes are presented as
permitted by Form 10-Q, and do not contain certain
information included in the annual financial statements.
The financial statements accompanying this report should
be read in conjunction with the financial statements and
notes thereto included in the Annual Report to
Shareholders for the year ended March 30, 1996.
2. The provision for income taxes is as follows:
Three Months Ended Six Months Ended
Sep 28, 1996 Sep 30, 1995 Sep 28, 1996 Sep 30, 1995
Income before extra-
ordinary item $ 465,013 $ 429,121 $ 592,360 $ 611,408
Provision at stat-
utory rate of 34% 158,000 146,000 201,000 208,000
Change in valuation (158,000) (753,000) (201,000) (815,000)
allowance
Net $ -- $ (607,000) $ -- (607,000)
Extraordinary item 612,612
Provision at stat-
utory rate of 34% 208,000
Change in valuation
allowance (208,000)
Net $ --
The change to the valuation allowance for all the periods
presented represents the realization of tax benefits of
temporary differences which reversed during the respective
periods except for $607,000 of the change in the three and
six months ended September 30, 1995. This decrease in the
valuation allowance resulted from the Company's reevaluation
of the realizability of future income tax benefits because of
its continued profitability. If the Company is unable to
generate sufficient taxable income in the future through
operating results, increases in the valuation allowance will
be required through a charge to expense. However if it
achieves sufficient profitability to utilize a greater
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portion of the deferred tax asset, the valuation allowance
will be reduced through a credit to income.
3. By Amendment dated July 1, 1996, the revolving credit
agreement providing for maximum short-term borrowing of
$500,000 or 40% of eligible inventory, whichever is less,
was extended through June 30, 1997. Interest is charged
at the bank's prime rate plus 0.75 percent. The
outstanding principal is due upon demand. The agreement
requires compliance with certain minimum net worth,
working capital, financial leverage and other
miscellaneous covenants. Substantially all tangible
assets are pledged as collateral. No amounts were
outstanding under this arrangement at September 28, 1996.
4. By letter agreement dated August 12, 1996 and in exchange
for $421,650, the Company's consumer finance lender agreed
to remove the recourse provisions on the approximately
$2.5 million of its consumer recourse loans that were
outstanding at July 1, 1996. This payment was primarily
funded from the Company's restricted cash account.
Operating results were not materially affected by this
transaction.
Page 8
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales were $3,937,000 in the quarter ended September 28,
1996, up 6.8% from $3,687,000 in the same period a year ago.
Increased promotional efforts in the Company's demonstration
sales channel resulted in material increases in sales from
this, its primary selling activity. These sales increases
were partly offset by reductions in the Company's mail sales
efforts. Sales for the first six months of the current year,
at $7,313,000 were 7.0% higher than in the same period of the
prior year.
Increased sales from the Company's demonstration sales
channel, which provides higher margins than do some other
selling channels, and sales price increases caused gross
margins to increase from 50.5% of net sales in the second
quarter and 49.3% in the first six months of last year to
54.0% and 54.8% in the same respective periods in the current
year.
Chiefly because of heightened promotional efforts, advertising
and other costs expended in the demonstration sales effort
rose causing selling and administrative costs to increase by
18.1% from $1,422,000 in the quarter ended September 30, 1995
to $1,679,000 in the same period in the current year. These
costs climbed by $701,000 or 25.5% in the first six months of
the current year as compared to the same period last year. As
a percent of net sales, these costs increased from 38.6% in
the second quarter and 40.2% in the first six months of last
year to 42.6% in the second quarter and 47.2% in the first
half of the current year.
Investment of idle funds and minimal borrowing during the
current year caused interest income, net of interest expense,
to move to $9,000 of income in the second quarter of the
current year compared to $13,500 of interest expense for the
same period last year. Interest cost about $14,000 in the
first half of last year compared to interest income of $25,000
in the same period of the current year. A $613,000
extraordinary gain was recorded during the first half of last
year to reflect a non-recurring early payment discount
realized by the Company on a voluntary payment plan that was
approved by affected creditors in June 1994.
For the three and six months ended September 28, 1996, the Company
reflected no provision for income taxes on its pre-tax income.
Except for the quarter ended September 30, 1995, the expense
at statutory rates has been offset by the reduction in
previously established valuation reserves related to deferred
income tax amounts, including tax loss carryforwards, pursuant
to SFAS 109. During the quarter ended September 30, 1995, the
Company reduced the valuation reserves by $607,000 to reflect
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its optimism that operating loss and tax credit carryforwards
as well as other timing differences would be realized.
As a result of the above, net income of $465,000 or $.17 per
share and $592,000 or $.22 per share was realized in the
quarter and six months ended September 28, 1996. These
amounts are best compared, in the prior year, to income before
taxes and extraordinary item which was $429,000 or $.16 per
share in the quarter ended September 30, 1995 and $611,000 or
$.23 per share in the first half of last year. Net income was
$1,036,000 or $.39 per share in the second quarter last year
and $1,831,000 or $.68 in the first half of last year.
Liquidity and Capital Resources
Operations used $453,000 of cash in the six months ended
September 28, 1996. In that period, net income, adjusted for
non-cash items, provided cash of $822,000 while $579,000 of
cash was used to reduce accounts payable and other current
liabilities. During the current second quarter, in exchange
for $422,000 the Company's consumer finance lender agreed to
remove the recourse provisions on the approximately $2.5
million of its consumer recourse loans that were outstanding
at July 1, 1996. $365,000 of the settlement amount came from
the Company's restricted cash with the remainder from
operations. Because of this transaction, the Company was able
to eliminate the $389,000 loss provision it had recorded as a
component of other liabilities against these loans.
Operations used $486,000 of cash in the six months ended
September 30, 1995. In that period, net income, adjusted for
non-cash items, provided cash of $810,000 while $1,243,000 of
cash was used to reduce accounts payable, primarily in
connection with the early payment discount provision of a
voluntary vendor payment plan which was discussed earlier, and
other liabilities.
Property additions were $42,000 for the first half of the
current year as compared to $33,000 in the first half of the
prior year. In the first half of the current year, $487,000
was provided by the liquidation of short-term investments as
compared to $742,000 from the same source in the first half of
last year. $497,000 was used to reduce long-term accounts
payable in the first half of last year.
The Company's ratio of total debt to equity was 0.97 at
September 28, 1996 compared to 1.78 at March 30, 1996 and 5.48
at September 30, 1995. The current ratio was 1.51 at
September 28, 1996 compared to 1.20 at March 30, 1996 and
0.99 at September 30, 1995. The improvement during the last
12 months stemmed from profitability and the use of current
assets to liquidate current liabilities. Profitability caused
working capital to improve to a positive $1,192,000 at
September 28, 1996 from a positive $635,000 at March 30, 1996
and a negative $16,000 at September 30, 1995.
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A revolving credit agreement, which expires on June 30, 1997,
was signed in July 1996 which provides for maximum short-term
borrowing of $500,000 or 40% of eligible inventory, whichever
is less. For a discussion of this agreement, reference is
made to Note 3 to the Consolidated Financial statements
included herein. No amounts were outstanding under the
revolving credit portion of the agreement at September 28,
1996. Management believes financial resources will be
adequate to meet operating needs.
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PART II. OTHER INFORMATION
ITEMS 1-3 Not applicable during this reporting period.
ITEM 4 The Company held its Annual Meeting of Shareholders on
July 31, 1996. At the meeting, shareholders (i)
elected Messrs. John R. Folkerth, J. Michael Herr and
Edward A. Nicholson as directors of the Company and
(ii) approved the appointment of Crowe, Chizek and
Company as independent public accountants for the
Company. Vote tabulations were as follows:
Broker
Issue For Against Withheld Non-Votes
Election of Directors:
John R. Folkerth 2,203,177 -- 24,264 N/A
J. Michael Herr 2,198,444 -- 28,997 N/A
Edward A. Nicholson 2,196,462 -- 30,979 N/A
Appointment of Crowe,
Chizek and Company 2,147,360 12,219 67,862 N/A
Directors continuing in office were Robert L. Folkerth, John
L. Schaefer; Brady L. Skinner and Richard L. Snell.
The Company also held a Special Meeting of
Shareholders on July 31, 1996. At the meeting,
shareholders authorized a proposal to allow the Chief
Executive officer of the Company to acquire up to
33 1/3% of the outstanding Common Shares of the
Company. Vote tabulations were as follows:
Vote Based Upon All Outstanding Shares:
Shares eligible to vote: 2,660,875
Shares represented at the meeting: 2,227,441
For: 1,499,367
Against: 144,353
Abstain: 33,836
Broker Non-votes: 549,885
Vote of Disinterested Shares:
Number of Disinterested Shares: 1,987,912
Number of Disinterested Shares
represented at meeting: 1,579,222
For: 851,148
Against: 144,353
Abstain: 33,836
Broker Non-votes: 549,885
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ITEM 5. Not applicable during this reporting period.
ITEM 6. Exhibits and Reports on Form 8-K
a. Instruments defining the Rights of Security
Holders Including Indentures
4.12 Sixth Amendment to the Loan and Security
Agreement dated July 1, 1996 between
Huntington National Bank and Shopsmith,
Inc.
b. Not applicable during this reporting period.
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.
SHOPSMITH, INC.
By /s/William C. Becker
William C. Becker
Vice President of Finance
(Principal Financial
and Accounting Officer)
Date: November 6, 1996
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Exhibit 4.12
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT (this "Amendment") to the Loan and Security
Agreement is entered into as of the 1st day of July, 1996, by, between
and among Shopsmith, Inc., Shopsmith Woodworking Promotions, Inc., and
Shopsmith Woodworking Centers Ltd. Co. (hereinafter collectively
and/or separately referred to as the "Company") and The Huntington
National Bank (hereinafter the "Bank").
RECITALS:
A. As of September 1, 1989, the Company (with the exception of
Shopsmith Woodworking Centers Ltd. Co.) and the Bank executed a
certain Loan and Security Agreement, that was subsequently amended by
a First Amendment to Loan and Security Agreement dated July 11, 1990,
a Second Amendment to Loan and Security Agreement dated April 23,
1991, a Third Amendment to Loan and Security Agreement dated as of
June 21, 1993, a Fourth Amendment to Loan and Security Agreement dated
as of October 5, 1993, and a Fifth Amendment to Loan and Security
Agreement dated as of July 1, 1995 (hereinafter collectively the "Loan
Agreement"), setting forth the terms of certain loans to the Company;
and
B. As of September 1, 1989, the Company executed and delivered to the
Bank, inter alia, a revolving note in the original principal sum of
Four Million Dollars ($4,000,000.00), which was replaced by a certain
revolving note in the original principal sum of One Million Dollars
($1,000,000.00) (hereinafter the "Revolving Note"); and
C. In connection with the Loan Agreement and at various other times,
the Company executed and delivered to the Bank certain other loan
documents, promissory notes, consents, assignments, security
agreements, agreements, instruments and financing statements in
connection with the indebtedness referred to in the Loan Agreement
(all of the foregoing, together with the Revolving Note and the Loan
Agreement, are hereinafter collectively referred to as the "Loan
Documents"); and
D. In connection with the Company's violation of certain terms of the
Loan Agreement, the Company and the Bank entered into certain letter
agreements dated April 26, 1994, August 11, 1994 and December 19, 1994
(collectively the "Forbearance Agreements"); and
E. The Company and the Bank desire to amend and modify certain terms
in the Loan Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises contained herein, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound, the
Company and the Bank, for themselves and their successors and assigns
do hereby agree, recite, represent and warrant as follows:
1. Section 2, "The Loan and Lending Formula," of the Loan Agreement is
hereby amended to recite in its entirety that:
2. The Loan and Lending Formula. The Bank, subject to the terms and
conditions hereof, will make loans and advances to the Company up to
the aggregate sum of $500,000.00 (the "Loan"). The Loan shall be
comprised of a revolving loan up to the sum of $500,000.00, subject to
the limitations on maximum advances set forth below (the "Revolving
Loan") and commercial letters of credit not to exceed the aggregate
stated amount outstanding at any one time of $100,000.00 (the "Letters
of Credit"). The principal balance of the Revolving Loan plus the
aggregate stated amount of all outstanding Letters of Credit shall not
exceed an amount equal to the lesser of (a) 40% of Eligible Inventory
(the "Borrowing Base") or (b) $500,000.00.
2. Section 4. 1, "Interest Rates, Fees, Terms and Costs," of the Loan
Agreement is hereby amended to recite in its entirety that:
4.1 Interest Rates, Fees, Terms and Costs. The Company agrees to pay
the Bank monthly interest on the unpaid balance of the Loan at the
rates of interest set forth in the promissory note or notes and/or
commercial letter of credit reimbursement agreements evidencing the
Loan. The Company further agrees to pay upon issuance of each Letter
of Credit an issuance fee equal to one-quarter of one percentage point
of the stated amount of such Letter of Credit; provided, however, that
each issuance fee shall be not less than $50.00, plus fees for service
and handling as established from time to time by the Bank. The Loan
shall be evidenced by (i) promissory notes or by one or more
promissory notes subsequently executed in substitution therefor, each
in substantially the form set forth in Exhibit A-1 attached hereto,
and (ii) a commercial letter of credit reimbursement agreement
substantially in the form of Exhibit A-3 to the Third Amendment to
Loan and Security Agreement, or by a commercial letter of credit
reimbursement agreement subsequently executed in substitution
therefor. Repayment of the Loan shall be made in accordance with the
terms of the promissory note or notes and/or commercial letter of
credit reimbursement agreements then outstanding pursuant to this
Agreement. Any advances made pursuant hereto shall be in the sole and
absolute discretion of the Bank. Each advance request of the Company
shall be accompanied by a borrowing certificate or such other
documents or communications as may be acceptable to the Bank in its
sole and absolute discretion. The Company further agrees to pay
analysis fees, audit fees in the amount of $500.00 per day per auditor
for each audit (which audits shall be conducted twice a year in the
absence of an Event of Default hereunder), plus out-of-pocket
expenses, and all costs and expenses incidental to or in connection
with the Loan or any service provided by the Bank, the enforcement of
<PAGE>
the Bank's rights in connection therewith, any amendment or
modification of this Agreement or any other loan documents, any
litigation, contest, dispute, proceeding or action in any way relating
to the Collateral or to this Agreement, whether any of the foregoing
are incurred prior to or after maturity, the occurrence of an Event of
Default, or the rendering of a judgment. Such costs shall include,
but not be limited to, fees and out-of-pocket expenses of the Bank's
counsel, recording fees, inspections fees, revenue stamps and note and
mortgage taxes.
3. Section 7.9, "Acquisition of Capital Stock," of the Loan Agreement
is hereby amended to recite in its entirety that:
7.9 Acquisition of Capital Stock. The Company shall not redeem or
acquire any of its own capital stock except (a) through the use of the
net proceeds from the simultaneous sale of an equivalent amount of its
capital stock for the same purchase or redemption price or (b) for
Permitted Distributions. "Permitted Distributions" shall mean the
aggregate amount of distributions to shareholders, dividends to
shareholders, and redemption or acquisition of the Company's capital
stock which, in any fiscal year, shall not exceed 35% of the
difference between (i) the net income after taxes of the Company for
such fiscal year, which in accordance with generally accepted
accounting principles ("GAAP") would be included as net income on the
statements of income of the Company for such period, minus (ii) the
sum of the amounts for such period of extraordinary gains (and any
unusual gains arising outside the ordinary course of business not
included in extraordinary gains determined in accordance with GAAP).
4. Section 7. 10, "Cash Dividends and Other Distributions," of the
Loan Agreement is hereby amended to recite in its entirety that:
7.10 Cash Dividends and Other Distributions. Except to the extent of
Permitted Distributions, the Company shall not declare any cash
dividends or make any other distributions of any kind to shareholders
during the occurrence and continuance of an Event of Default pursuant
to this Agreement.
5. Section 7.11, "Tangible Net Worth," of the Loan Agreement is hereby
amended to recite in its entirety that:
7.11 Tangible Net Worth. The Company shall maintain at all times a
Tangible Net Worth of not less than $1,000,000.00. For the purposes of
this Agreement, "Tangible Net Worth" means the Company's equity, minus
the sum of all of the following: (i) the excess of cost over the value
of net assets of purchased businesses, rights and other similar
intangibles, (ii) organizational expenses, (iii) intangible assets (to
the extent not reflected in the foregoing), (iv) goodwill, (v)
deferred charges or deferred financing costs, (vi) loans or advances
to affiliates, (vii) accounts or notes receivable from affiliates, and
(viii) non-compete agreements.
6. Section 7.12, "Working Capital," of the Loan Agreement is hereby
amended to recite in its entirety that:
<PAGE>
7.12 Working Capital. The Company shall maintain at all times a
Working Capital of not less than $100,000.00. For the purposes of this
Agreement, "Working Capital" means the excess of current assets over
current liabilities, and the obligations owing pursuant to the Loan
shall be considered a current liability.
7. Section 7.13, "Ratio of Total Liabilities to Tangible Net Worth,"
of the Loan Agreement is hereby amended to recite in its entirety
that:
7.13 Ratio of Total Liabilities to Tangible Net Worth. The Company
shall maintain at all times a ratio of Total Liabilities to Tangible
Net Worth of not greater than 3.00 to 1.00 . For purposes of this
Agreement, "Total Liabilities" means with respect to the Company (i)
all indebtedness for borrowed money or for the deferred purchase price
of property or services, (ii) any other indebtedness which is
evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations with respect to any letter of credit issued for the
account of the Company, (iv) all obligations in respect of acceptances
issued or created for the account of the Company, (v) lease
obligations which, in accordance with GAAP, should be capitalized,
(vi) all liabilities (including lease obligations) secured by any lien
or encumbrance on any property owned by the Company even though the
Company has not assumed or otherwise become liable for the payment
thereof, (vii) all obligations of the Company with respect to interest
rate protection agreements (valued at the termination value thereof
computed in accordance with a method approved by the International
Swap Dealers' Association), and (viii) all other obligations of the
Company which, in accordance with GAAP, would be classified upon a
balance sheet as liabilities (except capital stock and surplus
earned).
8. Section 7.14, "Capital Expenditures," of the Loan Agreement is
hereby amended to recite in its entirety that:
7.14 Capital Expenditures. The Company will not make any expenditure
for fixed or capital assets, including by way of the incurrence of
capitalized lease obligations, expenditures for maintenance and
repairs which should be capitalized in accordance with generally
accepted accounting principles or otherwise, in excess of $600,000.00
in any fiscal year.
9. Section 7.16, "Operating Lease Rentals," of the Loan Agreement is
hereby amended to recite in its entirety that:
7.16 Operating Lease Rentals. The Company will not without the prior
wntten approval of the Bank enter into operating leases providing in
the aggregate for annual rentals which exceed $750,000.00.
10. Section 7.24, "Inventory Turnover," of the Loan Agreement is
hereby deleted in its entirety.
<PAGE>
II. Sections 9. 1 (a) and (b) of the Loan Agreement are hereby amended
to recite in their entirety that:
(a) the Company fails to make any payment of principal, interest or
any other sum due and payable under any promissory note or commercial
letter of credit reimbursement agreement executed in connection with
this Agreement on or before the date such payment is due; (b) the
Company fails to perform or observe any agreement, term or covenant
contained in Sections 2, 4.2, 5, 7.1 through and including 7. 1 0 or 8
of of this Agreement, and the Bank provides written notice to the
Company of the same; (c) the Company fails to comply with any other
provision of this Agreement, and such failure continues for more than
30 days after the Bank provides written notice to the Company of the
same;
The remainder of Section 9. 1, "Events of Default," of the Loan
Agreement shall remain as written originally.
11. Concurrently with the execution of this Amendment, the Company
shall execute and deliver to the Bank a promissory note, and such note
shall be in the form of Exhibit A attached to this Amendment to
evidence the Revolving Loan. After receipt of the new promissory
note, the Bank will mark the old promissory note being replaced
hereby, "Replaced."
12. The Company agrees further that the extension of the maturity
date, subject to demand, or any other indulgence granted the Company
by the Bank shall in no way indicate the Bank's agreement to any
further extension or indulgence.
13. Each reference to the Loan Agreement, whether by use of the phrase
"Loan and Security Agreement," "Loan Agreement," "Agreement," the
prefix "herein" or any other term, and whether contained in the Loan
Agreement itself, in this Amendment or any document executed
concurrently herewith or in any loan documents executed hereafter,
shall be construed as a reference to the Loan Agreement as amended by
this Amendment.
14. The Company hereby reaffirms each and every warranty and
representation made in the Loan Documents as if the same were made as
of the date this Amendment becomes effective, except to the extent
that such warranties and representations relate to an earlier date.
15. Except as modified herein, the Loan Agreement, Loan Documents
and all other agreements as to payment, guarantee of payment or
security executed in connection therewith shall remain as written
originally and in full force and effect in all respects, and nothing
herein shall affect, modify, limit or impair any of the rights and
powers which the Bank may have thereunder. Any modification or waiver
of any of the agreements, covenants, or terms of the Loan Agreement or
the Loan Documents shall not be construed as the Bank's agreement or
intention to agree to any further modifications or waivers.
<PAGE>
16. The Company agrees to perform and observe all of the covenants,
agreements, stipulations, and conditions to be performed under the
Loan Agreement, Loan Documents, and all other related agreements, as
amended hereby.
17. The Company represents and warrants that no "Event of Default," as
defined in the Loan Agreement, has occurred and is continuing, nor
will any occur immediately after the execution and delivery of this
Amendment by the performance or observance of any provision hereof.
18. The Company hereby represents and warrants to the Bank that as to
such Company (a) such Company has legal power and authority to execute
and deliver the within Amendment; (b) the officer executing the within
Amendment on behalf of such Company has been duly authorized to
execute and deliver the same and bind such Company with respect to the
provisions provided for herein; (c) the execution and delivery hereof
by such Company and the performance and observance by such Company of
the provisions hereof do not violate or conflict with the articles of
incorporation, regulations or by-laws of such Company or any law
applicable to such Company or result in the breach of any provision of
or constitute a default under any agreement, instrument or document
binding upon or enforceable against such Company; and (d) this
Amendment constitutes a valid and legally binding obligation upon such
Company in every respect.
19. THIS AMENDMENT shall become effective only upon its execution by
all parties hereto.
20. The capitalized terms herein shall have the same meanings as the
capitalized terms in the Loan Agreement as amended hereby.
IN WITNESS WHEREOF, the Company and the Bank have hereunto set their
hands at Dayton, Ohio and Columbus, Ohio, respectively, on the date
first set forth above.
COMPANY:
SHOPSMITH, INC.
By: /s John R. Folkerth
Its: Chairman
SHOPSMITH WOODWORKING PROMOTIONS, INC.
By: /s John R. Folkerth
Its: President
SHOPSMITH WOODWORKING CENTERS LTD. Co.
By: /s John R. Folkerth
Its: President
BANK:
THE HUNTINGTON NATIONAL BANK
By: /s John Mills
Its: Vice President
COLUMBUS/0273455.04
<PAGE>
EXHIBIT A
THE HUNTINGTON NATIONAL BANK
Revolving Note
City Office Division Branch [X] Secured
Account No. Note No. [ ] Unsecured
Account Name SHOPSMITH, INC., SHOPSMITH WOODWORKING PROMOTIONS, INC.,
SHOPSMITH WOODWORKING CENTERS LTD. CO.
[X] Corporations Partnership Individual/Proprietorship
[ ] Other
$500,000.00 , Ohio As of July 1, 1996
FOR VALUE RECEIVED, the undersigned jointly and severally promise to
pay to the order of THE HUNTINGTON NATIONAL BANK (hereinafter called
the "Bank," which term shall include any holder hereof) at the Bank's
offices located at Columbus, Ohio or such other place as the Bank may
designate in writing, the sum of Five Hundred Thousand Dollars
($500,000.00) or so much thereof as shall have been advanced by the
Bank at any time and not hereafter repaid pursuant to the terms of the
"Loan Agreement" (as defined below), which sum shall hereinafter be
referred to as "Principal Sum," together with interest as hereinafter
provided and payable as hereinafter provided. The proceeds of the
loan evidenced hereby may be advanced, repaid and readvanced in
partial amounts during the term of this revolving note (this "Note")
and prior to maturity. Each such advance shall be made to the
undersigned upon receipt by the Bank of the undersigned's application
therefor and disbursement instructions, which shall be in such form as
the Bank shall from time to time prescribe. The Bank shall be
entitled to rely on any oral or telephonic communication requesting an
advance and/or providing disbursement instructions hereunder, which
shall be received by it in good faith from anyone reasonably believed
by the Bank to be the undersigned, or the undersigned's authorized
agent. The undersigned agree that all advances made by the Bank will
be evidenced by entries made by the Bank into its electronic data
processing system and/or internal memoranda maintained by the Bank.
The undersigned further agree that the sum or sums shown on the most
recent printout from the Bank's electronic data processing system
and/or on such memoranda shall be rebuttably presumptive evidence of
the amount of the Principal Sum and of the amount of any accrued
interest.
This Note is executed and the advances contemplated hereunder are to
be made pursuant to a Loan and Security Agreement between the
undersigned and the Bank dated as of September 1, 1989, and all
amendments and modifications thereto, including but not limited to a
First Amendment to Loan and Security Agreement dated July 11, 1990, a
Second Amendment to Loan and Security Agreement dated April 23, 1991,
a Third Amendment to Loan and Security Agreement dated June 21, 1993,
a Fourth Amendment to Loan and Security Agreement dated October 5,
<PAGE>
1994, a Fifth Amendment to Loan and Security Agreement dated as of
July 1, 1995, and a Sixth Amendment to Loan and Security Agreement
dated as of September 1, 1996 (collectively the "Loan Agreement"), and
all the covenants, representations, agreements, terms, and conditions
contained therein, including but not limited to additional conditions
of default, are incorporated herein as if fully rewritten.
A portion of this Note is substitute evidence for a certain Revolving
Note dated September 1, 1989, in the original principal sum of
$1,000,000.00, and certain Revolving Notes dated September 1, 1989, in
the original principal sums of $4,000,000.00.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until
paid at a variable rate of interest per annum, which shall change in
the manner set forth below, equal to three-quarters of one point
(3/4%) in excess of the Prime Commercial Rate.
Upon default, whether by acceleration or otherwise, interest will
accrue on the unpaid balance of the Principal Sum and unpaid interest,
if any, until paid at a variable rate of interest per annum, which
shall change in the manner set forth below, equal to four and
three-quarter percentage points (4 3/4%) in excess of the Prime
Commercial Rate.
All interest shall be calculated on the basis of a 360 day year for
the actual number of days the Principal Sum or any part thereof
remains unpaid. There shall be no penalty for prepayment, except that
any discounted interest shall only be rebated in the event of
prepayment in full, based on the actual number of days elapsed, but no
rebate shall be made for any amount less than $ 1. 00.
As used herein, "Prime Commercial Rate" shall mean the rate
established by the Bank from time to time based on its consideration
of economic, money market, business and competitive factors. The
Prime Commercial Rate is not necessarily the Bank's most favored rate.
Subject to any maximum or minimum interest rate limitation specified
herein or by applicable law, any variable rate of interest on the
obligation evidenced hereby shall change automatically without notice
to the undersigned immediately with each change in the Prime
Commercial Rate.
MANNER OF PAYMENT
The Principal Sum shall be due and payable on DEMAND, and at maturity,
whether by demand, acceleration or otherwise. Accrued interest shall
be due and payable monthly beginning on August 1, 1996, and continuing
on the first day of each month thereafter, and at maturity, whether by
acceleration or otherwise.
<PAGE>
LATE CHARGE
Any installment or other payment not made within 10 days of the date
such payment or installment is due shall be subject to a late charge
equal to 5% of the amount of the installment or payment, provided,
however, that the Bank provides written notice to the undersigned of
such nonpayment.
SECURITY
This Note is secured by the security interests and assignments granted
or referred to in the Loan Agreement.
DEFAULT
Upon the occurrence of any of the following events:
(1) the undersigned fails to make any payment of principal or interest
on or before the date such payment; or
(2) an Event of Default (as defined in the Loan Agreement) shall
have occurred;
then the Bank may, at its option, without notice or demand, accelerate
the maturity of the obligations evidenced hereby, which obligations
shall become immediately due and payable and the Bank shall have all
other rights of a secured party or creditor under Ohio law. In the
event the Bank shall institute any action for the enforcement or
collection of the obligations evidenced hereby, the undersigned agree
to pay all costs and expenses of such action, including reasonable
attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any
indorser, surety, or guarantor, hereby jointly and severally waive
presentment, notice of dishonor, protest, notice of protest, and
diligence in bringing suit against any party hereto, waive the
defenses of impairment of collateral for the obligation evidenced
hereby, impairment of a person against whom the Bank has any right of
recourse, and any defenses of any accommodation maker and consent
that, without discharging any of them, the time of payment and any
other provision of this promissory note may be extended or modified an
unlimited number of times before or after maturity without notice to
the undersigned. The undersigned jointly and severally agree that
they will pay the obligations evidenced hereby, irrespective of any
action or lack of action on Bank's part in connection with the
acquisition, perfection, possession, enforcement, disposition, or
modification of all the obligations evidenced hereby or any and all
security therefor, and no omission or delay on Bank's part in
exercising any right against, or taking any action to collect from or
<PAGE>
pursue Bank's remedies against any party hereto will release,
discharge, or modify the duties of the undersigned to make payments
hereunder. The undersigned agree that Bank will not be required to
pursue or exhaust any of its rights or remedies against the
undersigned or any guarantors of the obligations evidenced hereby with
respect to the payment of any said obligations, or to pursue, exhaust
or preserve any of Bank's rights or remedies with respect to any
collateral, security or other guaranties given to secure said
obligations.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension
hereof. Any security interest or mortgage which secures the
obligations evidenced hereby shall remain in full force and effect
notwithstanding any such substitution, renewal, or extension.
The captions used herein are for references only and shall not be
deemed a part of this Note. If any of the terms or provisions of this
Note shall be deemed unenforceable, the enforceability of the
remaining terms and provisions shall not be affected. This Note shall
be governed by and construed in accordance with the law of the State
of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING' IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
WARRANT OF ATTORNEY
Each of the undersigned authorizes any attorney at law to appear in
any Court of Record in the State of Ohio or in any state or territory
of the United States after the above indebtedness becomes due, whether
by acceleration or otherwise, to waive the issuing and service of
process, and to confess judgment against any one or more of the
undersigned in favor of the Bank for the amount then appearing due
together with costs of suit, and thereupon to waive all errors and all
rights of appeal and stays of execution. No such judgment or
judgments against less than all of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more of the
undersigned against whom judgment has not been obtained hereon, this
being a joint and several warrant of attorney to confess judgment.
<PAGE>
SHOPSMITH, INC.
By:
Its:
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.
SHOPSMITH WOODWORKING PROMOTIONS, INC.
By:
Its:
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.
SHOPSMITH WOODWORKING CENTERS LTD. CO.
By:
Its:
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.
COLUMBUS/0273488.01
<PAGE>
THE HUNTINGTON NATIONAL BANK
Revolving Note
City Office Division Branch [X] Secured
Account No. Note No. [ ]Unsecured
Account Name SHOPSMITH, INC., SHOPSMITH WOODWORKING PROMOTIONS, INC.,
SHOPSMITH WOODWORKING CENTERS LTD. CO.
[X] Corporations Partnership Individual/Proprietorship
[ ] Other
$500,000.00 Dayton, Ohio As of July 1, 1996
FOR VALUE RECEIVED, the undersigned jointly and severally promise to
pay to the order of THE HUNTINGTON NATIONAL BANK (hereinafter called
the "Bank," which term shall include any holder hereof) at the Bank's
offices located at Columbus, Ohio or such other place as the Bank may
designate in writing, the sum of Five Hundred Thousand Dollars
($500,000.00) or so much thereof as shall have been advanced by the
Bank at any time and not hereafter repaid pursuant to the terms of the
"Loan Agreement" (as defined below), which sum shall hereinafter be
referred to as "Principal Sum," together with interest as hereinafter
provided and payable as hereinafter provided. The proceeds of the
loan evidenced hereby may be advanced, repaid and readvanced in
partial amounts during the term of this revolving note (this "Note")
and prior to maturity. Each such advance shall be made to the
undersigned upon receipt by the Bank of the undersigned's application
therefor and disbursement instructions, which shall be in such form as
the Bank shall from time to time prescribe. The Bank shall be
entitled to rely on any oral or telephonic communication requesting an
advance and/or providing disbursement instructions hereunder, which
shall be received by it in good faith from anyone reasonably believed
by the Bank to be the undersigned, or the undersigned's authorized
agent. The undersigned agree that all advances made by the Bank will
be evidenced by entries made by the Bank into its electronic data
processing system and/or internal memoranda maintained by the Bank.
The undersigned further agree that the sum or sums shown on the most
recent printout from the Bank's electronic data processing system
and/or on such memoranda shall be rebuttably presumptive evidence of
the amount of the Principal Sum and of the amount of any accrued
interest.
This Note is executed and the advances contemplated hereunder are to
be made pursuant to a Loan and Security Agreement between the
undersigned and the Bank dated as of September 1, 1989, and all
amendments and modifications thereto, including but not limited to a
First Amendment to Loan and Security Agreement dated July 11, 1990, a
Second Amendment to Loan and Security Agreement dated April 23, 1991,
a Third Amendment to Loan and Security Agreement dated June 21, 1993,
a Fourth Amendment to Loan and Security Agreement dated October 5,
<PAGE>
1994, a Fifth Amendment to Loan, and Security Agreement dated as of
July 1, 1995, and a Sixth Amendment to Loan and Security Agreement
dated as of September 1, 1996 (collectively the "Loan Agreement"), and
all the covenants, representations, agreements, terms, and conditions
contained therein, including but not limited to additional conditions
of default, are incorporated herein as if fully rewritten.
A portion of this Note is substitute evidence for a certain Revolving
Note dated September 1, 1989, in the original principal sum of
$1,000,000.00, and certain Revolving Notes dated September 1, 1989, in
the original principal sums of $4,000,000.00.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until
paid at a variable rate of interest per annum, which shall change in
the manner set forth below, equal to three-quarters of one point
(3/4%) in excess of the Prime Commercial Rate.
Upon default, whether by acceleration or otherwise, interest will
accrue on the unpaid balance of the Principal Sum and unpaid interest,
if any, until paid at a variable rate of interest per annum, which
shall change in the manner set forth below, equal to four and
three-quarter percentage points (4 3/4%) in excess of the Prime
Commercial Rate.
All interest shall be calculated on the basis of a 360 day year for
the actual number of days the Principal Sum or any part thereof
remains unpaid. There shall be no penalty for prepayment, except that
any discounted interest shall only be rebated in the event of
prepayment in full, based on the actual number of days elapsed, but no
rebate shall be made for any amount less than $ 1.00.
As used herein, "Prime Commercial Rate" shall mean the rate
established by the Bank from time to time based on its consideration
of economic, money market, business and competitive factors. The
Prime Commercial Rate is not necessarily the Bank's most favored rate.
Subject to any maximum or minimum interest rate limitation specified
herein or by applicable law, any variable rate of interest on the
obligation evidenced hereby shall change automatically without notice
to the undersigned immediately with each change in the Prime
Commercial Rate.
MANNER OF PAYMENT
The Principal Sum shall be due and payable on DEMAND, and at maturity,
whether by demand, acceleration or otherwise. Accrued interest shall
be due and payable monthly beginning on August 1, 1996, and continuing
on the first day of each month thereafter, and at maturity, whether by
acceleration or otherwise.
<PAGE>
LATE CHARGE
Any installment or other payment not made within 10 days of the date
such payment or installment is due shall be subject to a late charge
equal to 5% of the amount of the installment or payment, provided,
however, that the Bank provides written notice to the undersigned of
such nonpayment.
SECURITY
This Note is secured by the security interests and assignments granted
or referred to in the Loan Agreement.
DEFAULT
Upon the occurrence of any of the following events:
(1) the undersigned fails to make any payment of principal or interest
on or before the date such payment; or
(2) an Event of Default (as defined in the Loan Agreement) shall
have occurred;
then the Bank may, at its option, without notice or demand, accelerate
the maturity of the obligations evidenced hereby, which obligations
shall become immediately due and payable and the Bank shall have all
other rights of a secured party or creditor under Ohio law. In the
event the Bank shall institute any action for the enforcement or
collection of the obligations evidenced hereby, the undersigned agree
to pay all costs and expenses of such action, including reasonable
attorneys' fees, to the extent permitted by law.
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any
indorser, surety, or guarantor, hereby jointly and severally waive
presentment, notice of dishonor, protest, notice of protest, and
diligence in bringing suit against any party hereto, waive the
defenses of impairment of collateral for the obligation evidenced
hereby, impairment of a person against whom the Bank has any right of
recourse, and any defenses of any accommodation maker and consent
that, without discharging any of them, the time of payment and any
other provision of this promissory note may be extended or modified an
unlimited number of times before or after maturity without notice to
the undersigned. The undersigned jointly and severally agree that
they will pay the obligations evidenced hereby, irrespective of any
action or lack of action on Bank's part in connection with the
acquisition, perfection, possession, enforcement, disposition, or
modification of all the obligations evidenced hereby or any and all
security therefor, and no omission or delay on Bank's part in
<PAGE>
exercising any right against, or taking any action to collect from or
pursue Bank's remedies against any party hereto will release,
discharge, or modify the duties of the undersigned to make payments
hereunder. The undersigned agree that Bank will not be required to
pursue or exhaust any of its rights or remedies against the
undersigned or any guarantors of the obligations evidenced hereby with
respect to the payment of any said obligations, or to pursue, exhaust
or preserve any of Bank's rights or remedies with respect to any
collateral, security or other guaranties given to secure said
obligations.
The obligations evidenced hereby may from time to time be evidenced by
another note or notes given in substitution, renewal or extension
hereof. Any security interest or mortgage which secures the
obligations evidenced hereby shall remain in full force and effect
notwithstanding any such substitution, renewal, or extension.
The captions used herein are for references only and shall not be
deemed a part of this Note. If any of the terms or provisions of this
Note shall be deemed unenforceable, the enforceability of the
remaining terms and provisions shall not be affected. This Note shall
be governed by and construed in accordance with the law of the State
of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN
EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
WARRANT OF ATTORNEY
Each of the undersigned authorizes any attorney at law to appear in
any Court of Record in the State of Ohio or in any state or territory
of the United States after the above indebtedness becomes due, whether
by acceleration or otherwise, to waive the issuing and service of
process, and to confess judgment against any one or more of the
undersigned in favor of the Bank for the amount then appearing due
together with costs of suit, and thereupon to waive all errors and all
rights of appeal and stays of execution. No such judgment or
judgments against less than all of the undersigned shall be a bar to a
subsequent judgment or judgments against any one or more of the
undersigned against whom judgment has not been obtained hereon, this
being a joint and several warrant of attorney to confess judgment.
<PAGE>
SHOPSMITH
By: /s John R. Folkerth
Its: Chairman
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.
SHOPSMITH WOODWORKING PROMOTIONS, INC.
By: /s John R. Folkerth
Its: President
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.
SHOPSMITH WOODWORKING CENTERS LTD. CO.
By: /s John R. Folkerth
Its: President
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.
COLUMBUS/0273488.01
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-05-1997
<PERIOD-END> SEP-28-1996
<CASH> 564,528
<SECURITIES> 253,836
<RECEIVABLES> 761,361
<ALLOWANCES> 251,197
<INVENTORY> 1,720,005
<CURRENT-ASSETS> 3,523,224
<PP&E> 6,950,391
<DEPRECIATION> 6,404,878
<TOTAL-ASSETS> 4,738,895
<CURRENT-LIABILITIES> 2,331,231
<BONDS> 0
<COMMON> 2,990,749
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,738,895
<SALES> 7,313,276
<TOTAL-REVENUES> 7,313,276
<CGS> 3,309,117
<TOTAL-COSTS> 3,309,117
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 125,055
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 592,360
<INCOME-TAX> 0
<INCOME-CONTINUING> 592,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 592,360
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
