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
January 2, 1999
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
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 February 4, 1999.
Common shares, without par value: 2,605,233 shares.
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
January 2, 1999 and April 4, 1998 3 - 4
Statements of Consolidated Operations and
Retained Earnings - Three and Nine Months
Ended January 2, 1999 and January 3, 1998 5
Consolidated Statements of Cash Flows
Nine Months Ended January 2, 1999 and
January 3, 1998 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9 - 10
Item 3. Quantitative and qualitative disclosures
about market risk 10
Part II. Other Information 11
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 2, April 4,
1999 1998
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 399,517 $ 316,669
Restricted cash 100,300 264,880
Short-term investments 1,022,444 2,851,355
Accounts receivable:
Trade, less allowance for
doubtful accounts:
$567,852 on January 2 and $317,408
on April 4 553,491 518,417
Inventories 2,813,946 2,301,790
Deferred and recoverable income taxes (Note 2) 557,971 382,000
Prepaid expenses 340,069 310,160
Total current assets 5,787,738 6,945,271
Properties (Note 4):
Machinery, equipment and tooling 7,155,385 7,006,954
Land, building and improvements 3,176,454 190,835
Total cost 10,331,839 7,197,789
Less accumulated depreciation and
amortization 6,858,889 6,711,089
Net properties 3,472,950 486,700
Deferred income taxes (Note 2) 636,000 629,000
Other assets 29,311 15,594
Total assets $ 9,925,999 $ 8,076,565
</TABLE>
Continued
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 2, April 4,
1999 1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,134,539 $ 1,279,547
Current portion of long term debt 67,556 -
Customer advances 47,944 39,854
Accrued liabilities:
Compensation, employee benefits and
payroll taxes 265,559 657,154
Sales taxes payable 100,660 131,071
Accrued recourse liability 380,637 275,841
Accrued expenses 324,569 389,328
Other 106,085 135,343
Total current liabilities 2,427,549 2,908,138
Long term Debt (Note 4) 2,794,569
Total liabilities 5,222,118 2,908,138
Shareholders' Equity:
Preferred shares- without par value;
authorized 500,000; none issued
Common shares- without par value;
authorized 5,000,000; issued and
outstanding 2,605,233 at January 2, 1999 and
2,624,375 at April 4,1998 2,805,882 2,869,075
Retained earnings 1,897,999 2,299,352
Total shareholders' equity 4,703,881 5,168,427
Total Liabilities and Shareholders' Equity $ 9,925,999 $ 8,076,565
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Nine Months Ended
January 2, January 3, January 2, January 3,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $4,025,426 $4,637,747 $10,974,469 $12,804,680
Cost of products sold 2,052,951 2,137,422 5,290,052 5,696,306
Gross margin 1,972,475 2,500,325 5,684,417 7,108,374
Selling expenses 1,980,885 1,566,010 4,952,026 4,542,047
Administrative expenses 475,860 579,852 1,413,689 1,719,872
Total operating expenses 2,456,745 2,145,862 6,365,715 6,261,919
Income (loss) from operations (484,270) 354,463 (681,298) 846,455
Interest income, net 22,669 32,537 82,036 81,747
Other income, net 1,060 8,258 10,819 20,886
Income (loss) before income
taxes (460,541) 395,258 (588,443) 949,088
Income tax provision (142,708) 2,767 (187,090) 6,645
Net income (loss) (317,833) 392,491 (401,353) 942,443
Retained earnings:
Beginning 2,215,832 1,177,065 2,299,352 627,113
Ending 1,897,999 1,569,556 1,897,999 1,569,556
Net income (loss) per
common share(Note 3)
Basic $ (0.12) $ 0.15 $ (0.15) $ 0.35
Diluted $ (0.12) $ 0.14 $ (0.15) $ 0.34
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
January 2, January 3,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (401,353) $ 942,443
Adjustments to reconcile net income
to cash provided from operating activities:
Depreciation and amortization 147,800 157,400
Provision for doubtful accounts 119,802 139,955
Deferred income taxes (26,000) (20,000)
Cash provided from (used in) changes
in assets and liabilities:
Restricted cash 164,580 (108,673)
Accounts receivable (50,078) (235,900)
Inventories (512,156) (428,355)
Recoverable income taxes (156,971)
Other current assets (29,909) (87,683)
Other assets (13,717)
Accounts payable and customer advances (136,918) (509,734)
Other current liabilities (516,025) (190,532)
Cash provided from (used in)
operating activities (1,410,945) (341,079)
Cash flows from investing activities:
Maturity of short-term investments 1,828,911 (213,904)
Property additions (3,134,050) (115,361)
Cash provided from (used in)
investing activities (1,305,139) (329,265)
Cash flows from financing activities:
Proceeds from long-term debt (Note 4) 2,862,125 -
Common shares issued 4,594 1,672
Common shares repurchased (67,787) (21,230)
Cash provided from (used in)
financing activities 2,798,932 (19,558)
Net increase (decrease) in cash 82,848 (689,902)
Cash:
At beginning of period 316,669 1,106,873
At end of period $ 399,517 $ 416,971
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
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 January 2, 1999 and
January 3, 1998 to present the financial statements fairly. However, the
results of operations for the three months and nine 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 April 4, 1998.
2. The provision for income taxes is as follows:
Three Months Ended Nine Months Ended
1/2/99 1/3/98 1/2/99 1/3/98
Provision (Recovery)
at statutory rates $(156,484) $147,000 $(199,971) $335,000
Local (3,224) 2,767 (4,119) 6,645
Change in valuation allowance 17,000 (147,000) 17,000 (335,000)
Net provision $(142,708) $ 2,767 $(187,090) $ 6,645
Provisions for Federal, state and local income taxes are calculated
at statutory rates. In the current quarter, the recoverable tax provision
was reduced by a valuation allowance of $17,000 for tax credits expiring
in 1999. In the previous year, provisions were offset by reductions in
previously established valuation reserves related to the utilization of
net operating loss carryforwards, tax credit carryforwards and other
temporary differences.
3. Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflect per share amounts that would have
resulted if stock options had been converted into common stock. The
following reconciles amounts reported in the financial statements.
Three Months Ended Nine Months Ended
1/2/99 1/3/98 1/2/99 1/3/98
Net income (loss) $(317,833) $ 392,491 $(401,353) $942,443
Weighted average common shares
used to compute basic earnings
per share 2,605,233 2,664,275 2,602,185 2,664,219
Effect of dilutive options 10,718 107,582 18,708 100,017
Total shares to compute diluted
earnings per share 2,615,952 2,771,857 2,620,893 2,764,236
Basic earnings (loss) per share $ (0.12) $ 0.15 $ (0.15) $ 0.35
Diluted earnings (loss) per share $ (0.12) $ 0.14 $ (0.15) $ 0.34
<PAGE>
4. The Company purchased its operating facility from its former landlord on
December 31, 1998 for $2,900,000. The seller financed the building
purchase. The financing agreement, among other things, provided for a
$100,000 down payment and a secured mortgage note for $2,800,000 at an
8.75% interest rate. The agreement requires $309,420 of annual principal
and interest payments until January 1, 2003 at which time the scheduled
balance of $2,500,353 will become due and payable.
The Company acquired operating software pursuant to a capital lease
transaction anticipated to total $160,000. The lease obligation, which
includes a lessor security interest, is payable over a five-year period in
monthly payments of approximately $3,300, including interest at 8.20%.
5. Effective this current year, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting
and displaying comprehensive income and its components. Comprehensive
income is defined as net income and all other non-owner changes in equity.
Components of comprehensive income, as it applies to the Company, would
include the write-up or write-down of securities held for sale to market
value. The effects of such adjustments to comprehensive income for the
third quarter and nine months ended January 2, 1999 and January 3, 1998
are not material and do not affect the Company's reported results of
operations or financial position.
6. The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
This Statement, which is effective beginning with annual financial
statements issued for periods beginning after December 15, 1997 requires
financial and descriptive information about an entity's operating
segments to be included in the financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operations
Third quarter sales declined to $4,025,000 or 13% from $4,638,000 from
that reported a year ago. This drop in volume is a continuation of similar
reductions in the first half of the year and is centered primarily on
demonstration and mail sales activities. Efforts to reverse this trend have
been made through additional advertising, promotion and other new selling
efforts. As a result selling expenses increased by $415,000 in the quarter
when compared to last year's results.
Gross margins declined in the third quarter by $528,000 or 21% from last
year as a result of the reduced sales activity and because of the effects of
reduced production volumes. Administrative expenses were reduced by $104,000
from last year reflecting lower compensation and incentive costs.
In the nine months ended January 2, 1999, sales were $10,974,000 or 14% down
from the $12,805,000 reported last year. Gross profits declined, due to
reduced sales and production volume, to $5,684,000 or 20% from the
$7,108,000 reported last year. Nine-month selling expenses increased by
over $400,000 reflecting management's emphasis on expanding its marketing
and promotional efforts.
Provisions for Federal, state and local income taxes for the current year
are based on anticipated annual effective tax rates. A valuation allowance
of $17,000 was established in the third quarter of 1999 to recognize
expected expiration of tax credits. In the previous year, Federal income
tax expense was almost entirely offset by reductions in valuation reserves
related to deferred tax amounts, including tax loss and credit carryforwards
pursuant to SFAS 109.
Because of the above, net losses of $317,000 and $401,000 were incurred in
the quarter and nine months ended January 2, 1999 compared to net income of
$392,000 and $942,000 reported in the same periods of last year.
Liquidity and Financial Position
The net loss for the first nine months of 1999 together with capital asset
additions and common stock repurchases caused a $677,000 reduction in
working capital during that period to $3,360,000 as of January 2, 1999. The
expansion of inventories and accounts receivable totaling $562,000 since
the first of the year together with liquidation of $586,000 of current
liabilities caused operating activities to consume $1,411,000 of cash.
Liquidation of short-term investments funded these operating cash
requirements. For the same nine-month period last year, a total $341,000 of
cash was used in operations to increase inventories and to reduce current
liabilities. This need was funded from earnings.
The Company's assets include $1,194,000 of currently recoverable and
deferred income tax assets at January 2, 1999. Presently, the Company
believes that these assets are realizable and represent management's
best estimate based on the weight of available evidence as prescribed in
SFAS 109. Management will continue to evaluate these assets and the
need for valuation allowances based on near -term operating results and
longer-term projections.
<PAGE>
During the third quarter of the current fiscal year the Company financed
the purchase of its present facilities (as more fully described in note
4 of these financial statements) for $2,900,000. A $100,000 down
payment was made with monthly payments of principal and interest of
about $26,000 due until the year 2003 at which time a balloon payment of
$2.5 million will be due. The Company also utilized a capitalized lease
to finance financial software requiring $3,000 of monthly payments for a
five-year period.
The current ratio was 2.38 at January 2, 1999 compared to 2.39 at the
beginning of the year. Debt to equity ratios increased to 1.11 from .56
at the first of the year because of the aforementioned purchase transaction.
Year 2000 Impact
The year 2000 issue is related to computer software utilizing two digits
rather than four to define the year. As a result, any of the Company's
computer programs or any of the Company's suppliers that have date
sensitive software may cause system failures or generate incorrect data.
The Company has identified information technology applications that will
require modification to ensure year 2000 compliance. Evaluation and
testing of on-going programs is underway. Replacement of certain of
these systems has been identified and related software has been
acquired. Non-information technology systems are presently being
evaluated. While no formal contingency plan has been adopted, the
Company believes that it will be able to deal with Year 2000 issues as
they arise without material disruption of its business.
The Company has communicated with its major suppliers and financial
institutions to assess the impact on the Company's operations should
they fail to achieve Year 2000 compliance. Based on responses to date,
many of these third parties indicate programs in place without specific
confirmation of year 2000 compliance.
Costs incurred to date for year 2000 activities have not been material
to the Company. Also, the Company believes that its current estimate of
total costs of compliance will not have a material adverse impact on
results of operations or financial condition.
Achievement of year 2000 compliance is subject to a variety of risks
beyond the Company's control, including continued availability of
personnel and preparedness of third parties. The failure of the
Company, its customers, vendors, taxing and governmental authorities to
achieve Year 2000 readiness could adversely affect the Company's
operations and/or financial condition. Year 2000 failures could
adversely affect aspects of the business such as procurement of
materials, scheduling of selling events, processing of sales orders and
functioning of the Company's Internet web pages.
<PAGE>
Forward Looking Statements
The foregoing discussion and the Company's consolidated financial
statements contain certain forward-looking statements that involve risks
and uncertainties, including but not limited to the following: (a) the
adequacy of operating cash flows over the next several years together
with currently available working capital to finance the operating needs
of the Company, (b) successful implementation of Year 2000 compliance by
the Company and its suppliers, (c) the absence of unanticipated costs
and delays in achieving Year 2000 compliance and (d) the Company's
ability to effectively deal with Year 2000 issues.
Item 3. Quantitative and qualitative disclosures about market risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
(a) Exhibits:
(4.10) Promissory note and mortgage, dated December 31,1998 between Mid-
States Development Company and the Company related to the purchase of
the 6530 Poe Avenue, Dayton, Ohio property.
(27) Financial Data Schedule for the period ended January 2, 1999.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SHOPSMITH, INC.
By /s/ William C.Becker
William C. Becker
Vice President of Finance ( Principal Financial
And Accounting Officer)
Date: February 12, 1999
<PAGE>
PROMISSORY NOTE
Principal Amount $2,800,000.00 Dated: _____________, 1998
Executed and Deliveredin Dayton, Ohio
For value received, Shopsmith, Inc., an Ohio corporation (the
"Maker") promises to pay to the order of Mid-States Development
Company, an Ohio general partnership (the "Holder"), at 4000
Miller-Valentine Court, Dayton, Ohio 45439, or at such other
address as the Holder hereof may from time to time designate, the
principal sum of Two Million Eight Hundred Thousand Dollars
($2,800,000.00), together with interest thereon, subject to the
terms and conditions, all as hereinafter provided.
1. Interest Rate:
Interest will be charged on the unpaid principal balance from
the date hereof until paid at the rate of 8.75% per annum.
2. Payments and Maturity:
A. On the date hereof the Maker shall pay to the Holder
interest computed from the date hereof through and including the
last day of December, 1998.
B. Commencing with on or before the first day of February,
1999, and continuing on or before the first day of each of the
next forty-six (46) months, Maker shall make monthly installment
payments of principal and interest to Holder in the amount of
Twenty-Five Thousand Seven Hundred Eighty-Five Dollars
($25,785.00) each.
C. On or before the first day of January, 2003 ("Scheduled
Maturity Date"), the Maker shall pay, if not sooner paid, the
entire unpaid principal balance and unpaid interest thereon.
3. Late Charge
In the event that Maker fails to make any payment within ten
(10) days of the scheduled due date of such payment, Maker shall
pay to Holder a late charge equal to 3% of the amount of such
payment. Only one such payment shall become due in connection
with any one late payment. Any Late Charge which Maker may become
obligated to pay pursuant to the terms of this Note shall be due
and payable without notice or demand immediately on the occurrence
of the event which gives rise to such obligation.
<PAGE>
4. Acceleration and Default Date
In the event Maker fails to make any payment within fifteen
(15) days of when due hereunder, or in the event there occurs an
event of default under or as defined in the Security Documents
(hereinafter defined), then, in any such event, the Holder may, at
its option, accelerate the maturity of this Note and the entire
unpaid principal amount, together with all accrued but unpaid
interest to the date of such acceleration at the rate above
provided and thereafter at the rate which is two (2) percentage
points in excess of the interest rate as otherwise determined
hereunder (default rate), shall be immediately due and payable
without demand or notice, both of which are expressly waived by
Maker.
5. Prepayment
Maker may from time to time prepay, on written notice to
Holder at least sixty (60) days in advance of such prepayment, the
unpaid principal balance in whole or in part; provided, that any
partial prepayment shall be applied to reduce the unpaid principal
balance and applied in the inverse chronological order in which
such sums are otherwise scheduled to be paid, and shall not
postpone the due date of any subsequent installments (except for
the final such installment which shall be in the amount of the
total unpaid principal and unpaid interest thereon), or change the
amount of such installments, unless the Holder shall otherwise
agree in writing.
6. Security Interest
This Note is secured by a mortgage (Mortgage) of even date
on property located in Montgomery County, Ohio, which gives the
Holder of this Note the right to accelerate the scheduled maturity
date hereof upon the terms and conditions therein stated, the
Mortgage together with any other document or instrument executed
by Maker in favor of Mortgagee, which provides security for the
repayment of the obligations evidenced by this Note are referred
to collectively as the Security Documents.
7. Application of Payments
All payments made on this Note shall be applied (a) first, to
repayment of any sum advanced by Holder for protection of the
property described in the Security Documents, including, but not
limited to, the amounts advanced by Holder for insurance, real
estate taxes and assessments, or other costs or expenses
authorized by the Security Documents to be advanced by the Holder,
all together with interest thereon at the same rate of interest as
provided by and then in effect under this Note; (b) second, to
payment of late charges; (c) third, to payment of interest then
due and payable; and (d) last, to the payment of principal.
<PAGE>
8. Presentment, etc. Waived
Presentment, demand for payment, notice of dishonor, notice
of protest, notice of non-payment and any other demands or
notices which may, but for this provision, be required, are hereby
waived by Maker and all debtors, sureties, guarantors and
endorsers hereof.
9. Miscellaneous:
A. This Note shall be governed and construed in accordance
with the laws of the State of Ohio.
B. The computation of interest from and including the date
of this Note to but excluding the first day of the next month (the
"Initial Period") shall be calculated by multiplying the actual
number of days elapsed, including the date of this Note, by the
quotient obtained by multiplying the principal sum outstanding by
the interest rate and dividing the product thereof by 365. The
same method of calculation shall be used for calculating interest
due on each monthly installment or for any irregular period which
may result from prepayments or otherwise. Payments due on the
first of the month but received before the first of month shall be
credited on the first of the month, and any such payment received
after the first of the month shall be credited on the date of
receipt. All payments due hereunder are to be paid in lawful
money of the United States and, if other than cash, are subject to
collection.
C. This Note shall be the joint and several obligation of
all makers, sureties, guarantors and endorsers and shall be
binding upon each of them and their respective successors and
assigns.
D. The failure or delay of the Holder to exercise any
right, power or remedy shall not be or be deemed to be a waiver
thereof; nor shall any single or partial exercise of any right,
power or remedy preclude any other or further exercise of that or
any other right, power or remedy. All rights, powers and remedies
of Holder herein provided are cumulative and not exclusive of any
right, power or remedy otherwise provided by law or equity.
E. Headings and captions are included for convenience of
reference only and shall not be used to define or otherwise
interpret this Note or the provisions hereof.
F. If any of the terms of provisions hereof shall be
determined to be unenforceable, the enforceability of the
remaining terms and provisions shall not be affected thereby.
<PAGE>
10. Warrant of Attorney
The undersigned hereby authorizes any attorney-at-law to
appear in any Court of record in the State of Ohio or any other
State or Territory of the United States after this Note becomes
due by acceleration or otherwise, and waive the issuing and
service of process and confess judgment against the Maker in favor
of the Holder for the amount then appearing due and the cost of
suit, and thereupon to release all errors and waive all rights of
appeal and stay of execution. If any judgment against Maker is
vacated for any reason, then this warrant of attorney shall
automatically be revived and may be used to obtain additional
judgments.
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.
MAKER:
SHOPSMITH, INC.
By_________________________________
Print
Name:__________________________
Title:______________________________
Date:_______________________________
<PAGE>
MORTGAGE AND ASSIGNMENT OF RENTS
AND LEASES, AND SECURITY AGREEMENT
THIS MORTGAGE AND ASSIGNMENT OF RENTS AND LEASES, AND
SECURITY AGREEMENT is made as of this _________ day of
____________, 1998, by and between SHOPSMITH, INC., an Ohio
corporation, with offices located at 6530 Poe Avenue, Dayton, Ohio
45414 ("Mortgagor"), and MID-STATES DEVELOPMENT COMPANY, an Ohio
general partnership, with offices at 4000 Miller-Valentine Court,
Dayton, Ohio 45439 ("Mortgagee"), under the following circumstan-
ces:
A. Mortgagor is the owner of certain real property (the
"Land") situate in Montgomery County, Ohio, and being
more particularly described in Exhibit A attached hereto
and made a part hereof.
B. Mortgagor is indebted to Mortgagee in the principal sum
of $2,800,000, which indebtedness is evidenced by
Mortgagor's promissory note of even date herewith (the
"Note").
NOW, THEREFORE, in consideration of and in order to secure to
Mortgagee the (i) repayment of the indebtedness evidenced by the
Note, with interest thereon, and all renewals, extensions and
modifications thereof and substitutions therefor; (ii) payment of
all other sums, with interest thereon, advanced in accordance with
the Note or herewith to protect the security of this Mortgage; and
(iii) performance of the covenants and agreements of Mortgagor
contained herein, in the Note and in any other document or instru-
ment executed by Mortgagor to and in favor of Mortgagee for the
purpose of further securing the repayment of the indebtedness
evidenced by the Note, Mortgagor does hereby grant, with mortgage
covenants, to Mortgagee, all of Mortgagor's right, title and
interest in and to the following:
(a) The Land;
(b) All buildings, structures, additions, enlargements,
modifications, repairs and replacements of every nature whatsoever
now or hereafter erected, constructed, placed or otherwise
situated on the Land; together with all shrubs, trees, plants and
landscaping, signs and sign pylons, paved areas and other
improvements now or hereafter situated on the Land (collectively,
"Improvements");
<PAGE>
(c) all machinery, equipment and fixtures which are or shall
be located in, on, to, upon, or appurtenant to or used in
connection with the Improvements, including but not limited to all
heating, air conditioning and ventilating equipment and systems,
plumbing, lighting, electrical, communications alarm, sprinkler,
and elevator systems and equipment, carpeting and other floor
coverings, computers and associated software and hardware used for
the purpose of operating any building system or component, window
screens, awnings and storm sashes, together with all replacements
and substitutions and all proceeds and products thereof
(collectively "Fixtures"); provided, in no event shall Fixtures
include any compressors, equipment or machinery used in
Mortgagor's production processes (all of the items described in
this subparagraph (c) being limited to such of the foregoing items
as are owned by Mortgagor, and together with the Land and
Improvements being collectively referred to as the "Real
Property");
(d) all permits, licenses and franchises, now or hereafter
owned by Mortgagor and located in, on or about, or used or
intended to be used with or in connection with the use, operation
or enjoyment of the Real Property; all site plans, surveys,
geological and soils studies and reports, market studies, surveys
and reports, architectural renderings and models, plans and
specifications, engineering plans and studies, floor plans and
landscaping plans and other similar plans and diagrams, together
with the benefit of any deposits or payments now or hereafter made
by Mortgagor or on its behalf in connection with any of the
foregoing (all of the items described in this subparagraph (d)
being collectively referred to as the "Personal Property");
(e) All leases or other agreements affecting the use,
enjoyment or occupancy of the Real Property, now existing or
hereafter arising, including, without limitation, rights to any
cash or securities deposited thereunder to secure performance by
tenants of their obligations, all rents, payments, revenues,
issues and profits whatever paid or accruing thereunder (all of
the items described in this Subparagraph (e) being collectively
referred to as the "Leases");
(f) All agreements, contracts, warranties, bonds and other
contract rights, licenses, trade names, trademarks, logos,
designs, graphics, art work and all similar items owned or entered
into by Mortgagor and used or designed for use in connection with
the use, maintenance, operation or enjoyment of the Real Property
or the Personal Property, all impound and/or escrow account
balances and all other intangible personal property owned by
Mortgagor relating to the Real Property or the Personal Property;
(g) All oil, gas, water and mineral rights, whether or not
appurtenant to the Real Property, owned by Mortgagor which affect
the Real Property;
(h) All easements, rights-of-way, air rights, riparian
rights, and other rights, privileges and appurtenances to the
Real Property; all interest in (i) strips or gores, if any,
between the Land and abutting land, and (ii) land lying in or
under the bed of any street, alley, road or right-of-way, opened
or proposed, abutting or adjacent to or within the Land;
<PAGE>
(i) insurance proceeds payable with respect to loss to all
or any portion of the Real Property or the Personal Property
regardless of when occurring, and condemnation awards (or other
payment in lieu thereof) payable with respect to damage, injury,
decrease in value to or condemnation of all or any portion of the
Real Property or the Personal Property occurring after the date
hereof;
(j) All after-acquired property attached to and/or used in
the operation of the Real Property or the Personal Property or any
part of either;
(k) The right, but not the obligation to, in the name and on
behalf of Mortgagor, to commence any action or proceeding to
protect the interest of Mortgagee in the Real Property and while
an Event of Default (hereafter defined) remains uncured, to appear
in and defend any action or proceeding brought with respect to the
Property;
(l) All other rights, privileges and appurtenances owned by
Mortgagor and in any way related to any of the foregoing.
All of the items described in subparagraphs (a) through (l) above
are herein collectively referred to as the "Property."
This Mortgage is given, upon the statutory condition, to
secure payment of $2,800,000.00 plus interest thereon as provided
in the Note. In addition to any other debt or obligation secured
hereby, this Mortgage shall secure unpaid balances of advances
made for payment of taxes, assessments, insurance premiums or
other costs, if any, incurred by Mortgagee for the protection of
the Property together with interest thereon as hereinafter
provided.
"Statutory condition" is defined in Section 5302.14 of the
Ohio Revised Code and provides generally that if Mortgagor pays
the principal and interest secured by this Mortgage, performs the
other obligations secured hereby and the conditions of any prior
mortgage, pays all taxes and assessments, maintains insurance
against fire and other hazards, and does not commit or suffer
waste, then this Mortgage shall be void.
It is a further condition of this Mortgage, and Mortgagor
hereby covenants and agrees as follows:
1. Covenants as to Mortgagor's Interest. Mortgagor
covenants that (i) it is lawfully seized of a fee simple estate to
the Property and has the right to mortgage, grant and convey the
Property, (ii) the Property is free and clear of all liens and
encumbrances created or suffered to come into existence by
Mortgagor or anyone claiming by, through or under Mortgagor,
except permitted exceptions as set forth on the Exhibit B attached
hereto and made a part hereof (the "Permitted Exceptions"), and
(iii) Mortgagor will warrant and defend the title to the Property
against any and all claims and demands of anyone claiming by,
through or under Mortgagor, subject only to "Permitted Exceptions"
and the lien created hereby is and will be kept as a first lien
upon the Property and every part thereof, subject only to the
foregoing.
<PAGE>
2. Application of Payments. All payments required to be
made to Mortgagee under this Mortgage or the Note shall be
applied, unless applicable law provides otherwise, first in
payment of any advances made pursuant to the terms hereof, then to
late charges under the Note, then to payment of accrued but unpaid
interest, and last to the principal of the Note.
3. Taxes, Assessments and Liens. Mortgagor shall pay all
water and sewer rates, taxes, assessments and other charges,
fines, impositions and rents, if any, attributable to, levied upon
or assessed against the Property. Mortgagor shall make payment
directly therefor and Mortgagor shall promptly furnish to
Mortgagee receipts evidencing such payments.
4. Liens. Mortgagor shall promptly discharge any lien
which has, or may have, priority over or equality with this
Mortgage, and will keep and maintain the Property free from the
claims of all persons supplying labor or materials to the
Property, Mortgagor shall promptly discharge any such mechanic's
or materialmen's lien either by payment thereof or by posting bond
with a court of competent jurisdiction in accordance with the
procedures set forth in Chapter 1311 of the Ohio Revised Code.
5. Insurance
(a) Mortgagor shall keep the Property insured against loss
or damage by fire, windstorm, and such other hazards, casualties
and contingencies, including vandalism and malicious mischief and
other risks covered by so-called "extended coverages" and "all
risk" forms of policies in the full amount of replacement cost
with only such deductibles as may be approved by Mortgagee, which
approval shall not be unreasonably withheld, and in no event in an
amount which would permit co-insurance provisions under such
policy to be applicable. All policies of insurance to be
furnished hereunder shall be placed with companies licensed to do
business in the State of Ohio which have reasonably been approved
by Mortgagee, contain standard mortgagee loss payable clauses
naming Mortgagee as the loss payee as its interests may appear.
All policies of insurance to be furnished hereunder shall include
a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without at least thirty
days' prior written notice to Mortgagee and contain a waiver of
subrogation clause as to Mortgagee. Mortgagor shall deliver to
Mortgagee certificates or other evidence reasonably satisfactory
to Mortgagee of all policies required to be maintained hereunder
and of any and all renewals or substitutions thereof or therefor,
evidence of such substitutions or renewals shall be delivered to
Mortgagee at least ten (10) days prior to the expiration of the
prior policy. During any construction, repair, restoration or
replacement of any of the Property, Mortgagor will obtain and keep
in effect a standard builder's risk policy with extended coverage
in the amount of one hundred percent (100%) of the value of the
improvements when completed, with a mortgagee loss payable clause
as aforesaid and such insurance shall be written in such manner
and by such companies as are approved by Mortgagee which approval
shall not be unreasonably withheld.
<PAGE>
(b) Mortgagee shall comply with all insurance requirements
and shall not bring or keep or permit to be brought or kept any
article upon any of the Property or cause or permit any condition
to exist thereon which would be prohibited by an insurance
requirement, or would invalidate the insurance coverage required
hereunder to be maintained by Mortgagor on or with respect to any
part of the Property.
(c) In the case of loss, Mortgagor shall give immediate
notice, in writing, by mail, to Mortgagee. Mortgagee (or in the
event this Mortgage shall be foreclosed, the purchaser at the
foreclosure sale) is hereby authorized to make proof of loss, if
not promptly made by Mortgagor. Each insurance company concerned
is authorized and directed to make payment for any such loss to
Mortgagee.
All such claims may be adjusted by Mortgagor, provided that
settlement of any claim reasonably in excess of $10,000 shall be
approved by Mortgagee.
The net proceeds of any such claim (meaning those proceeds
remaining after deducting all expenses incurred in the collection
thereof) shall be held by Mortgagee, to be expended, unless
otherwise elected by Mortgagor, provided no Event of Default
(hereinafter defined) exists, to the repair and restoration of the
Property to as good a condition as existed prior to the loss,
provided that if the Net Proceeds are insufficient therefor as
reasonably determined by Mortgagee, prior to delivering any funds
Mortgagee may require the deposit of such additional funds as to
provide sufficient funds to complete such repair and restoration
after completion of such . Should Mortgagor elect not to repair
or should an Event of Default (hereinafter defined) then exist,
then Mortgagee shall apply all Net Proceeds to the satisfaction of
all amounts secured hereby with any excess being distributed to
Mortgagor.
(d) Mortgagor will obtain and keep in full force and effect
Comprehensive General Liability insurance, including bodily
injury, death and property damage, liability coverages to the
extent of not less than $500,000 per occurrence against liability
for bodily injury, including death and $100,000 per occurrence for
property damage. Mortgagor will provide evident satisfactory to
Mortgagee that such insurance is in force and effect at all times
with companies licensed to do business in Ohio and which have been
reasonably approved by Mortgagee.
<PAGE>
6. Preservation and Maintenance of the Property. Mortgagor
shall (a) not permit or commit waste, impairment, or deterioration
of the Property, (b) restore or repair promptly and in a good and
workmanlike manner all or any part of the Property in the event of
any damage, injury or loss thereto, whether or not insurance
proceeds are available to cover, in whole or in part, the costs of
such restoration or repair, (c) keep the Property in good repair,
(d) comply with all laws, ordinances, regulations and requirements
of any governmental body applicable to the Property. Neither
Mortgagor nor any tenant or other person, without the prior
written consent of Mortgagee, shall remove, demolish or alter any
improvement now existing or hereafter erected on the Property or
any fixture, equipment, machinery or appliance in or on the
Property except when incident to the replacement of fixtures,
equipment, machinery and appliances with items of like kind and as
good or better quality.
7. Use of the Property. Unless required by applicable law
or unless Mortgagee has otherwise agreed in writing, Mortgagor
shall not allow changes in the nature of the occupancy for which
the Property was intended at the time this Mortgage was executed.
Mortgagor shall not initiate or acquiesce in a change in the
zoning classification of the Property without Mortgagee's prior
written consent.
8. Protection of Mortgagee's Security. If Mortgagor fails
to perform the covenants and agreements contained in this
Mortgage, or if any action or proceeding is commenced which
adversely affects the Property or title thereto or the interest of
Mortgagee therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings
involving a bankrupt or decedent, then Mortgagee at Mortgagee's
option may make such appearances, disburse such sums and take such
action as Mortgagee deems necessary to protect Mortgagee's
interest, including, but not limited to, disbursement of
attorney's fees and entry upon the Property to make repairs. Any
amounts disbursed by Mortgagee pursuant to this Paragraph,
together with interest thereon as hereinafter provided, shall
become additional indebtedness of Mortgagor secured by this
Mortgage. Unless Mortgagor and Mortgagee agree to other terms of
payment, such amounts shall be payable upon notice from Mortgagee
to Mortgagor requesting payment thereof, and such amounts shall
bear interest from the date of disbursement until repaid at 10%
per annum.
Nothing contained in this Paragraph shall require Mortgagee
to incur any expense or do any act.
9. Inspection. Upon at least 24 hours notice to
Mortgagor, Mortgagee may make or cause to be made reasonable
entries upon and inspections of the Property during normal
business hours. Any such entry or inspection will be conducted in
such manner so as to minimize any disruption to the normal conduct
of business and operations on the Property by Mortgagor tenants or
others.
<PAGE>
10. Condemnation. (a) If all or substantially all of the
Property shall be damaged or taken through condemnation (which
term when used in this Mortgage shall include any damage or taking
by any governmental authority and any transfer by private sale in
lieu thereof), the entire indebtedness secured hereby shall, at
the Mortgagee's option, become immediately due and payable.
(b) In case of a condemnation of less than
substantially all of the Property, the condemnation award (after
deduction of the costs and expenses incurred by any party in
collecting that award) shall be held, disbursed and applied in the
same manner and on the same terms and conditions as provided in
the case of fire or other casualty.
(c) Mortgagee shall be entitled to all compensation,
awards and other payments of relief thereof, and is hereby
authorized, at its option, to commence, appear in and prosecute,
in its own or the Mortgagor's name, any action or proceeding
relating to any condemnation, and to settle or compromise any
claim in connection therewith. All such compensation, awards,
damages, claims, rights of action and proceeds and the right
thereto are hereby assigned by Mortgagor to Mortgagee, who, after
deducting therefrom all its expenses, including attorneys' fees,
may release any monies so received by it without affecting the
security interest of this Mortgage and may apply the same in such
manner as Mortgagee shall determine, to the reduction of the sum
secured hereby, and any balance of such monies then remaining
shall be paid to Mortgagor; except that if the provisions of
Subparagraph (b) of this paragraph, are applicable, such net
proceeds shall be applied in accordance with such Paragraph.
Mortgagor agrees to execute such further assignment of any
compensation, awards, damages, claims, rights of action and
proceeds as Mortgagee may reasonably require. Notwithstanding
anything to the contrary contained in this Paragraph, if prior to
the receipt by Mortgagee of such award or proceeds, the Property
shall have been sold on foreclosure of this Mortgage, Mortgagee
shall have the right to receive such award or proceeds to the
extent of any unpaid secured indebtedness following such sale,
with interest thereon at the same rate as provided in the Note,
whether or not a deficiency judgment on this Mortgage or the Note
shall have been sought or recovered, and to the extent of
reasonable counsel fees, costs and disbursements incurred by
Mortgagee in connection with the collection of such award or
proceeds.
<PAGE>
11. Mortgagor and Mortgage Not Released. From time to time,
without affecting the (a) obligation of Mortgagor or Mortgagor's
successors or assigns to pay the sums secured by this Mortgage and
to observe the covenants of Mortgagor contained herein or in the
Note, and (b) lien or priority of lien hereof on the Property,
Mortgagee may, at Mortgagee's option, without giving notice to or
obtaining the consent of Mortgagor, Mortgagor's successors or
assigns or of any junior lienholder, and without liability on
Mortgagee's part, extend the time for payment of the indebtedness
secured hereby or any part thereof, reduce the payments thereon,
release anyone liable on any of such indebtedness, accept a
renewal note or notes therefor, modify the terms and time of
payment thereof, release from this Mortgage any part of the
Property, take or release other or additional security, reconvey
any part of the Property, consent to any map or plat of the
Property, consent to the granting of any easement, join in any
extension or subordination and agree in writing with Mortgagor to
modify the rate of interest or period of payment of the Note or
change the amount of the monthly installments payable thereunder.
Mortgagor shall pay Mortgagee a reasonable service charge,
together with such title insurance premiums and attorney's fees as
may be incurred at Mortgagee's option, for any such action if
taken at Mortgagor's request.
12. Forbearance Not a Waiver. Any forbearance by Mortgagee
in exercising any right or remedy hereunder, or otherwise afforded
by applicable law, shall not be a waiver of or preclude the
exercise of any right or remedy hereunder. The procurement of
insurance by Mortgagee shall not be a waiver of Mortgagee's right
to accelerate the maturity of the indebtedness hereby secured.
Mortgagee's receipt of any awards, proceeds or damages under
Paragraphs 5 and 10 hereof shall not operate to cure or waive
Mortgagor's default in payment of sums secured by this Mortgage.
13. Remedies Cumulative. All remedies provided in this
Mortgage are distinct and cumulative to any other right or remedy
under this Mortgage or afforded by law or equity, and may be
exercised concurrently, independently, or successively.
<PAGE>
14. Acceleration in Case of Mortgagor's Insolvency. If
Mortgagor shall voluntarily file a petition under the Federal
Bankruptcy Code or under any state bankruptcy or insolvency act or
an answer in any involuntary proceeding admitting insolvency or
inability to pay debts, or if Mortgagor shall fail to obtain a
vacation or stay of any such involuntary proceedings (within 60
days of the commencement thereof) brought for reorganization,
dissolution or liquidation of Mortgagor, or if Mortgagor shall be
adjudged a bankrupt, or if a trustee or receiver shall be
appointed for Mortgagor or Mortgagor's property, or if Mortgagor
shall make an assignment for the benefit of Mortgagor's creditors;
then in any such event Mortgagee may, at Mortgagee's option,
declare all of the sums secured by this Mortgage to be immediately
due and payable without prior notice to Mortgagor, and Mortgagee
may invoke any remedies permitted by of this Mortgage. If after
any such proceedings, actions or assignments are brought or
commenced, the same are completely terminated, dismissed or
revoked by a final nonappealable order of a court of competent
jurisdiction, Mortgagor shall be entitled to have this Mortgage
and the Note reinstated; provided that, at the time that such
termination, dismissal or revocation is effective, an entry in
confirmation of the sale of the Property in the foreclosure
proceedings commenced by Mortgagee has not been issued, Mortgagee
shall have received from Mortgagor all fees and expenses to which
it is entitled pursuant to this Mortgage and no other Event of
Default has occurred and is continuing.
15. Security Agreement. This Mortgage shall be construed as
a "Security Agreement" within the meaning of and shall create a
security interest under the Uniform Commercial Code as adopted by
the State of Ohio with respect to any part of the Property which
constitutes fixtures or personal property. Mortgagee shall have
all the rights with respect to such fixtures and personal property
afforded to it by such Uniform Commercial Code in addition to, but
not in limitation of, the other rights afforded Mortgagee by this
Mortgage or any other agreement.
If an Event of Default shall occur and be continuing,
Mortgagee may, with respect to any personal property covered by
this Mortgage, exercise any of the rights and remedies provided by
the Uniform Commercial Code of the State of Ohio, including but
not limited to the right to require Mortgagor to assemble such
personal property and make it available to Mortgagee at a place to
be designated by Mortgagee which is reasonably convenient to both
parties, the right to take possession of such personal property
with or without process of law and the right to sell and dispose
of the same and distribute the proceeds according to law. The
parties hereto agree that any requirement of reasonable notice
shall be met if Mortgagee sends such notice to the Mortgagor at
least five days prior to the date of sale, disposition or other
event giving rise to the required notice, and that the proceeds of
any disposition of any of such personal property may be applied by
Mortgagee first to the reasonable expenses in connection
therewith, including reasonable attorneys' fees and legal expenses
incurred, and then to payment of the indebtedness secured hereby.
<PAGE>
16. Further Assurances: After Acquired Property. At any
time, and from time to time, upon request by Mortgagee, Mortgagor
will make, execute and deliver or cause to be made, executed and
delivered, to Mortgagee, and where appropriate, cause to be
recorded and/or filed and from time to time thereafter to be re-
recorded and/or refiled at such time and in such offices and
places as shall be deemed desirable by Mortgagee, any and all such
other and further mortgages, security agreements, financing
statements, continuation statements, instruments of further
assurances, certificates and other documents as may, in the
opinion of Mortgagee, be necessary or desirable in order to
effectuate, complete, perfect, or to continue and preserve (a) the
obligations of Mortgagor under the Note and this Mortgage, and (b)
the lien and security interest of this Mortgage upon all of the
Property, whether now owned or hereafter acquired by Mortgagor,
subject only to the Permitted Exceptions. Upon any failure by
Mortgagor so to do, Mortgagee may make, execute, record, file, re-
record and/or refile any and all such mortgages, security
agreements, financing statements, continuation statements,
instruments, certificates and documents for and in the name of
Mortgagor, and Mortgagor hereby irrevocably appoints Mortgagee the
agent and attorney-in-fact of Mortgagor so to do. The lien and
security interest hereof will automatically attach, without
further act, to all after acquired property attached to and/or
used in the operation of the Property or any part thereof.
17. Assignment of Rents. As part of the consideration for
the indebtedness evidenced by the Note, Mortgagor hereby
absolutely and unconditionally assigns and transfers to Mortgagee
the rents and revenues of the Property, including those now due,
past due, or to become due by virtue of any lease or other
agreement for the occupancy or use of all or any part of the
Property. Mortgagee hereby authorizes Mortgagor to collect the
aforesaid rents and revenues and hereby directs each tenant of the
property to pay such rents to Mortgagor, provided that no Event of
Default (hereinafter defined) exists and that no such rent or
revenue is paid more than one month in advance. Mortgagor agrees
that any Tenant of the Property, upon being advised by Mortgagee
that an Event of Default exists, shall thereafter pay such rents
to Mortgagee or Mortgagee's agents on Mortgagee's written demand
therefor without any liability on the part of said tenant to
inquire further.
The Mortgagor further agrees to pay to any receiver appointed
to collect the rents, issues and profits of the Property or any
part thereof a fair and reasonable rent for the use and occupancy
of the Property or of such part of them as may be in the
possession of the Mortgagor; and on default in payment of such
rental, to vacate and surrender possession of the premises, or
that portion occupied by the Mortgagor, to the Mortgagee or the
receiver appointed.
<PAGE>
Mortgagor hereby covenants that Mortgagor has not executed
any prior assignment of such rents, that Mortgagor has not
performed, and will not perform, any acts or has not executed, and
will not execute, any instruments which would prevent Mortgagee
from exercising its rights under this Paragraph and that at the
time of execution of this Mortgage there has been no anticipation
or prepayment of any of the rents of the Property for more than
one month prior to the due dates of such rents. Mortgagor further
covenants that Mortgagor will not hereafter collect or accept
payment of any rents of the Property.
Upon discharge of this Mortgage, this assignment of rents of
the property shall terminate.
18. Notice. Any notice to Mortgagor provided for in this
Mortgage shall be deemed to be delivered or given three (3)
business days after mailed by certified mail, return receipt
requested, postage prepaid, addressed to Mortgagor at the
following address:
Shopsmith, Inc.
c/o John A. Folkreth, Sr., President
6530 Poe Avenue
Dayton, Ohio 45414
with a copy to
Joan Roddy, Esq.
Thompson, Hine & Flory
P. O. Box 8801
Dayton, Ohio 45401
Any notice to Mortgagee provided for in this Mortgage shall be
deemed to be delivered or given three (3) business days after
mailed by certified mail, return receipt requested, postage
prepaid, addressed to Mortgagee at the following address:
Mid-States Development Company
4000 Miller-Valentine Court
Dayton, Ohio 45439
Attention: Vern Oakley
with a copy to:
Edward H. Siddens
Bieser, Greer & Landis
400 National City Center
6 North Main Street
Dayton, Ohio 45402
<PAGE>
19. Successor and Assigns. The covenants and agreements
herein contained shall bind, and the rights hereunder shall inure
to, the respective successors and assigns of Mortgagee and
Mortgagor.
20. Captions. The captions and headings of the paragraphs
of this Mortgage are for convenience only and are not to be used
to interpret or define the provisions hereof.
21. Governing Law: Severability. This Mortgage shall be
governed by the law of Ohio. In the event that any provision or
clause of this Mortgage or the Note conflicts with applicable law,
such conflict shall not affect other provisions of this Mortgage
or the Note which can be given effect without the conflicting
provision, and to this end the provisions of the Mortgage and the
Note are declared to be severable. In the event that any ap-
plicable law limiting the amount of interest or other charges
permitted to be collected from Mortgagor is interpreted so that
any charge provided for in this Mortgage or in the Note, whether
considered separately or together with other charges that are
considered a part of this Mortgage and the Note transaction,
violates such law, and Mortgagor is entitled to the benefit of
such law, such charge is hereby reduced to the extent necessary to
eliminate such violation. Any payments, in excess of the
allowable amount previously paid pursuant to such charges shall
be applied by Mortgagee to reduce the principal of the
indebtedness evidenced by the Note or refunded to Mortgagor as
Mortgagee may elect.
22. Events of Default. the occurrence of any one or more of
the following events shall constitute an "Event of Default":
(a) Failure to make any payment of (i)
interest and principal within fifteen (15)
days after the same is due pursuant to the
provisions of the Note, or (ii) the entire
principal due under the Note on or before the
scheduled maturity date as defined in the
Note.
(b) If Borrower violates or does not
comply with any of the provisions of Paragraph
25.
(c) If any representation or warranty of
Mortgagor made herein, or in any certificate,
report, financial statement or other
instrument or document furnished to Mortgagee
shall have been false or misleading in any
material respect when made.
<PAGE>
(d) Except for the specific defaults set
forth in this Paragraph 22, any other default
hereunder by Mortgagor, which default is not
cured within thirty (30) days after written
notice from Mortgagee to Mortgagor specifying
such default, provided that if such default
cannot reasonably be cured within such thirty
(30) day period and Mortgagor shall have
commenced to cure such default within such
thirty (30) day period and thereafter
diligently and expeditiously proceeds to cure
the same, such thirty (30) day period shall be
extended for so long as required in the
exercise of due diligence to cure such
default.
(e) Mortgagor shall make an assignment
for the benefit of creditors or if Mortgagor
shall generally not be paying its debts as
they become due; or
(f) If Mortgagor shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
conservatorship or relief of debtors seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Mortgagor shall make a general assignment for
the benefit of its creditors; or there shall be commenced against
Mortgagor any case, proceeding or other action of a nature referred to
above which results in the entry of an order for relief or any such
adjudication or appointment or remains undismissed, undischarged or
unbonded for a period of ninety (90) days; or there shall be commenced
against the Mortgagor any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results
in the entry of any order for any such relief which shall not have been
vacated, discharged, stayed or bonded pending appeal within ninety
(90) days from the entry thereof; or the Mortgagor shall take any action
in furtherance of, or indicating its consent to, approval of, or
acquiescence in any of the acts set forth in this subparagraph (F).
<PAGE>
23. Remedies:
Immediately upon the occurrence of any of the events of
default referred to above in Paragraph 22, Mortgagee shall have
the option, in addition to and not in lieu of or substitution for,
all other rights and remedies provided by law, to do any or all of
the following:
(a) Declare the entire balance of the indebtedness
hereby secured immediately due and payable, and if the
same is not paid on demand, at Mortgagee's option, to
bring suit therefor; to demand payment of and if the
same is not paid on demand, to bring suit for any
delinquent installment payment under the Note or
otherwise; to take any and all steps and institute any
and all other proceedings that the Mortgagee deems
necessary to enforce the indebtedness and obligations
secured hereunder and to protect the lien of this
Mortgage.
(b) In the event of a default because of the
existence of any lien that is or in the reasonable
judgment of Mortgagee may be superior to this lien,
Mortgagee shall have the right (without being obligated
to do so or to continue to do so), without notice to
Mortgagor, to advance on and for the account of
Mortgagor such sums as Mortgagee, in its sole
discretion, deems necessary to cure such defaults or to
induce the holder of any such purported senior lien to
forebear from exercising its rights thereunder. The
repayment of all such advances, with interest thereon at
the rate set forth in the Note secured hereby from the
date of each such advance, shall be secured hereby and
shall be immediately due and payable without demand.
(c) Immediately commence foreclosure proceedings
against the Property or any part thereof.
24. Right to Receiver.
In any suit to foreclose this mortgage Mortgagee shall be
entitled to the appointment of a receiver of the rents, leases and
profits of the Property as a matter of right and without notice,
with power to manage and operate the Property, to collect the
rents, issues and profits of the Property due and to become due
during the pendency of such foreclosure to and including the date
of confirmation of the sale under such foreclosure and during the
redemption period, if any, after such confirmation, such rents and
profits having been expressly assigned and pledged as additional
security for the payment of the indebtedness secured by this
Mortgage without regard to the value of the Property or the
solvency of Mortgagor and regardless of whether there is an
adequate remedy at law. Mortgagor waives any and all defenses to
the application for a receiver and hereby specifically consents to
such appointment without notice, but nothing herein contained is
to be construed to deprive the holder of the mortgage of any other
right, remedy, or privilege it may now have under the law to have
a receiver appointed. The provision for the appointment of a
receiver and the assignment of such rents, issues and profits is
made an express condition upon which the loan hereby secured is
made.
<PAGE>
25. No Other Financing or Liens:
No Sales/Encumbrances:
Mortgagor agrees that Mortgagor shall not, without the prior
written consent of the Mortgagee, sell, convey, mortgage,
encumber, pledge, assign or otherwise transfer the Property or any
part thereof, except for leases not to exceed three (3) years in
duration which do not contain an option to purchase the Property
or any part thereof and are entered into in the normal course of
Mortgagor's business operation containing commercially reasonable
terms and conditions and rents.
26. Mortgagee Actions to be Reasonable: Notwithstanding
any other term herein to the contrary, whenever Mortgagee's
consent or approval is required, the same shall not be
unreasonably withheld or delayed. All actions taken by Mortgagee
pursuant hereto shall be commercially reasonable.
27. Environmental: Mortgagor agrees to comply with any and
all Federal, State or Local legislation, rules and regulations
relating to environmental protection including, but not limited
to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") as amended by the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), and any such
other legislation, rules and regulations as are in, or may come
into, effect and apply to the Property or in connection with the
use of the Property. Mortgagor shall indemnify and hold Mortgagee
harmless against any and all claims, costs or expenses relating to
a breach of the foregoing agreement.
<PAGE>
Witness the execution hereof this __________ day of
_______________________, 1998.
Signed and Acknowledged
in the Presence of:
SHOPSMITH, INC.
____________________________ By-
_____________________________
____________________________
(Printed Name)
_____________________________
Its____________________________
_____________________________
(Printed Name)
STATE OF OHIO )
) SS:
COUNTY OF MONTGOMERY )
The foregoing instrument was acknowledged before me this
_________________ day of December, 1998, by
________________________________________,
________________________________________________, of Shopsmith,
Inc., an Ohio corporation, on behalf of the corporation.
______________________________
Notary Public
This instrument prepared by:
Edward H. Siddens, Attorney at Law
400 National City Center, 6 North Main Street
Dayton, Ohio 45402
<PAGE>
EXHIBIT A
(Property Description)
Situate in the City of Vandalia, County of Montgomery, State
of Ohio and being lot numbered Seven A (7A), 70/75 Corporate
Center, as replatted in Plat Book _______, page __________ of the
plat records of Montgomery County, Ohio.
EXHIBIT B
PERMITTED EXCEPTIONS
The following as to any particular time are "Permitted
Exceptions" as that term is used in this Mortgage:
1. Liens for real estate taxes and assessments not
then delinquent.
2. Utility, access and other easements and rights of
way, leases, restrictions and exceptions that appear in and
which have not been deleted from the Commitment for Title
Insurance issued by Chicago Title Insurance Company, being
commitment order number 97-029/D-76269MO, as the same has
been updated to the date hereof.
3. All matters listed in the deed by which Mortgagor
acquired title to the Property and which are listed therein
as being exceptions to the warranty of title given by Grantor
in such deed.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> JAN-02-1999
<CASH> 499,817
<SECURITIES> 1,022,444
<RECEIVABLES> 1,121,343
<ALLOWANCES> 567,852
<INVENTORY> 2,813,946
<CURRENT-ASSETS> 5,787,738
<PP&E> 10,331,839
<DEPRECIATION> 6,858,889
<TOTAL-ASSETS> 9,925,999
<CURRENT-LIABILITIES> 2,427,549
<BONDS> 2,794,569
<COMMON> 2,805,882
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,925,999
<SALES> 10,974,469
<TOTAL-REVENUES> 10,974,469
<CGS> 5,290,052
<TOTAL-COSTS> 6,365,715
<OTHER-EXPENSES> (92,855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (588,443)
<INCOME-TAX> (187,090)
<INCOME-CONTINUING> (401,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (401,353)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
