<PAGE>
EXHIBIT 4.13


                             DEMAND PROMISSORY NOTE
                             ----------------------


DATE OF NOTE:    November 13, 2001

AMOUNT OF NOTE:  $500,000.00

INTEREST RATE:   The principal amount of this Note from time to time outstanding
                 shall bear interest at a rate per annum equal to twelve percent
                 (12.0%).

         FOR VALUE RECEIVED, the undersigned ("BORROWER") does hereby covenant
and promise to pay to JOHN R. FOLKERTH, SR., an individual, or his heirs,
successors or assigns (the "Lender"), at 6530 Poe Avenue, Dayton, Ohio 45414, or
at such other place as the Lender may designate to Borrower in writing from time
to time, in legal tender of the United States, the Amount of Note or so much
thereof as may be advanced by the Lender to Borrower pursuant to the terms
hereof (the "Principal Amount"), together with interest at the Interest Rate on
the Principal Amount until this Note is paid in full as provided in this Note.

         Payments of interest only hereunder shall be payable monthly in arrears
on the last day of each calendar month, commencing on December 31, 2001. The
unpaid Principal Amount of this Note together with accrued and unpaid interest
thereon shall be due and payable immediately upon the Lender making a demand for
payment to Borrower and this Note shall thereupon be deemed to have matured.
Borrower shall have the right to prepay the principal amount of this Note in
whole or in part, without premium or penalty, from time to time.

         All interest under this Note shall be computed on an actual/360-day
basis (i.e., interest for each day during which any of the Principal Amount is
outstanding shall be computed at the Interest Rate or the Default Rate, as
hereinafter defined, as applicable, divided by 360).

         If Borrower desires an advance of the Principal Amount of this Note
(each, an "ADVANCE"), Borrower shall give the Lender at least one (1) business
day's oral notice, promptly confirmed in writing, of its request for such
Advance, specifying the date and amount thereof. The Lender may make the
Advance, or refrain from making the Advance, in the Lender's sole discretion. If
the Lender decides to make the Advance to Borrower, the Lender will make such
Advance to Borrower in immediately available funds to Borrower's designated
account at Huntington National Bank. Within the aforestated limits, Borrower may
borrow, prepay and reborrow the Principal Amount of this Note.

         The Lender will record all Advances and repayments thereof on the grid
attached hereto as Exhibit A. The Lender's entries on such grid shall, absent
manifest error, be final, conclusive and binding.

         This Note is secured by a Security Agreement dated the date hereof,
between Borrower and the Lender (the "SECURITY AGREEMENT").

         This Note specify various defaults (each, a "DEFAULT") upon the
happening of which all sums owing on this Note may, at the Lender's option, be
declared immediately due and payable. Any of the following occurrences or acts
will constitute a Default: (a) the failure of Borrower to make any payment of
principal and/or interest, or any other mandatory amounts payable under this
Note, within ten (10) days after the date when due hereunder, or (b) an "event
of default" shall occur under the Security Agreement.

         During the continuance of a Default, the Principal Amount shall bear
interest at two percent (2%) per annum in excess of the Interest Rate in effect
from time to time, each change in such rate to be effective as of the date of
such change (the "DEFAULT RATE").

         Should the indebtedness represented by this Note or any part thereof be
collected at law or in equity, or in bankruptcy, receivership or any other court
proceedings (whether at the trial or appellate level), or should this Note be
placed in the hands of attorneys for collection upon default, Borrower agrees to
pay, in addition to the principal, premium, if any, and interest due and payable
hereon, all costs of collection, including reasonable attorneys' fees and
expenses.


                                       1
<PAGE>


         Borrower hereby waives presentment for payment, demand, protest, notice
of protest and notice of dishonor.

         This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.

         Anything herein to the contrary notwithstanding, the obligations of
Borrower under this Note and the Security Agreement shall be subject to the
limitation that payments of interest shall not be required to the extent that
receipt of any such payment by the Lender would be contrary to provisions of law
applicable to the Lender limiting the maximum rate of interest that may be
charged or collected by the Lender.

         All notices and demands given or made under this Note by Borrower or
the Lender to the other of them shall be deemed satisfied by written notice or
demand given or made in accordance with, and to the address of the Lender or
Borrower, specified in Section 18 of the Security Agreement.

         This Note and the rights and obligations of the parties hereunder shall
in all respects be governed by, and construed and enforced in accordance with,
the laws of the State of Ohio (without giving effect to Ohio's principles of
conflicts of law).

         JURY WAIVER. BORROWER, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN BORROWER AND THE LENDER ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THIS NOTE OR ANY OTHER AGREEMENT,
INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE
TRANSACTIONS RELATED THERETO.

         The undersigned authorize any attorney-at-law to appear in any court of
record in Montgomery County, Ohio, or in any court of record in the jurisdiction
in which the undersigned against which or whom a judgment is then sought may
then reside, or in any court of record in any jurisdiction outside of Ohio,
after the indebtedness evidenced hereby becomes due, and waive the issuing and
service of process and confess judgment against the undersigned (or either of
them) in favor of the Lender for the amount then appearing due, together with
costs of suit and thereupon to release all errors and waive all rights of appeal
and stay of execution. The undersigned waive any conflict of interest in the
Lender's attorney confessing judgment against the undersigned (or either of
them) pursuant to the foregoing warrant of attorney and further agree that the
attorney confessing judgment pursuant to the foregoing warrant of attorney may
receive a legal fee or other thing of value from the Lender.


                     (Balance of Page Intentionally Omitted)



                                       2
<PAGE>


         IN WITNESS WHEREOF, Borrower has executed and delivered this Note on
the day and year first above written.


"WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE."


                                       SHOPSMITH, INC.,
                                       an Ohio corporation


                                       By:
                                          ----------------------------------
                                          Robert L. Folkerth, President


Accepted this 13th
of November, 2001:



---------------------------------
John R. Folkerth, Sr.


Exhibit A - Grid



                                       3

<PAGE>


                                   EXHIBIT A


                                      GRID
                                      ----


                Advances                        Principal Payments
                --------                        ------------------

        Date              Amount              Date                Amount
        ----              ------              ----                ------






                                       4

<PAGE>



                               SECURITY AGREEMENT
                               ------------------


         THIS SECURITY AGREEMENT (the "SECURITY AGREEMENT") is entered into of
the 13th day of November, 2001, by and between SHOPSMITH, INC., an Ohio
corporation ("DEBTOR"), and JOHN R. FOLKERTH, SR., an individual ("SECURED
PARTY").

         WHEREAS, Debtor has executed and delivered to Secured Party a Demand
Promissory Note of even date herewith (such promissory note, as from time to
time amended and supplemented in accordance with the provisions thereof, being
herein called the "NOTE"); and

         WHEREAS, the execution and delivery of this Security Agreement by
Debtor is required to induce Secured Party to make the loan evidenced by the
Note (the "Loan");

         NOW, THEREFORE, for valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, Debtor and Secured Party hereby agree as
follows:

         1. DEFINITIONS. As used in this Security Agreement, the following
terms, which are in addition to terms defined elsewhere in this Security
Agreement, shall have the respective meanings as listed below:

         "BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as
amended from time to time, and any successor statute, and the rules promulgated
thereunder.

         "COLLATERAL" shall mean and include all of Debtors' property and
interests therein of every kind and description (tangible or intangible, real,
personal or mixed), wherever located, including, without limitation, (a) all of
Debtors' Accounts, Chattel Paper, Documents, Deposit Accounts, General
Intangibles, Goods, including Equipment, Instruments, Inventory, Investment
Property, Letter of Credit Rights and Supporting Obligations, (b) all accessions
to and products of any of the foregoing, (c) all additions to, or substitutions
or replacements for any of the foregoing, (d) all proceeds of, or from, any of
the foregoing (including, insurance proceeds whether or not Secured Party is the
loss payee thereunder), and (e) in all cases, whether now owned or existing or
hereafter acquired or arising. Notwithstanding anything in the foregoing to the
contrary, there shall be excluded from the "Collateral" all of the Lowe's
Accounts.

         "DEFAULT COSTS" shall mean all reasonable costs and expenses incurred
by Secured Party for the purpose of enforcing his rights hereunder, including,
without limitation, (a) reasonable costs and expenses of retaking, holding,
preparing for disposition, processing and disposing of the Collateral, (b)
reasonable costs and expenses of obtaining money damages, and (c) and the
reasonable fees and expenses of attorneys employed by Secured Party for any
purpose related to this Security Agreement or the Obligations, including
consultation, drafting documents, sending notices or instituting, prosecuting or
defending litigation or arbitration.

         "EVENT OF DEFAULT" shall have the meaning given to that term in Section
15 hereto.

         "FINANCING STATEMENTS" shall have the meaning given to that term in
Section 4 hereof.

         "LOAN" shall have the meaning given to that term in the recitals
hereto.

         "LOAN DOCUMENTS" shall mean the Note, this Security Agreement and any
other document or instrument, whether executed and/or delivered by Debtor or any
other person, evidencing and/or securing the Loan or any other Obligation, as
the same may be amended or modified from time to time.

         "LOWE'S ACCOUNTS" shall mean Accounts owed by Lowe's Companies, Inc., a
North Carolina corporation, to Debtor, whether now existing or hereafter
arising.

         "NOTE" shall have the meaning given to that term in the recitals
hereto.

         "OBLIGATIONS" shall mean the following: (a) the payment of all
principal of and interest heretofore or hereafter owing or outstanding on the
Note (including any notes substituted therefor), including, without limitation,
future advances made by Secured Party which are evidenced by the Note,
regardless of whether Secured



                                       5
<PAGE>


Party was obligated to make such advances; (b) the payment of all amounts from
time to time owing to Secured Party under or in connection with the other Loan
Documents; (c) the payment by Debtor of all Default Costs; (d) the payment by
Debtor of all sums expended or advanced by Secured Party pursuant to the terms
of any Loan Document; (e) the performance by Debtor of all its obligations under
the Note, this Security Agreement and the other Loan Documents; and (f) the
payment of any and all other indebtedness and other liabilities (including
principal, interest or premium, if any) of any kind or description now or
hereafter owing by Debtor to Secured Party, including, without limitation,
overdrafts, amounts owing under other notes, bonds, debentures, or other
evidences of indebtedness, interest rate protection or exchange arrangements,
and contingent obligations.

         "PERMITTED LIENS" shall mean (a) liens in favor of Secured Party; (b)
liens imposed by law, such as mechanic's, materialman's, landlord's,
warehouseman's, and carrier's liens, and other similar liens, securing
obligations incurred in the ordinary course of business which are not past due
for more than thirty (30) days or which are being contested in good faith by
appropriate proceedings and for which appropriate reserves have been established
and maintained in accordance with GAAP; (c) liens, pledges, or deposits under
workmen's compensation, unemployment insurance, social security, or similar
legislation; or (d) liens approved in writing by Secured Party.

         "THIRD PARTY" shall have the meaning given to that term in Section 5
hereof.

         "UCC" shall mean the Uniform Commercial Code as amended from time to
time, and any successor statute, enacted and in effect at any time in the
relevant jurisdiction.

         2. DEFINITIONS INCORPORATED. Without limiting any definition set forth
herein, terms used herein, whether or not defined, that are defined in the UCC
shall be deemed to have or include the meaning ascribed thereto in the UCC;
provided, however, that the term "Account" as used herein shall in all cases
exclude the Lowe's Accounts.

         3. SECURITY INTEREST. Debtor, its successors and assigns, hereby gives
and grants to Secured Party, his heirs, successors and assigns, a security
interest in all the Collateral and all of Debtor's right, title and interest
therein, whether now owned or existing or hereafter acquired or arising,
together with all proceeds therefrom to secure all of the Obligations.

         4. PERFECTION. (a) Debtor will, at its expense, prepare and execute all
necessary financing statements and supplements thereto, if any, describing the
Collateral (collectively, the "Financing Statements"), and will attend to the
filing of any and all continuation statements as required by Secured Party or
applicable law from time to time in order to continue the validity of the
security interests of Secured Party hereunder. At the election of Secured Party,
Secured Party may, at Debtor's expense, prepare, execute and file all of such
Financing Statements, continuation statements and other documents on behalf of
Debtor and without its signature. Debtor hereby authorizes Secured Party to
prepare, execute and file all of such Financing Statements, continuation
statements and other documents.

         (b) Debtor shall be entitled to the possession of its Collateral and to
use the same in connection with its business until either (i) if Secured Party
chooses to perfect his security interest in all or any portion of the Collateral
by possession in addition to the filing of the Financing Statements, Secured
Party's demand to take possession of such Collateral, or (ii) the occurrence of
an Event of Default. If Secured Party chooses to perfect his security interest
in all or any portion of the Collateral by possession in addition to the filing
of the Financing Statements, Debtor shall, no later than five (5) days following
Debtor's receipt of Secured Party's demand therefor, deliver such Collateral to
Secured Party.

         (c) Debtor shall, from time to time as requested by Secured Party, take
such other action and execute and deliver to Secured Party all other
instruments, supplements, further assurances and security or other agreements as
may be required or requested by Secured Party in order to perfect and continue
Secured Party's security interest in the Collateral hereunder. Debtor hereby
irrevocably appoints Secured Party as its agent and attorney-in-fact to sign all
such instruments, supplements, further assurances and security and other
agreements.

         5. GOODS HELD BY A THIRD PARTY. With respect to Collateral held by a
bailee or third person other than Secured Party (each, a "Third Party"), Debtor
shall (on the date of the Note or promptly thereafter with respect to such
property then held by a Third Party and, with respect to property thereafter
coming into possession of such a Third Party, upon such Third Party's
acquisition of possession) deliver to the Third Party written notice of


                                       6
<PAGE>


Secured Party's security interest hereunder if no such notice has previously
been delivered and obtain from such Third Party a written acknowledgment that it
holds such Collateral for the benefit of Secured Party; provided, however, if a
negotiable document of title has been issued, Debtor shall negotiate such
document of title to Secured Party. Notwithstanding the preceding sentence,
Debtor shall not, without the prior written consent of Secured Party, relinquish
possession of any of its property to any Third Party or third person other than
Secured Party except as permitted by Section 11 hereof.

         6. CONTROL AGREEMENTS. Debtor shall cooperate with Secured Party in
obtaining a control agreement in form and substance satisfactory to Secured
Party with respect to Collateral consisting of: (a) Deposit Accounts; (b)
Investment Property; (c) Letter of Credit Rights; and (d) electronic Chattel
Paper.

         7. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor
hereby represents and warrants to Secured Party as follows:

          (a) Debtor has, and will have, rights in or the power to transfer the
     Collateral and is, and will be, the sole owner of all of the Collateral now
     or hereafter appearing on the books of Debtor.

          (b) All of the Collateral is free and clear of all liens and
     encumbrances whatsoever, except for Permitted Liens).

          (c) Debtor is a corporation formed under the laws of the State of Ohio
     and will not change the State of its formation or transfer the Collateral,
     or any portion thereof (except as permitted by Section 11 hereof), to an
     entity formed in another State.

          (d) Debtor's exact legal name is as set forth in the first paragraph
     of this Security Agreement and Debtor will not change its legal name.

          (e) Debtor will not permit the Collateral to become subject to any
     lien or other security interest, whether prior or subordinate to the
     security interest of Secured Party created hereunder, except for Permitted
     Liens, and Debtor will warrant and defend Debtor unto Secured Party, his
     heirs, successors and assigns, against all lawful claims and demands
     whatsoever of all persons claiming by, from, through or under Debtor.

          (f) Debtor will keep and maintain the Equipment and every part thereof
     in good condition and repair, ordinary wear and tear excepted, so as to
     serve the purpose for which it is designed and intended unless the property
     is obsolete or not necessary for the proper conduct of Debtor's business.

          (g) Debtor will pay, or cause to be paid, all taxes and assessments
     which may be levied, assessed or charged on or against the Collateral or
     which Debtor may be required to pay by reason of its ownership of the
     Collateral, including franchise and similar taxes, as the same become due
     and payable; provided, however, Debtor shall not be required to pay any
     such tax or assessment so long as the validity or amount thereof shall be
     contested in good faith and by appropriate proceedings, but this proviso
     shall apply only if the property subject thereto shall not then be subject
     to sale or foreclosure in order to satisfy any tax lien which has attached
     as security therefor.

          (h) Debtor shall cause the Collateral to remain personal property at
     all times. Debtor shall not affix any of the Collateral to any real
     property in any manner which would change its nature from that of personal
     property to real property or to a fixture.

          (i) Except as permitted by the other Loan Documents, preserve its
     corporate existence and not, in one transaction or a series of related
     transactions, merge into or consolidate with any other entity, or sell all
     or substantially all of its assets, or change the State of its formation or
     its name.

         8. INSURANCE. Debtor shall obtain and maintain, or cause to be obtained
and maintained, a policy or policies of insurance, issued by financially sound
and reputable companies, insuring such of the Collateral as is ordinarily
insured by entities engaged in Debtor's business against loss or damage by fire
and such other perils as may from time to time be covered by extended coverage
insurance, and insuring against such other risks as may be covered by entities
engaged in a similar business, in such amounts not less than Secured Party shall
reasonably request. Said policy or policies shall name Secured Party to be
lender loss payee and insured, as his in-


                                       7
<PAGE>


terests may appear, and shall contain an endorsement making loss payable to
Secured Party. Such policy or policies of insurance shall provide that they
cannot be canceled without at least thirty days' prior written notice to Secured
Party. Upon request of Secured Party, Debtor will cause the original policy or
policies to be delivered to Secured Party.

         Debtor hereby irrevocably appoints Secured Party as its agent and
attorney-in-fact to make proof of loss, to give a receipt for any sums collected
under said policies and, in the event any insurance losses are paid by check,
draft or other instrument payable to Debtor and Secured Party, to endorse
Debtor's name thereon and take such further steps on behalf of Debtor as may be
necessary to realize on such insurance. In any case, Debtor will notify Secured
Party promptly of all insurance claims, regardless of amounts, and forward
copies thereof to Secured Party.

         In the event Secured Party receives insurance proceeds on account of
any loss or damage to the Collateral, notwithstanding the absence of an Event of
Default, Secured Party shall apply such proceeds, after deducting his expenses
incurred in obtaining such proceeds, to the payment of the Obligations in such
order and in such amounts as Secured Party shall determine in his sole
discretion, whether or not such amounts are then due and payable.

         9. DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under all contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Security Agreement had not been executed, (b) the exercise by Secured Party of
any of his rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included, in the Collateral, and
(c) Secured Party shall not have any obligation or liability under the contracts
and agreements included in the Collateral or be obligated to perform any of the
obligations or duties of Debtor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.

         10. ACCOUNTS. Debtor represents, warrants, covenants and agrees as
follows:

          (a) All Accounts as shown on the books of Debtor or as shown in any
     certificate, statement or other report delivered by Debtor to Secured
     Party, shall represent valid and existing obligations of the account
     debtors representing goods or services delivered or performed, and
     invoiced, and which are not subject to any defense, counterclaim or right
     of setoff unless otherwise stated on such certificate, statement, or other
     report.

          (b) Debtor has executed and delivered to Secured Party such documents
     and agreements as required by Secured Party to establish or confirm the
     existence of lock boxes and cash collateral arrangements acceptable to
     Secured Party.

          (c) Debtor shall hold in trust for Secured Party any amounts received
     by Debtor on or with respect to its Accounts and will forthwith deliver the
     same to Secured Party in the form received (with any necessary endorsement
     added) for credit to the payment of the Obligations in such order and in
     such amounts as Secured Party shall determine in his sole discretion.
     Debtor authorizes Secured Party to endorse Debtor's name upon any checks or
     other items which are received on account of any Account and to do all
     things necessary to reduce the same to money.

          (d) Secured Party shall have the right from time to time to arrange
     for verification of all Accounts directly with the account debtors or by
     other methods reasonably satisfactory to Secured Party. Any such
     verification shall be conducted in such a manner as to minimize disruption
     to Debtor's business.

          (e) Except as otherwise provided in this subsection, Debtor shall use
     its best efforts to collect, at its own expense, all amounts due or to
     become due Debtor on the Accounts. Secured Party shall have the right at
     any time, upon written notice to Debtor and at the expense of Debtor, to
     take such action to collect the Accounts and to enforce Debtor's rights
     against the Account debtors and obligors as Secured Party deems proper, and
     to adjust, settle and compromise payment thereof (without notice to or the
     consent of Debtor). At such time as Secured Party exercises his rights
     pursuant to the preceding sentence, Debtor shall not take any action to
     collect, adjust, settle or compromise any Account except with the written
     consent of Secured Party. Secured Party does not have any obligation to
     Debtor to collect or attempt to collect any Accounts.


                                       8

<PAGE>


         11. INVENTORY. So long as no Event of Default exists, Debtor may sell
its Inventory in the ordinary course of its business on its customary business
and payment terms, but no sale in bulk shall be permitted without the prior
written consent of Secured Party. Secured Party does not authorize any other
sale or other disposition of the Collateral. To the extent that Debtor uses the
proceeds of the Loan to purchase Collateral, Debtor's repayment of the Loan
shall be applied on a "first-in-first-out" basis so that the portion of the Loan
used to purchase a particular item of Collateral shall be paid in the
chronological order Debtor purchased the Collateral.

         12. CHATTEL PAPER. Debtor will not create any Chattel Paper without
placing a legend on the Chattel Paper acceptable to Secured Party indicting that
Secured Party has a security interest in the Chattel Paper.

         13. RECORDS AND INSPECTION. Debtor will at all times keep accurate and
complete records of the Collateral. Secured Party shall have the right at all
reasonable times to examine and inspect the Collateral, wherever located, and to
review Debtor's records with respect to the Collateral and to make copies
thereof.

         14. SECURED PARTY'S DUTIES. The powers conferred on Secured Party
hereunder are solely to protect his interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Secured Party shall have no
obligation to preserve rights against prior parties.

         15. EVENTS OF DEFAULT. An "Event of Default" shall occur hereunder and
under the other Loan Documents upon the happening of any of the following events
or conditions, namely: (a) Debtor shall fail to make any payment within ten (10)
days after the date when due under the Note, this Security Agreement or any
other Loan Document; (b) Debtor shall fail to perform any other term, provision
or covenant of this Security Agreement or any Loan Document when required
hereunder or thereunder, and such failure continues uncured for ten (10)
consecutive days after written notice thereof has been given by Secured Party to
Debtor; (c) any representation or warranty made by or with respect to Debtor
hereunder, under any Loan Document or in any writing delivered to Secured Party
pursuant hereto or thereto shall prove to be false, incorrect, or misleading in
any material respect when made or deemed to be made; (d) the loss, theft,
substantial damage, destruction or sale to or of any of the Collateral, or the
making of any levy, seizure or attachment of or on any of the Collateral; (e)
the death, dissolution, termination of existence, insolvency, business failure,
appointment of a receiver of any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Debtor; (f) any obligation of Debtor
in respect of indebtedness for borrowed money shall be declared to be or shall
become due and payable prior to the stated maturity thereof or such obligation
shall not be paid as and when the same becomes due and payable, or there shall
occur any event which constitutes a "default" or "event of default" under any
instrument, agreement or evidence of indebtedness relating to any obligation of
Debtor in respect of indebtedness for borrowed money the effect of which is to
permit the holder or holders of such instrument, agreement or evidence of
indebtedness or a trustee, agent or other representative on behalf of such
holder or holders, to cause the indebtedness thereby to become due and payable
prior to its stated maturity; (g) a final judgment for the payment of money
shall be rendered against Debtor and the same shall remain undischarged for a
period of thirty (30) days during which execution shall not be effectively
stayed; (h) the transfer or disposition of any of the Collateral in violation of
this Security Agreement; (i) Secured Party shall receive at any time following
the date of the Note an official search of the UCC records of the Secretary of
State of Debtor's State of formation indicating that Secured Party's security
interest is not prior to all other security interests or other interests
reflected in the search other than Permitted Liens; (j) any of the foregoing
shall occur with respect to any guarantor or surety for Debtor or of any of the
Obligations; or (k) Secured Party deems itself insecure and in good faith
believes that the prospect of payment or performance is impaired.

         16. REMEDIES. If an Event of Default shall occur, Secured Party shall
have the right to declare all of the Obligations secured hereby to be
immediately due and payable, as provided in the Note and this Security
Agreement, in default and subject to foreclosure proceedings and/or other
rights, options, and remedies as provided under other applicable law, and to
proceed to protect and enforce his rights under the Note, this Security
Agreement or any other Loan Document by a suit or suits in equity or at law,
whether for specific performance or observance of any terms, provisions,
covenants or conditions herein or therein contained, in aid of the execution of
any power herein or therein granted, for any foreclosure hereunder or
thereunder, or for the enforcement of any other proper legal or equitable
remedy. Secured Party shall have any and all other rights and remedies provided
by law or equity, including, without limitation, the rights and remedies of a
secured party, and the concurrent right:

          (a) To perform any defaulted covenant or agreement of this Security
     Agreement to such extent as Secured Party shall determine and advance such
     moneys as it shall deem advisable for the afore-


                                       9
<PAGE>



     said purpose and all moneys so advanced, together with interest thereon
     from the date advanced until paid at a rate per annum equal to two percent
     (2.0%) per annum in excess of the rate of interest borne from time to time
     under the Note, shall be secured hereby and shall be repaid promptly after
     notice of the amount due without demand; provided, however, that nothing
     herein contained shall be construed to require Secured Party to advance
     money for any of the aforesaid purposes;

          (b) To notify all account debtors to make payments directly to Secured
     Party or otherwise as Secured Party may specify;

          (c) To take control of any and all proceeds to which Secured Party may
     be entitled under this Security Agreement, any other Loan Document, or
     under any applicable laws;

          (d) To take immediate possession of the Collateral and, with or
     without taking possession of the Collateral, to sell, lease, license or
     otherwise dispose of any or all of the Collateral, either at public or
     private sale, upon commercially reasonable terms, and Secured Party may
     become the purchaser thereof at public or private sale. Except as otherwise
     provided in this subsection (d), Secured Party will send Debtor ten (10)
     days' prior written notice of the time and place of any public sale of the
     Collateral or of the time after which any private sale or any other
     intended disposition thereof is to be made. Any sale may be adjourned at
     any time and from time to time to a reasonably specified time and place by
     announcement at the time and place of sale as previously fixed, without
     further notice by publication or otherwise of the time and place of such
     adjourned sale. Debtor hereby acknowledges that, to the extent any portion
     of the Collateral comprised of Inventory is perishable and is of a type
     that threatens to decline speedily in value, Secured Party shall have no
     duty to provide any notification of the time and place of any public sale
     or of the time after which any private sale or other intended disposition
     of such Inventory is to be made. Furthermore, to the extent any portion of
     the Inventory is perishable and of a type that threatens to decline
     speedily in value, Secured Party may sell or otherwise dispose of such
     Inventory in an expeditious manner for salvage value and for use in a
     manner otherwise than its originally intended use. Debtor shall take all
     actions, including, without limitation, providing, at Debtor's sole cost,
     personnel and refrigerated warehouse space and refrigerated trucks to
     assist in the preservation and the sale or other disposition of the
     Inventory. The proceeds of any sale shall be applied (i) first to the
     Default Costs; (ii) next to the principal and interest due under the Note
     and the other amounts secured under clauses (a) through (e), inclusive, of
     the definition of "Obligations" in Section 1 hereof; (iii) next to amounts
     secured under clause (f) of the definition of "Obligations" in Section 1
     hereof; (iv) next to the holder of any subordinate security interest or
     other subordinate lien therein (which is also senior to any consigner) if
     written notification of demand therefor is received before distribution of
     the proceeds; and (v) lastly, any surplus to Debtor, and Debtor shall
     remain liable for any deficiency. Any such sale, public or private, may be
     made on credit at the option of Secured Party. Secured Party shall have the
     right to conduct any such sale on Debtor's premises, and Secured Party
     shall have such right of possession of said premises as shall be necessary
     or convenient for such purpose or any other purpose under this subsection
     (d). Secured Party may sell the Collateral without giving any warranties as
     to the Collateral and may specifically disclaim any warranties of title or
     the like, which shall not be considered to adversely affect the commercial
     reasonableness of any sale of the Collateral. Secured Party has no
     obligation to cleanup or otherwise prepare the Collateral for sale;

          (e) To take immediate possession of the Collateral and to use or
     operate the Collateral in order to preserve the same or its value, and
     collect, receive and use all of the net profits from such use or operation
     to pay indebtedness secured by such Collateral;

          (f) To require Debtor, to the extent practicable and at Debtor's
     expense, to assemble the Collateral and make it available to Secured Party
     at such locations within the county wherein such Collateral is located as
     Secured Party shall designate;

          (g) To enter all of Debtor's facilities to remove the Collateral
     therefrom and take possession of Debtor's books and records and computer
     hardware and software, and to use all of the same in a manner Secured Party
     deems appropriate in order to preserve and sell or otherwise dispose of the
     Collateral;

          (h) To (without assuming any obligations or liability thereunder), at
     any time and from time to time, enforce (and shall have the exclusive right
     to enforce) against any licensee or sublicensee all rights and remedies of
     Debtor in, to and under any patent licenses or trademark licenses included
     in the General Intangibles and, in the exercise of commercial
     reasonableness, take or refrain from taking any action un-


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<PAGE>


     der any such licenses, and Debtor hereby releases Secured Party from and
     agrees to hold Secured Party free and harmless from and against any claims
     arising out of, any lawful action so taken or omitted to be taken under
     applicable law with respect thereto; and

          (i) To notify the postal authorities to change Debtor's mail delivery
     address to such address designated by Secured Party.

         All of Secured Party's rights and remedies will be cumulative, and no
waiver of any default will affect any other subsequent default. The rights and
remedies provided in this Security Agreement, in the other Collateral Security
Documents, and in the other Loan Documents are cumulative, may be exercised
concurrently or separately, may be exercised from time to time and in such
order, without any marshalling, as Secured Party shall determine.

         Nothing herein contained shall be construed as preventing Secured Party
from taking all lawful actions to protect his interest in the event that
liquidation, insolvency, bankruptcy, reorganization or foreclosure proceedings
of any nature whatsoever affecting the property or assets of Debtor should be
instituted.

         Secured Party has no obligation to attempt to satisfy the Obligations
by collecting them from any other person liable for them and Secured Party may
release, modify or waive any collateral provided by any other person to secure
any of the Obligations, all without affecting Secured Party's rights against
Debtor. Debtor waives any right it may have to require Secured Party to pursue
any third person for payment of the Obligations.

         Secured Party may comply with any applicable State or Federal law
requirements in connection with a disposition of the Collateral and compliance
therewith shall not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

         17.  RISK OF LOSS. Debtor has the risk of loss of the Collateral.

         18. MISCELLANEOUS PROVISIONS. This Security Agreement and the security
interests of Secured Party in the Collateral created hereby shall cease and
terminate only upon payment in full of the Note and all of the other Obligations
and the termination of the obligation(s), if any, of Secured Party to advance
any funds to Debtor or any other person pursuant to the Loan Documents.

         All notices, requests, demands or other communications hereunder
("Notices") to be given or made by Debtor to Secured Party shall be given or
made to:

                  John R. Folkerth, Sr.
                  c/o Shopsmith, Inc.
                  6530 Poe Avenue
                  Dayton, Ohio  45414
                  Telephone: (937) 898-6070
                  Telecopy:  (937) 898-9762

         All Notices to be given or made by Secured Party to Debtor shall be
given or made to:

                  Shopsmith, Inc.
                  6530 Poe Avenue
                  Dayton, Ohio  45414
                  ATTENTION:
                  Telephone: (937) 898-6070
                  Telecopy:  (937) 898-9762

         All Notices shall be effective 24 hours after being duly mailed by
first class mail addressed to the appropriate notice address or immediately upon
being sent by telecopier or similar electronic means of communication to the
appropriate notice address.

         This Security Agreement is being executed and delivered and is intended
to be performed under and pursuant to the laws of the State of Ohio, and shall
be construed and enforced in accordance with such laws, except to the extent
that the UCC provides for the application of the law of another State.(1)


                                       11

<PAGE>


         This Security Agreement, all supplements hereto and all amendments
hereof, shall inure to the benefit of and be binding upon Debtor, Secured Party,
and their respective heirs, successors and assigns. Secured Party does not
consent to any assignment by Debtor. Secured Party may assign his rights and
interests under this Security Agreement.

         No waiver of any term, provision, covenant or condition contained in
this Security Agreement, or of any breach of any such term, provision, covenant
or condition, shall be effective unless in writing nor shall such waiver
constitute a waiver of any subsequent breach or justify or authorize the
non-observance on any other occasion of such term, provision, covenant or
condition contained in this Security Agreement.


                     (Balance of Page Intentionally Omitted)



                                       12

<PAGE>



         IN WITNESS WHEREOF, the parties have caused this Security Agreement to
be executed in Dayton, Ohio, as of the date first above written.


                                       "DEBTOR"

                                       SHOPSMITH, INC.


                                       By:
                                          --------------------------------------
                                          Robert L. Folkerth, President



                                       "SECURED PARTY"


                                       By:
                                          --------------------------------------
                                          John R. Folkerth, Sr., individually




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