UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission file number 0-4479
THE OHIO ART COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-4319140
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 111, Bryan, Ohio 43506
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (419) 636-3141
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes__ X__ No _____
At July 31, 1997 there were 905,662 shares outstanding of the
Company's Common Stock at $1.00 par value.
Page 1 of 29
FORM 10-Q
PART I - FINANCIAL INFORMATION
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
June 30 June 30
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands, except per share data)
Net Sales $12,982 $12,106 $ 6,871 $ 6,785
Other Income 355 300 178 115
-------- -------- -------- --------
13,337 12,406 7,049 6,900
Costs and Expenses:
Cost of products sold 12,041 10,726 6,661 5,793
Selling, administrative
and general 5,682 5,449 3,051 2,698
Interest 397 120 239 92
-------- -------- -------- --------
18,120 16,295 9,951 8,583
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (4,783) (3,889) (2,902) (1,683)
Income Tax Credit (1,196) (1,361) (538) (589)
-------- -------- -------- --------
NET LOSS $(3,587) $(2,528) $(2,364) $(1,094)
======== ======== ======== ========
Net Loss Per Share (Note 3) $ (3.94) $ (2.73) $ (2.60) $ (1.18)
Dividends Per Share (Note 3) $ .12 $ .17 $ .04 $ .04
Average Shares Outstanding 911 928 908 924
(Note 3)
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
Page 2 of 29
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
1997 1996
------- -------
(Unaudited) (Note)
(Thousands of dollars)
ASSETS
Current Assets
Cash $ 478 $ 1,078
Accounts receivable, less allowance
(1997 - $469; 1996 - $365) 6,056 6,222
Inventories(Note 2)
On first-in, first-out cost method:
Finished products 4,083 3,997
Products in process 600 393
Raw materials 3,078 2,329
Less: Adjustment to reduce inventories
to last-in, first-out cost method (2,459) (2,429)
------- -------
5,302 4,290
Recoverable income taxes 1,849 711
Prepaid expenses 1,116 1,043
Deferred federal income taxes 692 692
------- -------
Total Current Assets 15,493 14,036
Property, Plant and Equipment
Cost 34,886 33,641
Less: Allowances for depreciation (23,043) (22,176)
------- -------
11,843 11,465
Other Assets 1,786 1,762
Goodwill 810 820
------- -------
$29,932 $28,083
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
NOTE: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
</FN>
Page 3 of 29
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30 December 31
1997 1996
------- -------
(Unaudited) (Note)
(Thousands of dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 3,747 $ 3,169
Other current liabilities 1,779 1,751
------- -------
Total Current Liabilities 5,526 4,920
Deferred Federal Income Taxes 733 733
Long-Term Obligations 13,577 8,375
Stockholders' Equity (Note 3)
Common Stock, par value $1.00 per share:
Authorized: 1,935,552 shares
Outstanding: 1997-905,854; 1996-922,277
shares (excluding treasury shares of
53,906 and 37,483 respectively) 906 922
Additional paid-in capital 214 225
Retained earnings 8,976 12,908
------- -------
10,096 14,055
------- -------
$29,932 $28,083
======= =======
<FN>
See notes to condensed consolidated unaudited financial statements.
NOTE: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
</FN>
Page 4 of 29
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30
-------------------
1997 1996
-------- --------
(Thousands of dollars)
Operating Activities
Net loss $(3,587) $(2,528)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for depreciation and amortization 867 632
Changes in accounts receivable, inventories,
prepaid expenses, other assets, accounts
payable, and other liabilities (1,463) (3,438)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,183) (5,334)
Investing Activities
Purchase of plant and equipment, less
net book value of disposals (1,245) (2,117)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (1,245) (2,117)
Financing Activities
Borrowings 5,800 5,300
Repayments (600) -0-
Purchase of treasury shares (263) (525)
Cash dividends (109) (160)
-------- --------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,828 4,615
-------- --------
Cash
Decrease during period (600) (2,836)
At beginning of period 1,078 2,800
-------- --------
CASH (OVERDRAFT) AT END OF PERIOD $ 478 $ (36)
======== ========
<FN>
See notes to condensed consolidated unaudited financial statements.
</FN>
Page 5 of 29
FORM 10-Q
THE OHIO ART COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1997
Note 1 - Basis of Presentation
The accompanying condensed consolidated unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations, and cash
flows in conformity with generally accepted accounting principles.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's annual report on Form 10-K for
the year ended December 31, 1996.
All adjustments necessary (consisting of normal adjustments), in the
opinion of management, for a fair statement of results for the periods
indicated have been made.
Due to the seasonal nature of the toy business in which the Company is
engaged and the factors set forth in Management's Discussion and
Analysis, the results of interim periods are not necessarily indicative
of a full calendar year.
Note 2 - Inventories
The Company takes a physical inventory annually at each location. The
amounts shown in the quarterly financial statements have been determined
using the Company's standard cost accounting system. An estimate, based
on past experience, of the adjustment which may result from the next
physical inventory has been included in the financial statements.
Inventories are priced at the lower of cost or market under the last-in,
first-out (LIFO) cost method. Since inventories under the LIFO method
can only be determined at the end of each fiscal year based on
quantities and costs at that time, interim inventory valuation must be
based on estimates of quantities and costs at year-end.
Note 3 - Average Shares Outstanding
During 1996 the Company declared a two for one stock split by way of a
dividend on all outstanding common stock excepting shares held in the
treasury. The Company used 190,000 shares of treasury stock and 280,751
of authorized but previously unissued common stock to effect the
dividend. All share (excepting treasury shares) and per share amounts
have been retroactively adjusted for the stock split.
Unallocated ESOP shares are deducted from outstanding shares of Common
Stock to arrive at average shares outstanding.
Page 6 of 29
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS
- ----------
Net sales for the six months ended June 30, 1997 increased approximately
7% to $12,982,000 from $12,106,000 for the comparable 1996 period and
increased slightly to $6,871,000 for the second quarter of 1997 from
$6,785,000 for the comparable 1996 period. The majority of the increase
for the six month period was in the Diversified Products Division,
specifically the metal lithography department which increased
approximately $630,000 from the comparable six month period. This
resulted from the new metal lithography equipment which became
operational early in 1997. Sales for the second quarter of 1997 were
adversely affected by the voluntary recall of the Splash Off Water
Rocket, a product which was introduced in early 1997.
The Company's business is seasonal, with approximately 60-70% of its
sales being made in the last six months of the calendar year in recent
years. Because of the seasonality of the Company's business, the dollar
order backlog in July is not necessarily indicative of expectations of
sales for the full year. Subject to industry practice and comments as
detailed in the Registrant's annual Form 10-K for the year ended
December 31, 1996, order receipts through July 31st are approximately
$32,600,000 versus $31,600,000 for the same period of 1996, or
approximately a 3% improvement over the prior year.
Gross profit margin (percentage) for the six months ended June 30, 1997
(7.2%) decreased from the comparable 1996 period (11.4%). Gross profit
margin percentage for the second quarter of 1997 significantly decreased
to 3.1% from 14.6% for the similar period of 1996. The majority of the
decrease is attributable to the voluntary recall of the Splash Off Water
Rocket. This resulted in a reduction of sales of $275,000 and an
additional charge to cost of sales of $200,000 to write-off inventory on
hand. Had the recall not occurred, gross profit margin percentage would
have been 10.7% for the six month period of 1997 and 9.6% for the second
quarter of 1997. The remaining decrease in gross margin percentage for
the second quarter of 1997 from the similar period of 1996 is primarily
the result of increased manufacturing overhead variances due to a
decrease in production at the Bryan, Ohio facility.
Selling, administrative, and general expenses for the six months ended
June 30, 1997 increased to $5,682,000 from $5,449,000 for the comparable
1996 period and increased to $3,051,000 for the second quarter of 1997
from $2,698,000 for the comparable 1996 period. The increase is
primarily additional advertising expense of $300,000 in the second
quarter of 1997 resulting from the voluntary recall of the Splash Off
Water Rocket.
Page 7 of 29
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Income tax credit for both the six month and three month period ending
June 30, 1996 as well as the three month period ending March 31, 1997
was calculated at 35% of the loss before income taxes. For the six
month period ending June 30, 1997 the income tax credit was adjusted to
25% by adjusting the second quarter of 1997. The Company will have a
net operating loss carryback with alternative minimum tax limitations.
The voluntary recall of the Splash Off Water Rocket, as detailed above,
resulted in an additional expense of $775,000 pre-tax, or $581,000 after
tax.
FINANCIAL CONDITION
- -------------------
The Company's current ratio decreased to 2.8 to 1 at June 30, 1997 from
2.9 to 1 at December 31, 1996. This change was the result of using cash
on hand, cash from the collection of accounts receivable, and the
non-current line of credit to finance the build-up of inventories, and
to finance the loss generated in the first six months of 1997. These
changes, which would have resulted in an increase in the current ratio,
were offset by an increase in accounts payable which was due to
increased inventory purchases.
On June 27, 1997, the Company renewed and increased its three-year
$10,000,000 Revolving Credit Agreement to $13,000,000 and extended the
maturity date until May 2000. The Company also replaced its one-year
term loan of $6,000,000 which expired on May 25, 1997 with a $6,000,000
term loan secured by the lithographic equipment purchased in 1996,
payable monthly starting July 25, 1997 until June 25, 2002.
PART II - OTHER INFORMATION
Item 4. (a) The annual meeting of stockholders of The Ohio Art
Company was held on May 6, 1997.
(c) Set forth below is the tabulation of the votes on each
nominee for election as a director:
WITHHOLD
FOR AUTHORITY
------- ---------
W. C. Killgallon 817,747 2,014
Martin L. Killgallon II 817,917 1,844
Frank L. Gallucci 818,524 1,237
Joseph A. Bockerstette 818,574 1,187
Page 8 of 29
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 5. The following exhibits are filed as part of this Form 10-Q
quarterly report:
1) First Amendment to Credit Agreement dated June 24, 1997
2) Term Note dated June 27, 1997
3) Security Agreement dated June 27, 1997
4) Revolving Note dated June 27, 1997
The Board of Directors has decided to change the fiscal year
from December 31st to January 31st beginning in 1998 in order
to more closely match the Company's business cycle.
Item 6. Exhibits and reports on Form 8-K - The Company did not
file any reports on Form 8-K during the three months ended
June 30, 1997.
The information called for in Items 1, 2, and 3 are not applicable.
Page 9 of 29
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE OHIO ART COMPANY
----------------------
(Registrant)
Date: August 14, 1997 /s/ William C. Killgallon
--------------------------
William C. Killgallon
Chairman of the Board
Date: August 14, 1997 /s/ M. L. Killgallon II
------------------------
M. L. Killgallon II
President
Date: August 14, 1997 /s/ Paul R. McCusty
----------------------
Paul R. McCusty
Vice President Finance
Page 10 of 29
FORM 10-Q
EXHIBITS
ITEM 5 - EXHIBIT 1
FIRST AMENDMENT TO
CREDIT AGREEMENT
This First Amendment to the Credit Agreement (the "Amendment") is
entered as of this 27th day of June 1997, by and between THE FIFTH THIRD
BANK OF NORTHWESTERN OHIO, N.A., a national banking association (the
"Bank") and THE OHIO ART COMPANY, an Ohio corporation (the "Borrower").
WHEREAS, The Fifth Third Bank and Borrower entered into that
certain Credit Agreement, dated as of January 24, 1994 (the
"Agreement"); and
WHEREAS, all of The Fifth Third Bank's interest in the Agreement
was assigned by The Fifth Third Bank to Bank pursuant to two Agreements,
both dated effective as of January 1, 1995; and
WHEREAS, Bank and Borrower desire to amend the Agreement, subject
to the terms and conditions set forth herein;
NOW THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
1. Amendments.
(a) Section 2, Subsection 2.1 is hereby amended and
restated in its entirety as follows:
2.1 $13,000,000 Revolving Credit Loans. (a) Subject
to the terms and conditions hereof, Bank hereby extends
to Borrower a line of credit facility under which Bank
may make loans (the "Revolving Loans") to Borrower at
Borrower's request from time to time during the term of
this Agreement in the amount of up to $13,000,000 (the
$13,000,000 Facility). Borrower may borrow, prepay
(without penalty or charge), and reborrow under the
$13,000,000 Facility, provided that the principal amount
of all Revolving Loans outstanding at any one time under
the $13,000,000 Facility will not exceed $13,000,000. If
the amount of Revolving Loans outstanding at any time
under the $13,000,000 Facility exceeds the limit set
forth above, borrower will immediately pay the amount of
such excess to bank in cash.
(b) Borrower may request a Revolving Loan by telephone
notice to Bank. Bank will make Revolving Loans by
crediting the amount thereof to Borrower's account at
Bank. Loan proceeds will be used for general working
capital purposes.
Page 11 of 29
FORM 10-Q
EXHIBITS
(c) On the date hereof, Borrower will duly issue and
deliver to Bank a Revolving Note in the form of Exhibit
2.1, in the principal amount of $13,000,000 bearing
interest as specified in the Revolving Note (the
$13,000,000 Revolving Note).
(d) The term of the $13,000,000 Facility will expire
on June 25, 2000 and will become payable in full on that
date. However, in Bank's sole discretion and so long as
no Event of Default exists, on the date which is one (1)
year from the Closing Date of this Agreement and on each
one (1) year anniversary date thereafter, Bank will renew
the $13,000,000 Facility for an additional one (1) year
term from the then existing maturity date. Borrower may
prepay the principal balance of the $13,000,000 Revolving
Note in whole or part at any time.
(b) Section 2, Subsection 2.2 is hereby amended and restated
as follows:
2.2 Term Loan. (a) Subject to the terms and
conditions hereof, Bank hereby extends to Borrower a term
loan (the "Term Loan") in the amount of $6,000,000 (the
$6,000,000 Facility).
(b) On the date hereof, Borrower will duly issue and
deliver to Bank a Term Note (the "Term Note"), in the
principal amount of $6,000,000 bearing interest as
specified in Section 2.04 herein.
(c) The outstanding principal balance of the Term Loan
and the interest due thereon shall be due and payable in
monthly installments of principal and interest and any
balance at maturity as specified in the Term Note.
(d) The maturity date of the Term Note shall be June
25, 2002.
2.04 Interest on Term Loan. The principal sum
outstanding shall bear interest per annum at the rate of
9.0% per annum.
(c) Section 2, Subsection 2.3 of the Agreement is
hereby amended and restated in its entirety as follows:
So long as this Agreement is in effect, Borrower will
pay to Bank an unused facility fee at an annual rate
equal to .125% of that portion of the $10,000,000
Facility that is not outstanding on each day (the "Unused
Facility Fee"), which will be payable on the first (1st)
day of each calendar quarter in arrears for the previous
calendar quarter with a final payment due on the
termination of this Agreement.
Page 12 of 29
FORM 10-Q
EXHIBITS
(d) Section 7, Subsection 7.1 (a) is hereby amended and
restated in its entirety as follows:
Executed version of the $13,000,000 Revolving Note in
the form of Exhibit 2.1 attached hereto.
(e) Section 7, Subsection 7.1 (f) is hereby added as follows:
An executed Security Agreement and all appropriate
financing statements as represented by Bank.
(f) Section 7, Subsection 7.2 (c) is hereby amended and
restated in its entirety as follows:
The aggregate unpaid principal amount of the Revolving
Loan after giving effect to such Revolving Loan will not
violate the lending limits set forth in Section 2.1 of
this Agreement.
(g) The following Definitions set forth in Exhibit 1 to the
Agreement are amended and restated in their entirety as
follows:
13. "Loans" means the Revolving Loans and Term Loan as
set forth in Section 2.1 and Section 2.2 of this
Agreement.
14. "Notes" means the $13,000,000 Revolving Note and the
$6,000,000 Term Note.
17. "Revolving Loan" has the meaning assigned to that
term in Section 2.1 of this Agreement.
18. "$13,000,000 Revolving Loan" has the meaning
assigned to that term in Section 2.1 of this
Agreement.
19. "Term Note" has the meaning assigned to that term in
Section 2.2 of this Agreement.
2. Representations, Warranties and Covenants of Borrower. To
induce Bank to enter into this Amendment, Borrower represents
and warrants as follows:
(a) The representations, warranties and covenants of Borrower
contained in Sections 3, 4 and 5 of the Agreement are
deemed to have been made again on and as of the date of
execution of this Amendment and are true and correct as
of the date of execution hereof.
Page 13 of 29
FORM 10-Q
EXHIBITS
(b) No Event of Default (as such term is defined in Section 6
of the Agreement) or event or condition which, with the
lapse of time or giving of notice or both, would
constitute an Event of Default exists on the date hereof.
(c) The person executing this Amendment and the Note, is a
duly elected and acting officer of Borrower and is duly
authorized by the Board of Directors of Borrower to
execute and deliver this Amendment and such Note on
behalf of Borrower.
3. Conditions. Bank's obligations under this Amendment are
subject to the following conditions:
(a) Borrower shall have executed and delivered to Bank the
$13,000,000 Revolving Note and the Term Note.
(b) The Bank shall have been furnished copies, certified by
the Secretary or assistant Secretary of Borrower, of
resolutions of the Board of Directors of Borrower
authorizing the execution of this Amendment, the Exhibits
hereto and all other documents executed in connection
herewith.
(c) The representations and warranties of Borrower in Section
2 hereof shall be true and correct on the date of
execution of this Amendment.
(d) Borrower shall pay all expenses and attorneys' fees
incurred by Bank in connection with the preparation,
execution and delivery of this Amendment and related
documents.
4. General.
(a) Except as expressly modified hereby, the Agreement remains
unaltered and in full force and effect. Borrower
acknowledges that Bank has made no oral representations
to Borrower with respect to the Agreement and this
Amendment thereto and that all prior understandings
between the parties are merged into the Agreement as
amended by this writing. All Loans outstanding on the
dated of execution of this Amendment shall be considered
for all purposes to be Loans outstanding under the
Agreement as amended by this Amendment.
(b) Capitalized terms used and not otherwise defined herein
will have the meanings set forth in the Agreement.
Page 14 of 29
FORM 10-Q
EXHIBITS
(c) Nothing contained herein will be construed as waiving any
default or Event of Default under the Agreement or will
affect or impair any right, power or remedy of the Bank
under or with respect to the Loans, the Agreement, as
amended, the Note, or any agreement or instrument
guaranteeing, securing or otherwise relating to the
Loans.
(d) This Amendment shall be considered an integral part of the
Agreement, and all references to the Agreement in the
Agreement itself or any document referring thereto shall,
on and after the date of execution of this Amendment, be
deemed to be references to the Agreement as amended by
this Amendment.
(e) This Amendment will be binding upon and inure to the
benefit of Borrower and Bank and their respective
successors and assigns.
(f) All representations, warranties and covenants made by
Borrower herein will survive the execution and delivery
of this Amendment.
(g) This Amendment will, in all respects, be governed and
construed in accordance with the laws of the State of
Ohio.
(h) This Amendment may be executed in one or more
counterparts, each of which will be deemed an original
and all of which together will constitute one and the
same instrument.
(i) Borrower authorizes any attorney of record to appear for
it in any court of record in the State of Ohio, after an
Obligation becomes due and payable whether by its terms
or upon default, waives the issuance and service of
process, releases all errors and rights of appeal, and
confesses a judgment against it in favor of the holder of
such Obligation, for the principal amount of such
Obligation plus interest thereon, together with court
costs and attorneys' fees. Stay of Execution and all
exemptions are hereby waived. If an Obligation is
referred to an attorney for collection, and the payment
is obtained without the entry of a judgment, the obligors
will pay to the holder of such Obligation its attorneys'
fees.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement
as of the date first above written.
Page 15 of 29
FORM 10-Q
EXHIBITS
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
By: Paul R. McCusty
Its: Vice President Finance/Treasurer
THE FIFTH THIRD BANK OF
NORTHWESTERN OHIO, N.A.
By: Gregory L. Kosch
Its: Senior Vice President
ITEM 5 - EXHIBIT 2
OHIO AFFILIATES A FIFTH THIRD BANCORP BANK 1
TERM
NOTE
OFFICER NO 598 NOTE NO. _____________
$6,000,000 June 27, 1997
Toledo, Ohio (Effective Date)
On or before the Due Date below, the undersigned, a corporation, for
value received, and if more than one, jointly and severally, promise to
pay to the order of The Fifth Third Bank of Northwestern Ohio, N.A., 606
Madison Avenue, Toledo, Ohio 43604 (hereinafter referred to as "Bank")
the sum of Six Million and 00/100 Dollars ($6,000,000.00)(hereinafter
referred to as the Borrowing) plus interest per annum at a rate of 9.0%
per annum.
Interest shall be computed on a year of 360 days and charged for the
acutal number of days elapsed.
This note is payable as follows:
Principal and Interest shall be payable in installments in the amount of
$96,535.00 which shall be due monthly beginning July 25, 1997, and any
balance at Maturity.
Principal and interest payments shall be made at the Bank's address
above unless otherwise designated by Bank in writing.
Page 16 of 29
FORM 10-Q
EXHIBITS
To secure repayment of this note and all modifications, extensions and
renewals thereof, and all other Obligations (as herein defined) of the
undersigned to Bank, the undersigned grants Bank a security interest in
all of the undersigned's, now owned or hereafter acquired interests in
all property in which Bank is at any time, granted a lien for any
Obligation, and all property in possession of Bank including, without
limitation, money, securities, instruments, documents, letters of
credit, chattel paper, or other property delivered to Bank in transit,
for safekeeping, or for collection or exchange for other property, all
distributions, dividends, warrants, securities and other rights in
addition to such property, all rights to payment from and claims against
Bank and all proceeds thereof, and all real and personal property
described below ("Collateral"). The undersigned agrees to immediately
deliver such additional dividends, warrants, securities or other
property or rights thereto to Bank immediately upon receipt as
additional Collateral and until delivery to hold same in trust for Bank.
The undersigned agrees that the Bank may, at any time, call for
additional Collateral satisfactory to it. All documents executed in
connection with this note and all collateral, including without
limitation the following, further secure the Obligations:
One (1) LTG Coater Type 4040 with an LTG Feeder Type 770 (#275 030); One
(1) fully automatic LTG Continuous Drying Oven, Type DBL with
Integrated Fume Incineration System and Heat Recovery (#201 000); LTG -
Mailander Four-Color High Speed Metal Decorating Press Type 124A with
Feeder Type 770 (#263 025) and Type 4041A Plain Trailing Coater
(#275 029); UV Cure System; One (1) LTG Nonstop Stacking Unit with
Automatic Loading of Pallet Magazine (#217 137).
The Obligations secured by the Collateral (herein, the "Obligations")
shall include this note and each and every liability of the undersigned
jointly or severally to Bank and all affiliates of Fifth Third Bancorp
however created, direct or contingent, due or to become due, whether now
existing or hereafter arising, participated in whole or in part, created
by trust agreement, lease, overdraft, agreement, or otherwise, in any
manner by the undersigned. The undersigned also grants Bank a security
interest in all of the Collateral as agent for all affiliates of Fifth
Third Bancorp for all Obligations of the undersigned to such affiliates.
Said security interest shall not be enforced to the extent prohibited by
the Truth in Lending Act as implemented by Federal Reserve Regulation Z.
The undersigned certifies that the proceeds of this loan are to be used
for business purposes. If this note is a renewal, in whole or in part,
of a previous Obligation, the acceptance by Bank of this note shall not
effectuate a payment but rather a continuation of the previous
Obligation.
Bank may charge and the undersigned agrees to pay, on the above
Effective Date, a note processing fee in an amount determined by Bank.
Page 17 of 29
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EXHIBITS
Events of Default:
This note, and all other Obligations of the undersigned to Bank, shall
be and become immediately due and payable at the option of the Bank,
without any demand or notice whatsoever, upon the occurrence of any of
the following described events, each of which shall constitute an Event
of Default:
1) Any failure to make any payment when due of the principal or interest
on this note, the occurrence of any event of default as therein
defined on any other Obligations of the undersigned, or a default in
the obligations under any security documents.
2) The death or dissolution of the undersigned of any endorser or
guarantor, or if the undersigned is a partnership, the death or
dissolution of a general partner.
3) Any failure to submit to Bank current financial information upon
request.
4) The creation of any lien (except a lien to Bank) or the issuance of
an attachment against or seizure of any of the property of, or the
entry of a judgment against, the undersigned.
5) In the judgment of Bank, any adverse change occurs in the ability of
the undersigned to repay the Obligations, or the Bank deems itself
insecure.
6) An assignment for the benefit of the creditors of, or the
commencement of any bankruptcy, receivership, insolvency,
reorganization, or liquidation proceedings by or against the
undersigned or any endorser or guarantor hereof.
7) The institution of any garnishment proceedings by attachment, levy
or otherwise, against any Collateral, deposit balance maintained or
any property deposited with the Bank by the undersigned or any
endorser or guarantor hereof.
8) Bank has called for additional security and the undersigned has not
furnished satisfactory additional security on demand.
Upon the occurrence of an Event of Default herein described Bank may, at
its option declare this note and all other Obligations of the
undersigned to be fully due and payable in their aggregate amount
together with accrued interest plus any applicable prepayment premiums,
fees, and charges.
In addition to any other remedy permitted by law, the Bank may at any
time, without notice, apply the Collateral to this note or such other
Obligations, whether due or not, and Bank may, at its option, proceed to
enforce and protect its rights by an action at law or in equity or by
any other appropriate proceedings. Notwithstanding any other legal or
equitable rights of Bank, Bank, in the Event of Default, is (a) hereby
irrevocably appointed and constituted attorney in fact, with full power
of substitution, to exercise all rights of ownership with respect to
Collateral and (b) is additions thereto, through any private or public
sale without either demand or notice to the undersigned, or any
advertisement, the same being hereby expressly waived, at which sale
Bank is authorized to purchase said property or any part thereof, free
from any right of redemption on the part of the undersigned, which is
hereby expressly waived and released. In case of sale for any cause,
Page 18 of 29
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EXHIBITS
after deducting all costs and expenses of every kind, Bank may apply, as
it shall deem proper, the residue of the proceeds of such sale toward
the payment of any one or more or all of the Obligations of the
undersigned, whether due or not due, to Bank; after such application and
the return of any surplus, the undersigned agrees to be and remains
liable to Bank for any and every deficiency after application as
aforesaid upon this and any other Obligation. The undersigned shall pay
all costs of collection incurred by Bank, including its attorney's fees,
if this note is referred to an attorney for collection, whether or not
payment is obtained before entry of judgment, which costs and fees are
Obligations secured by the Collateral.
If any payment is not paid when due (whether by acceleration or
otherwise) or within 10 days thereafter, undersigned agrees to pay to
Bank a late payment fee as provided for in any loan agreement of 5% of
the payment amount, whichever is greater with a minimum fee of $20.00.
After an Event of Default, the undersigned agrees to pay to Bank a fixed
charge of $25.00, or the undersigned agrees that Bank may, without
notice, increase the above stated interest rate by 6%, whichever is
greater. Under no circumstances shall said interest rate be raised to a
rate which shall be in excess of the maximum rate of interest allowable
under the state and/or federal usury laws in force at the time of such
change.
The undersigned may prepay all or part of this note, which prepaid
amounts shall be applied to the amounts due in reverse order of their
due dates. Upon such prepayments, including involuntary prepayment by
acceleration, the undersigned shall pay a premium of 2% of the maximum
principal amount permitted under this note. Partial prepayments shall
not excuse any subsequent payment due.
ENTIRE AGREEMENT: The undersigned agrees that there are no conditions
or understandings which are not expressed in this note and the documents
referred to herein.
WAIVER: No failure on the part of the Bank to exercise any of its
rights hereunder shall be deemed a waiver of any such rights or of any
default. Demand, presentment, protest, notice of dishonor, notice of
protest and notice of default are hereby waived. Each of the
undersigned, including but not limited to all co-makers and
accommodation makers of this note, hereby waives all suretyship defenses
including but not limited to all defenses based upon impairment of
collateral and all suretyship defenses described in Section 3-605 of the
Uniform Commercial Code, as revised in 1990 (the "UCC"). Such waiver is
entered to the full extent permitted by Section 3-605(i) of the UCC.
JURY WAIVER: THE UNDERSIGNED, AND ANY ENDORSER OR GUARANTOR HEREOF,
WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY.
The declaration of invalidity of any provision of this note shall not
effect any part of the remainder of the provisions.
Page 19 of 29
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EXHIBITS
This note is supplemented by the terms and conditions of a credit
agreement dated January 24, 1994 as amended between the undersigned and
Bank.
Warrant of attorney: The undersigned, jointly and severally, authorizes
any attorney-at-law to appear in any court of record after maturity of
this note, whether by acceleration or otherwise, waive the issuance and
service of process and to confess judgment against them in favor of the
Bank for the principal sum due hereon together with interest, charges,
court costs and attorney's fees, and to waive and release all errors,
rights of appeal, exemptions and stays of execution. The undersigned
also agrees that the attorney acting for the undersigned as set forth in
this paragraph may be compensated by Bank for such services, and the
undersigned waive any conflict of interest caused by such representation
and compensation arrangement. This warrant of attorney to confess
judgment shall be construed under the laws of the State of Ohio.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREMENT, OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
DATE DUE June 25, 2002 By: Paul R. McCusty
ADDRESS One Toy Street Its Vice President Finance/Treasurer
Bryan, Ohio 43506
ITEM 5 - EXHIBIT 3
A FIFTH THIRD BANCORP BANK
SECURITY AGREEMENT
Toledo, Ohio June 27, 1997
THE OHIO ART COMPANY, an Ohio corporation, whose principal place of
business is located at One Toy Street, Bryan, Williams County, Ohio
(hereinafter the "Debtor"), jointly and severally if more than one,
hereby assign(s) to Secured Party for itself as agent for any affiliate
of Fifth Third Bancorp as collateral and grant(s) to The Fifth Third
Bank of Northwestern Ohio, N.A. (hereinafter the "Secured Party"), a
security interest in and to all items of property described in paragraph
2 of this Agreement (all of which shall hereinafter be the
"Collateral").
Page 20 of 29
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EXHIBITS
1. OBLIGATIONS: The security interest hereby granted shall secure the
following (collectively, the "Obligations"): all loans, advances,
indebtedness and other obligations of each of Debtor and _______________
(if different from Debtor, hereinafter referred to as "Borrower") owed
to Secured Party and/or any affiliate of Fifth Third Bancorp, of every
kind and description whether now existing or hereafter arising including
without limitation those owed to others and acquired by Secured Party
(by purchase, assignment or otherwise) and whether direct or indirect,
primary or as guarantor or surety, absolute or contingent, liquidated
or unliquidated, matured or unmatured, whether or not secured by
additional collateral, and all liabilities, obligations and indebtedness
arising under this Agreement and all other instruments and agreements
evidencing, guarantying or securing any of the foregoing, and all
obligations to perform or forbear from performing acts, all amounts
represented by letters of credit now or hereafter issued by Secured
Party for the benefit of or at the request of Debtor or Borrower and all
expenses and attorneys' fees incurred by Secured Party under this
Agreement or any other document or instrument related thereto or related
to any of the Obligations limited to the following: Term Loan dated
June 27, 1997.
2. COLLATERAL: The Collateral in which a security interest is hereby
granted includes that Collateral now existing and hereafter arising or
acquired by Debtor, regardless of where it is located, and is defined as
follows:
(a) Equipment defined as follows: One (1) LTG Coater Type 4040 with an
LTG Feeder Type 770 (#275 030); One (1) fully automatic LTG Continuous
Drying Oven, Type DBL with Integrated Fume Incineration System and Heat
Recovery (#201 000); LTG - Mailander Four-Color High Speed Metal
Decorating Press Type 124A with Feeder Type 770 (#263 025) and Type
4041A Plain Trailing Coater (#275 029); UV Cure System; One (1) LTG
Nonstop Stacking Unit with Automatic Loading of Pallet Magazine
#217 137).
(b) All proceeds and products of the Collateral and all additions and
accessions to, replacements of, insurance or condemnation proceeds of,
and documents covering Collateral, all tort or other claims against
third parties arising out of damage or destruction of Collateral, all
property received wholly or partly in trade or exchange for Collateral,
all fixtures, all leases of Collateral and all rents, revenues, issues,
profits and proceeds arising from the sale, lease, license, encumbrance,
collection, or any other temporary or permanent disposition, of the
Collateral or any interest therein.
3. DEFINITIONS: As used herein the following capitalized terms will
have the following meanings: "Equipment" means all machinery, machine
tools, equipment, fixtures, office equipment, furniture, furnishings,
motors, motor vehicles, tools, dies, parts, jigs, goods (including,
without limitation, each of the items of equipment set forth on any
schedule which is either now or in the future attached to Secured
Party's copy of this Agreement), and all attachments, accessories,
accessions, replacements, substitutions, additions and improvements
thereto, and all supplies used or useful in connection therewith.
Page 21 of 29
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EXHIBITS
In addition to the foregoing, each of above defined terms and certain
other terms set forth in paragraph 2 of this Agreement will have the
meanings attributed thereto in the applicable version of the Uniform
Commercial Code adopted in the jurisdiction where Secured Party's
principal place of business is located, as such definitions may be
enlarged or expanded from time to time by amendment or judicial
decision.
4. WARRANTIES AS TO COLLATERAL: Debtor warrants that:
(a) Except for the security interest hereby granted, Debtor is, and as
to any property which at any time forms a part of the Collateral, shall
be, the owner of each and every item of the Collateral, free from any
lien, security interest or encumbrance:
(b) That Debtor has full right to grant such security interest therein;
and that Debtor shall defend such Collateral and each and every part
thereof against all claims of all person at any time claiming such
Collateral or claiming any interest therein adverse to Secured Party;
(c) That as to any accounts receivable which are or become part of the
Collateral, each such account is a valid account receivable and that no
such account shall be sold, assigned, transferred, discounted,
hypothecated, or otherwise subjected to any lien, encumbrance or
security interest, and that Debtor shall defend such accounts against
all claims of any person whosoever;
(d) That if any of the Collateral is or will be attached to real estate
in such a manner as to become a fixture under applicable state law, that
said real estate is not encumbered in any way, or if said real estate is
encumbered, Debtor will secure from the lien holder or the party in
whose favor it is or will become so encumbered a written consent and
subordination to the security interest hereby granted or a written
disclaimer of any interest in the Collateral, in such form as is
acceptable to Secured Party.
(e) The financial statements of Debtor dated April 30, 1997 and
heretofore submitted, to the Secured Party are true and correct and
there are no material adverse changes in the condition, financial or
otherwise, of Debtor since the date of said financial statements.
5. DEBTOR'S RESPONSIBILITIES:
(a) Furnish to Secured Party in writing a current list of all Collateral
for the purpose of identifying the Collateral and, further, execute and
deliver such supplemental instruments, in the form of assignments or
otherwise, as Secured Party shall require for the purpose of confirming
and perfecting Secured Party's security interest in any or all of such
Collateral;
(b) At its expense and upon request of Secured Party, furnish copies of
invoices issued by Debtor in connection with the Collateral, furnish
certificates of insurance evidencing insurance on Collateral, furnish
proof of payment of taxes and assessments on Collateral, make available
to Secured Party, any and all of Debtor's books, records, written
memoranda, correspondence, purchase orders, invoices and other
instruments or writing that in any way evidence or relate to the
Collateral;
Page 22 of 29
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EXHIBITS
(c) Keep the Collateral insured at all times against risks of loss or
damage by fire (including so-called extended coverage), theft and such
other casualties including collision in the case any motor vehicle, all
in such amount, under such forms of policies, upon such terms, for such
periods and written by such companies or underwriters as is satisfactory
to Secured Party. In all cases losses shall be payable to Secured
Party and any surplusage shall be paid to Debtor. All policies of
insurance shall provide for at least ten (10) days prior written notice
of cancellation to Secured Party. Should Debtor at any time fail to
purchase or maintain insurance, pay taxes, or pay for any expense,
incident or such insurance, Secured Party may, but is not obligated to,
pay such taxes, order and pay for such necessary items of preservation,
maintenance or protection of the Collateral, and Debtor agrees to
reimburse Secured Party for all expenses incurred under this paragraph;
(d) Pay all taxes or assessments imposed on or with respect to the
Collateral;
(e) Keep all of the Collateral in good condition and repair, protecting
it from weather and other contingencies which might adversely affect it
as secured hereunder;
(f) Notify Secured Party immediately in writing of any information which
Debtor has or may receive which might in any way adversely affect the
value of the Collateral or the rights of Secured Party with respect
thereto;
(g) Notify Secured Party promptly, in writing, or any change in the
location of the Collateral or of any place of business or mailing
addresses or the establishment of any new place of business or mailing
address;
(h) Pay all costs of filing any financing, continuation or termination
statements with respect to the security interest created hereby;
(i) Upon the occurrence of an Event of Default or breach of any
provision of this Security Agreement, pay all expenses and reasonable
attorneys' fees of Secured Party; and Debtor agrees that said expenses
and fees shall be secured under this Agreement;
(j) Maintain possession of all Collateral at the location disclosed to
Secured Party and not to remove the Collateral from that location;
(k) Not sell, contract to sell, lease, encumber, or otherwise transfer
the Collateral until the Obligations have been paid and performed,
Debtor acknowledging nonetheless that Secured Party has a security
interest in the proceeds of such Collateral.
6. POWER OF ATTORNEY: Debtor hereby makes, constitutes and appoints
Secured Party its true and lawful attorney in fact to act with respect
to the Collateral in any transaction, legal proceeding, or other matter
in which Secured Party is acting pursuant to this Agreement.
7. DEFAULT: In the event of (herein "Events of Default"): (a) the
default in the payment or performance of the Obligations or any part
thereof; (b) the occurrence of a default or an Event of Default under
any instrument or agreement evidencing, guarantying or securing any of
the Obligations; (c)the failure of Debtor to perform or observe any of
the provisions of this Agreement; (d) any misrepresentation by Debtor or
Borrower to Secured Party for the purpose of obtaining credit or an
Page 23 of 29
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EXHIBITS
extension of credit; (e) the issuance of a court order, lien or
attachment against any part of the Collateral; (f) the entry of a decree
or order for relief by a court having jurisdiction in the premises in
respect of Debtor or Borrower in an involuntary or other similar law now
or hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of Debtor
or Borrower or for any substantial part of either of their properties,
or ordering the wind-up or liquidation of either of their affairs, or
the filing and pendency for 60 days without dismissal of a petition
initiating an involuntary case under any such bankruptcy, insolvency or
other similar law; or (g) the commencement by Debtor or Borrower of a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by either
of them to the entry of an order for relief in an involuntary case under
any such law or to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of Debtor or Borrower or of any substantial part
of either of their properties, or the making by either of them of any
general assignment for the benefit of creditors, or the failure of
Debtor or Borrower generally to pay either of their debts as such debts
become due, or the taking of corporate action by Debtor or Borrower in
furtherance of any of the foregoing; (h) the death or dissolution of
Borrower, Debtor or any endorser or guarantor of the Obligations;
(i) the occurrence of any adverse change in the condition or affairs
(financially or otherwise) of Debtor, Borrower or of any endorser,
guarantor or surety for any of the Obligations, which in the opinion of
Secured Party impairs Secured Party's security or the ability of Secured
Party to recover repayment or performance of any Obligations or the
Secured Party deems itself insecure; then, in any such event, Secured
Party may, without further notice to Debtor, at Secured Party's option,
declare any note and all of the Obligations to become due and payable in
its aggregate amount. Secured Party may: resort to the rights and
remedies of a secured party under the Uniform Commercial Code including
the right to enter any premises of Debtor, with or without legal process
and take possession of the Collateral and remove it and any records
pertaining thereto and/or remain on such premises of Debtor, with or
without legal process and take possession of the Collateral and remove
it and any records pertaining thereto and/or remain on such premises and
use it for the purpose of collecting, preparing and disposing of the
Collateral; ship, reclaim, recover, store, finish, maintain and repair
the Collateral; and sell the Collateral at public or private sale, and
Debtor will be credited with the net proceeds of such sale only when
they are actually received by Secured Party, any requirement of
reasonable notice of any disposition of the Collateral will be satisfied
if such notice is sent to Debtor 10 days prior to such disposition.
Debtor will, upon request, assemble the Collateral and any records
pertaining thereto and make them available at a place designated by
Secured Party. Secured Party may use in connection with any assembly or
disposition of the Collateral, any trademark, trade name, tradestyle,
copyright, patent right, trade secret or technical process used or
utilized by Debtor. No remedy set forth herein is exclusive of any
other available remedy or remedies, but each is cumulative and in
Page 24 of 29
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EXHIBITS
addition to every other remedy given under this Agreement or now or
hereafter existing at law or in equity or by statute. Secured Party may
proceed to protect and enforce its rights by an action at law, in equity
or by any other appropriate proceedings. No failure on the part of
Secured Party to enforce any of the rights hereunder shall be deemed a
waiver of such rights or of any Event of Default and no waiver of any
Event of Default hereunder will be deemed to be a waiver of any
subsequent Event of Default.
8. MISCELLANEOUS PROVISIONS:
(a) All rights of Secured Party shall inure to the benefit of its
successors and assigns and all obligations of Debtor shall bind the
heirs, executors, administrators, successors and assigns of Debtor;
(b) Debtor acknowledges and agrees that, in addition to the security
interest set granted herein, Secured Party has a banker's lien and
common law right of set-off in and to Debtor's deposits, accounts and
credits held by Secured party and Secured Party may apply or set-off
such deposits or other sums against the Obligations upon the occurrence
of an Event of Default as set forth in paragraph 8 of this Agreement;
(c) This Agreement contains the entire Agreement of the parties and no
oral Agreement whatsoever, whether made contemporaneously herewith or
hereafter shall amend, modify or otherwise affect the terms of this
Agreement;
(d) All rights and liabilities hereunder shall be governed and limited
by and construed in accordance with the laws of the state where Secured
Party's principal place of business is located; unless otherwise
defined, words used herein have the meanings given them in the Uniform
Commercial Code as adopted in the state where Secured Party's principal
place of business is located.
(e) Any provision herein which may prove limited or unenforceable under
any law or judicial ruling shall not affect the validity or
enforceability of the remainder of this Agreement.
(f) Debtor hereby authorizes Secured Party to file a copy of this
Agreement as a Financing Statement with appropriate county and state
government authorities necessary to perfect Secured Party's security
interest in the Collateral as set forth herein.
THIS AGREEMENT IS SUBJECT TO, AND DEBTOR AGREES TO BE BOUND BY THE
ADDITIONAL PROVISIONS SET FORTH ON THE REVERSE SIDE HEREOF, THE SAME
BEING INCORPORATED HEREIN BY REFERENCE.
SECURED PARTY: DEBTOR:
THE FIFTH THIRD BANK OF THE OHIO ART COMPANY
NORTHWESTERN OHIO, N.A.
By: Gregory L. Kosch By: Paul R. McCusty
Its: Senior Vice President Its: Vice President Finance/
Treasurer
Page 25 of 29
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EXHIBITS
ITEM 5 - EXHIBIT 4
REVOLVING NOTE
$13,000,000 Toledo, Ohio
June 27, 1997
On June 25, 2000, THE OHIO ART COMANY, an Ohio corporation, for
value received, hereby promises to pay to the order of THE FIFTH THIRD
BANK OF NORTHWESTERN OHIO, N.A., a national banking association (the
"Bank"), at its offices, located at 606 Madison Avenue, Toledo, Ohio
43604, in lawful money of the United States of America and in
immediately available funds, the principal sum of Thirteen Million
dollars ($13,000,000) or such lesser unpaid principal amount as may be
advanced by Bank pursuant to the terms of the Credit Agreement of even
date herewith by and between Borrower and Bank, as the same may be
amended from time to time (the "Agreement").
The principal balance outstanding hereunder will accrue interest
at a rate per annum equal to Bank's Prime Rate. At any time during the
term of the Note, so long as no Event of Default exists, Borrower may
notify Bank that it wishes to exercise its right to adjust the rate of
interest accruing on all amounts of principal outstanding under the Note
to one of the rates and one of the periods as set forth below:
Upon telephonic notice by Borrower to Bank prior to or on the
Effective Date, Borrower may elect to have all or part of the Borrowings
in a minimum amount of $1,000,000 per election (provided such Borrowings
are not then subject to an Interest Rate Option) bear interest at the
fixed interest rate per annum equal to one of the rates set forth below
for a period of time as set forth below (the "Federal Funds Rate
Election"):
Period Interest Rate
Seven (7) days Federal Funds Rate plus 175 basis points
Fourteen (14) days Federal Funds Rate plus 175 basis points
Thirty (30) days Federal Funds Rate plus 200 basis points
Sixty (60) days Federal Funds Rate plus 225 basis points
Ninety (90) days Federal Funds Rate plus 225 basis points
Such telephonic notice shall inform Bank of the amount of the Borrowings
to be subject to the Federal Funds Election, the Federal Funds Interest
Period and the Effective Date for the Federal Funds Interest Period.
If no Federal Funds Election is currently in effect and upon the
expiration of any Federal Funds Interest Period, amounts owed hereunder
will accrue interest at the Bank's Prime Rate, in effect from time to
time.
Page 26 of 29
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EXHIBITS
Interest will be calculated based on a 360 day year and charged for
the actual number of days elapsed, and will be payable in immediately
available funds at the principal office of the Bank on the first day of
each calendar month unless a Federal Funds Election is then in effect.
If a Federal Funds Election is in effect, interest on those amounts
shall be payable at the end of the Federal Funds Election, as
applicable. Those amounts shall thereupon constitute Obligations
hereunder and shall thereafter accrue interest as provided for in this
Agreement.
As used herein, the following terms will have the meanings set
forth below:
(a) "Effective Date" means the date on which a Federal Funds
Rate Election will begin.
(b) "Federal Funds Interest Period" means any period up to 90
days with respect to which Borrower makes a Federal Funds Election. If
a Federal Funds Interest Period would otherwise end on a day which is
not a business day, such Federal Funds Interest Period shall end on the
next succeeding business day.
(c) "Federal Funds Rate" means with respect to a Borrowing
subject to a Federal Funds Election, a rate per annum equal to the rate
charged for overnight deposits between members of the Federal Reserve
System for periods of 7, 14, 30, 60 and 90 days, as reported by the
TELERATE rate reporting system (or any successor), as determined by Bank
by noon on the effective Date of the Federal Funds Interest Period.
Each determination of the Federal Funds Rate shall be conclusive in the
absence of manifest error.
(d) "Interest Rate Election" means a Federal Funds Election.
(e) "Prime Rate" means the rate of interest per annum announced
to be its Prime Rate from time to time by Bank at its principal office
in Cincinnati, Ohio, whether or not Bank will at times lend to borrowers
at lower rates of interest, or, if there is no such Prime Rate, then its
base rate or such other rate as may be substituted by Bank for the Prime
Rate.
The interest rate charged hereunder will change automatically upon
each change in the Prime Rate. Accrued and unpaid interest will be due
and payable monthly commencing on the twenty-fifth (25th) day of July,
1997 and continuing on the twenty-fifth (25th) day of each calendar
month thereafter during the term hereof. On June 25, 2000, all
outstanding principal and all accrued and unpaid interest will be due
and payable. Interest will be calculated based on a 360-day year and
charged for the actual number of days elapsed. After maturity, whether
by acceleration or otherwise, this Note will bear interest (computed and
adjusted in the same manner, and with the same effect, as interest
hereon prior to maturity) payable on demand, at a rate per annum equal
to the Default Rate, until paid, and whether before or after the entry
of judgment hereon.
Page 27 of 29
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EXHIBITS
The principal amount of each loan made by Bank under this Note and
the amount of each prepayment made by Borrower under this Note will be
recorded by Bank on the regularly maintained data processing records of
Bank. The aggregate unpaid principal amount of all loan set forth in
such records will be presumptive evidence of the principal amount owing
and unpaid on this Note. However, failure by Bank to make any such
entry will not limit or otherwise affect Borrower's obligations under
this Note or the Agreement.
All payments received by Bank under this Note will be applied first
to payment of amounts advanced by Bank on behalf of Borrower or which
may be due for insurance, taxes and attorneys' fees or other charges to
be paid by Borrower pursuant to the Agreement and the Loan Documents (as
defined in the Agreement), then to accrued interest on this Note, then
to principal which will be repaid in the inverse order of maturity.
This Note is the $13,000,000 Revolving Note referred to in the
Agreement, and is entitled to the benefits, and is subject to the term
of the Agreement. Capitalized terms used but not otherwise defined
herein will have the meanings attributed thereto in the Agreement. The
principal of this Note is prepayable in the amounts and under the
circumstances, and its maturity is subject to acceleration upon the
terms, set forth in the Agreement. Except as otherwise expressly
provided in the Agreement, if any payment on this Note becomes due and
payable on a day other than on which Bank is open for business (a
"Business Day"), the maturity thereof will be extended to the next
Business Day, and interest will be payable at the rate specified herein
during such extension period.
After the occurrence of an Event of Default, all amounts of
principal outstanding as of the date of the occurrence of such Event of
Default will bear interest at the default Rate, in Bank's sole
discretion, without notice to Borrower. This provision does not
constitute a waiver of any Events of Default or an agreement by Bank to
permit any late payments whatsoever.
If any payment of principal is not paid when due (whether by
acceleration or otherwise after the expiration of applicable notice
grace and cure periods, if any), Borrower agrees to pay to Bank a late
payment fee equal to five percent (5%) of the payment amount then due.
Borrower may prepay any portion of this Note in part at any time
without premium or penalty. Any prepayments under this Note in advance
of any amortized payments will be applied to reduce the outstanding
principal amount of this Note in the inverse chronological order of
maturity.
In no event will the interest rate on this Note exceed the highest
rate permissible under any law which a court of competent jurisdiction
will, in a final determination, deem applicable hereto. In the event
that a court determines that Bank has received interest and other
charges under this Note in excess of the highest permissible rate
Page 28 of 29
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EXHIBITS
applicable hereto, such excess will be deemed received on account of,
and will automatically be applied to reduce the amounts due to Bank from
Borrower under this Note, other than interest, and the provisions hereof
will be deemed amended to provide for the highest permissible rate. If
there are no such amounts outstanding, Bank will refund to Borrower such
excess.
Borrower and all endorsers, sureties, guarantors, and other persons
liable on this Note hereby waive presentment for payment, demand, notice
of dishonor, protest, notice of protest and all other demands and
notices in connection with the delivery, performance and enforcement of
this Note, and consent to one or more renewals or extensions of this
Note.
This Note may not be changed orally, but only by an instrument in
writing.
This Note is being delivered in, is intended to be performed in,
will be construed and enforceable in accordance with, and be governed by
the internal laws of, the State of Ohio without regard to the principles
of conflict of laws. Borrower agrees that the State and Federal courts
in Lucas County, Ohio or any other court in which Bank initiates
proceedings will have exclusive jurisdiction over all matters arising
out of this Note, and that service of process in any such proceeding
will be effective if mailed to Borrower at its address described in the
Notices section of the Agreement. BORROWER HEREBY WAIVES THE RIGHT TO
TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE.
Borrower authorizes any attorney of record to appear for it in any
court of record in the State of Ohio, after this Note becomes due and
payable, whether by its terms or upon default, waives the issuance and
service of process, and releases all errors and rights of appeal, and
confesses a judgment against it in favor of the holder of such
obligation, for the principal amount of such obligation plus interest
thereon, together with court costs and attorneys' fees. Stay of
execution and all exemptions are hereby waived. If an obligation is
referred to an attorney for collection, and the payment is obtained
without the entry of a judgment,the obligors will pay to the holder of
such obligation its attorneys' fees.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN
BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE
ON HIS PART TO COMPLY WITH THE AGREEMENT OR ANY OTHER CAUSE.
THE OHIO ART COMPANY
By: Paul R. McCusty
Its: Vice President Finance/Treasurer
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