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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1997 Commission File Number 2-30905
HMI INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1202810
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
3631 Perkins, Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 432-1990
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $1 par value per share
Indicate by check mark whether 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 and (2) has been subject to such filing requirements for the
past ninety (90) days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ____ No X
The aggregate market value of voting stock held by non-affiliates of Registrant,
computed by reference to the closing price on the NASDAQ Stock Exchange on
December 22, 1997 was approximately $10,623,000.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at December 22, 1997
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<S> <C>
Common stock, $1 par value per share 5,033,996
</TABLE>
Documents Incorporated by Reference
The following documents are incorporated by reference in this Form 10-K.
Portions of the Proxy Statement for the 1998 Annual Meeting, incorporated into
Part III (Items 10, 11, 12 and 13).
Index to Exhibits is found on page 47. This report consists of 48 pages.
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TABLE OF CONTENTS
<TABLE>
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PART I. Page
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Item 1. Business
(a) General Development of Business..................................................................3
(b) Financial Information About Industry Segments....................................................4
(c) Narrative Description of Business................................................................4
Consumer Goods.................................................................................4
Manufactured Products..........................................................................6
Metal Stamping and Metal Formed Tubing.......................................................6
Tools, Dies and Specialty Machinery..........................................................6
Employees......................................................................................7
Environmental Policies and Controls............................................................7
Methods of Production and Raw Materials........................................................7
(d) Financial Information About Foreign and Domestic
Operations and Export Sales....................................................................7
Executive Officers of the Registrant.............................................................7
Item 2. Properties.........................................................................................9
Item 3. Legal Proceedings..................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders................................................9
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matter............................. 10
Item 6. Selected Financial Data...........................................................................11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............12
Item 8. Financial Statements and Supplementary Data.......................................................16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............16
PART III.
Item 10. Directors and Executive Officers of Registrant....................................................16
Item 11. Executive Compensation............................................................................16
Item 12. Security ownership of Certain Beneficial Owners and Management....................................17
Item 13. Certain Relationships and Related Transactions....................................................17
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................17
SIGNATURES........................................................................................18
INDEX TO FINANCIAL STATEMENTS.....................................................................19
INDEX TO EXHIBITS.................................................................................47
</TABLE>
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PART I.
Item 1. Business
(a) General Development of Business
HMI Industries Inc. (the "Company" or "registrant") was known as Health-Mor Inc.
until January 1995. The Company was reorganized in 1968 as a Delaware
corporation, succeeding an Illinois corporation originally formed in 1928. In
1997, the business of the Company was carried out through two primary divisions.
The Consumer Goods Division manufactures and sells floor care and air filtration
products, primarily portable bagless vacuum cleaners sold under the trade names
"Filter Queen", "Princess", "Majestic" and "Empress", central vacuum cleaning
systems sold under the trade names "Vacu-Queen" and "Majestic II". Portable room
air cleaners are sold under the trade name "Defender" and carpet cleaning
systems under the trade name "Easy Way" are both sold and leased. This division
also sells needle-free insulin injectors under the "AdvantaJet" name. The
operations of the Consumer Goods Division are carried on through the operations
at the Perkins Avenue facility in Cleveland, Ohio, and the following
wholly-owned subsidiaries: HMI Incorporated (incorporated in Ontario, Canada);
Home Impressions Inc. (incorporated in Delaware); Health-Mor International,
Inc., which meets the qualifications under the Internal Revenue Code as a
foreign sales corporation (incorporated in the U.S. Virgin Islands); Health-Mor
Acceptance Corporation (incorporated in Delaware); HMI Acceptance Corporation
(incorporated in Ontario, Canada); and Health-Mor Acceptance PTY Ltd.
(incorporated in Sydney, Australia). Health-Mor Personal Care Corp.
(incorporated in Delaware) is 85% owned by the registrant.
The Manufactured Products Division engages in the fabrication and sale of
commercial and industrial stamped components, metal formed tubular products and
machined components, and the manufacture of needle-free insulin injectors. The
operations of this division are carried out by Bliss Manufacturing Company
(incorporated in Ohio) and Tube-Fab Ltd. (incorporated in Ontario, Canada), both
wholly-owned subsidiaries of the Company.
In 1997, the Company made a decision to sell its Manufactured Products Division
businesses and any poor performing product lines in the Consumer Goods Division.
As a result of this decision, Bliss Tubular Products, which engaged in the
bending of aluminum, steel and copper tubing, was sold in fiscal 1997 and the
Company is negotiating the sale of Tube-Fab Ltd.
In September 1997, the Company decided to sell Bliss Manufacturing Company and
this subsidiary was offered for sale. On December 18, 1997, the Company signed a
definitive agreement to sell the stock of its Bliss Manufacturing Company to an
investor group led by Mervin Dunn and Rhone Capital, LLC. The purchase price is
$31,500,000, subject to certain adjustments, including a $1,500,000 distribution
for certain payments to vendors and employee obligations. The sale is expected
to close in March 1998, subject to regulatory and shareholder approval.
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In the Consumer Goods Division, the Company has offered for sale two businesses,
Health-Mor Personal Care Corporation and Household Rental Systems ("HRS"). A
letter of intent to sell HRS was signed in December, 1997. In addition, the
Company discontinued selling the "Optima" portable canister vacuum and the
"Princess 2000" upright vacuum cleaner in 1997. In December 1997, the Company
announced it was discontinuing the "Electrapure" portable canister vacuum
product. Sale of the "SuperNaturals" brand of cleaning products was suspended in
1997. Most of the Home Impressions product lines were discontinued in 1997,
except for the "Vacu-Queen" central vacuum cleaning system. The Company also
discontinued rental of the "Easy Way" carpet cleaning systems to Filter Queen
direct distributors in 1997.
(b) Financial Information About Industry Segments
As of September 30, 1997, the Company's continuing operations consist of a
single operating segment: the Consumer Goods Division. See Note 12 (Business
Segments) of the Notes to the Consolidated Financial Statements found on page 42
for further information.
(c) Narrative Description of Business
Consumer Goods
The principal products of the Consumer Goods Division of the Company are floor
care and air filtration products, primarily portable vacuum cleaners and central
vacuum cleaning systems. Portable bagless vacuum cleaners are sold under the
trade names "Filter Queen", "Princess", "Majestic" and "Empress". The central
vacuum cleaning systems are sold under the trade names "Vacu-Queen" and
"Majestic II". The bagless portable and portable canister vacuums consist of a
canister type suction cleaner, motorized vacuum cleaning head with a revolving
brush ("Pow-R-Nozzle"), hose, wand, brushes and other cleaning tools. The
Company also offers accessories for use with its bagless and canister vacuum
cleaners, most of which are attached to the exhaust outlet and may be used as
room deodorizers, air circulators, and for other blowing operations such as the
spraying of liquids. The central vacuum cleaning systems use the motorized
vacuum cleaning head with a revolving brush, as well as the hose, wand, brushes
and other cleaning tools. The Company also manufactures straight suction
attachments, which do not have a motorized vacuum cleaning head.
The Filter Queen cleaning system has been registered by Underwriters
Laboratories and Canadian Standards Authority as an Air Filtration Device.
The floor care products of the Consumer Goods Division are marketed in the
United States, Canada, and over forty other countries. The Company markets the
Filter Queen Majestic and the Empress through independent distributors who sell
in the home directly through their own independent representatives and who also
sell indirectly through the representatives of smaller independent local
distributors.
Central vacuum cleaning systems are marketed worldwide under the trade name
"Vacu-Queen" through retail distributors and under the trade name "Majestic II"
through direct distributors. The Company also markets the Vacu-Queen to building
contractors and developers for installation in newly constructed homes and
apartments.
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Household Rental Systems ("HRS") provides carpet cleaning systems for rent to
consumers through independent retail vacuum cleaner stores under the name "Easy
Way" in the United States and Canada. The Canadian HRS business has been
reported as discontinued operations and a letter of intent to sell HRS was
signed in December 1997.
Health-Mor Personal Care Corp. markets the AdvantaJet needle-free insulin
injector and other health care products. Customer service is crucial to this
product line. This business has been classified as a discontinued operation and
the Company is seeking a buyer for this business.
The Company meets strong competition in the sale of its vacuum cleaners and
central vacuum systems. In the case of sales through in-home solicitation, this
competition is primarily with vacuum cleaner equipment in use in the home at the
time of the sales presentation. There are many significant vacuum cleaner
manufacturers, plus many regional and private label manufacturers, who make
numerous brand name vacuum cleaners in the United States. Most of these are sold
through department stores, discount houses, appliance shops and by catalog,
generally at substantially lower prices than the Filter Queen. There are more
than five companies which compete significantly with the Company in the United
States and Canada in distribution of vacuum cleaners by in-home solicitation.
Many of its competitors in the sale of vacuum cleaners are substantially larger
and have greater resources than the Company. The Company believes that its
vacuum cleaners are competitive with other vacuum cleaners because of their
performance and warranty. It is the practice of the Company, along with other
companies in the vacuum cleaner industry, to maintain sufficient amounts of
inventory to meet the rapid delivery requirements of customers. The Consumer
Goods Division of the Company operates with a minimal backlog.
The Company is expanding its parts and service business by utilizing its
extensive customer data base to market accessories and new products and
services. The purpose is to enhance the annuity value of each customer to the
Company and to distributors by encouraging add-on sales and generating referrals
by utilizing these same data bases and the Distributor network. The parts and
service business continues to expand in markets outside of North America.
The Company's financing program, through its subsidiaries Health-Mor Acceptance
Corporation and HMI Acceptance Corporation continues to serve its distributors
and consumers by offering financing to marginally credit worthy consumers. The
Company has sold a portion of its U.S. portfolio to a first line finance
company, and continues to explore ways to serve its distributors and consumers
while at the same time reducing its overhead through alliances with first line
finance companies. Health-Mor Acceptance PTY Ltd. was incorporated in Sydney,
Australia, to offer consumer financing of the Company's products in that
country. This portfolio is currently being liquidated.
The Company holds trademark or trade name registration on the principal
trademarks and trade names used by the Consumer Goods Division. These trademarks
have been registered in the United States, Canada and other countries in which
the Company has distributors which sell a significant number of units. The
Company owns a number of patents in the United States, Canada and other
countries on various features of the Filter Queen, Vacu-Queen and related
products. The Company does not believe that its business is materially dependent
on any patent or group of patents.
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Manufactured Products
The Manufactured Products Division of the Company consists of commercial and
industrial stamped components, metal formed tubular products, machined
components, tools, dies and specialty products and production of needle-free
insulin injection systems. All businesses related to the Manufactured Products
Division have been reclassified to discontinued operations and are held for sale
at September 30, 1997.
Metal Stamping and Metal Formed Tubing
Bliss Manufacturing Company ("Bliss"), a wholly-owned subsidiary of the Company,
engages in the manufacture of various types of sheet metal stamping and
sub-assemblies, and painting and welding in conjunction therewith, for customers
in the automotive and truck manufacturing, materials handling equipment,
military, and plumbing industries. The products manufactured by Bliss are sold
primarily to original equipment manufacturers, mostly in the Midwest.
The customers of Bliss issue releases for parts depending upon their own
requirements. Therefore, Bliss operates with a minimal backlog.
The business of Bliss is significantly dependent upon several automotive and
truck manufacturers. In the event that a significant portion of the automotive
and truck business were to cease immediately, and the revenues were not replaced
with sales to other customers, whether existing or new, the loss could have a
material adverse effect on the registrant and its subsidiaries, taken as a
whole. However, the registrant believes that its relationship with these
customers is good and, although it anticipates the loss of business for
particular parts from time to time as the products in which those parts are
incorporated are discontinued or substantially changed, the registrant believes
that it can, at least in part, make up for such losses through existing or new
customers. The Company has signed a definitive agreement to sell Bliss
Manufacturing (See Item 1a).
Tube-Fab Ltd. ("Tube-Fab"), a wholly-owned subsidiary of the Company, is engaged
in the manufacture of high quality tubular products for the aircraft, military,
communications and specialty architectural industries. The Company intends to
sell Tube-Fab in 1998 (See Note 14 "Related Party Transactions" of the Notes to
the Consolidated Financial Statements).
Tools, Dies and Specialty Machinery
Machined Products Division ("MPD"), a division of Tube-Fab, engages in the
manufacture and sale of precision machined components for aircraft engines for
the aerospace industry. The work performed is primarily subcontract work for
engine manufacturers. In addition, MPD continues its work with Spar Aerospace,
manufacturing components for the Special Purpose Dextrous Manipulator for the
International Space Station. MPD has numerous competitors in the machining
field, none of whom has any sizable market share.
Sales backlog for MPD as of September 30, 1997 and 1996 was approximately
$540,903 and $420,000, respectively. It is expected that this backlog will be
filled during the current fiscal year.
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Employees
The Company and its subsidiaries employed 836 persons at September 30, 1997
throughout the world. Approximately 70% are part of businesses that have been
classified as discontinued.
Environmental Policies and Controls
To the best of the Company's knowledge, it is in compliance with all applicable
Federal, State and local laws relating to the protection of the environment. It
does not anticipate that any laws or regulations relating to the protection of
the environment will have any material effect on its earnings, capital
expenditures, or competitive position. The Company does not anticipate making
any material capital expenditures for environmental control facilities during
the current and succeeding fiscal years.
Methods of Production and Raw Materials
The Consumer Goods Division of the Company assembles finished parts purchased
from various suppliers. Tube-Fab purchases metal tubing from various suppliers
and engages in finishing operations, such as bending, beading and flaring. MPD
manufactures needle-free insulin injectors and precision machined parts for the
aerospace industry. Bliss purchases steel (both coil and blank) from various
suppliers and stamps metal parts for its customers. Bliss also engages in
welding and painting of certain parts, including the painting of parts for other
companies.
(d) Financial Information About Foreign and Domestic Operations and Export Sales
Financial information relating to foreign and domestic operations for the years
ended September 30, 1997, 1996 and 1995 are set forth in Note 12 (Business
Segments) of the Notes to Consolidated Financial Statements found on page 42.
Executive Officers of the Registrant
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NAME AGE POSITION AND TERMS OF SERVICE AS OFFICER
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James R. Malone 55 Chairman and Chief Executive Officer (1)
Mark A. Kirk 40 President, Chief Operating Officer and Chief Financial
Officer (2)
Carl H.Young III 56 Executive Vice President, General Counsel and Assistant
Secretary (3)
Sherwin Ellens 60 Vice President - Sales and Marketing (4)
Robert M. Benedict 54 Vice President and Treasurer (5)
Kevin Dow 41 Vice President - Corporate Services and Assistant Treasurer (6)
Michael Harper 41 Vice President, Corporate Controller and Chief Accounting
Officer and Assistant Secretary (7)
</TABLE>
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(1) Mr. Malone was elected Chairman of the Board of Directors on December 5,
1996 and Chief Executive Officer on May 14, 1997. From 1993 to 1997, Mr.
Malone was Chairman, President, and Chief Executive Officer of Anchor Glass
Container Corporation, a manufacturer of glass containers. From 1990 to
1993 he was Chairman and Chief Executive Officer of Grimes Aerospace
Company, an aircraft component manufacturer.
(2) On May 14,1997, Mr. Kirk was elected President and Chief Operating Officer.
He is also Chief Financial Officer, and was elected to that position in
February 1997. From 1993 to 1997 he served as Senior Vice President and
Chief Financial Officer of Anchor Glass Container Corporation. From 1990 to
1993 he was Senior Vice President and Chief Financial Officer at Grimes
Aerospace Company.
(3) Carl Young was elected Executive Vice President, General Counsel, and
Assistant Secretary on May 28, 1997. He had previously served as Vice
President and General Counsel from February 14, 1997 to May 28, 1997. From
1993 to 1997 Mr. Young served as Senior Vice President and General Counsel
of Anchor Glass Container Corporation. From 1990 to 1993, Mr. Young was
Senior Vice President and General Counsel for Grimes Aerospace Company.
(4) Mr. Ellens has served as Vice President - Sales and Marketing since May 28,
1997. From 1996 to May 14,1997 he was Vice President of Direct Sales. From
1992 to 1995, he served as Director of Direct Sales for North America.
(5) Mr. Benedict was elected Vice President and Treasurer on May 28, 1997. From
1995 to 1997 he was Assistant Treasurer of Sealy Inc., a mattress
manufacturer. From 1992 to 1995 he was Vice President of Benedict, Kuhit &
Associates, a consulting firm.
(6) Mr. Dow was named Vice President - Corporate Services and Assistant
Treasurer on May 28, 1997. From March 1996 to May 1997 he served as Vice
President-Administration and Treasury. He has also served as Treasurer or
Assistant Treasurer at various times since 1995. He served as Vice
President Finance and Administration from 1989 to 1996.
(7) Mr. Harper was elected Vice President, Chief Accounting Officer and
Assistant Secretary on May 28, 1997. He has also served as Corporate
Controller since December 1996. He served as Vice President, Finance for
Bliss Manufacturing Company from January 1996 to December 1996. For over
sixteen years prior to that time he served in various financial management
positions with The Sherwin-Williams Company, most recently as the
Controller of the Transportation Services Division. Sherwin-Williams
Company is a paint manufacturer.
Kevin Dow, Vice President-Corporate Services and Assistant Treasurer, is the
first cousin of Barry L. Needler, Vice Chairman and a director.
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Item 2. Properties
The following table sets forth by industry segment, the location, character and
size (in square feet) of the real estate used in the operations of the Company
and its subsidiaries at September 30, 1997:
<TABLE>
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SQUARE FEET
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LOCATION CHARACTER OWNED LEASED
- -------- --------- ----- ------
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CONSUMER GOODS DIVISION
United States of America
------------------------
Cleveland, Ohio Office, Plant & Warehouse 210,000
Bradley, Illinois (1) Office & Warehouse 7,516
Canada
------
Mississauga, Ontario Office & Warehouses 46,772
Dorval, Quebec Office & Warehouse 4,762
Calgary, Alberta Office & Warehouse 4,500
Surrey, British Columbia Office & Warehouse 4,100
Edmonton, Alberta Office & Warehouse 2,049
Vancouver, British Columbia Office & Store 2,292
Burlington, Ontario Office & Store 1,100
MANUFACTURED PRODUCTS DIVISION
Tools, Dies & Specialty Machinery (1)
Charlottetown, Prince Edward Island Office, Plant & Warehouse 19,000
Metal Stamping and Metal Formed Tubing (1)
Newton Falls, Ohio Office, Plant & Warehouse 400,000
Youngstown, Ohio Office, Plant & Warehouse 150,000
</TABLE>
(1) Included in Assets Held for Sale
Item 3. Legal Proceedings
Claims arising in the ordinary course of business are pending against the
Company. Although these are in various stages of the litigation process,
management believes that none of these matters will have a material adverse
effect on the consolidated financial position, results of operations or
liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The common stock of the Company is listed and traded on the NASDAQ Stock Market
under the symbol HMII. As of September 30, 1997, there were approximately 253
stockholders of record.
A summary of the dividends declared and the quarterly high and low sales price
of the Company's common stock on the Nasdaq Stock Exchange for the years ended
September 30, 1997 and 1996, are as follows:
1997
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High Low Dividend
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1st Quarter 6 3/4 4 3/4 $ .0000
2nd Quarter 8 1/8 5 1/8 $ .0000
3rd Quarter 7 5/8 4 7/8 $ .0000
4th Quarter 6 1/4 3 7/8 $ .0000
</TABLE>
1996
<TABLE>
<CAPTION>
High Low Dividend
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1st Quarter 15 11 1/4 $ .0875
2nd Quarter 12 1/4 7 3/4 $ .0875
3rd Quarter 8 3/4 7 $ .0875
4th Quarter 8 1/4 4 3/4 $ .0000
</TABLE>
The declaration and payment of quarterly dividends is at the discretion of the
Board of Directors, which may raise, lower or omit the dividend in any quarter.
Due to losses in the first three quarters of 1996, the Company did not declare a
dividend in the fourth quarter of fiscal 1996. No dividends were declared in
1997 due to continued losses. The Credit Agreement with the Company's lender
will not permit the payment of dividends and this restriction remains in effect
until the credit facility is paid in full in 1998. It is not expected that the
Company will declare a dividend until the Company returns to profitability.
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Item 6. Selected Financial Data
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<CAPTION>
1997 1996 1995 1994 1993
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Net Revenue From Continuing Operations $ 50,490,250 $ 59,548,908 $ 62,785,302 $ 52,759,037 $ 44,224,939
Operating Costs and Expenses $ 68,603,306 $ 63,882,184 $ 60,509,044 $ 50,539,058 $ 41,416,946
Other Income (Expense), net $ (2,650,313) $ (4,272,428) $(1,282,491) $(1,080,894) $(1,080,413)
Income (loss) Before Discontinued
Operations Before Taxes $(20,763,369) $ (8,605,704) $ 993,767 $ 1,139,085 $ 1,727,580
Income (loss) Margin Before Discontinued
Operations Before Taxes (41.1%) (14.5%) 1.6% 2.2% 3.9%
Income Taxes (benefits) $ (7,285,949) $ (2,838,259) $ (614,791) $ (69,510) $ 145,512
Income Tax Rate 35.1% 33.0% 69.1% 6.1% 8.4%
Income (loss) before Discontinued Operations $(13,477,420) $ (5,767,445) $ 1,608,558 $ 1,208,595 $ 1,582,068
Income (loss) Margin Before Discontinued Operations (26.7%) (9.7%) 2.6% 2.3% 3.6%
Income (loss) From Discontinued Operations $ 2,347,039 $ (1,965,815) $ 3,833,317 $ 3,422,894 $ 3,287,695
Loss on Disposal $ (5,519,684) $ (2,280,844) $ --- $ --- $ ---
Cumulative Effect-
Change of Accounting for Income Taxes $ --- $ --- $ --- $ 719,016 $ ---
Net Income (loss) $(16,650,065) $(10,014,104) $ 5,441,875 $ 5,350,505 $ 4,869,763
Net Income (loss) Margin (33.0%) (16.8%) 8.7% 10.1% 11.0%
Per Share Data:
Net Revenues From Continuing Operations $ 10.19 $ 12.12 $ 12.87 $ 10.79 $ 9.12
Income (loss) Before Discontinued
Operations $ (2.72) $ (1.18) $ .33 $ .25 $ .33
Income (loss) From Discontinued
Operations $ .47 $ (.40) $ .79 $ .70 $ .68
Net Income (loss) $ (3.36) $ (2.04) $ 1.12 $ 1.09 $ 1.01
Cash Dividends $ .000 $ .263 $ .346 $ .324 $ .301
Weighted Average Number of Common
Shares Outstanding 4,956,276 4,912,135 4,876,599 4,888,395 4,851,192
Total Assets $ 55,390,133 $ 92,511,124 $ 85,191,635 $ 78,642,212 $ 65,102,797
Long-Term Debt $ 762,777 $ 22,334,613 $ 14,050,715 $ 13,176,973 $ 8,800,956
Stockholders' Equity $ 14,551,505 $ 30,882,960 $ 40,350,913 $ 37,901,982 $ 34,442,194
Book Value Per Share $ 2.94 $ 6.29 $ 8.27 $ 7.75 $ 7.10
Working Capital $ 3,793,541 $ 24,981,647 $ 23,771,993 $ 22,941,184 $ 18,189,328
Ratio of Current Assets to Current Liabilities 1.10 1.77 1.91 1.99 1.90
Percent of Earnings on Average Stockholders' Equity (73.3%) (28.1%) 13.9% 14.8% 14.8%
Percent of All Dividends to Net Income --- (12.9%) 31.0% 29.7% 30.0%
Stock High 8 1/8 15 17 19 1/8 13 3/4
Stock Low 3 7/8 4 3/4 13 1/4 11 1/4 5 5/8
Average Annual Price to Earnings Ratio (1.8) (4.8) 13.5 13.9 9.6
Average Annual Dividend Yield --- 2.7% 2.3% 2.1% 3.1%
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion and analysis contained in this section relates only to the
continuing operations of the Company.
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
NET PRODUCT SALES - Net product sales for the year ended September 30, 1997
decreased by $8,942,000 or 15.2% as compared to fiscal 1996. The decrease in
sales is due primarily to declines in North America and Asia. Weak sales in
North America were attributable to a correction of high inventory levels in the
distribution network, lower sales to end consumers and a reduction in the
distributor base. Additionally, excess credit granted in prior years to the
Company's distributors resulted in an overall deterioration of liquidity in the
distribution network. Sales in Asia were adversely affected by economic
conditions in that region and the devaluation of certain currencies. Sales gains
in a strong European market continued their favorable trend.
FINANCING REVENUE AND OTHER INCOME - Financing revenues represent the interest
and fees generated on the contracts financed by the Company's Australian,
Canadian, and United States Subsidiaries. The decline in these revenues is
consistent with the sales decrease experienced mainly in North America.
GROSS PROFIT - Gross Profit for fiscal 1997 was $13,869,000 or 27.8% as compared
to 1996 gross profit of $20,574,000 or 35.0%. Gross profit was adversely
affected by lower volume, quality problems, and operational inefficiencies.
Additionally, non-recurring charges of $1,084,000 were taken to write-off unused
barter credits and tooling related to a discontinued product line. Initiatives
were begun in the fourth quarter of 1997 to strengthen business processes,
reduce costs, and improve quality.
SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative costs
increased by $6,958,000 from fiscal 1996 to fiscal 1997. The increase was due
primarily to additional bad debt expense taken of $4,659,000, severance charges
related to the termination of Kirk W. Foley of approximately $2,000,000,
expenses incurred for the settlement of a lawsuit and other expenses. Adjusted
for these charges, selling, general and administrative would have decreased by
approximately $1,200,000. The Company has initiated cost reduction measures in
1997 that should continue to reduce selling, general and administrative costs in
1998. These include implementation of a cash basis policy for North American
distributors effective January 1, 1998. While this policy may depress sales
temporarily, over time it should improve the Company's liquidity and strengthen
the fiscal health of its distribution network. The subsequent reduction in
credit resulting from this policy should significantly reduce bad debt expense
in 1998.
INTEREST EXPENSE - Interest expense increased $532,000 in fiscal 1997 from 1996
as a result of additional borrowings and increases in interest rates in 1997.
INCOME TAXES - The effective tax rate for fiscal 1997 is 35.1% compared to
33.0% in 1996.
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DISCONTINUED OPERATIONS - As of June 30, 1997, the Company reported Bliss
Tubular and Tube-Fab Ltd., its tubular and aerospace businesses, as well as
Health-Mor Personal Care Corp., its personal care business, as discontinued
operations. The Company recorded a pretax estimated loss on disposal of the
assets of Tube-Fab Ltd., and Health-Mor Personal Care Corp. of $1,937,200 during
fiscal 1997. In August 1997, the Company sold the assets of Bliss Tubular to H-P
Products and recorded a pretax loss on the sale of those assets of $1,524,000.
As of September 30, 1997, the Company reported Bliss Manufacturing, its metal
fabrication and stamping business, as a discontinued operation. Accordingly, the
consolidated financial statements of the Company have been reclassified to
report separately the net assets and net operating results of these discontinued
operations. Income Statements for periods prior to the dates of discontinuance
have been restated to reflect continuing operations. The Company's steam
cleaning business, Household Rental Systems, reported as a discontinued
operation in fiscal 1996, recorded an additional loss on disposal of $2,651,000
in fiscal 1997. In November, 1997, the Company received two signed letters of
intent regarding the planned sale of this business. Management anticipates that
the sale of this business will be completed in early 1998. Sales applicable to
the discontinued operations as of September 30, 1997 and September 30, 1996 were
$75,151,642 and $65,771,728 respectively.
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
NET PRODUCT SALES - Net product sales for the year ending September 30, 1996
decreased by $3,408,000 or 5.5% as compared to fiscal 1995. Sales declines in
the North American and Asian markets were offset by growth in the European
market. Decreases in the North American market were attributable to, among other
things, a tightening of consumer credit. Distribution difficulties and required
product changes in Asia hampered sales in fiscal 1996.
FINANCING REVENUES - Financing revenues represent the interest and fees
generated on the contracts financed by the Company's Australian, Canadian, and
United States Subsidiaries.
GROSS PROFIT - Gross profit for fiscal 1996 was $20,574,000 or 35.0% as compared
to 1995 gross profit of $23,119,000 also 37.1%. Total gross profit was lower due
to the decline in sales volume. The Consumer Goods operations moved into a new
facility in March 1996, thus eliminating the cost of duplicate facilities
incurred during the first six months of the year. Additionally, scheduling and
process changes were made, within the operations, in an effort to reduce
production inefficiencies.
SELLING, GENERAL AND ADMINISTRATIVE - Selling, general and administrative costs
increased by $4,236,000 from fiscal 1995 to fiscal 1996. Included in the
increase is $2,200,000 of product development and introduction costs for the
Consumer Goods business with corresponding increases in sales from these
products. The Company also experienced increased legal and professional fees,
increased compensation costs and increased reserves for uncollectable accounts.
INCOME TAXES - The effective rate for fiscal 1996 was 33.0% compared to 69.1% in
1995.
13
<PAGE> 14
DISCONTINUED OPERATIONS - The Company adopted a plan to exit its direct sales
business in Mexico and to sell the Canadian Household Rental Systems operation.
Accordingly, the results of these operations are reported as discontinued
operations. The Company has recorded a loss on the disposal of Mexico of
$1,481,000 primarily comprised of the currency devaluation which was previously
reflected as a component of equity offset by a U.S. tax benefit of the loss on
the Company's investment in the Mexican operation. An $800,000 charge was
recorded in fiscal 1996 on the disposal of the steam cleaning business in order
to record the assets of this operation at their estimated net realizable value.
LIQUIDITY AND CAPITAL RESOURCES
The working capital balance at September 30, 1997 was ($439,000) compared to the
September 30, 1996 balance of $24,982,000, principally as a result of the
Company's long-term debt being classified as current on the September 30, 1997
consolidated balance sheet. On December 18, 1997, the Company entered into a
definitive agreement to sell 100% of the stock of Bliss Manufacturing, a wholly
owned subsidiary for $31,500,000, subject to certain adjustments. The Company
expects the entire proceeds from the sale of Bliss Manufacturing to be applied
to the retirement of substantially all of its debt, certain vendor obligations,
transaction costs and related expenses, certain employee benefit payments, and
amounts necessary to fund future tax obligations arising from the gain on the
sale of Bliss Manufacturing. It is anticipated that this transaction will close
by the end of the second fiscal quarter of 1998. Accordingly, debt to be retired
from the proceeds of the sale has been classified as current.
The Company's cash decreased $233,000 during the year ended September 30, 1997.
The decrease in receivables of $3,241,000 was due primarily to lower sales,
tighter credit terms, and an increase in the allowance for doubtful accounts.
Inventories decreased by $4,362,000 due to tighter inventory controls in the
Consumer Goods Division and at Bliss Manufacturing. Accounts payable decreased
by $3,214,000 as a result of lower inventory levels. Accrued liabilities
increased $4,208,000 due primarily to severance charges taken as a result of the
termination of Kirk W. Foley.(See Note 14 to the Consolidated Financial
Statements). The aforementioned variances relate to information in the
Consolidated Statement of Cash Flow in which items relating to discontinued
operations have not been disaggregated as they have in the Consolidated Balance
Sheet.
In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under this line of credit agreement, a principal amount of
$2,500,000 was due no later than January 2, 1997. In December 1996, the proceeds
from the sale of the Bedford Heights, Ohio tubular facility were utilized to pay
down the $2,500,000 principal amount to $1,379,100. In January 1997, proceeds
from a federal income tax refund were used to pay the remaining principal amount
due. Effective February 28, 1997, the Credit Facility Agreement was amended to
increase the line of credit from $17,000,000 to $20,000,000 with $5,000,000 of
the commitment due March 31, 1997. Subsequently, the availability of the
$20,000,000 facility was extended through May 31, 1997.
14
<PAGE> 15
Effective June 1997, the Company entered into a $20 million credit facility with
its lender which replaced the February 1997 amended and restated credit facility
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term loans require
monthly principal payments of $98,501. Interest rates accrue at prime on the
revolving credit facility and up to prime plus 2.25% on the term loans. As of
September 30, 1997, the outstanding balance on the Company's credit facility was
$15,824,397.
At September 30, 1997, the Company was in violation of the financial covenants
under its credit agreement and was experiencing increasing liquidity problems.
The Company's deteriorating cash position was a significant factor that led to
the decision to sell Bliss Manufacturing. In December 1997, the Company obtained
waivers from its lenders with respect to the covenant violations and received
$2,000,000 in a special term loan that accrues interest at a rate of prime plus
2.0%, to be paid monthly. The maturity date of this agreement is the earlier of
the receipt of the Bliss Manufacturing sale proceeds or March 31, 1998.
Additionally, a fee with respect to the special term loan of $80,000 will be
paid on such date that the special term loan is paid in full. Additionally, the
Company expects to receive additional financing of $1,200,000 upon the filing of
its fiscal 1997 tax return, which is expected to be filed in early January 1998.
The proceeds of the anticipated tax refund will be first used to repay the
$1,200,000 to the bank and any excess will be used for working capital.
In November 1996, the Company made an annual principal payment of $1,666,666 on
the unsecured, 9.86%, seven year private placement term notes, leaving a balance
of $1,666,667 as of September 30, 1997, with the final payment due date extended
until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of
Bliss Manufacturing.
The Australian Unsecured Demand Authorization, payable on demand or February 28,
1997, was extended until the earlier of March 31, 1998 or upon the receipt of
proceeds from the sale of Bliss Manufacturing. An extension was also obtained in
April 1997 for the bank credit facility utilized by the Netherlands operation.
The facility ($480,822), originally payable in March 1997, is now available
through December 1997. The Company is presently negotiating, with its lender, an
extension on this debt until the earlier of March 31, 1998 or upon receipt of
proceeds from the sale of Bliss Manufacturing.
Interest expense for 1997 was primarily related to borrowing on the line of
credit, term loans, and the Private Placement unsecured term notes. Other
interest relates to the Industrial Revenue Bonds on the Lombard property,
interest on capital leases and interest paid on Distributors' deposits.
The Company's principal sources of liquidity, until the sale of Bliss
Manufacturing, are expected to be funded with cash generated from operations,
additional borrowings under the Company's credit facility referred to above and
the 1997 tax refund. After the sale of Bliss Manufacturing the Company's
principal sources of liquidity are expected to be from the proceeds from the
sale, a new credit facility to be put in place in the second fiscal quarter of
1998 and from cash generated from operations.
15
<PAGE> 16
The sale of Bliss Manufacturing is contingent upon shareholder approval,
regulatory approval and a variety of other customary closing conditions. The
Company expects all these conditions to be met and the sale of Bliss
Manufacturing to be consummated by March 31, 1998. However, if the sale of Bliss
Manufacturing is not achieved by such date, the Company would have liquidity
needs that could only be satisfied by further amendment to the credit facility
to allow for additional time to close the sale transaction or obtaining
additional financing sources.
The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, restricts
paying dividends, and limits the ability for capital expenditures. As of
September 30, 1997, the Company was not in compliance with certain of these
covenants contained in its credit agreements; however, the company obtained a
waiver on these covenants through September 30, 1997. Additionally, the credit
agreements were amended so as to eliminate the restrictive covenants referred to
above until March 31, 1998.
CAUTIONARY STATEMENT FOR "SAFE HARBOR"
PURPOSES UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of the federal securities laws. As a general matter, forward-looking
statements are those focused upon future plans, objectives or performance as
opposed to historical items and include statements of anticipated events or
trends and expectations and beliefs relating to matters not historical in
nature. Such forward-looking statements are subject to certain uncertainties
including the successful completion of the sale of Bliss Manufacturing, and
retention and rebuilding of the Consumer Products Division distribution network.
Such uncertainties are difficult to predict and could cause actual results of
the company to differ materially from those matters expressed or implied by such
forward-looking statements.
Item 8. Financial Statements and Supplementary Data
Reference is made to the Index to Financial Statements included on page 19 of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III.
Item 10. Directors and Executive Officers of Registrant
See Item 13.
Item 11. Executive Compensation
See Item 13.
16
<PAGE> 17
Item 12. Security Ownership of Certain Beneficial Owners and Management
See Item 13.
Item 13. Certain Relationships and Related Transactions
Information provided under the captions "Principal Holders of Voting
Securities," "Election of Directors," "Committees and Compensation of the Board
of Directors", "Security Ownership of Directors and Management", "Executive
Compensation", and "Related Transactions" in the Proxy Statement for the 1997
Annual Meeting of Shareholders is incorporated herein by reference. See
"Executive Officers of the Registrant" following Item 1 in this Report for
information concerning executive officers.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report.
1. Financial Statements - Reference is made to the Index To
Financial Statements, included as page 19 of this report.
2. Financial Statement Schedules - Reference is made to the Index
To Financial Statements, included as page 19 of this report.
3. Exhibits - Reference is made to the Index To Exhibits,
included as page 47 of this report.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the last quarter
of 1997.
(c) Exhibits Reference is made to the Index To Exhibits, included as page 47 of
this report.
(d) Financial Statement Schedules - Reference is made to the Index To Financial
Statements, included as page 19 of this report.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HMI INDUSTRIES INC.
(Registrant)
by /s/ Michael Harper
--------------------------------------
Michael Harper
Vice President, Corporate Controller
and Chief Accounting Officer
December 29, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
on Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ James R. Malone /s/ Mark A. Kirk
- ---------------------------------- ----------------------------------- -----------------------
James R. Malone Mark A. Kirk Frank Rasmussen
Chairman of the Board, Chief President, Chief Operating Director
Executive Officer and Director Officer, Chief Financial Officer December 29, 1997
December 29, 1997 and Director
December 29, 1997
/s/ Robert J. Abrahams
- ---------------------------------- ----------------------------------- -----------------------
Robert J. Abrahams Grace McCarthy Ivan Winfield
Director Director Director
December 29, 1997 December 29, 1997 December 29, 1997
/s/ Donald L. Baker /s/ John S. Meany, Jr.
- ---------------------------------- -----------------------------------
Donald L. Baker John S. Meany, Jr.
Director Director
December 29, 1997 December 29, 1997
/s/ Moffat Dunlap /s/ Barry L. Needler
- ---------------------------------- -----------------------------------
Moffat Dunlap Barry L. Needler
Director Director
December 29, 1997 December 29, 1997
</TABLE>
18
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management ........................................................... 20
Report of Independent Accountants
For the years ended September 30, 1997, 1996 and 1995 ........................ 21
Financial Statements
Consolidated Balance Sheets for the years ended September 30, 1997
and 1996 ................................................................... 22
Consolidated Statements of Income for the years ended September 30,
1997, 1996 and 1995 ........................................................ 23
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1997, 1996 and 1995 .......................................... 24
Consolidated Statements of Cash Flows for the years ended September
30, 1997, 1996 and 1995 .................................................... 25
Notes to Consolidated Financial Statements ................................... 26-45
Financial Statement Schedule: II - Valuation and Qualifying Accounts and
Reserves ....................................................................... 46
</TABLE>
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
consolidated financial statements, the notes thereto or in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
19
<PAGE> 20
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders of HMI Industries Inc.
The management of HMI Industries Inc. (HMI) is responsible for the preparation,
integrity and objectivity of the financial statements and all other financial
information included in this report. Management believes that the financial
statements have been prepared in accordance with generally accepted accounting
principles and that any amounts included herein which are based on estimates of
the expected effects of events and transactions have been made with sound
judgment and approved by qualified personnel.
HMI maintains an internal control structure to provide reasonable assurance that
assets are safeguarded and that transactions and events are recorded properly.
The internal control structure is regularly reviewed, evaluated and revised as
necessary by management. Additionally, HMI requires every Company employee to
maintain the highest level of ethical standards in the conduct of all aspects of
the Company's business, and their compliance is regularly monitored.
The financial statements in this report have been audited by the independent
accounting firm of Coopers & Lybrand L.L.P. Their audits were conducted in
accordance with generally accepted auditing standards and included a study and
evaluation of our internal control structure as they considered necessary to
determine the extend of tests and audit procedures required for expressing an
opinion on the company's financial statements.
The Audit Committee of the Board of Directors, of which outside directors are
members, meets periodically with the independent auditors and management to
review accounting, auditing, internal control and financial reporting matters.
The external auditors have full and free access to the Audit committee and its
individual members at any time.
/s/ Mark A. Kirk
---------------------------------------------
President, Chief Operating Officer and Chief
Financial Officer
/s/ Michael Harper
---------------------------------------------
Vice President, Corporate Controller and
Chief Accounting Officer
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders, HMI Industries Inc.
We have audited the consolidated financial statements and the financial
statement schedule of HMI Industries Inc. and its subsidiaries listed in the
index on page 19 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HMI Industries
Inc. and its subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, the Company has
restated its prior years consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, the Company
intends to retire substantially all of its outstanding debt with the expected
proceeds from the sale of its subsidiary Bliss Manufacturing Company.
/s/ Coopers & Lybrand, L.L.P.
Cleveland, Ohio
December 29, 1997
21
<PAGE> 22
HMI INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, September 30,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
ASSETS (Restated)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 239,797 $ 472,408
Trade accounts receivable (net of allowance of $5,512,063 and $2,439,406) 10,357,999 26,252,884
Finance contracts receivable 496,044 2,224,480
Notes receivable 228,414 560,884
Inventories:
Finished goods 2,438,282 6,943,970
Work-in-progress, raw material and supplies 1,714,576 11,420,627
Income tax receivable 3,373,898 1,463,000
Deferred income taxes 8,239,080 1,772,129
Prepaid expenses 123,099 1,985,276
Other current assets 83,307 --
Net assets held for sale at realizable value 14,658,322 4,228,059
------------ ------------
Total current assets 41,952,818 57,323,717
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 6,194,868 15,717,653
------------ ------------
OTHER ASSETS:
Long-term notes receivable (less amounts due within one year) -- 334,123
Cost in excess of net assets of acquired businesses
(net of amortization of $3,534,511 and $3,092,432) 5,777,440 12,636,147
Deferred income taxes -- 1,499,600
Unamortized trademarks 339,823 312,775
Finance contracts receivable (less amounts due within one year) 992,090 4,449,628
Other 133,094 237,481
------------ ------------
Total other assets 7,242,447 19,469,754
------------ ------------
Total assets $ 55,390,133 $ 92,511,124
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 480,822 $ 3,132,975
Trade accounts payable 6,939,040 17,785,859
Income taxes payable 2,149,163 734,605
Accrued expenses and other liabilities 8,125,620 7,202,990
Long-term debt due within one year 20,464,632 3,485,641
------------ ------------
Total current liabilities 38,159,277 32,342,070
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) 762,777 22,334,613
Postretirement benefits other than pensions -- 3,749,000
Deferred income taxes 573,613 192,372
Other 1,342,961 3,010,109
------------ ------------
Total long-term liabilities 2,679,351 29,286,094
------------ ------------
Commitments and contingencies (Note 11) -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $5 par value; authorized, 300,000 shares; issued, none -- --
Common stock, $1 par value; authorized, 10,000,000 shares;
issued, 5,295,556 shares 5,295,556 5,295,556
Capital in excess of par value 8,050,212 7,686,944
Unearned compensation, net (191,500) --
Retained earnings 4,077,771 20,740,344
Cumulative translation adjustment (1,418,762) (1,077,325)
------------ ------------
15,813,277 32,645,519
Less treasury stock 269,296 shares, at cost 1,261,772 1,762,559
------------ ------------
Total stockholders' equity 14,551,505 30,882,960
------------ ------------
Total liabilities and stockholders' equity $ 55,390,133 $ 92,511,124
============ ============
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 23
HMI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
REVENUES: Restated) (Restated)
<S> <C> <C> <C>
Net product sales $ 49,878,534 $ 58,820,833 $62,228,698
Financing revenue and other 611,716 728,075 556,604
------------- --------------- ------------
50,490,250 59,548,908 62,785,302
OPERATING COSTS AND EXPENSES:
Cost of products sold 36,009,821 38,247,052 39,110,004
Selling, general and administrative expenses 32,593,485 25,635,132 21,399,040
Interest expense 2,217,781 1,686,254 1,409,291
Loss on investment in Holland-Electro - 2,012,356 -
Other expenses 432,532 573,818 (126,800)
------------- --------------- ------------
Total expenses 71,253,619 68,154,612 61,791,535
------------- --------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (20,763,369) (8,605,704) 993,767
BENEFIT FOR INCOME TAXES (7,285,949) (2,838,259) (614,791)
------------- --------------- ------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (13,477,420) (5,767,445) 1,608,558
------------- --------------- ------------
Income (loss) from discontinued operations -
Mexico (net of taxes of $-0-, $-0- and $496,000) - (1,428,183) (235,838)
Household Rental Systems (net of taxes of $-0-, $-0- and $-0-) 498,131 (1,082,502) (388,233)
Bliss Manufacturing (net of taxes of $1,323,395, $1,103,664 and
$3,075,442) 2,159,224 1,655,497 4,613,163
Bliss Tubular (net of taxes of $87,090, $119,901, and $20,746) (142,094) (179,851) 31,120
Tube Fab Ltd (net of taxes of $-0-, $-0- and $-0-) 386,095 32,042 (132,796)
Health-Mor Personal Care Corp. (net of taxes of $339,742, $641,878
and $36,066) (554,317) (962,818) (54,099)
------------- --------------- ------------
2,347,039 (1,965,815) 3,833,317
------------- --------------- ------------
Loss on disposals-
Mexico - Currency loss previously reflected as component of equity
(net of taxes of $1,000,000) - (1,396,509)
Mexico - (84,335) -
Household Rental Systems (net of taxes of $-0-, $-0- and $-0-) (2,651,209) (800,000) -
Bliss Tubular (net of taxes of $244,351, $-0-, and $-0-) (1,279,799) - -
Tube Fab Ltd (net of taxes of $-0-, $-0- and $-0-) (1,020,065) - -
Health-Mor Personal Care Corp. provision for operating losses
during phase-out period (net of taxes of $348,503, $-0- and $-0-) (568,611) - -
------------- --------------- ------------
(5,519,684) (2,280,844) -
------------- --------------- ------------
NET INCOME (LOSS) $(16,650,065) $ (10,014,104) $ 5,441,875
============= =============== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 4,956,276 4,912,135 4,876,599
============= =============== ============
PER SHARE OF COMMON STOCK:
Income (loss) before discontinued operations $ (2.72) $ (1.18) $ 0.33
Income (loss) from discontinued operations $ 0.47 $ (0.40) $ 0.79
Loss on disposals $ (1.11) $ (0.46) $ -
------------- --------------- ------------
Net income (loss) $ (3.36) $ (2.04) $ 1.12
============= =============== ============
Cash dividends per common share $ - $ 0.263 $ 0.346
============= =============== ============
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
HMI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
COMMON CAPITAL IN EXCESS UNEARNED RETAINED
STOCK OF PAR VALUE COMPENSATION EARNINGS
----- ------------ ------------ --------
<S> <C> <C> <C> <C>
Balance at September 30, 1994, as reported $5,295,556 $7,223,367 - $ 30,111,101
Adjustment for postretirement benefits (See Note 1) (1,815,600)
----------- ------------ ---------- --------------
Balance at September 30, 1994, as restated 5,295,556 7,223,367 - 28,295,501
Net income, as reported 5,614,675
Adjustment for postretirement benefits (See Note 1) (172,800)
Cash dividends - $.345 per share (1,691,482)
Treasury shares issued 298,484
Foreign currency translation adjustment
----------- ------------ ---------- --------------
September 30, 1995, as restated 5,295,556 7,521,851 - 32,045,894
Net loss, as reported (9,334,042)
Adjustment for postretirement benefits (See Note 1) (261,000)
Adjustment for certain deferred costs (See Note 1) (419,062)
Cash dividends - $.2625 per share (1,291,446)
Treasury shares issued 165,093
Foreign currency translation adjustment
----------- ------------ ---------- --------------
September 30, 1996, as restated 5,295,556 7,686,944 - 20,740,344
Net loss (16,650,065)
Treasury shares issued 363,268 (13,288)
Unearned compensation (273,500)
Employee benefit stock 82,000
Unclaimed dividends 780
Foreign currency translation adjustment
----------- ------------ ---------- --------------
Balance at September 30, 1997 $5,295,556 $8,050,212 $(191,500) 4,077,771
=========== ============ ========== ==============
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION TREASURY STOCK STOCKHOLDERS'
ADJUSTMENT SHARES AMOUNT EQUITY
---------- ------ ------ ------
<S> <C> <C> <C> <C>
Balance at September 30, 1994, as reported $(869,016) 436,133 $(2,043,426) $ 39,717,582
Adjustment for postretirement benefits (See Note 1) (1,815,600)
------------- ---------- ------------- -------------
Balance at September 30, 1994, as restated (869,016) 436,133 (2,043,426) 37,901,982
Net income, as reported 5,614,675
Adjustment for postretirement benefits (See Note 1) (172,800)
Cash dividends - $.345 per share (1,691,482)
Treasury shares issued (41,607) 194,942 493,426
Foreign currency translation adjustment (1,794,888) (1,794,888)
------------- ---------- ------------- -------------
September 30, 1995, as restated (2,663,904) 394,526 (1,848,484) 40,350,913
Net loss, as reported (9,334,042)
Adjustment for postretirement benefits (See Note 1) (261,000)
Adjustment for certain deferred costs (See Note 1) (419,062)
Cash dividends - $.2625 per share (1,291,446)
Treasury shares issued (18,340) 85,925 251,018
Foreign currency translation adjustment 1,586,579 1,586,579
------------- ---------- ------------- -------------
September 30, 1996, as restated (1,077,325) 376,186 (1,762,559) 30,882,960
Net loss (16,650,065)
Treasury shares issued (106,890) 500,787 850,767
Unearned compensation (273,500)
Employee benefit stock 82,000
Unclaimed dividends 780
Foreign currency translation adjustment (341,437) (341,437)
------------- ---------- ------------- -------------
Balance at September 30, 1997 $(1,418,762) 269,296 $(1,261,772) $ 14,551,505
============= ========== ============= =============
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
HMI INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated) Restated)
<S> <C> <C> <C>
Net income (loss) $(16,650,065) $(10,014,104) $ 5,441,875
Adjustments to reconcile net income (loss) to net cash provided by (used) in
operating activities:
Depreciation and amortization 2,744,553 3,564,595 3,768,822
Loss on disposal of discontinued operations 5,519,684 2,280,844 -
Provision for loss on asset write down 451,297 -
Provision for losses on receivables 6,069,937 1,069,509 641,562
Amortization of stock awards, net 385,766 - -
Amortization of deferred non-compete agreement - - 380,576
Net increase in postretirement liability 488,000 435,000 288,000
Deferred income taxes (4,683,948) (701,049) (169,123)
Changes in operating assets and liabilities:
Decrease (increase) in receivables 3,241,172 (2,668,671) (5,916,069)
Decrease (increase) in inventories 4,362,110 (2,139,794) (2,191,579)
Decrease (increase) in prepaid expenses 1,716,065 (20,741) (429,965)
Increase in other current assets (131,180) - -
Increase (decrease) in accounts payable (3,213,858) 7,016,530 3,301,638
Increase (decrease) in accrued expenses and other liabilities 4,208,023 1,015,940 (1,545,968)
Decrease in income taxes payable (774,447) (2,465,824) (245,319)
Other, net 74,895 (258,612) (186,780)
------------- ------------- ------------
Net cash provided by (used) in operating activities 3,808,004 (2,886,377) 3,137,670
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 2,720,916 523,783 -
Capital expenditures (1,463,320) (6,484,846) (3,805,326)
Collection of notes receivable - - -
------------- ------------- ------------
Net cash provided by (used) in investing activities 1,257,596 (5,961,063) (3,805,326)
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 38,491,000 7,795,616 4,117,324
Payments of credit facility (40,166,603) - -
Proceeds from mortgage 55,077 2,214,923 -
Payment of long term debt (3,690,397) (2,807,706) (2,012,371)
Proceeds from long term debt 12,712 3,022,807 -
Dividends paid - (1,721,162) (1,669,565)
Proceeds from exercise of stock options - - 112,850
------------- ------------- ------------
Net cash provided by (used) in financing activities (5,298,211) 8,504,478 548,238
------------- ------------- ------------
Effect of exchange rate changes on cash - 244,611 -
------------- ------------- ------------
Net decrease in cash and cash equivalents (232,611) (98,351) (119,418)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 472,408 570,759 690,177
------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 239,797 $ 472,408 $ 570,759
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include all significant controlled
subsidiaries both continuing and discontinued operations. Continuing operations
include the accounts of HMI Industries Inc (the "Company") and the following
wholly-owned subsidiaries: Health-Mor B.V., Health-Mor International Inc., HMI
Incorporated, Health-Mor Acceptance Corporation, HMI Acceptance Corporation,
Health-Mor Acceptance Pty. Ltd., and Home Impressions Inc. Operations reported
as discontinued are Household Rental Systems, Tube-Fab Ltd., Health-Mor Personal
Care Corp., Bliss Tubular, and Bliss Manufacturing Company. All significant
inter-company accounts and transactions have been eliminated.
Reclassification
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 presentation.
Restatement
During the fourth quarter of fiscal 1997, new management personnel discovered
the fact that the basic labor agreement between Bliss Manufacturing and its
employees provides hospitalization and life insurance benefits for eligible
employees upon retirement. Upon discovery, an actuarial valuation was
immediately performed which reflected an APBO of $4.1 million at September 30,
1997. Under the immediate recognition rules of FASB No. 106 "Employers'
Accounting for Postretirement Benefits Other than Pensions" (FAS 106),
management has recorded the actuarially determined liability of $4.2 million at
September 30, 1997 and has restated its opening fiscal year 1995 retained
earnings ($3.0 million accrued cost less $1.2 million tax impact) and its 1995
and 1996 results of operations for the respective years' FAS 106 expense of
$385,000 and $541,000, respectively (net of "pay as you go" amounts previously
included in the respective year's income statements of $97,000 and $106,000,
respectively and net of taxes of $115,200 and $174,000, respectively).
In addition, certain other costs associated with the Company's Health-Mor
Personal Care Corporation totaling approximately $698,000 ($419,000 net of
taxes), which were capitalized and deferred in fiscal 1996, to match such
expenses with associated revenues to be generated in connection with the sale of
the AdvantaJet needle-fee insulin injector, will be restated in the Company's
financial statements to reflect the expensing of these costs in fiscal year 1996
rather than in fiscal year 1997 as previously reported.
26
<PAGE> 27
Foreign Currency Translation
All consolidated foreign operations use the local currency of the country of
operation as the functional currency and translate the local currency asset and
liability accounts at year-end exchange rates while income and expense accounts
are translated at weighted average exchange rates. The resulting translation
adjustments are accumulated as a separate component of Shareholders' Equity
titled "Cumulative foreign currency translation adjustment". Such adjustments
will affect net income only upon sale or liquidation of the underlying foreign
investments. During the fourth quarter of 1997, the Company recorded $719,900 to
loss on disposal for cumulative translation adjustments associated with
discontinued foreign operations.
Exchange gains and losses from transactions in a currency other than the local
currency of the entity involved are included in income. Net transaction and
translation adjustments are not significant.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of any
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity of
less than three months to be cash equivalents.
Cost in Excess of Net Assets of Acquired Businesses
Intangibles resulting from business acquisitions, comprising cost in excess of
net assets of businesses acquired, are being amortized on a straight-line basis
over 40 years. Cost in excess of net assets acquired of $881,121 which related
to the acquisition of Tube Form in 1970 are included in the loss on disposal for
the Tubular business, which was recorded in June 1997.
The Company periodically evaluates the recoverability of intangibles resulting
from business acquisitions and measures the amount of impairment, if any, by
assessing current and future levels of income and cash flows as well as other
factors, such as business trends and market and economic conditions. If there is
an impairment in value, recorded balances will be adjusted.
27
<PAGE> 28
Inventories
Inventories are stated at the lower of cost or market and are valued using the
last-in, first-out (LIFO) and the first-in, first-out (FIFO) cost methods.
Inventories from continuing operations on the LIFO method were 90.9% and 86.3%
of inventories in 1997 and 1996, respectively. If the FIFO method had been used
for these inventories, their value would have been approximately $4,768,400 and
$8,174,100 at September 30, 1997 and 1996, respectively.
All discontinued operations are on the FIFO cost method. The value of these
inventories approximate $7,859,200 and $11,229,200 at September 30, 1997 and
1996.
Assets Held for Sale
Assets held for sale include the assets of Health-Mor Personal Care Corporation,
Tube-Fab Ltd., Bliss Manufacturing and Household Rental Systems. The assets and
liabilities of these businesses at September 30, 1997, primarily working capital
accounts and property, plant and equipment, have been reclassified to net assets
held for sale and are stated at their estimated net realizable value.
In December 1997, the Company signed a letter of intent with respect to the sale
of Household Rental Systems. Management anticipates that the sale of this
business will be completed in early 1998.
On December 18, 1997, the Company signed a definitive agreement to sell the
stock of its Bliss Manufacturing Company to an investor group led by Mervin Dunn
and Rhone Capital, LLC. The purchase price is $31,500,000, subject to certain
adjustments, including a $1,500,000 distribution for certain payments to vendors
and employee obligations. The sale is expected to close in March 1998, subject
to regulatory and HMI shareholder approval. Holders of over 50% of the
outstanding shares of HMI common stock have granted to representatives of the
buyer group irrevocable proxies to vote their HMI shares in favor of the
transaction. The Company expects the entire proceeds from the sale of Bliss
Manufacturing to be applied to the retirement of substantially all of its debt,
certain vendor obligations, transaction costs and related expenses, certain
employee benefit payments, and amounts necessary to fund future tax obligations
arising from the gain on the sale of Bliss Manufacturing.
In January 1998, the Company expects to sell Tube-Fab Ltd. to its former CEO,
Mr. Kirk Foley, as part of the Company's negotiated settlement of obligations
under Mr. Foley's employment contract (See Note 14). The assets of Health-Mor
Personal Care Corp. are expected to be sold in early 1998.
The former Bedford Heights, Ohio facility for the Tubular operation, which was
recorded as an asset held for sale at September 30, 1996, was sold in December
1996 resulting in an insignificant gain on disposal.
28
<PAGE> 29
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided on
the straight-line and declining balance methods over estimated useful lives of
10 to 40 years for buildings and improvements and 3 to 10 years for machinery
and equipment. Improvements which extend the useful life of property, plant and
equipment are capitalized, and maintenance and repairs are expensed. When
property, plant and equipment is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the appropriate accounts and any gain
or loss is included in current income.
Fair Value of Financial Instruments
It is not practical to determine the fair value of finance contract receivables
due to the unavailability of quoted market prices and the significant volume of
outstanding contracts with varying maturity dates. The Company's finance
contracts receivables generally mature three years after issuance and generate
interest at rates ranging from 18% to 23%.
The Company's remaining financial instruments consist principally of cash and
cash equivalents, accounts and notes receivable, accounts payable, accrued
expenses and other liabilities, line of credit, and short and long-term debt in
which the fair value of these financial instruments approximates the carrying
value.
Income Taxes
The Company accounts for income taxes pursuant to the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." Under SFAS 109, the tax consequences in the future years for differences
between the financial and tax basis of assets and liabilities at year end are
reflected as deferred income taxes.
Supplemental Disclosure of Cash Flow Information
Cash paid for interest was $2,171,658, $1,509,627 and $1,477,552 for the years
ended September 30, 1997, 1996 and 1995, respectively. During the year, the
tenant of the Company's Lombard, Illinois building, exercised his right to
purchase the property at a price equal to the remaining principal debt service
of approximately $800,000. The amount of the debt service equaled the net book
value of the asset recorded on the Company's books. In addition, $5,286,277 of
goodwill related to the discontinued Bliss Manufacturing operation was
reclassified to net assets held for sale. During fiscal 1996, the Company
assumed a mortgage of $323,000 and relieved a note receivable for $302,000 in
exchange for $625,000 of fixed assets. During 1995, the Company acquired
approximately $470,000 of fixed assets which were not paid for as of September
30, 1995.
Income Per Share
Income per share of common stock is based upon the weighted-average number of
common shares and common share equivalents outstanding. The weighted-average
number of common shares and common share equivalents outstanding during 1997,
1996 and 1995 was 4,956,276, 4,912,135 and 4,876,599, respectively.
29
<PAGE> 30
2. DISCONTINUED OPERATIONS
In the third quarter of fiscal 1997, the Company reported its Health-Mor
Personal Care Corporation, Bliss Tubular and Tube-Fab Ltd. as discontinued
operations. Bliss Tubular, Tube-Fab Ltd and Bliss Manufacturing comprise the
Company's reported Manufactured Products segment. The Bliss Tubular and Tube-Fab
Ltd. operations represent the Company's only tube fabrication and tube forming
businesses (primarily for the consumer goods marketplace) and have been
accounted for and operated separately from the Bliss Manufacturing business. The
Company recorded a pre-tax estimated loss on disposal of the assets of Tube-Fab
Ltd., and Health-Mor Personal Care Corp. of $1,937,179 during fiscal 1997. In
August 1997, the Company sold the assets of Bliss Tubular to H-P Products and
recorded a pre-tax loss on the sale of those assets of $1,524,150.
In the fourth quarter of fiscal 1997, the Company received Board approval for
the proposed sale of the Bliss Manufacturing Company, a business which
represents a heavy-duty metal stamping operation and supplier to the automobile
and heavy-duty truck industry. As a result, the entire Manufactured Products
Division, which was previously reported as a separate segment in the Company's
financial statements, will be reflected as discontinued operations for the year
ended September 30, 1997.
Sales applicable to the discontinued operations were $69,902,015, $58,358,230
and $68,964,988 for the years ended September 30, 1997, 1996 and 1995,
respectively.
During the fourth quarter of fiscal 1996, the Company adopted a plan to exit its
direct sales operation in Mexico. Revenues and expenses related to this business
have been classified as discontinued operations for the years ended September
30, 1996 and 1995. The Company recorded a loss on disposal of $1,480,844 in
fiscal 1996 primarily comprised of the currency devaluation which was previously
reported as a component of equity, net of the U.S. tax benefit of the loss on
the Company's investment in the Mexican operation. Revenues of the Mexican
operations were $1,876,516, and $2,873,044 for the years ended September 30,
1996, and 1995, respectively.
In March 1996, the Company adopted a plan to sell its steam cleaning rental
leasing operations distributed through grocery chains and supermarkets in
Canada. Revenues and expenses related to this business have been classified as
discontinued operations for the years ended September 30, 1997, 1996 and 1995.
Revenues of this operation for the years ended September 30, 1997, 1996 and 1995
were $5,249,627, $5,536,983 and $6,592,853, respectively. The Company recorded
an estimated loss on the disposal of the operation of $800,000 during 1996. An
additional charge of $2,651,209 on the disposal of this asset was recorded in
the third and fourth quarters of fiscal 1997 to reflect its current realizable
value. This charge also includes an estimated write-off of the entity's currency
translation adjustment (reported as a component of equity) which will occur upon
the sale of the operation. Net assets of Household Rental Systems are included
in assets held for sale.
30
<PAGE> 31
3. NOTES RECEIVABLE
Long-term notes receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Notes receivable - See Note 14 $228,414 $895,007
Less amounts due within one year 228,414 560,884
-------- --------
$ -- $334,123
======== ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land $ 7,083 $ 576,109
Buildings and improvements 3,867,012 9,712,417
Machinery and equipment 7,552,322 20,553,692
----------- -----------
11,426,417 30,842,218
Accumulated depreciation 5,231,549 15,124,565
----------- -----------
Net property, plant and equipment $ 6,194,868 $15,717,653
=========== ===========
</TABLE>
Gross property, plant and equipment related to discontinued operations amounted
to $23,485,754, with associated accumulated depreciation of $14,245,172, at
September 30, 1997.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued compensation $4,049,464 $3,127,615
Distributor funds payable 1,171,998 292,198
Pension and profit sharing 362,560 852,413
Accrued interest 332,364 259,657
Accrued taxes -- 110,810
Other 2,209,234 2,560,297
---------- ----------
$8,125,620 $7,202,990
========== ==========
</TABLE>
Accrued expenses and other liabilities related to discontinued operations
approximated $2,298,900 at September 30, 1997. These liabilities primarily
consist of accrued compensation and pension and profit sharing expenses.
31
<PAGE> 32
6. CREDIT FACILITY AND LONG-TERM DEBT
In November 1996, the Company increased the line of credit facility from
$17,500,000 to $19,500,000 with a principal payment of $2,000,000 due by
February 28, 1997. Under this line of credit agreement, a principal amount of
$2,500,000 was due no later than January 2, 1997. In December 1996, the proceeds
from the sale of the Bedford Heights, Ohio tubular facility were utilized to pay
down the $2,500,000 principal amount to $1,379,100. In January 1997, proceeds
from a federal income tax refund were used to pay the remaining principal amount
due. Effective February 28, 1997, the Credit Facility Agreement was amended to
increase the line of credit from $17,000,000 to $20,000,000 with $5,000,000 of
the commitment due March 31, 1997. Subsequently, the availability of the
$20,000,000 facility was extended through May 31, 1997.
Effective June 1997, the Company entered into a $20 million credit facility with
its lender which replaced the February 1997 amended and restated credit facility
agreement. The new credit agreement expires on October 1, 1998 and requires an
unused facility fee, computed at 0.25% per annum on the Unused Revolving
Facility amount, payable monthly. The secured facility consists of a $13 million
revolving credit facility and $7 million in term loans. The term loans require
monthly principal payments of $98,501. Interest rates accrue at prime on the
revolving credit facility and up to prime plus 2.25% on the term loans. As of
September 30, 1997, the outstanding balance on the Company's credit facility was
$15,824,397 (including $10.1 million of the line of credit, the special term
loan, the equipment term loan and the real estate term loan disclosed below).
At September 30, 1997, the Company was in violation of the financial covenants
under its credit agreement and was experiencing increasing liquidity problems.
The Company's deteriorating cash position was a significant factor that led to
the decision to sell Bliss Manufacturing. In December 1997, the Company obtained
waivers from its lenders with respect to the covenant violations and received
$2,000,000 in a special term loan that accrues interest at a rate of prime plus
2.0%, to be paid monthly. The maturity date of this agreement is the earlier of
the receipt of the Bliss Manufacturing sale proceeds or March 31, 1998.
Additionally, a fee with respect to the special term loan of $80,000 will be
paid on such date that the special term loan is paid in full. Additionally, the
Company expects to receive additional financing of $1,200,000 upon the filing of
its fiscal 1997 tax return, which is expected to be filed in early January 1998.
The proceeds of the anticipated tax refund will be first used to repay the
$1,200,000 to the bank and any excess will be used for working capital.
In November 1996, the Company made an annual principal payment of $1,666,666 on
the unsecured, 9.86%, seven year private placement term notes, leaving a balance
of $1,666,667 as of September 30, 1997, with the final payment due date extended
until the earlier of March 31, 1998 or upon receipt of proceeds from the sale of
Bliss Manufacturing.
In March 1996, the Company entered into a bank credit facility, utilized by the
Netherlands operations, for a maximum amount of NLG 1,000,000 or approximately
$600,000. Interest is incurred at the promissory note discount rate as
determined by the Dutch central bank. At September 30, 1997 the promissory note
discount rate was 6.00%. This commitment is available through December 31, 1997
and the $481,000 outstanding balance at September 30, 1997 is classified as
short term debt in the
32
<PAGE> 33
consolidated balance sheet. The Company is presently negotiating, with its
lender, an extension on this debt until the earlier of March 31, 1998 or upon
receipt of proceeds from the sale of Bliss Manufacturing. The Australian
Unsecured Demand Authorization, payable on demand or February 28, 1997, was
extended until the earlier of March 31, 1998 or upon the receipt of proceeds
from the sale of Bliss Manufacturing.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Bank lines of credit - see above $10,579,822 $18,132,975
Special Term Loan, bearing 1,580,052 --
interest at Prime plus 2 1/4%
(10.75% at September 30, 1997),
due in monthly installments of
$50,000 through October 1, 1998
Equipment Term Loan, bearing 1,951,595 --
interest at Prime plus 1/2%
(9.00% at September 30, 1997),
due in monthly installments of
$29,751 through October 1, 1998
Real Estate Term Loan, bearing 2,193,750 --
interest at Prime plus 1/2%
(9.00% at September 30, 1997),
due in monthly installments of
$18,750 through October 1, 1998
Seven year, 9.86% promissory 1,666,667 3,333,333
notes, interest payable semi-
annually and principal
payments of $1,666,666,
commencing November, 1992
through March 31, 1998
Construction Loan/Mortgage 2,252,156 2,214,923
bearing interest at 9.00% at
September 30, 1997, collateralized
by buildings, contents and inventory,
principal and interest payments
due in monthly installments of
$23,193 commencing June 1997
through October 1, 1998
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Capitalized lease obligations $ 478,760 $ 1,745,303
bearing interest at 6.48% to
8.04% due in monthly
installments of $21,496
(including interest)
through January 2000
Distributor deposits bearing 599,429 1,144,492
interest up to 6% at September
30, 1997 payable 180 days after
termination of
distributor agreement
Unsecured Demand Authorization 406,000 1,007,745
bearing interest at Australian
prime less 1/2% (5.4%), due in
monthly installments of $25,375
payable on March 31, 1998
Industrial Revenue Development -- 956,849
Bonds- See Note 11
Mortgage loan, variable interest -- 316,537
(9.25% at September 30, 1996) payable
monthly with principal payments
of $1,226, through May 2008
Interest free grant with varied -- 101,072
principal installments due annually
through June 1999
----------- -----------
21,708,231 28,953,229
Less amounts due within one year 20,945,454 6,618,616
----------- -----------
$ 762,777 $22,334,613
=========== ===========
</TABLE>
Long-term debt relating to discontinued operations has be reclassified to net
assets held for sale. Total debt ($481,897 long-term and $508,046 short-term for
the year ended September 30, 1997) associated with these operations amounted to
$989,940 at September 30, 1997. Interest rates relating to debt for discontinued
operations range from 3.74% to 9.5%.
34
<PAGE> 35
The principal amount of long-term debt payable in the five years ending
September 30, 1998 through 2002, relating to continuing operations, is
$20,945,454, $121,418, $41,929, $599,430 and $-0-, and for discontinued
operations is $508,046, $194,757, $14,700, $14,700 and $257,737. The weighted
average interest rate on short term borrowings at September 30, 1997 and 1996
was 8.75% and 8.10%, respectively.
The agreements relating to the Company's outstanding debt include various
covenants that limit its ability to incur additional indebtedness, restricts
paying dividends, and limits the ability for capital expenditures. As of
September 30, 1997, the Company was not in compliance with certain of these
covenants contained in its credit agreements; however, the company obtained a
waiver on these covenants through September 30, 1997. Additionally, the credit
agreements were amended so as to eliminate the restrictive covenants referred to
above until March 31, 1998.
The Company's principal sources of liquidity, until the sale of Bliss
Manufacturing, are expected to be funded with cash generated from operations,
additional borrowings under the Company's credit facility referred to above and
the 1997 tax refund. After the sale of Bliss Manufacturing the Company's
principal sources of liquidity are expected to be from the proceeds from the
sale, a new credit facility to be put in place in the second fiscal quarter of
1998 and from cash generated from operations.
7. LONG-TERM COMPENSATION PLAN
The Company adopted the Health-Mor Inc. 1992 Omnibus Long-Term Compensation Plan
("Plan") in 1992. The Plan provides for the granting of stock options, stock
appreciation rights, restricted stock awards, phantom stock and/or performance
shares ("Awards") to key employees of the Company and its Subsidiaries and stock
options for the non employee directors of the Company. Options granted under the
plan expire up to ten years after the date of grant if not exercised and may be
exercisable in whole or in part at the discretion of the Committee established
by the Board of Directors. Share awards available for issuance under the Plan
may be authorized and unissued shares or treasury shares. The maximum number of
shares of Common Stock available for grant of Awards under the Plan are limited
on an annual and cumulative basis as further defined in the Plan.
Stock options under the Plan generally have exercise prices equal to the fair
market values at dates of grant, otherwise, if the option price is less than the
fair market value at the date of the grant, compensation expense is recorded for
the difference. For restricted or phantom stock, the Company records
compensation expense as the excess of the quoted market price of a similar but
unrestricted share of stock at the award date over the purchase price, if any.
In May 1997, the Board of Directors approved a stock option grant to two
executives of 20,000 shares each, of common stock subject to certain
restrictions. The shares will vest over a maximum period of eight months and are
subject to each executive's continued employment and other various restrictions.
35
<PAGE> 36
In July 1997, the Board of Directors granted stock and stock options under the
Plan to three of its executives. Each executive was awarded 25,000 shares of
restricted stock, with 12,500 vesting on October 1, 1997 (subsequently, the
executives forfeited the 12,500 shares vesting on October 1, 1997) and the
balance on January 2, 1998. An additional 75,000 shares of restricted common
stock will be issued in 1998 contingent upon certain conditions and continued
employment. In addition, they each received options to purchase 75,000 shares of
common stock at $5.68 per share, of which 35,210 options are incentive stock
options, half exercisable on July 2, 1997 and the remaining on January 2, 1998.
The remaining 39,790 options are non-qualified stock options that became
exercisable on July 2, 1997. All options expire July 2, 2002, to the extent not
exercised.
There were 77,500 shares issued pursuant to 1997 executive grants during the
current fiscal year. Unamortized deferred compensation amounted to $273,500 at
September 30, 1997. Total compensation expense, in conjunction with the Plan was
$659,266, $251,000 and $380,600 in 1997, 1996 and 1995, respectively.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock plans as
allowed under FAS Statement No. 123, "Accounting for Stock-Based Compensation"
(FAS 123). Accordingly, the adoption of this statement did not affect the
Company's results of operations, financial position or liquidity. Had
compensation cost for the stock granted in 1997 and 1996 been determined
consistent with FAS 123, pro forma net income and earnings per share would have
been as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net loss as Reported $16,650,065 $10,014,104
Net loss Pro Forma $17,482,065 $10,515,359
Loss per Common share:
As Reported $3.36 $2.04
Pro Forma $3.53 $2.14
</TABLE>
Because the FAS No. 123 method of accounting has not been applied to options
granted prior to 1996, the above pro forma disclosures are not necessarily
indicative of future amounts.
The fair value for all options granted in 1997 and 1996 were estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1997 JUNE 1996 JANUARY 1996
OPTIONS OPTIONS OPTIONS
-------------- ------------- -------------
<S> <C> <C> <C>
Risk free interest rate 6.2% 6.5% 5.3%
Expected life of option 3 yrs. 3 yrs. 3 yrs.
Expected dividend yield of stock 0.0% 0.0% 0.0%
Expected volatility of stock 51.5% 41.8% 41.8%
</TABLE>
36
<PAGE> 37
A summary of the Company's stock option activity, and related information for
the years ended September 30, 1997, 1996, and 1995, is shown in the following
table.
<TABLE>
<CAPTION>
Shares subject Average option
to option price per share
-------------- ---------------
<S> <C> <C>
September 30, 1994, Outstanding 314,300 $ 8.49
Granted 94,000 16.18
Exercised (13,594) 7.35
Canceled (13,031) 7.54
-------
September 30, 1995 381,675 10.46
Granted 162,000 9.08
Canceled (12,750) 7.55
-------
September 30, 1996 530,925 10.18
Granted 356,000 5.52
Canceled (163,300) 7.49
-------
September 30, 1997, Outstanding 723,625 $ 8.47
=======
</TABLE>
Options exercisable and shares available for future grant on September 30:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Options exercisable 487,810 403,893 197,737
Weighted-average option price
per share of options exercisable $ 8.90 $ 8.58 $10.28
Weighted-average fair value of options
granted during the year $ 2.34 $ 3.09 --
</TABLE>
37
<PAGE> 38
The ranges of exercise prices and the remaining contractual life of options as
of September 30, 1997 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Range of exercise prices $____ - ____ $____ - ____
Options outstanding:
Outstanding as of September 30, 1997
Weighted-average remaining contractual life
Weighted-average exercise price
Options exercisable:
Outstanding as of September 30, 1997
Weighted-average remaining contractual life
Weighted-average exercise price
</TABLE>
8. INCOME TAXES
The (benefit) provision for income taxes relating to continuing operations
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $(6,205,078) $(2,678,363) $(1,177,783)
Foreign 25,000 25,000 25,000
----------- ----------- -----------
(6,180,078) (2,653,363) (1,152,783)
Deferred (benefit) expense (1,105,871) (184,896) 537,992
----------- ----------- -----------
$(7,285,949) $(2,838,259) $ ( 614,791)
=========== =========== ===========
</TABLE>
A reconciliation of the provision for income taxes at the Federal statutory rate
to that included in the Consolidated Statements of Income related to earnings
from continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Tax at Federal statutory rate of 34% $(7,059,545) $(2,925,939) $ 337,881
Increases (reductions) in taxes
resulting from:
Valuation Allowance Reserves
on Foreign Net Operating Losses -- -- (325,085)
Foreign Sales Corporation earnings (231,455) (269,595) (548,500)
Amortization of cost in excess of net
assets of acquired businesses 79,152 79,152 79,152
Foreign income taxes, net 25,000 25,000 25,000
Other - net (99,101) 253,123 (183,239)
----------- ----------- -----------
$(7,285,949) $(2,838,259) $ (614,791)
=========== =========== ===========
</TABLE>
38
<PAGE> 39
The components of deferred tax assets and liabilities are comprised of the
following at September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Postretirement benefits $ 1,631,245 $ 1,499,600
Operating loss carryforwards 3,222,314 871,000
Receivable and inventory reserves 857,822 853,556
Accrued compensation 1,816,797 684,871
Benefits insurance reserves 181,335 117,425
Impairment reserves 1,999,901 308,000
Warranty reserves 90,475 90,475
Other 241,373 171,674
----------- -----------
10,041,262 4,596,601
----------- -----------
Gross deferred tax liabilities:
Deferred DISC income 31,219 62,438
Depreciation 668,445 583,806
----------- -----------
699,664 646,244
Valuation allowances on foreign
net deferred tax assets 1,676,131 871,000
----------- -----------
Net deferred tax asset $ 7,665,467 $ 3,079,357
=========== ===========
</TABLE>
The Company has determined that it should fully reserve against this net
potential tax asset to the extent it represents excess available tax net
deferred tax assets for all foreign subsidiaries and divisions. Accordingly,
such benefits will be realized only as, and if, they are used to reduce future
tax expense, subject to evaluation of the continuing need for such valuation
allowance, or until fully realized. The Mexican NOL which was recognized as an
asset in fiscal year 1995, amounting to $496,537, was written off in fiscal year
1996 in connection with the decision to discontinue the Company's Mexican
operations. Income taxes paid during the years ended September 30, 1997, 1996
and 1995 were $277,559, $1,082,229 and $1,622,986, respectively.
Net operating loss carryforwards of approximately $3,222,314 for tax are
available to offset future taxable income. The carryforwards will expire in 2002
through 2012. Undistributed earnings of foreign subsidiaries are reinvested in
their operations and therefore, no provision is made for additional income taxes
that might be payable on such earnings.
9. PROFIT SHARING AND PENSION PLANS
Bliss Manufacturing has a defined contribution plan which covers substantially
all employees. The Bliss plan contribution is at management's discretion and is
allocated based on a percentage of each employee's wages. In addition, Tube Form
had a defined contribution plan which covered substantially all employees. This
plan required an annual contribution of a specified percentage of each employees
wage, with a minimum contribution of $660 per employee. This plan was terminated
in April, 1996. All funds relating to the plan were distributed in fiscal year
1997.
39
<PAGE> 40
The Company and Tube-Fab have qualified profit sharing plans which cover
substantially all employees. The overall contribution to the Company's plan and
the allocation method is at the discretion of the Board of Directors. The
allocation to the participants is based on either a fixed amount per
participant, a percentage of eligible wages, or a combination of a fixed amount
and a percentage of eligible wages. The required annual contribution to the
Tube-Fab plan is based upon a percentage of net income after certain
adjustments. The allocation to the participants is based upon a formula
established in the Plan. Profit sharing and pension plan expense for all plans
for the years ended September 30, 1997, 1996 and 1995 was $600,804, $1,978,647
and $1,042,741, respectively. For the years ended September 30,1997, 1996 and
1995, continuing operations represented $112,560, $-0- and $112,515 of the total
expense.
Tube-Fab Ltd., and Bliss Manufacturing have been reported as discontinued
operations, and accordingly, pension and profit sharing expense for these
entities have been reflected in results of discontinued operations.
10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health care and life insurance benefits to
certain employees and retirees of Bliss Manufacturing, a wholly owned
subsidiary. As the Bliss Manufacturing business qualified for discontinued
operations treatment for the fiscal year ended September 30, 1997, the
postretirement benefit costs are reflected in the "Income from discontinued
operations - Bliss manufacturing" line of the Consolidated Statement of Income
and the accrued postretirement benefit costs are grouped in the "net assets held
for sale at realizable value" line in the Consolidated Balance Sheet.
The components of the postretirement benefit costs are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service Costs $ 339,000 $ 309,000 $ 213,000
Interest Costs
265,000 232,000 192,000
Net amortization and
deferral -- -- (20,000)
--------- --------- ---------
$ 604,000 $ 541,000 $ 385,000
========= ========= =========
</TABLE>
40
<PAGE> 41
The status of the plans was as follows at September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $(1,642,000) $(1,639,000)
Actives fully eligible (195,000) (181,000)
Actives not yet fully eligible (2,242,000) (1,769,000)
----------- -----------
Total APBO (4,079,000) (3,589,000)
Fair value of plan assets -- --
----------- -----------
Funded status $(4,079,000) $(3,589,000)
Unrecognized (gain)/loss (158,000) (160,000)
----------- -----------
Accrued postretirement benefit costs $(4,237,000) $(3,749,000)
=========== ===========
Assumed weighted average discount rate 7.5% 7.5%
</TABLE>
The assumed health care cost trend rate used in measuring the health care
portion of the postretirement benefit cost for 1997 is 10.5%, gradually
declining to 5.5% by the year 2007 and remaining at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the APBO as of September 30, 1997
by $849,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $165,000.
11. COMMITMENTS AND CONTINGENCIES, GUARANTEES AND LEASES
The Company has guaranteed certain surety bonds totaling $90,512 executed by
distributors. The Company is obligated under certain operating leases for
facilities which expire on various dates through 2003. The minimum annual lease
payments, for continuing operations, under these agreements including renewal
options, if exercised, are $193,242, $185,062, $167,161, $152,520 and $147,518
for the years ending September 30, 1998, 1999, 2000, 2001 and 2002,
respectively. Minimum annual lease payments for discontinued operations are
$195,272, $94,248, $56,958, $40,853 and $20,058 for the years ending September
30, 1998, 1999, 2000, 2001 and 2002, respectively. Rental expense for all leases
and other short-term needs was $858,589, $917,600 and $756,000 for the years
ended September 30, 1997, 1996 and 1995, respectively. Of the total rent expense
for the year ended September 30, 1997, $359,520 related to discontinued
operations.
During the fiscal year 1994 and continuing throughout 1996, the property owned
by the Company in Lombard, Illinois that housed the office facilities for the
discontinued operations of HMI Credit Inc. was leased to a third party. The
lease included an option to purchase the property at any time during the ten
year lease term. The tenant was responsible for all operating expenses related
to the property and the lease payments equal the debt service for the variable
rate industrial revenue development bonds originally issued to finance the
property.
41
<PAGE> 42
On July 7,1997, the tenant exercised his right to purchase the property at a
price equal to the remaining principal debt service for the variable rate
industrial revenue development bonds of approximately $800,000.
Litigation
Various claims arising in the ordinary course of business are pending against
the Company. In the opinion of management none of these matters will have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
Executive Compensation Agreement
During 1994, the Company negotiated a five year Compensation Agreement with the
Chief Executive Officer, Kirk W. Foley which was ratified at the 1995 Annual
shareholders' Meeting. The Agreement combines salary, incentive compensation,
loans, stock options and Phantom Stock to employ Mr. Foley. On May 14, 1997 Mr.
Foley's employment with the Company was terminated triggering certain
obligations under this employment agreement (See Note 14).
Also in May 1997, the Company announced and completed a reduction of personnel
which affected approximately forty people (hourly and salaried) at its
Cleveland, Ohio Consumer Goods facility. The Canadian corporate office was also
scaled down, with all accounting functions being brought into the Cleveland,
Ohio office, reducing staff by approximately eleven people in the Canadian
office.
Total charges of $3,049,754 relating to the layoffs announced in May and Mr.
Foley's termination benefit package were recorded in the third and fourth
quarter of 1997. The balance in the related reserve at September 30, 1997 was
$2,058,492, of which $300,000 was previously recorded as compensation expense in
fiscal year 1996 in accordance with Mr. Foley's employment agreement.
12. BUSINESS SEGMENTS
As of September 30, 1997, the Company's continuing operations consist of a
single operating segment: the Consumer Goods Division. Previously, the Company
was segmented into three operating divisions: Consumer Goods, Health-Mor
Personal Care and Manufactured Products. During 1997, the Company sharpened its
focus on its core business in the Consumer Goods Division and operations that
were outside of the core business were identified in the third and fourth
quarters and classified as discontinued operations. The identified operations
consist of all of the Manufactured Products Division entities as well as the
Health-Mor Personal Care segment.
42
<PAGE> 43
Canadian sales are not considered export sales. One of the Company's major
foreign operations is located in Canada. The Company primarily conducts business
in local currency. Identifiable assets of the Canadian operations, excluding the
assets of Household Rental Systems and Tube-Fab Ltd., which are classified as
net assets held for sale, were $2,318,521 and $3,790,067 at September 30, 1997
and 1996, respectively. Identifiable revenues of Canadian operations for the
years ended September 30, 1997, 1996 and 1995 were $4,981,069, $4,387,750 and
$5,841,140, respectively. Three customers in the Consumer Goods segment, each
with individual sales greater than 10% of total product sales, represented 44.9%
and 23.4% of the Company's total net sales in 1997 and 1996, respectively.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 14,620,888 $ 13,725,320 $ 11,120,603 $ 11,023,438
Gross profit $ 5,073,398 $ 3,456,337 $ 2,433,425 $ 2,905,554
Loss before
discontinued operations $ (657,479) $ (3,158,796) $ (4,945,981) $ (4,709,901)
Loss on disposals $ -- $ -- $ (3,439,298) $ (2,080,386)
Loss from discontinued
operations $ 534,487 $ 141,795 $ 1,111,073 $ 554,421
Net loss $ (122,992) $ (3,017,001) $ (7,274,206) $ (6,235,866)
Per share of common stock:
Loss before
discontinued operations $ (0.13) $ (0.64) $ (1.00) $ (0.94)
Loss on disposals $ -- $ -- $ (0.69) $ (0.41)
Loss from
discontinued operations $ 0.11 $ 0.03 $ 0.22 $ 0.11
Net loss $ (0.02) $ (0.61) $ (1.47) $ (1.24)
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues $ 13,432,049 $ 16,789,086 $ 13,291,222 $ 16,036,551
Gross profit $ 4,874,589 $ 5,073,776 $ 4,712,003 $ 5,913,410
Loss before
discontinued operations $ (446,993) $ (1,284,982) $ (1,411,563) $ (2,623,907)
Loss on disposals $ -- $ -- $ (800,000) $ (1,480,844)
Income (loss) from
discontinued operations $ (48,119) $ (1,577,795) $ (748,562) $ 408,661
Net loss $ (495,112) $ (2,862,777) $ (2,960,125) $ (3,696,090)
Per share of common stock:
Loss before
discontinued operations $ (0.09) $ (0.26) $ (0.29) $ (0.53)
Loss on disposals $ -- $ -- $ (0.16) $ (0.30)
Loss from
discontinued operations $ (0.01) $ (0.32) $ (0.15) $ 0.08
Net loss $ (0.10) $ (0.58) $ (0.60) $ (0.75)
</TABLE>
The first two quarters of 1997 have been restated as shown above. Inventory
analysis performed in conjunction with the third quarter physical inventory
revealed $1.1 million of raw material procurements from a supplier which were
recognized in the third quarter that related to the two previous quarters and
additionally, inventory adjustments of $582,800 were required to reflect product
costs not properly recognized in the first two quarters.
14. RELATED PARTY TRANSACTIONS
In May 1997, the Company advised Kirk W. Foley, then its CEO, that it was
terminating his employment which triggered certain obligations as per Mr.
Foley's employment contract, including an $800,000 severance payment, an
assumption of a $518,000 personal bank loan made to Mr. Foley, other
compensation obligations of approximately $79,000 and an obligation to purchase
Mr. Foley's Company stock at current market value (approximately $325,000).
Because of the Company's tight cash position, noncash ways to satisfy its
obligations to Mr. Foley were sought. The resolution was a decision to transfer
to Mr. Foley the Company's 100% stock interest in Tube-Fab Ltd, a Canadian
subsidiary headquartered on Prince Edward Island, Canada, which an independent
appraiser valued at $1,512,000. The Tube-Fab Ltd. stock had been carried on the
Company's books at a value of $2,157,500 and was accordingly written down to its
appraised value.
44
<PAGE> 45
The settlement transaction with Mr. Foley is expected to be closed in January
1998. It entails a transfer of the Tube-Fab Ltd. shares to Mr. Foley; Mr.
Foley's payment of $303,000 to the Company; cancellation of the Company's
$800,000 severance obligation; an assumption of the $486,750 ($518,000 less a
$31,250 principal payment made in June 1997) bank loan; cancellation of Mr.
Foley's put right with respect to his Company stock; and assumption by Mr. Foley
of an operating lease of Canadian facilities currently leased by the Company,
which has a remaining lease obligation of approximately $1,050,000 over 8 1/2
years.
Mr. Foley's employment contract also requires the Company to pay to him a
$300,000 cash award relating to phantom shares he had previously earned but had
deferred in 1996. This award has been reduced to a $150,000 payment in the
settlement transaction. The settlement also requires the Company to continue Mr.
Foley's salary and benefits from the time of termination advice through December
15, 1997 (approximately $320,000).
Mr. Foley's departure caused the Company to examine the collectability of
certain other related party receivables aggregating $743,000 which were forgiven
and accordingly written off in the third and fourth quarters of fiscal 1997.
In 1995, the Company converted $750,000 of accounts receivable from a former
Filter Queen distributor to notes receivable. This distributor is an officer of
a majority owned subsidiary of the company. In 1996, the officer contributed
various assets and liabilities to the subsidiary in exchange for a reduction in
the note receivable. The note receivable of $228,414 is reflected in current
assets as a note receivable at September 30, 1997.
15. MAJOR VENDOR
In 1991, the Company entered into an agreement that provided for the potential
acquisition of Holland Electro B.V. of Rotterdam, the Netherlands, contingent
upon attaining certain earnings targets in the two year period ended September
30, 1992. When Holland Electro B.V. failed to achieve the agreed targets, HMI
walked away from the proposed purchase but continued to buy products and other
services from Holland-Electro.
In January 1996, Holland Electro B.V. filed for bankruptcy, triggering a
Conditional Purchase Agreement the Company had with Kredietbank N.V. in the
amount of $1,104,000. As a result, the Company was required to take possession
of finished goods and work in progress inventories. Upon acquisition of these
inventories, the Company began production of the ElektraPure and other floorcare
products for distribution in North America and Europe. The Company had paid in
advance for certain services and inventory to be acquired from Holland Electro
B.V. The advances, royalties and other receivables totaled $2,012,000. During
fiscal 1996, as a result of the bankruptcy and subsequent resolution of pending
claims, the Company determined that recovery of these advances was not likely.
Accordingly, the Company recorded a charge for the write-off of these advances.
45
<PAGE> 46
HMI INDUSTRIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of Charged to End of
Description Period Costs and Expense Deductions Period
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Valuation account for accounts receivable:
Year ended September 30, 1997 $2,439,000 $4,820,000 $1,747,000 $5,512,000
Year ended September 30, 1996 $1,550,000 $ 889,000 -- $2,439,000
Year ended September 30, 1995 $1,121,000 $ 429,000 -- $1,550,000
Valuation account for inventory:
Year ended September 30, 1997 $1,234,000 $ 754,000 $ 357,000 $1,631,000
Year ended September 30, 1996 $ 305,000 $ 929,000 -- $1,234,000
Year ended September 30, 1995 $ 120,000 $ 185,000 -- $ 305,000
Reserve for loss on disposal:
Year ended September 30, 1997 $ 800,000 $6,112,000 $1,524,000 $5,388,000
Year ended September 30, 1996 -- $ 800,000 -- $ 800,000
Year ended September 30, 1995 -- -- -- --
Valuation for deferred tax asset:
Year ended September 30, 1997 $ 871,000 $1,151,000 $ 346,000 $1,676,000
Year ended September 30, 1996 $ 517,000 $ 354,000 -- $ 871,000
Year ended September 30, 1995 $ 193,000 $ 324,000 -- $ 517,000
</TABLE>
46
<PAGE> 47
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Page in this
Number Exhibit Title Report Incorporated by Reference From
- -------------- ---------------------------- -------------- -------------------------------
<S> <C> <C> <C>
3.1 Certificate of Incorporation Annual Report on form 10-K
for the year ended
September 30, 1995
3.2 Bylaws Annual Report on form 10-K
for the year ended
September 30, 1995
10.00 Material Contracts Proxy Statement for the
Annual Meeting of
Stockholders January 19,
1995 - Exhibit B
10.01 Material Contracts Change of Control Agreements
10.02 Material Contracts Non-statutory Stock Option
Agreements
10.03 Material Contracts Incentive Stock Option
Agreements
10.04 Material Contracts Deferred Bonus Agreements
10.05 Material Contract Employment Agreement - Malone
10.06 Material Contract Employment Agreement - Kirk
10.07 Material Contract Employment Agreement - Young
10.08 Material Contracts Restricted Stock Agreements
10.09 Material Contracts Amended and Restated Credit
Agreement
10.10a Material Contracts Amendment No. 1 to Amended
and Restated Credit
Agreement
10.10b Material Contracts Amendment No. 2 to Amended
and Restated Credit
Agreement
10.11 Material Contracts Bliss Stock Purchase
Agreement
11 Statement re: Computation Note 1 on
of per share earnings Page 29 of
the
Financial
Statements
21 Subsidiaries of Registrant Page 3
27 Financial Data Schedule
</TABLE>
47
<PAGE> 48
This page left intentionally blank.
48
<PAGE> 1
Exhibit 10.1
HMI INDUSTRIES INC.
EXHIBIT 10
MATERIAL CONTRACTS - CHANGE OF CONTROL AGREEMENTS
<TABLE>
<CAPTION>
EFFECTIVE MAX BONUS MIN BONUS SEVERANCE
PARTICIPANT DATE AMOUNT AMOUNT AGREEMENT(1)
<S> <C> <C> <C> <C>
James R. Malone 10/31/97 $300,000 $150,000 2yrs base salary
Mark A. Kirk 10/31/97 $300,000 $150,000 2yrs base salary
Carl H.Young III 10/31/97 $300,000 $150,000 2yrs base salary
Robert Benedict 10/31/97 $100,000 $65,000 lyr base salary
Michael Harper 10/31/97 $100.000 $65,000 lyr base salary
Julie Perkowski 10/31/97 $50,000 $35,000 lyr base salary
Mark Ridel 10/31/97 $30,000 $20,000 9 mos base salary
Ellen Gordon 10/31/97 $30,000 $20,000 9 mos base salary
<FN>
(1) upon change of control
</TABLE>
see filed exhibit for Mark A. Kirk
1
<PAGE> 2
[HMI INDUSTRIES INC. LOGO] [LOGO]
PRESIDENT'S "E" AWARD
FOR EXPORT EXCELLENCE
October 31, 1997
Mr. Mark A. Kirk
HMI Industries
3631 Perkins Ave.
Cleveland, OH 44114
Dear Mr. Kirk:
HMI Industries (the "Company") considers it essential to its
best interests to foster the continuous employment of key management personnel.
The Company also recognizes that the proposed sale of Bliss Manufacturing and
the uncertainty and questions which it may raise among management, may result in
the departure or distraction of management personnel to the detriment of the
Company.
The Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of the sale of Bliss and/or HMI
In order to induce you to remain in the employ of the Company,
the following bonus and severance allowance have been authorized for you. Since
this letter will set forth a private contractual arrangement with you, we would
request that you maintain this letter in confidence.
In the event you continue to be an employee of the Company at
the time of the Sale of Bliss, as defined below, you will be eligible to receive
a Stay Bonus. If the Sale price is $30 million or more, you will be eligible for
a Stay Bonus equal to $300,000 (less applicable withholding taxes) at the time
of the Sale of Bliss (the "Stay Bonus"). If the Sale price is $25 million or
less, you will be eligible for a Stay Bonus equal to $150,000 (less applicable
withholding taxes). If the Sale price is between $25 million and $30 million,
your Stay Bonus will be interpolated between $150,000 and $300,000. The Stay
Bonus shall be paid within ten (10) days of the Sale of Bliss and irrespective
of whether or not you continue your employment with the Company after such sale.
"Sale of Bliss" shall mean the sale or transfer of substantially
all of the Company's assets to an entity not affiliated with HMI Industries
Inc., or the purchase by an entity not affiliated with HMI Industries Inc. of
51% or more of the outstanding shares of the common stock of the
- --------------------------------------------------------------------------------
3631 PERKINS AVENUE - CLEVELAND, OHIO 44114 - TEL. (216)432-1990 -
FAX (216)432-0013 - CUSTOMER SERVICE FAX 1-800-253-1904 - HMAC 432-0412
- CREDIT FAX 431-0642 - SHIPPING FAX 432-0250
<PAGE> 3
Page 2.
In addition, to induce you to remain in the employ of the Company after
the Sale of Bliss, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in the event your
employment with the Company is terminated under the circumstances described
below subsequent to a "change in control of the Company." (as defined in section
2.)
1 - TERM OF AGREEMENT. This agreement shall commence on October 1, 1997,
and shall continue in effect through September 30, 1998; provided, however, that
commencing on October 1, 1998 and each October 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless, not
later than July 31 of such year, the Company shall have given notice that it
does not wish to extend this Agreement (provided that no such notice may be
given during the pendency of a potential change in control of the Company as
defined in Section 2); and provided, further, that if a change in control of the
Company, as defined in section 2, shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of not less than twelve (12) months beyond the month in which such change
in control occurred. Notwithstanding anything provided herein to the contrary,
the term of this Agreement shall not extend beyond the end of the month in which
you attain "normal retirement age" under the provisions of the HMI Pension Plan
(or successor thereto) or any other tax-qualified retirement plan of the Company
or any of its subsidiaries in which you are participating (any such plan being
referred to herein as the "Company Pension Plan").
2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL. (i) No benefits shall
be payable hereunder unless there shall have been a change in control of the
Company, as set forth below. For purposes of the Agreement, a "change in control
of the Company" shall be deemed to have occurred if
(a) any "Person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than
the Company, any trustee or other fiduciary holding securities under an employee
benefit plan of the Company, or any Company owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 20% or more of either (i) the then
outstanding shares of common stock of the Company or (ii) the combined voting
power of the Company's then outstanding voting securities;
(b) during any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the beginning of
such period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c), or (d) of this Section) whose
election by the Board or nomination for election by the Company's stockholders
<PAGE> 4
Page 3.
was approved by a vote of at least two-thirds of the directors then still in
office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof,
(c) the stockholders of the Company approve a reorganization, merger or
consolidation of the Company with any other Company, other than (1) a
reorganization, merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such reorganization, merger or consolidation or (2) a
reorganization, merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as hereinabove
defined) beneficially owns, directly or indirectly, 20% or more of the combined
voting power of the Company's then outstanding voting or
(d) the stockholders of the Company approve a plan of dissolution or
complete liquidation of the Company or an agreement for the sale or disposition
by the Company by the Company of all or substantially all of the Company's
assets.
(ii) For purposes of this Agreement, a "potential change in control of
the Company" shall be deemed to have occurred if:
(a) the Company enters in an agreement, the consummation of which would
result in the occurrence of a change in control of the Company;
(b) any person (including the Company) publicly announces an intention
to take or to consider taking actions which if consummated would constitute a
change in control of the Company;
(c) any person (other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company (or a company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), or a person who is
then currently properly eligible to file and has properly filed a Schedule 13G
(or any successor filing) pursuant to the Exchange Act and the rules and
regulations thereunder, indicating beneficial ownership of securities of the
Company and stating that the securities were acquired in the ordinary course of
business and were not acquired with the purpose nor with the effect changing or
influencing the control of the Company, for so long as such statement is true
and correct) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 9.5% or more of the combined voting power
of the
<PAGE> 5
Page 4.
Company's then outstanding securities and, without the written consent of the
ownership of such securities by 3 percentage points or more; or
(d) the Board adopts a resolution to the effect that, for purposes of
this Agreement, a potential change in control of the Company has occurred.
3. TERMINATION FOLLOWING CHANGE IN CONTROL (i) GENERAL. If any of the
events described in Section 2 constituting a change in control of the Company
shall have occurred, you shall be entitled to the benefits provided in Section 4
(iii) upon termination of your employment within 12 months following such a
change in control of the Company unless such termination is (a) because of your
death or Disability, (b) by the company for Cause, or (c) by you other than for
Good Reason. In the event your employment with the Company is terminated for any
reason and subsequently a change in control of the Company should have occurred,
you shall not be entitled to any benefits hereunder.
(ii) DISABILITY. If, as a result of your incapacity due to physical or
mental illness, you shall have been absent from the full-time performance of
your duties with the Company for six (6) consecutive months, and within thirty
(30) days after written notice of termination is given you shall not have
returned to the full-time performance of your duties, your employment may be
terminated for "Disability".
(iii) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination (a) upon the commission by you of a willful serious act,
such as embezzlement, against the Company which is intended to enrich you at the
expense of the Company or upon your conviction of a felony involving moral
turpitude or (b) in the event of a willful, gross neglect or willful, gross
misconduct, resulting in either case in material harm to the Company. For
purposes of this Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in good faith
and without reasonable belief that your action or omission was in the best
interest of the Company.
(iv) GOOD REASON. You shall be entitled to terminate your employment for
Good Reason. For purposes of the Agreement, "Good Reason" shall mean, without
your express written consent, the occurrence after a change in control of the
Company of any of the Following circumstances unless such circumstances are
fully corrected prior to the Date of Termination (as defined in Section 3(vi))
specified in the Notice of Termination (as defined in Section 3(v) given in
respect thereof:
<PAGE> 6
Page 5.
(a) a reduction by the Company in your annual base salary as in effect
on the date hereof or as the same may be increased from time to time except for
across-the-board salary reductions similarly affecting all management personnel
of the Company;
(b) the Company's requiring you to be based at a Company office more
than 50 miles from the Company's offices at which you are principally employed
immediately prior to the date of the change in control except for required
travel on the Company's business travel obligations;
(c) the failure by the Company to pay to you any portion of your current
compensation within seven (7) days of the date of such compensation is due or
any portion of your compensation under any deferred compensation program of the
Company within thirty (30) days of the date such compensation is due;
(d) any purported termination of your employment that is not effected
pursuant to a Notice of Termination satisfying the requirements of Subsection
(v) hereof (and, if applicable, the requirements of Subsection (iii) hereof),
which purported termination shall not be effective for purposes of this
Agreement.
Your right to terminate your employment pursuant to this Subsection
shall not be affected by your incapacity due to physical or mental illness. Your
continued employment shall not constitute consent to, or a waiver of rights with
respect to any circumstance constituting Good Reason hereunder.
(v) NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6. "Notice of Termination"
shall mean a notice that shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(vi) DATE OF TERMINATION, Etc. "Date of Termination" shall mean (a) if
your employment is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such thirty (30)-day period), and (b) if your
employment is terminated pursuant to Subsection (iii) or (iv) hereof or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination for Cause shall no be less than
thirty (30) days from the date such Notice of Termination is given, and in the
case of a termination for Good Reason shall not be less than thirty (30) days
nor more than sixty (60) days from the date such Notice of Termination is
given); provided, however, that if within fifteen (15) days after any Notice of
Termination is given, or, if the Notice of Termination is not properly given,
prior to the
<PAGE> 7
Page 6.
Date of Termination (as determined without regard to an extension of such Date
of Termination as described in this proviso), the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties or by a
binding arbitration award; and provided, further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any dispute, the
Company will continue to pay you your full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, base
salary) and continue you as a participant in all compensation, benefit and
insurance plans in which you were participating when the notice giving rise to
the dispute was given, until the dispute is finally resolved in accordance with
this Subsection. Amounts paid until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement, and shall not be offset
against or reduce any other amounts due under this Agreement and shall not be
reduced by any compensation earned by you as the result of employment by another
employer.
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
change in control of the Company, you shall be entitled to the following
benefits during a period of disability, or upon termination of your employment,
as the case may be, provided that such period of disability or termination
occurs during the term of this Agreement;
(i) During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all compensation payable to you
under the Company's disability plan or program or other similar plan during such
period, until this Agreement is terminated pursuant to Section 3(ii) hereof.
Thereafter, or in the event your employment shall be terminated by reason of
your death, your benefits shall be determined under the Co Company's retirement,
insurance and other compensation programs then in effect in accordance with the
terms of such programs.
(ii) If your employment shall be terminated by the Company for Cause or
by you other than for Good Reason, the Company shall pay you your full base
salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given, plus all other amounts to which you are entitled under
any compensation plan of the Company at the time such payments are due, and the
Company shall have no further obligations to you under this Agreement.
(iii) If your employment by the Company should be terminated by the
Company other than for Cause or Disability or if you should terminate your
employment for Good Reason, you shall be entitled to the benefits provided
below:
<PAGE> 8
Page 7.
(a) The Company shall pay to you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
plus all other amounts to which you are entitled under any compensation plan of
the Company, at the time such payments are due; and
(b) in lieu of any further salary payments to you for periods subsequent
to the Date of Termination, the Company shall pay as severance pay to you, at
the time specified in subsection (iv), a lump sum Severance Payment equal to
twenty - four (24) months salary in effect on the Date of Termination.
(iv) The payments provided for in Subsection (iii) shall be made not
later than the fifth day following the Date of Termination; provided, however,
that if the amounts of such payments cannot be finally determined on or before
such day, the Company shall pay to you on such day an estimate, as determined
in good faith by the Company, of the minimum amount of such payments and shall
pay the remainder of such payments (together with interest at the rate provided
in 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined
but in no event later than the thirtieth day after the Date of Termination. In
the event that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan
by the Company to you payable on the fifth day after demand therefor by the
Company (together with interest at the rate provided in section 1274(b)(2)(B)
of the Code.)
(v) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise.
(vi) Notwithstanding any provision of this Agreement to the contrary,
the aggregate present value of all "payments in the nature of compensation"
(within the meaning of Section 2800 of the Code) provided to you in connection
with a change in control of the Company or the termination of your employment
shall be one dollar less than the amount that is fully deductible by the Company
under Section 2800 of the Code and, to the extent necessary, payments and
benefits under this Agreement shall be reduced in order that this limitation not
be exceeded. It is the intention of this Subsection (vi) to avoid excise taxes
on you under Section 4999 of the Code or the disallowance of a deduction to the
Company pursuant to Section 280G of the Code.
5. SUCCESSORS; BINDING AGREEMENT. (i) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and
<PAGE> 9
Page 8.
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms to which you would be entitled hereunder if
you terminate your employment for Good Reason following a change in control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in the Agreement, "Company shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
(ii) This agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
(iii) The Company expressly acknowledges and agrees that you shall have
a contractual right to the benefits provided hereunder, and the Company
expressly waives any ability, if possible, to deny liability for any breach of
its contractual commitment hereunder upon the grounds of lack of consideration,
accord and satisfaction or any other defense. In any dispute arising after a
change in control of the Company as to whether you are entitled to benefits
under this Agreement, there shall by a presumption that you are entitled to such
benefits and the burden of proving otherwise shall be on the Company.
(iv) All benefits to be paid hereunder shall be in addition to any
disability, workers' compensation or other Company benefit plan distribution,
unpaid vacation or other unpaid benefits that you have at the Date of
Termination.
6. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by the United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notice to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
7. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by you and such officer as may be specifically designated by
the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of
<PAGE> 10
Page 9.
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements, or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Oklahoma without regard to its conflicts of
law principles. All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided hereunder shall be paid net of any applicable withholding
required under federal, state, or local law. In the event of a change in control
of the Company during the term of this Agreement, the obligations of the Company
under Section 4 shall survive the expiration of the term of this Agreement, the
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement consistent with the periods referenced in Section 4.
8. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in the State of Oklahoma, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of Termination during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
11. ENTIRE AGREEMENT. This Agreement does not constitute an employment
agreement between you and the Company. No representation, promise or inducement
has been made by either party that is not embodied in this Agreement, and
neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth.
You acknowledge that you have read this Agreement, understand its terms
and that it has been entered into by you voluntarily. You acknowledge that the
payments to be made hereunder constitute additional compensation to you. You
further acknowledge that you have had sufficient opportunity to consider this
Agreement and discuss it with advisors of your choice, including your attorney
and accountants. You acknowledge that you have been informed that you have the
right to consider this Agreement for a period of at least twenty-one (21) days
prior to entering into it.
<PAGE> 11
Page 10.
You acknowledge that you have taken sufficient time to consider this Agreement
before signing it. You also acknowledge that you have the right to revoke this
Agreement for a period of seven (7) days following the Agreement's execution by
giving written notice to the Company.
This letter shall be of no further force or effect if a Sale of Bliss
does not occur prior to April 1, 1998, provided, however, that if a contract of
sale for the Company is executed on or before that date, the rights and
obligations set forth in this letter shall continue until the last closing date
permitted under the contract of sale or any extension of the closing date upon
which the parties to the contract may agree.
12. Effective Date. This Agreement shall become effective as of October
31, 1997. If this letter sets forth our agreement on the subject matter thereof,
kindly sign and return to the Company the enclosed copy of this letter, which
with then constitute our agreement on this subject.
Sincerely,
HMI Industries, Inc.
/s/ James R. Malone
-------------------------
JAMES R. MALONE
Accepted and Agreed this
4th day of November, 1997
/s/ Mark A. Kirk
- -------------------------
MARK KIRK
<PAGE> 1
Exhibit 10.2
HMI INDUSTRIES INC.
EXHIBIT 10
MATERIAL CONTRACTS - NON-STATUTORY STOCK OPTION AGREEMENT
AGREEMENT
PARTICIPANT DATE SHARES EFFECTIVE DATE/SHARES EXERCISABLE
James R. Malone 7/2/97 39,790 immediate/100%
Carl H. Young III 7/2/97 39,790 immediate/100%
Mark A. Kirk 7/2/97 39,790 immediate/100%
see filed exhibit for Mark A. Kirk
1
<PAGE> 2
NON-STATUTORY STOCK OPTION AGREEMENT
THIS NON-STATUTORY STOCK OPTION AGREEMENT is entered into as of July 2,
1997 by and between HMI Industries Inc., a Delaware corporation, with its
principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company") and MARK A. KIRK (the "Participant").
WHEREAS, the Company has adopted the 1992 Omnibus Long-Term
Compensation Plan (the "Plan"); and,
WHEREAS, Participant is a Key Employee of the Company as defined in the
Plan; and,
WHEREAS, pursuant to section 8 of the Plan the Participant may be
granted an option to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Participant hereby agree as follows:
1. GRANT OF OPTION. There is hereby granted to Participant an option to
purchase 39,790 shares of Common Stock of the Company at a price of $5.68 per
share. The number of shares which may be purchased and the exercise price per
share are subject to adjustment as provided in the Plan.
2. EXERCISE OF OPTION. The option granted to Participant herein may be
exercised in whole or in part at any time after the date of this Agreement but
prior to the expiration date specified in section 3.
3. EXPIRATION. To the extent not exercised, the option expires on July
2, 2002, unless expiring sooner pursuant to the terms of the Plan, applicable
provisions of the Internal Revenue Code or other provisions of this Agreement.
4. RETIREMENT. If the Participant ceases to be an employee of the
Company by reason of retirement in accordance with any retirement plan or policy
of the Company then in effect, the Participant, at any time within the six month
period following such retirement (but prior to the expiration date of the option
as specified in section 3) may exercise the option.
5. DEATH OF PARTICIPANT. If the Participant shall die while in the
employ of the Company, then within the one year period following his death (but
prior to the expiration date of the option as specified in section 3) the person
entitled by will or the applicable laws of descent and distribution may exercise
the option.
6. TERMINATION OF EMPLOYMENT. If the Participant ceases to be employed
by the Company for any reason other than retirement or death, this option shall
not be exercisable after the
1
<PAGE> 3
expiration of three months from the date employment terminates. The option must
be exercised in any event prior to the expiration date of the option specified
in section 3.
7. REGISTRATION. Participant represents and warrants that any shares
purchased by him upon the exercise of an option will be acquired for investment
only and not with a view to resale or distribution. Provided, however, that this
representation and warranty shall not be applicable to an offer for the sale or
the sale of any such shares which, at the time of such offer or sale, are
registered under the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities law, or which without such registration and apart
from the provisions of this section could be offered for sale or sold without
violation of such Act or law. Nothing herein shall require the Company to file a
registration statement or to keep such registration statement current for any
shares purchased pursuant to the exercise of options granted hereunder. If
requested by the Company, Participant agrees to sign a letter addressed to the
Company certifying investment intent. Participant acknowledges that any shares
issued without registration will be "restricted securities" as that term is
defined in Rule 144 of the Act, and that any transfer or disposition of such
shares can be accomplished only in compliance with Rule 144, the Act or other
applicable rules under the Act.
8. LEGEND ON CERTIFICATES. Each certificate for shares of Common Stock
of the Company issued to Participant upon exercise of an option shall, in the
sole discretion of the Company, bear a legend substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares may not be
sold or transferred in the absence of such registration or an opinion of counsel
that registration is not required due to an exemption from registration under
that Act."
9. EMPLOYMENT RIGHT. This Agreement shall not be construed as requiring
the Company to retain Participant as an employee or affect or limit the right of
the Company to terminate the employment of Participant at any time for any
reason or to give Participant any additional rights as an employee beyond those
rights granted by law or by contract. As consideration for receiving the option,
Participant agrees that he will remain in the employ of the Company for at least
one year from the date of the grant of the option, unless his employment is
terminated because of disability or with the consent of the Company.
10. COMPLIANCE WITH PLAN. Participant agrees to comply with all
applicable provisions of the Plan, a copy of which has been delivered to
Participant and receipt of which is hereby acknowledged.
11. CONFLICT WITH PLAN. In the event of any conflict between any term
of this Agreement and the Plan, the terms of the Plan shall prevail. Except for
terms defined in this Agreement, the definitions contained in the Plan will
apply to this Agreement.
12. ASSIGNMENT AND DISPOSITION. Participant shall not transfer or
assign or in any way dispose of any option granted herein except in accordance
with the Plan and applicable law.
2
<PAGE> 4
13. NOTICE OF EXERCISE. This option may be exercised by delivering to
the Company at the office of its Treasurer a written notice, signed by the
person entitled to exercise the option and stating the number of shares to be
purchased. Such notice shall, as an essential part thereof be accompanied by
payment of the full purchase price of the shares to be purchased. Upon payment
within the time period specified by the Company of the amount, if any, required
to be withheld for Federal, state and local tax purposes as a result of the
exercise of the option, the option shall be deemed exercised as of the date the
Company received the written notice of exercise. The Participant may satisfy any
withholding requirement by authorizing the Company at the time of exercise to
withhold from his next salary payment all or part of the amount required to be
withheld by the Company as a result of such exercise. Participant may satisfy
the withholding obligation by authorizing the Company to withhold shares from
the shares acquired hereunder equal in value to the amount required to satisfy
such withholding. Payment of the purchase price may be made in cash or in shares
equal in value to the exercise price, or partly in cash and partly in shares.
The option shall not be exercisable if the exercise would violate any applicable
state securities law, any registration or other requirements under the Act, any
requirements of NASDAQ or any other national securities exchange on which the
shares are listed at the time of exercise of the option or any applicable legal
requirement of any other governmental authority.
IN WITNESS WHEREOF, the Company and Participant have executed this
Non-Statutory Stock Option Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By /s/ Carl H. Young III
-----------------------------
Executive Vice President
ATTEST:
/s/ John A. Meany Jr.
- ---------------------
Secretary
/s/ Mark A. Kirk
---------------------------------
Participant
3
<PAGE> 1
Exhibit 10.3
HMI INDUSTRIES INC.
EXHIBIT 10
MATERIAL CONTRACTS - INCENTIVE STOCK OPTION AGREEMENT
<TABLE>
<CAPTION>
AGREEMENT
PARTICIPANT DATE SHARES EFFECTIVE DATE/SHARES EXERCISABLE
<S> <C> <C> <C>
Robert Benedict 8/25/97 15,000 8/25/98-one third
8/25/99-one third
8/25/00-one third
Michael Harper 8/25/97 15,000 8/25/98-one third
8/25/99-one third
8/25/00-one third
Julie Perkowski 8/25/97 9,000 8/25/98-one third
8/25/99-one third
8/25/00-one third
Mark Ridel 8/25/97 6,000 8/25/98-one third
8/25/99-one third
8/25/00-one third
Ellen Gordon 8/25/97 6,000 8/25/98-one third
8/25/99-one third
8/25/00-one third
</TABLE>
see Filed exhibit for Michael Harper
<TABLE>
<S> <C> <C> <C>
James R. Malone 7/2/97 35,210 7/2/97-one half
1/2/98-remaining one half
Carl H. Young III 7/2/97 35,210 7/2/97-one half
1/2/98-remaining one half
Mark A. Kirk 7/2/97 35,210 7/2/97-one half
1/2/98-remaining one half
</TABLE>
see filed exhibit for Mark A. Kirk
1
<PAGE> 2
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT is entered into as of August 25,
1997 by and between HMI Industries Inc., a Delaware corporation, with its
principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company") and Michael Harper (the "Participant ").
WHEREAS, the Company has adopted the 1992 Omnibus Long-Term Compensation
Plan (the "Plan"); and,
WHEREAS, Participant is a Key Employee of the Company as defined in the
Plan; and,
WHEREAS, pursuant to section 8 of the Plan the Participant may be
granted an option to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Participant hereby agree as follows:
1. GRANT OF OPTION. There is hereby granted to Participant an option to
purchase 15,000 shares of Common Stock of the Company at a price of $4.80 per
share. The number of shares which may be purchased and the exercise price per
share are subject to adjustment as provided in the Plan. This option is intended
to be an incentive stock option within the meaning of section 422 of the
Internal Revenue Code.
2. EXERCISE OF OPTION. The option granted to Participant herein may be
exercised in whole or in part, subject to the following limitations on exercise:
Effective Date Shares Exercisable
-------------- ------------------
August 25, 1998 one-third of optioned shares
August 25, 1999 two-thirds of optioned shares
August 25, 2000 all of optioned shares
3. EXPIRATION. To the extent not exercised, the option expires on August
25, 2002, unless expiring sooner pursuant to the terms of the Plan, applicable
provisions of the Internal Revenue Code or other provisions of this Agreement.
4. ACCELERATION. In the event that the Company's Common Stock ceases to
be traded or listed on a national securities exchange (including NASDAQ National
Market System), this option shall become immediately exercisable with respect to
all unexercised shares.
5. RETIREMENT. If the Participant ceases to be an employee of the
Company by reason of retirement in accordance with any retirement plan or policy
of the Company then in effect, the Participant, at any time within the six month
period following such retirement (but prior to the
1
<PAGE> 3
expiration date of the option as specified in section 3) may exercise the option
with respect to the shares then exercisable.
6. DEATH OF PARTICIPANT. If the Participant shall die while in the
employ of the Company, then within the one year period following his death (but
prior to the expiration date of the option as specified in section 3) the person
entitled by will or the applicable laws of descent and distribution may exercise
the option without regard to the vesting schedule in section 2.
7. TERMINATION OF EMPLOYMENT. If the Participant ceases to be employed
by the Company for any reason other than retirement or death, this option shall
not be exercisable after the expiration of three months from the date employment
terminates and shall be exercisable only to the extent that it was exercisable
as of the date of termination of employment. The option must be exercised in any
event prior to the expiration date of the option specified in section 3.
8. REGISTRATION. Participant represents and warrants that any shares
purchased by him upon the exercise of an option will be acquired for investment
only and not with a view to resale or distribution. Provided, however, that this
representation and warranty shall not be applicable to an offer for the sale or
the sale of any such shares which, at the time of such offer or sale, are
registered under the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities law, or which without such registration and apart
from the provisions of this section could be offered for sale or sold without
violation of such Act or law. Nothing herein shall require the Company to file a
registration statement or to keep such registration statement current for any
shares purchased pursuant to the exercise of options granted hereunder. If
requested by the Company, Participant agrees to sign a letter addressed to the
Company certifying investment intent. Participant acknowledges that any shares
issued without registration will be "restricted securities" as that term is
defined in Rule 144 of the Act, and that any transfer or disposition of such
shares can be accomplished only in compliance with Rule 144, the Act or other
applicable rules under the Act.
9. LEGEND ON CERTIFICATES. Each certificate for shares of Common Stock
of the Company issued to Participant upon exercise of an option shall, in the
sole discretion of the Company, bear a legend substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares may not be
sold or transferred in the absence of such registration or an opinion of counsel
that registration is not required due to an exemption from registration under
that Act."
10. EMPLOYMENT RIGHT. This Agreement shall not be construed as requiring
the Company to retain Participant as an employee or affect or limit the right of
the Company to terminate the employment of Participant at any time for any
reason or to give Participant any additional rights as an employee beyond those
rights granted by law or by contract. As consideration for receiving the option,
Participant agrees that he will remain in the employ of the Company for at least
one year from the date of the grant of the option, unless his employment is
terminated because of disability or with the consent of the Company.
2
<PAGE> 4
11. COMPLIANCE WITH PLAN. Participant agrees to comply with all
applicable provisions of the Plan, a copy of which has been delivered to
Participant and receipt of which is hereby acknowledged.
12. CONFLICT WITH PLAN. In the event of any conflict between any term of
this Agreement and the Plan, the terms of the Plan shall prevail. Except for
terms defined in this Agreement, the definitions contained in the Plan will
apply to this Agreement.
13. ASSIGNMENT AND DISPOSITION. Participant shall not transfer or assign
or in any way dispose of any option granted herein except in accordance with the
Plan and applicable law.
14. NOTICE OF EXERCISE. This option may be exercised by delivering to
the Company at the office of its Treasurer a written notice, signed by the
person entitled to exercise the option and stating the number of shares to be
purchased. Such notice shall, as an essential part thereof, be accompanied by
payment of the full purchase price of the shares to be purchased. Upon payment
within the time period specified by the Company of the amount, if any, required
to be withheld for Federal, state and local tax purposes as a result of the
exercise of the option, the option shall be deemed exercised as of the date the
Company received the written notice of exercise. The Participant may satisfy any
withholding requirement by authorizing the Company at the time of exercise to
withhold from his next salary payment all or part of the amount required to be
withheld by the Company as a result of such exercise. Participant may satisfy
the withholding obligation by authorizing the Company to withhold shares from
the shares acquired hereunder equal in value to the amount required to satisfy
such withholding. Payment of the purchase price may be made in cash or in shares
equal in value to the exercise price, or partly in cash and partly in shares.
The option shall not be exercisable if the exercise would violate any applicable
state securities law, any registration or other requirements under the Act, any
requirements of NASDAQ or any other national securities exchange on which the
shares are listed at the time of exercise of the option or any applicable legal
requirement of any other governmental authority.
3
<PAGE> 5
IN WITNESS WHEREOF, the Company and Participant have executed this
Incentive Stock Option Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By /s/ Carl H. Young III
---------------------------
Executive Vice President
ATTEST
/s/ John A. Meany Jr.
- -------------------------
Secretary
/s/ Mark A. Kirk
-------------------------------
Participant
<PAGE> 6
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT is entered into as of July 2, 1997
by and between HMI Industries Inc., a Delaware corporation, with its principal
place of business at 3631 Perkins Avenue, Cleveland, Ohio (the "Company") and
MARK A. KIRK (the "Participant").
WHEREAS, the Company has adopted the 1992 Omnibus Long-Term Compensation
Plan (the "Plan"); and,
WHEREAS, Participant is a Key Employee of the Company as defined in the
Plan; and,
WHEREAS, pursuant to section 8 of the Plan the Participant may be
granted an option to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Participant hereby agree as follows:
1. GRANT OF OPTION. There is hereby granted to Participant an option to
purchase 35,210 shares of Common Stock of the Company at a price of $5.68 per
share. The number of shares which may be purchased and the exercise price per
share are subject to adjustment as provided in the Plan. This option is intended
to be an incentive stock option within the meaning of section 422 of the
Internal Revenue Code.
2. EXERCISE OF OPTION. The option granted to Participant herein may be
exercised in whole or in part, subject to the following limitations on exercise:
Effective Date Shares Exercisable
-------------- ------------------
July 2, 1997 50% of optioned shares
January 2, 1998 100% of optioned shares
3. EXPIRATION. To the extent not exercised, the option expires on July
2, 2002, unless expiring sooner pursuant to the terms of the Plan, applicable
provisions of the Internal Revenue Code or other provisions of this Agreement.
4. ACCELERATION. In the event that, prior to January 2, 1998, (i) the
Company terminates the Participant's employment without cause; (ii) the Company
undergoes a change in control as defined in the Plan; or (iii) the Company's
Common Stock ceases to be traded or listed on a national securities exchange
(including NASDAQ National Market System), this option shall become immediately
exercisable with respect to all unexercised shares.
5. CAUSE DEFINED. For purposes of this Agreement, Cause shall exist only
if (i) the Participant is convicted of a felony or a crime involving dishonesty
or moral turpitude; or (ii) there
1
<PAGE> 7
is a material breach of; or neglect of, the Participant's duties and
responsibilities that is willful and deliberate and that is likely to result in
material economic injury to the Company.
6. RETIREMENT. If the Participant ceases to be an employee of the
Company by reason of retirement in accordance with any retirement plan or policy
of the Company then in effect, the Participant, at any time within the six month
period following such retirement (but prior to the expiration date of the option
as specified in section 3) may exercise the option with respect to the shares
then exercisable.
7. DEATH OF PARTICIPANT. If the Participant shall die while in the
employ of the Company, then within the one year period following his death (but
prior to the expiration date of the option as specified in section 3) the person
entitled by will or the applicable laws of descent and distribution may exercise
the option without regard to the vesting schedule in section 2.
8. TERMINATION OF EMPLOYMENT. If the Participant ceases to be employed
by the Company for any reason other than retirement or death, this option shall
not be exercisable after the expiration of three months from the date employment
terminates and shall be exercisable only to the extent that it was exercisable
as of the date of termination of employment. The option must be exercised in any
event prior to the expiration date of the option specified in section 3.
9. REGISTRATION. Participant represents and warrants that any shares
purchased by him upon the exercise of an option will be acquired for investment
only and not with a view to resale or distribution. Provided, however, that this
representation and warranty shall not be applicable to an offer for the sale or
the sale of any such shares which, at the time of such offer or sale, are
registered under the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities law, or which without such registration and apart
from the provisions of this section could be offered for sale or sold without
violation of such Act or law. Nothing herein shall require the Company to file a
registration statement or to keep such registration statement current for any
shares purchased pursuant to the exercise of options granted hereunder. If
requested by the Company, Participant agrees to sign a letter addressed to the
Company certifying investment intent. Participant acknowledges that any shares
issued without registration will be "restricted securities" as that term is
defined in Rule 144 of the Act, and that any transfer or disposition of such
shares can be accomplished only in compliance with Rule 144, the Act or other
applicable rules under the Act.
10. LEGEND ON CERTIFICATES. Each certificate for shares of Common Stock
of the Company issued to Participant upon exercise of an option shall, in the
sole discretion of the Company, bear a legend substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The shares may not be
sold or transferred in the absence of such registration or an opinion of counsel
that registration is not required due to an exemption from registration under
that Act."
2
<PAGE> 8
11. EMPLOYMENT RIGHT. This Agreement shall not be construed as requiring
the Company to retain Participant as an employee or affect or limit the right of
the Company to terminate the employment of Participant at any time for any
reason or to give Participant any additional rights as an employee beyond those
rights granted by law or by contract. As consideration for receiving the option,
Participant agrees that he will remain in the employ of the Company for at least
one year from the date of the grant of the option, unless his employment is
terminated because of disability or with the consent of the Company.
12. COMPLIANCE WITH PLAN. Participant agrees to comply with all
applicable provisions of the Plan, a copy of which has been delivered to
Participant and receipt of which is hereby acknowledged.
13. CONFLICT WITH PLAN. In the event of any conflict between any term of
this Agreement and the Plan, the terms of the Plan shall prevail. Except for
terms defined in this Agreement, the definitions contained in the Plan will
apply to this Agreement.
14. ASSIGNMENT AND DISPOSITION. Participant shall not transfer or assign
or in any way dispose of any option granted herein except in accordance with the
Plan and applicable law.
15. NOTICE OF EXERCISE. This option may be exercised by delivering to
the Company at the office of its Treasurer a written notice, signed by the
person entitled to exercise the option and stating the number of shares to be
purchased. Such notice shall, as an essential part thereof; be accompanied by
payment of the full purchase price of the shares to be purchased. Upon payment
within the time period specified by the Company of the amount, if any, required
to be withheld for Federal, state and local tax purposes as a result of the
exercise of the option, the option shall be deemed exercised as of the date the
Company received the written notice of exercise. The Participant may satisfy any
withholding requirement by authorizing the Company at the time of exercise to
withhold from his next salary payment all or part of the amount required to be
withheld by the Company as a result of such exercise. Participant may satisfy
the withholding obligation by authorizing the Company to withhold shares from
the shares acquired hereunder equal in value to the amount required to satisfy
such withholding. Payment of the purchase price may be made in cash or in shares
equal in value to the exercise price, or partly in cash and partly in shares.
The option shall not be exercisable if the exercise would violate any applicable
state securities law, any registration or other requirements under the Act, any
requirements of NASDAQ or any other national securities exchange on which the
shares are listed at the time of exercise of the option or any applicable legal
requirement of any other governmental authority.
3
<PAGE> 9
IN WITNESS WHEREOF, the Company and Participant have executed this
Incentive Stock Option Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By /s/ Carl H. Young III
------------------------------
Executive Vice President
ATTEST:
/s/ John A. Meany Jr.
- --------------------------
Secretary
/s/ Mark A. Kirk
--------------------------------
Participant
4
<PAGE> 1
Exhibit 10.4
HMI INDUSTRIES INC.
EXHIBIT 10
MATERIAL CONTRACTS - DEFERRED BONUS AGREEMENT
<TABLE>
<CAPTION>
EFFECTIVE DATE OF VALUE OF
PARTICIPANT DATE BONUS BONUS
<S> <C> <C> <C>
James R. Malone 7/2/97 4/1/98 12,500
7/1/98 12,500
10/1/98 12,500
1/2/99 12,500
4/1/99 12,500
7/1/99 12,500
10/1/99 10,200
Carl H. Young III 7/2/97 4/1/98 12,500
7/1/98 12,500
10/1/98 12,500
1/2/99 12,500
4/1/99 12,500
7/1/99 12,500
10/1/99 10,200
Mark A. Kirk 7/2/97 4/1/99 12,500
7/1/98 12,500
10/1/99 12,500
1/2/99 12,500
4/1/99 12,500
7/1/99 12,500
10/1/99 10,200
</TABLE>
see filed exhibit for Mark A. Kirk
1
<PAGE> 2
DEFERRED BONUS AGREEMENT
THIS DEFERRED BONUS AGREEMENT is entered into as of this 2nd day of July
by and between HMI Industries Inc., a Delaware corporation (the "Company"), with
its principal place of business at 3631 Perkins Avenue, Cleveland, OH and MARK
A. KIRK (the "Executive").
WHEREAS, the Executive has been employed by the Company as a senior
officer; and,
WHEREAS, the Company wants to recognize his past service to the Company
and provide incentive for future services to the Company; and,
WHEREAS, the Company believes that a cash bonus is the most tangible
form of recognition that the Executive can receive.
NOW, THEREFORE, in consideration of the premises and other covenants
contained herein, the Company and the Executive hereby agree as follows:
1. PAYMENT OF CASH BONUS. The Company agrees to pay to Executive on each of the
days set forth below a cash bonus with a value equal to the fair market value of
the number of shares of common stock (the "Shares") set forth below:
<TABLE>
<CAPTION>
Date of Bonus Value of Bonus
- ------------- --------------
<S> <C>
April 1, 1998 12,500 shares
July 1, 1998 12,500 shares
October 1, 1998 12,500 shares
January 2, 1999 12,500 shares
April 1, 1999 12,500 shares
July 1, 1999 12,500 shares
October 1, 1999 10,200 shares
</TABLE>
The determination of the fair market value of the Shares shall be made
as of the date the cash bonus is due and shall be made by the Company's Board of
Directors, whose good faith determination shall be final and conclusive for
purposes of this Agreement.
2. REPLACEMENT OF CASH BONUS WITH RESTRICTED STOCK AWARD. On or prior to the
date any cash bonus provided for in section 1 is due, the Company may replace
said cash bonus with an award of restricted stock under the Company's 1992
Omnibus Long-Term Compensation Plan (the "Plan"), provided that (i) such award
must be for an identical number of shares (taking into account any stock splits,
stock dividends, reorganization, recapitalization, or similar transactions);
(ii) such award must be in substantially the same form as the award of
restricted stock received by the Executive on July 2, 1997; and (iii) the
vesting dates for the restricted stock (and the lapse of any forfeiture
requirements with respect to such stock) must be the dates set forth above in
Section 1 and the number of vested, non-forfeitable Shares as of each such date
must correspond
<PAGE> 3
to the number of Shares set forth above in Section 1. In the event any or all of
the cash bonuses are replaced with an award of restricted stock, this Agreement
shall be null and void with respect to such replaced bonuses and such replaced
bonuses shall not be paid.
3. TERMINATION OF EMPLOYMENT; CHANGE IN CONTROL. In the event that the Company
terminates the Executive's employment for Cause or Executive voluntarily
terminates his employment prior to the date such cash bonus is due, no bonus
otherwise due subsequent to the date of such termination shall be paid to
Executive. In the event Executive's employment is terminated for any other
reason (including by reason of Executive's death or disability), all bonuses due
subsequent to the date of such termination shall be accelerated and Executive
(or his beneficiaries) shall receive in cash the bonuses (based on the fair
market value of the shares on the date of termination) within five business days
of the termination of his employment. In the event (i) the Company undergoes a
Change in Control (as defined in the Plan), or (ii) the Company's Common Stock
ceases to be listed or traded on a national securities exchange (including the
NASDAQ National Market System), all bonuses due subsequent to such event shall
be accelerated and Executive shall receive in cash the bonuses (based on the
fair market value of the shares on the date of the event in (i) or (ii)) within
five business days of the occurrence of such event.
4. DEFINITION OF CAUSE. For purposes of this Agreement, Cause shall exist only
if (i) the Executive is convicted of a felony or a crime involving dishonesty or
moral turpitude, or (ii) there is a material breach of, or neglect of; the
Executive's duties and responsibilities that is willful and deliberate and that
is likely to result in material economic injury to the Company.
5. WITHHOLDING. The Company shall be entitled to deduct from any payment due
under this Agreement the amount of all applicable income and employment taxes
required by law to be withheld with respect to such payments.
6. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of any successors to the Company and all persons lawfully claiming under
the Executive.
7. ADJUSTMENTS. In the event of any stock split, stock dividend, reorganization,
recapitalization, or other similar event, the number of Shares set forth in
Section 1 shall be adjusted as is appropriate. The amount of such adjustment
shall be determined by the Company's Board of Directors, whose good faith
determination shall be final and conclusive for purposes of this Agreement.
8. GOVERNING LAW. This Agreement shall be governed by Ohio law.
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by the person whose name appears below, thereunto duly authorized, and
the Executive has executed this Agreement, all as of the date first written
above.
HMI INDUSTRIES INC.
/s/ Robert J. Abrahams
-----------------------------------
Robert J. Abrahams
Chairman, Compensation Committee
/s/ Mark A. Kirk
-----------------------------------
Mark A. Kirk
<PAGE> 1
Exhibit 10.5
[HMI INDUSTRIES LETTERHEAD]
December 15, 1996
Mr. James R. Malone
HMI Industries Inc.
100 South Ashley Drive
Tampa, Florida 33602
Re: Terms and conditions of employment.
Dear Jim:
This is to confirm the terms and conditions of your employment as Chairman
of the Board of HMI Industries Inc. (the "COMPANY") beginning on December 15,
1996 and continuing thereafter for an indefinite period, subject to the
severance terms specified below. The other terms and conditions of your
employment are as follows:
1. Your duties shall be consistent with the office of Chairman of the
Board, as may be specified from time to time by the President and
Chief Executive Officer of the Company and the Board of Directors. You
shall devote a portion of your time, energies and skills on a regular
basis to performing your duties for the Company.
2. You will be based in the Tampa office at the address listed above,
however your duties will involve traveling to various locations
outside your office; and more particularly, significant duties will
require your presence at the Company's Cleveland, Ohio office.
3. You shall receive an annual base compensation of $ 325,000, payable
semi-monthly on the 15th and last day of each month, in the amount of
$ 13,541.66.
4. You shall be eligible to participate in the Company's Executive
Incentive Plan, and you shall be an eligible participant in the
Company's 1992 Omnibus Long-Term Compensation Plan (the "OMNIBUS
PLAN").
<PAGE> 2
Mr. James R. Malone
Page 2
December 15, 1996
5. The Company shall reimburse you up to $ 22,000 annually for country
club charges, professional affiliation dues, and business conferences.
6. You shall receive an automobile allowance of $ 1,450 per month plus
reimbursements for gasoline, oil, maintenance, and automobile
insurance, including full damage and liability coverage. The personal
injury liability coverage shall include limits of $ 500,000 per person
and $ 500,000 per accident, and property damage coverage of $ 250,000.
7. The Company shall continue to keep in force the life insurance
policy that you currently have with Northwestern Mutual pursuant to
your prior employment, and the Company shall pay the "split dollar"
premiums on the Northwestern Mutual policy for the duration of your
employment by the Company. In addition, you shall be eligible for
participation in all Company benefit plans pertaining to life
insurance, and you shall be provided with the standard executive life
insurance coverage that other senior executives of the Company
receive.
8. In the event the Company terminates your employment for any reason
other than "for cause" (as defined below), you shall receive the
following severance benefits.
(a) You shall receive a full year's salary of $ 325,000, promptly
upon such termination.
(b) All shares of Restricted Common Stock granted or to be granted to
you under the Omnibus Plan that have not yet vested shall vest
immediately, and certificates representing such shares shall be
promptly delivered to you. At that time, all restrictions
applicable to such shares shall be terminated, except to the
extent necessary to comply with applicable securities laws.
(c) All options granted or to be granted to you to purchase the
Company's Common Stock that have not yet vested shall vest
immediately.
Termination "for cause" shall mean termination of your employment by
the Company due to your (i) malfeasance or (ii) conviction of, or
admission to, a crime involving moral turpitude.
<PAGE> 3
Mr. James R. Malone
Page 3
December 15, 1996
I believe that the above terms and conditions of your employment by the
Company are consistent with the prior discussions we have had. Please
acknowledge your acceptance and agreement below.
Sincerely,
HMI Industries Inc.
By: /s/ Kirk W. Foley
-------------------------------------
Kirk W. Foley, President
and Chief Executive Officer
ACCEPTED AND AGREED TO BY:
/s/ James R. Malone
- -----------------------------
James R. Malone
<PAGE> 1
Exhibit 10.6
[HMI INDUSTRIES LETTERHEAD]
January 31, 1997
Mr. Mark A. Kirk
HMI Industries Inc.
100 South Ashley Drive
Tampa, Florida 33602
Re: Terms and conditions of employment.
Dear Mark:
This is to confirm the terms and conditions of your employment as Vice
President and Chief Financial Officer of HMI Industries Inc. (the "COMPANY")
beginning on January 31, 1997 and continuing thereafter for an indefinite
period, subject to the severance terms specified below. The other terms and
conditions of your employment are as follows:
1. Your duties shall be consistent with the offices of Vice
President and Chief Financial Officer, as may be specified from
time to time by the President and Chief Executive Officer of the
Company and the Board of Directors. You shall devote your time,
energies and skills on a full-time basis to performing your
duties for the Company.
2. You will be based in the Tampa office at the address listed
above, however your duties will involve traveling to various
locations outside your office; and more particularly, significant
duties will require your presence at the Company's Cleveland,
Ohio office.
3. You shall receive an annual base compensation of $ 200,000,
payable semi-monthly on the 15th and last day of each month, in
the amount of $ 8,333.33.
4. You shall be eligible to participate in the Company's Executive
Incentive Plan, and you shall be an eligible participant in the
Omnibus Plan (as defined below).
<PAGE> 2
Mr. Mark A. Kirk
Page 2
January 31, 1997
5. You shall receive an initial compensation payment of $ 65,000 for
agreeing to the terms and conditions of this employment, and such
amount shall be paid $ 32,500 on March 1, 1997 and $ 32,500 on
May 1, 1997. As a "Key Employee" defined under the Company's 1992
Omnibus Long-Term Compensation Plan (the "OMNIBUS PLAN"), you
shall receive a grant of 20,000 shares of Restricted Common Stock
as defined under the Omnibus Plan. Such shares of the Company's
Common Stock shall become fully vested at the earlier of January
31, 1998 or upon a "Change In Control" of the Company, as defined
by the Omnibus Plan. Such 20,000 shares shall be subject to
adjustment as may be appropriate to increase the number of such
shares to be issued to you due to a subdivision of the Company s
outstanding Common Stock resulting from a stock dividend or stock
split, or a decrease in the number of such shares due to a
combination of the Company's outstanding Common Stock into a
smaller number of shares resulting from a reverse stock split.
6. You shall receive an automobile allowance of $ 750 per month plus
reimbursements for gasoline, oil, maintenance, and automobile
insurance, including full damage and liability coverage. The
personal injury liability coverage shall include limits of
$500,000 per person and $500,000 per accident, and property
damage coverage of $250,000.
7. The Company shall continue to keep in force the life insurance
policy that you currently have with Northwestern Mutual pursuant
to your prior employment, and the Company shall pay the "split
dollar" premiums on the Northwestern Mutual policy for the
duration of your employment by the Company. In addition, you
shall be eligible for participation in all Company benefit plans
pertaining to life insurance, and you shall be provided with the
standard executive life insurance coverage that other senior
executives of the Company receive.
8. The Company acknowledges the consulting services you provided to
the Company prior to January 31, 1997 and shall pay you the sum
of $ 8,000 for such services, contemporaneously with the signing
of this letter agreement.
9. In the event the Company terminates your employment for any
reason other than "for cause" (as defined below), you shall
receive the following severance benefits.
(a) You shall receive a full year's salary of $ 200,000,
promptly upon such termination.
<PAGE> 3
Mr. Mark A. Kirk
Page 3
January 31, 1997
(b) All shares of Restricted Common Stock granted or to be
granted to you under the Omnibus Plan that have not yet
vested shall vest immediately, and certificates representing
such shares shall be promptly delivered to you . At that
time, all restrictions applicable to such shares shall be
terminated, except to the extent necessary to comply with
applicable securities laws.
(c) All options granted or to be granted to you to purchase the
Company's Common Stock that have not yet vested shall vest
immediately.
Termination "for cause" shall mean termination of your employment
by the Company due to your (i) malfeasance or (ii) conviction of,
or admission to, a crime involving moral turpitude.
I believe that the above terms and conditions of your employment by
the Company are consistent with the prior discussions we have had. Please
acknowledge your acceptance and agreement below.
HMI Industries Inc.
By: /s/ Kirk W. Foley
-------------------------------------
Kirk W. Foley, President
and Chief Executive Officer
ACCEPTED AND AGREED TO BY:
/s/ Mark A. Kirk
- ---------------------------
Mark A. Kirk
<PAGE> 1
Exhibit 10.7
[HMI INDUSTRIES LETTERHEAD]
January 31, 1997
Mr. Carl H. Young, III
HMI Industries Inc.
100 South Ashley Drive
Tampa, Florida 33602
Re: Terms and conditions of employment.
Dear Carl:
This is to confirm the terms and conditions of your employment
as Vice President and General Counsel of HMI Industries Inc. (the "COMPANY")
beginning on January 31, 1997 and continuing thereafter for an indefinite
period, subject to the severance terms specified below. The other terms and
conditions of your employment are as follows:
1. Your duties shall be consistent with the offices of Vice
President and General Counsel, as may be specified from time to
time by the President and Chief Executive Officer of the Company
and the Board of Directors. You shall devote your time, energies
and skills on a full-time basis to performing your duties for the
Company.
2. You will be based in the Tampa office at the address listed
above, however your duties will involve traveling to various
locations outside your office; and more particularly, significant
duties will require your presence at the Company's Cleveland,
Ohio office.
3. You shall receive an annual base compensation of $ 200,000,
payable semi-monthly on the 15th and last day of each month, in
the amount of $ 8,333.33.
4. You shall be eligible to participate in the Company's Executive
Incentive Plan, and you shall be an eligible participant in the
Omnibus Plan (as defined below).
<PAGE> 2
Mr. Carl H. Young, III
Page 2
January 31, 1997
5. You shall receive an initial compensation payment of $ 65,000 for
agreeing to the terms and conditions of this employment, and such
amount shall be paid $ 32,500 on March 1, 1997 and $ 32,500 on
May 1, 1997. As a "Key Employee" defined under the Company's 1992
Omnibus Long-Term Compensation Plan (the "OMNIBUS PLAN"), you
shall receive a grant of 20,000 shares of Restricted Common Stock
as defined under the Omnibus Plan. Such shares of the Company s
Common Stock shall become fully vested at the earlier of January
31, 1998 or upon a "Change In Control" of the Company, as defined
by the Omnibus Plan. Such 20,000 shares shall be subject to
adjustment as may be appropriate to increase the number of such
shares to be issued to you due to a subdivision of the Company's
outstanding Common Stock resulting from a stock dividend or stock
split, or a decrease in the number of such shares due to a
combination of the Company's outstanding Common Stock into a
smaller number of shares resulting from a reverse stock split.
6. You shall receive an automobile allowance of $ 750 per month plus
reimbursements for gasoline, oil, maintenance, and automobile
insurance, including full damage and liability coverage. The
personal injury liability coverage shall include limits of $
500,000 per person and $ 500,000 per accident, and property
damage coverage of $ 250,000.
7. The Company shall continue to keep in force the life insurance
policy that you currently have with Northwestern Mutual pursuant
to your prior employment, and the Company shall pay the "split
dollar" premiums on the Northwestern Mutual policy for the
duration of your employment by the Company. In addition, you
shall be eligible for participation in all Company benefit plans
pertaining to life insurance, and you shall be provided with the
standard executive life insurance coverage that other senior
executives of the Company receive.
8. The Company acknowledges the consulting services you provided to
the Company prior to January 31, 1997 and shall pay you the sum
of $ 8,000 for such services, contemporaneously with the signing
of this letter agreement.
9. In the event the Company terminates your employment for any
reason other than "for cause" (as defined below), you shall
receive the following severance benefits.
(a) You shall receive a full year's salary of $ 200,000,
promptly upon such termination.
<PAGE> 3
Mr. Carl H. Young, III
Page 3
January 31, 1997
(b) All shares of Restricted Common Stock granted or to be
granted to you under the Omnibus Plan that have not yet
vested shall vest immediately, and certificates
representing such shares shall be promptly delivered to you.
At that time, all restrictions applicable to such shares
shall be terminated, except to the extent necessary to
comply with applicable securities laws.
(c) All options granted or to be granted to you to purchase the
Company's Common Stock that have not yet vested shall vest
immediately.
Termination "for cause" shall mean termination of your employment
by the Company due to your (i) malfeasance or (ii) conviction of,
or admission to, a crime involving moral turpitude.
I believe that the above terms and conditions of your employment by
the Company are consistent with the prior discussions we have had. Please
acknowledge your acceptance and agreement below.
Sincerely,
HMI Industries Inc.
By: /s/ Kirk W. Foley
-------------------------------------
Kirk W. Foley, President
and Chief Executive Officer
ACCEPTED AND AGREED TO BY:
/s/ Carl H. Young
- -----------------------------
Carl H. Young, III
<PAGE> 1
Exhibit 10.8
HMI INDUSTRIES INC.
EXHIBIT 10
MATERIAL CONTRACTS - RESTRICTED STOCK AGREEMENT
<TABLE>
<CAPTION>
AGREEMENT
PARTICIPANT DATE SHARES VESTING DATE
<S> <C> <C> <C>
James R. Malone 7/2/97 12,500 10/1/97
12,500 01/2/98
Carl H. Young III 7/2/97 12,500 10/1/97
12,500 01/2/98
Mark A. Kirk 7/2/97 12,500 10/1/97
12,500 01/2/98
</TABLE>
Mr. Malone, Mr. Young and Mr. Kirk forfeited and surrendered the right to the
shares to be issued on October 1,1997,
see filed exhibit for Mark A. Kirk
1
<PAGE> 2
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT is entered into as of this 2nd day of
July, 1997, by and between HMI Industries Inc., a Delaware corporation, with
its principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company"), and MARK A. KIRK (the "Employee").
WHEREAS, the Employee is employed as a senior executive of the Company;
and,
WHEREAS, pursuant to the Company's 1992 Omnibus Long-Term Compensation
Plan (the "Plan") the Board of Directors of the Company has approved a grant to
the Employee of 25,000 shares of Common Stock of the Company, par value $1.00
per share, subject to certain restrictions; and,
WHEREAS, the Employee has agreed to accept the shares subject to the
restrictions placed on his ownership of the shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee agree as follows:
1. GRANT OF SHARES. The Company grants to the Employee 25,000 shares of Common
Stock of the Company subject to the restrictions in section 2 (the "Shares"),
and the Employee accepts the Shares subject to the restrictions.
2. VESTING. The shares shall vest on the following dates in the amount
indicated:
October 1, 1997 12,500 shares
January 2, 1998 12,500 shares
Prior to the vesting of the Shares, if the Employee terminates his employment
with the Company or if the Company shall terminate his employment with Cause (as
defined below), the shares shall be forfeited as provided in section 4. In the
event of the following occurrences, all unvested shares shall vest immediately
and shall not be subject to forfeiture: (a) Termination of the Employee's
employment without Cause; (b) Death of the Employee; (c) Change in Control of
the Company as defined in the Plan; (d) Termination of the Company's Common
Stock from trading on a national securities exchange.
3. DEFINITION OF CAUSE. Termination of Employee's employment for any of the
following reasons will constitute cause: (a) conviction of a felony or a crime
involving dishonesty or moral turpitude; (b) material breach of, or neglect of,
the Employee's duties and responsibilities that is willful and deliberate and
that is likely to result in material economic injury to the Company.
1
<PAGE> 3
4. FORFEITURE. In the event that the shares granted herein do not vest, the
shares shall be surrendered and canceled and returned to the Company's treasury,
and the Employee shall receive no payment in consideration of such forfeited
shares.
5. RESTRICTED LEGEND. Employee acknowledges that the shares granted herein have
not been registered under the Securities Act of 1933, as amended, and that the
shares will contain a legend reading substantially as follows:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or transferred in the absence of such registration or an opinion of
counsel that registration is not required due to an exemption from
registration under that Act."
6. INVESTMENT INTENT. Employee acknowledges that these shares are being held for
investment purposes only and not with a view to distribution or resale. Employee
agrees not to sell or otherwise transfer such shares without registration or an
opinion of counsel that registration is not required.
7. SAFEGUARDING OF SHARES. Employee agrees that the Company will retain the
shares until they vest or are forfeited. Employee further agrees to execute an
assignment separate from certificate with a medallion signature guarantee
transferring the shares to the Company in the event of forfeiture.
8. RECEIPT OF PLAN. Employee acknowledges receipt of a copy of the Plan, and
agrees that this grant of Restricted Shares shall be subject to all of the terms
and provisions of the Plan, including any future amendments.
9. TAXES. Employee acknowledges that any federal, state or local income taxes
that may be due as a result of this grant are solely the responsibility of the
Employee, and agrees to pay any such taxes when due. If, as a result of this
grant, the Company is required to withhold any amount from the Employee for
federal, state or city income tax, FICA or Medicare Tax or other similar taxes
or fees for which withholding is required by an employer for compensation paid
to an employee, the Employee authorizes the Company to withhold, from other cash
sources due to the Employee from the Company, sufficient amounts to pay any
withholding which may be required as a result of the grant of shares.
10. NO CONTRACT OF EMPLOYMENT. This agreement does not constitute a contract of
employment, and nothing herein shall be construed as creating a contract of
employment between the Employee and the Company.
11. CONSIDERATION. It is understood that the consideration for the Shares shall
be past services through the date of issuance having a value not less than the
par value of the shares.
12. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
the Employee.
2
<PAGE> 4
IN WITNESS WHEREOF, the Company and Employee have executed this
Restricted Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By /s/ Robert J. Abrahams
-------------------------------
Robert J. Abrahams, Chairman
Compensation Committee
/s/ Mark A. Kirk
----------------------------------
Mark A. Kirk
3
<PAGE> 1
EXECUTION COPY
EXHIBIT 10.9
U.S. $20,000,000
AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of June 6, 1997,
among
STAR BANK, NATIONAL ASSOCIATION,
as Bank,
and
HMI INDUSTRIES INC.,
and
BLISS MANUFACTURING COMPANY,
as Borrowers.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
<S> <C>
1. CAPITALIZED TERMS ................................................. 2
1.1 Defined Terms .............................................. 2
1.2 Accounting Terms ........................................... 18
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS .......................... 18
2.1 Total Facility ............................................. 19
2.2 Affirmation of Existing Loans .............................. 19
2.3 Revolving Loan Facility .................................... 19
2.4 Real Estate Term Loan Facility ............................. 20
2.5 (INTENTIONALLY OMITTED] .................................... 21
2.6 Bliss Equipment Term Loan Facility ......................... 21
2.7 Special Term Loan Facility ................................. 22
2.8 (INTENTIONALLY OMITTED] .................................... 23
2.9 Letter of Credit Facility .................................. 23
2.10 Disbursement of Loans ...................................... 23
2.11 Procedure for Advancing Revolving Loans
and Issuing Letters of Credit .............................. 23
2.12 No Limitation on Liens ..................................... 24
2.13 Deficiency ................................................. 24
2.14 Drawing Under Letters of Credit to
Constitute Revolving Loans ................................. 25
2.15 Nature of Reimbursement Obligations ........................ 25
2.16 Effect of Amendment and Restatement ........................ 26
3. INTEREST CHARGES; FEES ............................................ 27
3.1 Interest on Loans .......................................... 27
3.2 Increased Costs - Capital Adequacy ......................... 27
3.3 [INTENTIONALLY OMITTED] .................................... 28
3.4 Term Loan Fee .............................................. 28
3.5 Unused Facility Fee ........................................ 28
3.6 Letter of Credit Fees ...................................... 28
3.7 Interest Rate Protection ................................... 29
3.8 Calculation of Certain Charges ............................. 29
3.9 Charging Loan Account ...................................... 29
3.10 Maximum Rate ............................................... 29
4. MONTHLY ACCOUNTINGS ............................................... 29
5. SECURITY .......................................................... 30
5.1 Security Agreement ......................................... 30
5.2 Patent Assignments ......................................... 30
5.3 [INTENTIONALLY OMITTED] .................................... 30
5.4 Mortgages .................................................. 30
5.5 [INTENTIONALLY OMITTED] .................................... 31
5.6 [INTENTIONALLY OMITTED] .................................... 31
5.7 Intercreditor Agreement .................................... 31
5.8 Guarantys .................................................. 31
5.9 Pledge Agreement ........................................... 31
</TABLE>
-i-
<PAGE> 3
6. DELIVERIES PRIOR TO DISBURSEMENT; FURTHER
ASSURANCES ...................................................... 31
7. RECEIVABLES; COLLECTION OF RECEIVABLES; DISPUTED
RECEIVABLES; PROCEEDS OF INVENTORY .............................. 32
7.1 Representations and Warranties Regarding
Receivables ............................................. 32
7.2 Disputes and Claims Regarding Receivables ............... 32
7.3 Locked Box .............................................. 33
7.4 Special Account ......................................... 33
7.5 Crediting of Remittances ................................ 35
7.6 Cost of Collection ...................................... 35
8. EXAMINATION OF COLLATERAL AND THE PREMISES;
REPORTING ....................................................... 36
8.1 Maintenance of Books and Records ........................ 36
8.2 Access and Inspection ................................... 36
8.3 Reporting Regarding Receivables ......................... 36
8.4 Reporting Regarding Inventory ........................... 37
8.5 Monthly Financial Statements ............................ 38
8.6 Annual Projections ...................................... 38
8.7 Audited Annual Financial Statements ..................... 38
8.8 Management Reports ...................................... 39
8.9 Financial Certificate ................................... 39
8.10 Public Filings .......................................... 39
8.11 Quarterly Financial Statements .......................... 39
8.12 Unaudited Annual Financial Statements ................... 40
9. WARRANTIES, REPRESENTATIONS AND COVENANTS ....................... 40
9.1 Organization, Etc ....................................... 41
9.2 Due Authorization, Validity, Etc. ....................... 41
9.3 No Violation ............................................ 41
9.4 Use of Loan Proceeds .................................... 41
9.5 Management; Ownership of Assets, Licenses,
Patents, Etc ............................................ 42
9.6 Indebtedness ............................................ 42
9.7 Title to Property; No Liens ............................. 42
9.8 Restrictions; Labor Disputes; Labor
Contracts, Etc .......................................... 42
9.9 No Violation of Law; Hazardous Materials ................ 43
9.10 Absence of Default ...................................... 44
9.11 Accuracy of Financials; No Material
Changes ................................................. 44
9.12 Pension Plans ........................................... 44
9.13 Taxes and Other Charges ................................. 45
9.14 No Litigation ........................................... 45
9.15 No Brokerage Fee ........................................ 45
9.16 Affiliates .............................................. 45
9.17 Capitalization; Warrants, Etc ........................... 46
9.18 Noncompetition Agreements ............................... 46
9.19 Deposit and Other Accounts .............................. 46
9.20 Solvency ................................................ 46
9.21 Full Disclosure ......................................... 46
-ii-
<PAGE> 4
9.22 Casualties .............................................. 47
9.23 Leases .................................................. 47
9.24 Insurance Policies ...................................... 47
9.25 Consents ................................................ 47
10. COVENANTS .......................................................... 48
10.1 Payment of Certain Expenses ............................. 48
10.2 Notice of Litigation .................................... 48
10.3 Notice of ERISA Events .................................. 48
10.4 Notice of Labor Disputes ................................ 48
10.5 Compliance with Laws, Etc ............................... 49
10.6 Notice of Violations of Law, Tax
Assessments ............................................. 49
10.7 Compliance with Other Agreements ........................ 49
10.8 Notice of Violations of Certain
Agreements .............................................. 49
10.9 Notice of Customer Defaults ............................. 49
10.10 Taxes and Charges ....................................... 50
10.11 Indebtedness; Guaranties ................................ 50
10.12 Title to Property; No Liens ............................. 51
10.13 Restrictions; Labor Disputes, Etc ....................... 51
10.14 Pension Plans ........................................... 51
10.15 Solvency ................................................ 52
10.16 Property Insurance ...................................... 52
10.17 Liability Insurance ..................................... 52
10.18 Deposit Accounts ........................................ 53
10.19 Merger, Etc ............................................. 53
10.20 Investments ............................................ 53
10.21 Dividends ............................................... 53
10.22 Redemption of Stock ..................................... 54
10.23 Stock Rights ........................................... 54
10.24 Capital Structure, Etc .................................. 54
10.25 Affiliate Transactions .................................. 54
10.26 [INTENTIONALLY OMITTED] ................................ 54
10.27 Sale of Assets .......................................... 54
10.28 Consignments, Etc ....................................... 56
10.29 Change in Management or Business ........................ 56
10.30 Claims Against Collateral or Premises ................... 56
10.31 Judgments ............................................... 57
10.32 Stock Ownership ........................................ 57
10.33 Financial Covenants .................................... 57
10.34 Change of Officers; Good Standing
Certificate ............................................ 57
10.35 HRS Sale; HRS Proceeds .................................. 57
10.36 Amendments to Note Agreement ............................ 58
10.37 Amendments to Pty Indebtedness .......................... 58
10.38 Fiscal Year ............................................. 59
10.39 Payment of Outstanding Fees and Expenses ................ 59
-iii-
<PAGE> 5
11. EFFECTIVE DATE; TERMINATION .................................. 59
11.1 Effective Date and Termination Date .................. 59
11.2 Recourse to Security ................................. 59
11.3 Acceleration Upon Termination ........................ 59
11.4 Borrowers Remains Liable ............................. 59
12. EVENTS OF DEFAULT ............................................ 59
13. BANK'S RIGHTS AND REMEDIES .................................. 62
13.1 Acceleration, Etc .................................... 62
13.2 Fees and Expenses .................................... 63
13.3 Actions in Respect of the Letters of
Credit ............................................... 63
13.4 Letter of Credit Collateral Account .................. 63
14. WAIVER; AMENDMENTS; SUCCESSORS AND ASSIGNS ................... 65
14.1 Release of Collateral and Premises ................... 65
14.2 Waivers and Amendments in Writing .................... 66
14.3 Assignment ........................................... 66
15. MISCELLANEOUS ................................................... 66
15.1 Severability ......................................... 66
15.2 Governing Law ........................................ 66
15.3 Waiver of Jurisdiction ............................... 66
15.4 Survival of Representations and
Warranties ........................................... 67
15.5 Evidence of Loans .................................... 67
15.6 Bank's Ability Regarding Collateral and
Premises ............................................. 67
15.7 Application of Payments, Etc ......................... 68
15.8 Fees and Expenses .................................... 68
15.9 Notices .............................................. 69
15.10 Indemnification ...................................... 69
15.11 Equitable Relief ..................................... 71
15.12 Entire Agreement ..................................... 71
15.13 Headings ............................................. 71
15.14 Waiver of Jury Trial ................................. 71
15.15 Revocation of Appointment of Parent as
Agent ................................................ 71
15.16 No Strict Construction ............................... 71
15.17 Confession of Judgment ............................... 71
-IV-
<PAGE> 6
EXHIBITS
EXHIBIT A - Amended and Restated Security
Agreement
EXHIBIT B - Canadian Security Agreements
EXHIBIT C-1 - Contingent Patent, Trademark and
License Assignment (Parent)
EXHIBIT C-2 - Contingent Patent, Trademark and
License Assignment (Bliss)
EXHIBIT D - [INTENTIONALLY OMITTED]
EXHIBIT E-1 - Open-End Mortgage and Security
Agreement (Newton Falls-Trumbull)
EXHIBIT E-2 - Open-End Mortgage and Security
Agreement (Bliss-Trumbull)
EXHIBIT E-3 - Open-End Mortgage and Security
Agreement (Bliss -Mahoning)
EXHIBIT E-4 - Amendments to Open-End Mortgages
EXHIBIT F - Form of Landlord Waiver
EXHIBIT G - (INTENTIONALLY OMITTED]
EXHIBIT H - [INTENTIONALLY OMITTED]
EXHIBIT I-1 - Canadian Guaranty
EXHIBIT I-2 - Guaranty
EXHIBIT J - Pledge and Security Agreement
EXHIBIT K - Deliveries Prior to Effectiveness
EXHIBIT L - Borrowing Base Certificate
EXHIBIT M - Financial Covenants
EXHIBIT N - Chief Financial Officer's Certificate
EXHIBIT 0 - Certificate of Secretary
EXHIBIT P - Signature Authorization Letter
EXHIBIT Q - Opinion of Borrower's and Guarantor
Subsidiaries' Counsel
EXHIBIT R - Accountant's Access Letter
EXHIBIT S - Accountant's Representation Letter
EXHIBIT T - Certificate of Chief Financial
Officer
EXHIBIT U - [INTENTIONALLY OMITTED]
EXHIBIT V - Evidence of Insurance
EXHIBIT W - [INTENTIONALLY OMITTED]
EXHIBIT X - Opinion of Ontario Local Counsel
ANNEXES
ANNEX 1 - Existing Letters of Credit
ANNEX 2 - First Chicago Letter of Credit
-v-
<PAGE> 7
SCHEDULES
Schedule 1 - Incorporation and Qualification
Jurisdictions
Schedule 2 - Licenses, Patents, Trademarks, Etc.
Schedule 3 - Indebtedness
Schedule 4 - Permitted Liens
Schedule 5 - Restrictions, Orders, Labor
Contracts, Etc.
Schedule 6 - Violations of Law
Schedule 7 - Pension Plan Liability
Schedule 8 - Litigation
Schedule 9 - Affiliates
Schedule 10 - Capitalization
Schedule 11 - Deposit and Other Accounts
Schedule 12 - Leases
Schedule 13 - Insurance Policies
Schedule 14 - Material Adverse Changes
Schedule 15 - Taxes and Other Charges
-VI-
<PAGE> 8
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") between
STAR BANK, NATIONAL ASSOCIATION, a national banking association ("Bank"), HMI
INDUSTRIES INC., a Delaware corporation ("Parent"), and BLISS MANUFACTURING
COMPANY, an Ohio corporation ("Bliss") (Parent and Bliss being sometimes
hereinafter collectively referred to as the "Borrowers" and individually as a
"Borrower"), covering the terms upon which Bank will make loans and/or advances
to Borrowers, is as follows:
WITNESSETH:
WHEREAS, HMI Incorporated, an Ontario corporation ("HMI Inc."), Newton
Falls Holding Company, a Delaware corporation ("Newton"), Tube-Fab Ltd., an
Ontario corporation ("Tube-Fab"), Tube Form, Inc., an Ohio corporation ("The
Form"), Health-Mor International, Inc., a U.S. Virgin Islands corporation
("International"), Health-Mor Acceptance Corporation, a Delaware corporation
("Acceptance"), HMI Acceptance Corporation, an Ontario corporation ("HMI
Acceptance"), and Health-Mor Acceptance Pty. Ltd., an Australian corporation
("Pty") (HMI Inc., Newton, Tube-Fab, Tube Form, International, Acceptance, HMI
Acceptance, Pty and Health-Mor personal Care Corporation, a Delaware corporation
("Personal Care") being sometimes hereinafter collectively referred to as the
"Guarantor Subsidiaries" and individually as a "Guarantor Subsidiary"),
Borrowers and Bank entered into that certain Credit Agreement, dated as of
August 14, 1996, as amended by that certain First Amendment to Credit Agreement,
dated as of November 15, 1996, and as further amended by that certain Second
Amendment to Credit Agreement, dated as of December 19, 1996, that certain Third
Amendment to Credit Agreement, dated as of March 7, 1997, and that certain
Fourth Amendment to Credit Agreement, dated as of April 7, 1997 (collectively,
the "Existing Credit Agreement");
WHEREAS, as of the Effective Date (as hereinafter defined), the
aggregate (a) outstanding principal amount of all loans and advances under the
Existing Credit Agreement is Nineteen Million One Hundred Nintey-Three Thousand
Dollars ($19,193,000) (the "Existing Loans") and (b) undrawn face amount of all
letters of credit issued under the Existing Credit Agreement (the "Existing
Letters Credit"), each of which is listed on ANNEX 1 attached hereto, is Two
Hundred Thousand Dollars ($200,000);
WHEREAS, pursuant to the Existing Credit Agreement, (a) certain of the
Existing Loans were advanced
-1-
<PAGE> 9
directly to Parent by Bank and were used by Parent for Parent's working capital
needs, and (b) certain of the Existing Loans were advanced by Bank to Parent as
agent for Bliss and used by Bliss for Bliss' working capital needs;
WHEREAS, under the Existing Credit Agreement, all of the Existing
Letters of Credit were issued for the account of Parent;
WHEREAS, all of Parent's and Bliss' obligations with respect to the
Existing Loans and the Existing Letters of Credit are guaranteed, jointly and
severally, by the Borrowers and the Guarantor Subsidiaries (other than Personal
Care) pursuant to the terms of the Existing Credit Agreement and various other
agreements and documents executed in connection therewith ;
WHEREAS, Borrowers and the Guarantor Subsidiaries desire to amend and
restate the Existing Credit Agreement in its entirety to, among other things,
(a) restructure the Existing Loans into revolving loans and term loans, (b)
provide revolving loan facilities to Parent and Bliss, (c) amend the terms of
certain covenants contained in the Existing Credit Agreement, and (d) provide
for certain other matters, all as herein provided; and
WHEREAS, Bank is willing, on the terms and conditions set forth herein,
to amend and restate the Existing Credit Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the Guarantor Subsidiaries, by their execution and delivery of
the Consent and Agreement attached hereto, and Borrowers agree that, from and
after the Effective Date (as hereinafter defined), the Existing Credit Agreement
be, and the same hereby is, amended and restated in its entirety to read as set
forth above and as follows:
1. CAPITALIZED TERMS. Certain capitalized terms used herein are defined in this
SECTION 1.
1.1 DEFINED TERMS. Whenever the following terms (whether or not
underscored) are used herein, they shall be defined as follows (such meanings to
be equally applicable to the singular and plural forms thereof) :
"AFFILIATE" of any Person shall mean (a) any Person who or which is a
director, manager (to the extent such Person is a limited liability company),
managing general partner or officer of such Person, or (b) any other Person who
or which, directly or indirectly, either individually or together with members
of his or her immediate family (as
-2-
<PAGE> 10
defined in Item 404 of Regulation S-K ("Item 404") promulgated pursuant to the
Securities Act of 1933, as amended), beneficially owns ten percent (10%) or more
of the voting stock of, or partnership interests, membership interests or other
similar equity interests in, such Person, or (c) any member of the immediate
family (as defined in Item 404), of such Person or of any Person described in
clause (a) or (b) above, or (d) any other Person in which any Person described
in clause (a), (b) or (c) above owns, directly or indirectly, a fifty percent
(50%) or greater equity interest. Without limiting the foregoing, for purposes
of this Agreement, (w) all of each Borrower's and each Guarantor Subsidiary's
members, officers, shareholders, directors, parent corpora- tions, subsidiary
corporations, joint venturers and partners, (x) each member of the immediate
family (as defined in Item 404) of the Persons described in clause (w), (y) each
Person as to which any of the Persons described in clause (w) or any member of
the immediate family (as defined in Item 404) of any such Persons is a director,
manager (to the extent such Person is a limited liability company), managing
general partner or officer, and (z) each Person in which any of the Persons
described in clause (w) or any member of the immediate family (as defined in
Item 404) of any such Persons owns, directly or indirectly, a ten percent (10%)
or greater equity interest, shall at all times be deemed to be an Affiliate of
each Borrower and each Guarantor Subsidiary.
"AGGREGATE BORROWING BASE" shall mean, as at any time, an amount equal
to the sum of the Individual Borrower Revolving Loan Borrowing Bases then in
effect with respect to Borrowers .
"AGGREGATE LETTER OF CREDIT AVAILABILITY" shall mean, as at any time, an
amount equal to the lesser of (a) the difference of Three Million Dollars
($3,000,000) less the aggregate Letter of Credit Face Amount for all Letters of
Credit then outstanding, or (b) the Aggregate Revolving Loan Availability .
"AGGREGATE REVOLVING LOAN AVAILABILITY" shall mean, as at any time, an
amount equal to the difference of:
(i) the lesser of (a) Thirteen Million Dollars ($13,000,000), or (b)
an amount equal to the then Aggregate Borrowing Base ;
LESS
(ii) the then aggregate outstanding principal amount of all Revolving
Loans.
-3-
<PAGE> 11
"APPLICABLE RATE" shall have the meaning ascribed thereto in SECTION
3.10 hereof.
"ATTORNEYS' FEES" shall mean the reasonable fees for services (and costs
and expenses related thereto) of all attorneys (and all paralegals and other
staff employed by such attorneys) employed by Bank from time to time in
connection with the negotiation, preparation, closing, administration,
monitoring and enforcement of this Agreement or any other Loan Document or of
any amendment, amendment and restatement, supplement or other modification of
this Agreement or any other Loan Document, any transaction contemplated by this
Agreement or any other Loan Document, any refinancing or restructuring of the
credit arrangements provided under this Agreement or any other Loan Document, or
the protection, preservation, collection, leasing, selling, taking possession,
or liquidation of any of the Collateral or the Premises.
"AVAILABILITY DEFICIENCY" shall mean the occurrence, as at any date,
of a condition in which (i) the sum of (a) the then aggregate outstanding
principal amount of the Revolving Loans PLUS (b) the then aggregate outstanding
principal amount of the Term Loans PLUS (c) the aggregate Letter of Credit Face
Amount for all Letters of Credit then outstanding PLUS (d) the Reserve Amount
then in effect for each Borrower, exceeds (ii) the difference of (a) Twenty
Million Dollars ($20,000,000) LESS (b) the greater of (A) the aggregate amount
of the amortization payments of the Term Loans (including any mandatory payments
of the Special Term Loan) required to have been made by Borrowers on or prior to
such date or (B) the aggregate principal amount of the Term Loans repaid by the
Borrowers as of such date.
"BLISS EQUIPMENT TERM LOAN" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"BLISS EQUIPMENT TERM LOAN FACILITY" shall have the meaning ascribed
thereto in SECTION 2.1 hereof.
"BLISS LOCKED BOX" shall have the meaning ascribed thereto in SECTION
7.3 hereof.
"BLISS SPECIAL ACCOUNT" shall have the meaning ascribed thereto in
SECTION 7.4 hereof.
"BLISS' EXISTING LOANS" shall have the meaning ascribed thereto in
SECTION 2.2 hereof.
"BORROWING BASE CERTIFICATE" shall have the meaning ascribed thereto in
SECTION 8.3(b) hereof.
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"BORROWING BASE DEFICIENCY" shall mean any failure of the Aggregate
Revolving Loan Availability to be greater than or equal to zero (0) dollars.
"BUSINESS DAY" shall mean any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed in
Cincinnati, Ohio.
"CANADIAN GUARANTY" shall have the meaning ascribed thereto in SECTION
5.8 hereof.
"CANADIAN SECURITY AGREEMENTS" shall have the meaning ascribed thereto
in SECTION 5.1 hereof.
"CASH COLLATERALIZATION NOTICE" shall have the meaning ascribed thereto
in SECTION 7.3 hereof.
"CASH EQUIVALENTS" shall mean (a) securities with maturities of six (6)
months or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b) certificates
of deposit with maturities of six (6) months or less from the date of
acquisition of, or money market accounts maintained with, Bank, any Affiliate of
Bank, or any other domestic commercial bank having capital and surplus in excess
of One Hundred Million Dollars ($100,000,000) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, Bank, and (c) commercial paper of a domestic issuer rated at least
either A-1 by Standard & Poor's Corporation (or its successor) or P-1 by
Moody's Investors Service, Inc. (or its successor) with maturities of six (6)
months or less from the date of acquisition .
"CASUALTY LOSS" shall mean any of the following events with respect to
any item of Collateral or any portion of the Premises: (i) the actual total loss
of the item or such loss as shall render repair of the item uneconomical, (ii)
the item shall become lost, stolen, destroyed, damaged beyond repair or
permanently rendered unfit for use for any reason whatsoever, or (iii) the
condemnation or taking, by exercise of the power of eminent domain or otherwise,
of such item or confiscation of such item, or of so much of any such item as to
render impractical or unreasonable the use of such item for substantially the
same purposes for which such item was used immediately prior to such
condemnation, taking or confiscation .
"CHARGES" shall have the meaning ascribed thereto in SECTION 3.10
hereof.
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"CLEVELAND MORTGAGE" shall mean that certain Open-End Mortgage of Real
Property, Security Agreement of Personal Property and Assignment of Rents and
Profits (Commercial Real Estate), dated as of March 7, 1996, executed by the
Parent in favor of the Bank, and covering the Cleveland Premises, as amended by
that certain First Amendment to Open- End Mortgage, dated June 6, 1997 and as
the same may be further amended, amended and restated, supplemented or otherwise
modified from time to time.
"CLEVELAND PREMISES" shall mean the real property and improvements
thereon located at 3631 Perkins Avenue, Cleveland, Ohio 44114.
"CLEVELAND REAL ESTATE NOTE" shall mean that certain Amended and
Restated Cognovit Promissory Note (Commercial Real Estate), dated as of June 6,
1997, executed by the Parent and certain other parties in favor of the Bank, in
the original principal amount of Two Million Two Hundred Seventy Thousand
Dollars ($2,270,000), as the same may be amended, amended and restated,
replaced, renewed, supplemented or otherwise modified from time to time.
"COLLATERAL", "GENERAL INTANGIBLES", "EQUIPMENT", "INVENTORY" and
"RECEIVABLES" shall have the meanings ascribed thereto in the Security Agreement
and the Canadian Security Agreements. The term "COLLATERAL" shall include all of
the collateral described in the Canadian Security Agreements.
"CONTROLLED GROUP" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with either Borrower or any Guarantor Subsidiary,
are treated as a single employer under Section 414 (b) or 414 (c) of the
Internal Revenue Code, as amended, or Section 4001 of ERISA, as amended.
"DEFICIENCY" shall mean (collectively and individually) an Availability
Deficiency, a Borrowing Base Deficiency, an Individual Borrower Borrowing Base
Deficiency, a Letter of Credit Deficiency and a Discretionary Base Deficiency .
"DISCRETIONARY BASE DEFICIENCY" shall mean any Borrowing Base Deficiency
or Individual Borrower Borrowing Base Deficiency directly resulting from and
occurring immediately following the exercise by Bank of its discretion in
changing its policy, criteria or methodology regarding its credit and collateral
considerations in determining whether any of either Borrower's Receivables and
Inventory will be considered by Bank to be Eligible Receivables and Eligible
Inventory (other than any such change made by Bank after
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review of the results of the collateral survey to be conducted by Barber &
Mooney promptly after the Effective Date) .
"EFFECTIVE DATE" shall mean June 6, 1997.
"ELIGIBLE INVENTORY" shall mean "Inventory" of a Borrower consisting of
raw materials (consisting of component parts with respect to Parent and steel
with respect to Bliss) and finished goods, meeting all applicable
specifications, which Bank, in its sole discretion, deems to be Eligible
Inventory, based on such credit and collateral considerations as Bank may deem
appropriate. Without limitation on the foregoing, the following shall not be
deemed Eligible Inventory: Inventory of a Borrower (i) that is not readily
saleable or usabre in such Borrower's business, or that is otherwise slow-
moving or obsolete (including without limitation Inventory for which reserves
for obsolescence have been provided for in the financial statements or for which
obsolescence reserves are anticipated), in each case as determined by Bank in
its sole discretion, (ii) that is located outside the United States, (iii) that
is not subject to the first priority security interest of Bank, (iv) that is
located on premises not owned by such Borrower unless the owner and/or operator
of such premises shall have executed and delivered to Bank a Landlord Waiver, or
a warehouseman or other similar waiver in form and substance satisfactory to
Bank, in its sole discretion, (v) that is subject to any trademark, trade name
or licensing arrangement, or any law, rule or regulation, that could limit or
impair the ability of Bank to promptly exercise any of its rights with respect
thereto, (vi) with respect to which insurance proceeds, if any, are not payable
to Bank as mortgagee or loss payee, (vii) that has been in existence for more
than one (1) year, (viii) that is in the possession of any processor other than
such Borrower unless such processor shall have executed and delivered to Bank a
processor consignment agreement or other similar agreement in form and substance
satisfactory to Bank, in its sole discretion, (ix) that is in transit, (x) with
respect to which a Casualty Loss has been incurred, (xi) that consists of
general supplies or maintenance supplies and packaging, and fuel, (xii) that is
work-in-process "Inventory", or (xiii) as to which Bank, in its sole discretion,
deems to be ineligible based on any other credit and/or collateral
considerations as Bank deems appropriate.
"ELIGIBLE RECEIVABLES" shall mean those "Receivables" of a Borrower
which (i) arise out of sales in the ordinary course of such Borrower's business
to a Person who is not an Affiliate of such Borrower or otherwise controlled by
such Borrower or by an Affiliate of such Borrower, (ii) have terms of sale which
are ordinary terms of such Borrower and require payment in full within not more
than sixty (60) days from the date of invoice, (iii) do not violate any warranty
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with respect to Eligible Receivables set forth in SECTION 7.1 of this Agreement
and (iv) are not more than ninety (90) days from the date of invoice thereof;
PROVIDED, HOWEVER, that no Receivable of a Borrower shall be an Eligible
Receivable if (a) the account debtor or any Affiliate of the account debtor has
filed or had filed against it a petition in bankruptcy or for reorganization,
made an assignment for the benefit of creditors, or failed, suspended business
operations, become insolvent or had or suffered a receiver or a trustee to be
appointed for a significant portion of its assets or affairs, (b) the account
debtor is also a supplier to or creditor of such Borrower, unless such account
debtor executes and delivers a Waiver of Rights to Counterclaim, Setoff and
Defenses, in a form acceptable to Bank in its sole discretion, in favor of Bank,
or unless the account debtor is General Motors Corporation or Dana Corporation,
(c) the sale is to an account debtor outside the United States, unless the sale
is (i) on a letter of credit, which is in form and substance satisfactory to
Bank, in its sole discretion, which has been issued by a financial institution
satisfactory to Bank, in its sole discretion, and which has been confirmed by
Bank, (ii) on acceptance, and/or (iii) on other terms acceptable to Bank, in its
sole discretion, (d) twenty-five percent (25%) or more of the Receivables from
the account debtor and its Affiliates are ineligible for any reason, (e) the
account debtor is the federal or any state government or any agency or
department thereof, unless with respect to such Receivable the Assignment of
Claims Act or comparable state statute or regulation has been complied with, (f)
a Receivable to the extent it consists of finance charges, interest on
delinquent accounts, proceeds of consigned Inventory, employee or officer
Receivables, service charges, or debit memoranda, (g) the Receivable arises from
a contract which contains a prohibition of assignment of such Receivable and/or
the proceeds thereof, (h) the Receivable is evidenced by a promissory note or
chattel paper, (i) the Receivable is generated by a sale on approval, a bill and
hold sale, a sale on consignment, or other type of conditional sale, (j) the
Receivable is not subject to the first priority security interest of Bank, (k)
the account debtor is located in New Jersey, unless such Borrower shall have
properly qualified to do business in New Jersey or shall have filed a Notice of
Business Activities Report with the New Jersey Division of Taxation for the then
current year, (1) the account debtor is located in Minnesota, unless such
Borrower shall have properly qualified to do business in Minnesota shall have
filed a Notice of Business Activities Report with the Minnesota Division of
Taxation for the then current year, (m) the account debtor is located in any
other state (including, but not limited to, Indiana) which requires that such
Borrower, in order to sue any Person in such state's courts, either (i) qualify
to do business in such state or (ii) file a report with the taxation division of
such state for the then current year, unless such Borrower has fulfilled
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either of such requirements for the then current year, (n) the Receivable is a
progress billing, (o) the account debtor has sold or is selling substantially
all of its assets, (p) the account debtor is incompetent or has died, (q) Bank
or such Borrower has received a check for payment of such Receivable which has
been returned uncollected, (r) the Receivable arises from an invoice issued by
such Borrower prior to the delivery by such Borrower of the goods covered by
such invoice to the applicable account debtor, (s) the account debtor is
disputing any Receivable or Receivables owed by that account debtor to the
applicable Borrower, but only to the extent that the aggregate amount in dispute
for all of such account debtor's Receivables which have been in dispute for more
than thirty (30) days equals or exceeds Two Hundred Fifty Thousand Dollars
($250,000), or (t) Bank, in its sole discretion, believes that the collection of
such Receivable is insecure, or that such Receivable may not be paid by reason
of the account debtor's financial inability to pay, or deems such Receivable to
be ineligible based on such other credit and/or collateral considerations as
Bank deems appropriate. In addition, and without limitation of the foregoing, if
any Receivables owed by a particular account debtor cause the aggregate amount
of Eligible Receivables owed by that account debtor to exceed thirty-five
percent (35%) of the aggregate amount of a Borrower's Eligible Receivables, then
such Receivables shall not be Eligible Receivables to the extent of such excess.
"ENVIRONMENTAL COMPLIANCE RESERVE" shall mean all reserves which, in the
reasonable discretion of Bank, shall be established from time to time for
amounts that are required to be expended in order for a Borrower or a Guarantor
Subsidiary and each of such Borrower's or Guarantor Subsidiary's operations and
property to comply with Environmental Laws or in order to correct any violation
by such Borrower or Guarantor Subsidiary or such Borrower' 5 or Guarantor
Subsidiary's operations or property of Environmental Laws.
"ENVIRONMENTAL LAWS" shall mean any and all statutes, laws, regulations,
ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions relating to
the environmental or the release of any materials into the environment
(including, without limitation, Hazardous Materials) .
"EQUIPMENT LEASE GUARANTIES" shall mean, collectively, that certain (i)
Amended and Restated Business Guaranty, dated June 6, 1997, executed by Tube
Form, Tube-Fab, Bliss, Newton Falls, Personal Care, HMI Inc., International,
Acceptance, HMI Acceptance, and Pty in favor of Bank, in a principal amount not
to exceed $437,652, (ii) Amended and Restated Business Guaranty, dated June 6,
1997, executed by Parent in favor of Bank, in a principal amount not to exceed
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$351,362, (iii) Amended and Restated Business Guaranty, dated June 6, 1997,
executed by Parent in favor of Bank, in a principal amount not to exceed
$145,000, (iv) Amended and Restated Business Guaranty, dated June 6, 1997,
executed by Parent in favor of Bank, in a principal amount not to exceed
$446,000, and (v) Amended and Restated Business Guaranty, dated June 6, 1997,
executed by Parent in favor of Bank, in a principal amount not to exceed
$815,470.
"EQUIPMENT LEASES" shall mean, collectively, that certain (i) Master
Lease Agreement, dated June 2, 1993, Lease No. 698, executed by Bliss in favor
of Bank, together with all Acceptance Supplements now existing or hereafter
executed and delivered by Bliss, as amended by that certain Amendment No. 1 to
Master Equipment Lease, dated June 6, 1997, and (ii) Master Lease Agreement,
dated December 20, 1995, Lease No. 1060, executed by Parent in favor of Bank,
together with all Acceptance Supplements now existing or hereafter executed and
delivered by Parent, as amended by that certain Amendment No. 1 to Master
Equipment Lease, dated June 6, 1997.
"ERISA" shall have the meaning ascribed thereto in SECTION 9.12 hereof.
"EVENT OF DEFAULT" shall have the meaning ascribed thereto in SECTION 12
hereof.
"EXISTING CREDIT AGREEMENT" shall have the meaning ascribed thereto in
the Recitals hereof.
"EXISTING GUARANTY OBLIGATIONS" shall have the meaning ascribed thereto
in SECTION 2.16 hereof.
"EXISTING LETTER OF CREDIT OBLIGATIONS" shall mean the sum of (i) the
aggregate Letter of Credit Face Amount for all Existing Letters of Credit then
outstanding PLUS (ii) the aggregate amount of each Borrower's unpaid obligations
under Existing Credit Agreement and the Existing Letter of Credit Related
Documents in respect of the Existing Letters of Credit.
"EXISTING LETTER OF CREDIT RELATED DOCUMENTS" shall mean any agreements
or instruments relating to an Existing Letter of Credit.
"EXISTING LETTERS OF CREDIT" shall have the meaning ascribed thereto in
the Recitals hereof.
"EXISTING LOANS" shall have the meaning ascribed thereto in the Recitals
hereof.
"FINANCIAL COVENANTS" shall have the meaning ascribed thereto in
SECTION 10.33 hereof.
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<PAGE> 18
"FINANCIALS" shall mean those financial statements attached to EXHIBIT
T attached hereto and those financial statements delivered from time to time
pursuant to SECTION 8.5, SECTION 8.6, SECTION 8.7, SECTION 8.11 and SECTION 8.12
hereof.
"FIRST CHICAGO LETTER OF CREDIT" shall mean that certain Existing Letter
of Credit (and all documentation relating thereto) issued for the Account of
Parent for the benefit of First Chicago Australia Ltd. which secures certain
obligations owing by Pty to The First National Bank of Chicago, copies of which
are attached hereto as ANNEX 2.
"GUARANTY" shall have the meaning ascribed thereto in SECTION 5.8
hereof.
"HAZARDOUS MATERIAL" shall have the meaning ascribed thereto in SECTION
9.9 hereof.
"HRS PROCEEDS" shall mean the proceeds (at least $2,000,000 of which
shall be in cash) of HRS Sale.
"HRS SALE" shall mean the sale by Parent and HMI Inc. of all of the
assets of the Household Rental Systems division of HMI Inc.
"INDEBTEDNESS" shall mean all of any Borrower's or any Guarantor
Subsidiary's obligations and liabilities to any "Person" (as defined below),
including, without limitation, all debts, claims and indebtedness, contingent,
fixed or otherwise, heretofore, now and/or from time to time hereafter owing,
due or payable, however evidenced, created, incurred, acquired or owing and
however arising, whether under written or oral agreement, operation of law or
otherwise. Indebtedness includes, without limiting the foregoing, (i) the
"Obligations" (as defined below), (ii) obligations and liabilities of any Person
secured by a lien, claim, encumbrance or security interest upon property owned
by any Borrower or any Guarantor Subsidiary, even though such Borrower or
Guarantor Subsidiary has not assumed or become liable for the payment therefor
and (iii) obligations or liabilities created or arising under any lease of real
or personal property, conditional sales contract or other title retention
agreement with respect to property used and/or acquired by any Borrower or any
Guarantor Subsidiary, even though the rights and remedies of the lessor, seller
and/or lender thereunder are limited to repossession of such property .
"INDEMNIFIED LIABILITIES" shall have the meaning ascribed thereto in
SECTION 15.10 hereof.
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"INDEMNIFIED PARTY" shall have the meaning ascribed thereto in SECTION
15.10 hereof.
"INDIVIDUAL BORROWER BORROWING BASE DEFICIENCY" shall mean, with respect
to each Borrower, any failure of the Individual Borrower Revolving Loan
Availability applicable to such Borrower to be greater than or equal to zero (0)
dollars.
"INDIVIDUAL BORROWER REVOLVING LOAN AVAILABILITY" shall mean, as at any
time, an amount equal to the difference of (i) the Individual Borrower Revolving
Loan Borrowing Base then in effect and applicable to each Borrower, less (ii)
the then aggregate outstanding principal amount of all Revolving Loans to such
Borrower.
"INDIVIDUAL BORROWER REVOLVING LOAN BORROWING BASE" shall mean, as at
any time, with respect to each Borrower, an amount equal to the sum of (i) up to
eighty percent (80%) of the amount of such Borrower's Eligible Receivables, PLUS
(ii) up to fifty percent (50%) of the value of such Borrower's Eligible
Inventory, MINUS (iii) any Reserve Amount then in effect and applicable to such
Borrower.
"INDIVIDUAL LETTER OF CREDIT AVAILABILITY" shall mean, as at any time,
with respect to a Borrower, an amount equal to the lesser of (a) the difference
of Three Million Dollars ($3,000,000) LESS the aggregate Letter of Credit Face
Amount for all Letters of Credit then outstanding, or (b) such Borrower's
Individual Borrower Revolving Loan Availability.
"INTERCREDITOR AGREEMENT" shall have the meaning ascribed thereto in
SECTION 5.7 hereof.
"KIRK FOLEY GUARANTY" shall mean that certain Amended and Restated
Business Guaranty, dated as of June 6, 1997, executed by the Parent in favor of
the Bank, guarantying, among other things, the prompt payment when due of all
amounts under the Kirk Foley Note, as the same may be amended, amended and
restated, replaced, renewed, supplemented or otherwise modified from time to
time.
"KIRK FOLEY NOTE" shall mean that certain Amended and Restated
Promissory Note, dated as of June 6, 1997, executed by Kirk Foley in favor of
the Bank, in the original principal amount of Five Hundred Eighteen Thousand
Seven Hundred Fifty Dollars ($518,750), as the same may be amended, amended and
restated, replaced, renewed, supplemented or otherwise modified from time to
time.
"LANDLORD WAIVER" shall mean a Landlord Waiver substantially in the form
of EXHIBIT F attached hereto.
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"LEASED PREMISES" shall mean, collectively and individually, any real
property and improvements thereon which is leased by Borrowers and/or the
Guarantor Subsidiaries.
"LETTER OF CREDIT COLLATERAL ACCOUNT" has the meaning specified in
SECTION 13.3 hereof.
"LETTER OF CREDIT DEFICIENCY" shall mean a condition whereby the
Individual Letter of Credit Availability for either Borrower or the Aggregate
Letter of Credit Availability is less than zero (0) dollars.
"LETTER OF CREDIT FACE AMOUNT" of any Letter of Credit (or Existing
Letter of Credit, as the context may require) shall mean, at any time, the face
amount of such Letter of Credit (or Existing Letter of Credit, as the context
may require), after giving effect to all drawings paid thereunder and other
reductions of such face amount and to all reinstatements of such face amount
effected, pursuant to the terms of such Letter of Credit (or Existing Letter of
Credit, as the context may require), prior to such time.
"LETTER OF CREDIT FACILITY" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"LETTER OF CREDIT OBLIGATIONS" shall mean, at any time, the sum of (i)
the aggregate Letter of Credit Face Amount for all Letters of Credit then
outstanding PLUS (ii) the aggregate amount of each Borrower's unpaid obligations
under this Agreement and the Letter of Credit Related Documents in respect of
the Letters of Credit.
"LETTER OF CREDIT RELATED DOCUMENTS" shall mean any agreements or
instruments relating to a Letter of Credit.
"LETTERS OF CREDIT" shall have the meaning ascribed thereto in SECTION
2.9 hereof.
"LOANS" shall have the meaning ascribed thereto in SECTION 2.1 hereof.
"LOAN DOCUMENTS" shall mean this Agreement, the Equipment Lease
Guaranties, the Kirk Foley Guaranty, the Cleveland Real Estate Note, the
Cleveland Mortgage, the Equipment Leases, the First Chicago Letter of Credit,
the Canadian Security Agreements, the Canadian Guaranty and all other documents,
instruments and agreements executed in connection herewith and therewith and
previously executed in connection with the Existing Credit Agreement to the
extent not amended and restated in connection with this Agreement or otherwise
expressly superseded by any documents, instruments or agreements executed in
connection with this Agreement (including, but not limited to, the Existing
Letters of Credit
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<PAGE> 21
and the Existing Letter of Credit Related Documents), all as the same may be
amended, amended and restated, replaced, renewed, supplemented or otherwise
modified from time to time.
"LOCKED BOXES" shall mean, collectively, the Bliss Locked Box and the
Parent Locked Box, and "Locked Box" shall mean either the Bliss Locked Box of
the Parent Locked Box, as the case may be.
"MATERIAL ADVERSE EFFECT" shall mean the occurrence or existence of a
material adverse effect on: (a) the business, property, assets, operations or
condition, financial or otherwise, of the Borrower and the Guarantor
Subsidiaries, taken as a whole; (b) the ability of the Borrowers or the
Guarantor Subsidiaries, taken as a whole, to perform any of their payment or
other Obligations under this Agreement or any of the other Loan Documents to
which it is a party; (c) the legality, validity or enforceability of a
Borrower's or any Guarantor Subsidiary's Obligations under this Agreement or any
of the other Loan Documents to which it is a party; or (d) the ability of Bank
to exercise its rights and remedies with respect to, or otherwise to realize
upon any of the Collateral, the Premises or any other security for the
Obligations .
"MAXIMUM RATE" shall have the meaning ascribed thereto in SECTION 3.10
hereof.
"MORTGAGES" shall have the meaning ascribed thereto in SECTION 5.4
hereof.
"MORTGAGED PREMISES" shall have the meaning ascribed thereto in SECTION
5.4 hereof.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 4001(a)
(3) of ERISA.
"NOTE AGREEMENT" shall mean that certain Note Purchase Agreement, dated
as of November 16, 1990, between the Noteholders and the Parent, as in effect on
the Effective Date.
"NOTEHOLDERS" shall mean, collectively, Reliastar Life Insurance Company
(f/k/a Northwestern National Life Insurance Company), Northern Life Insurance
Company, Reliastar Bankers Security Life Insurance Company (successor by merger
to the North Atlantic Life Insurance Company of America), Commercial Union Life
Insurance Company of New York and Texas Life Insurance Company.
"OBLIGATIONS" shall mean the Loans and all other loans, advances, debts,
liabilities, obligations, covenants and duties owing to Bank or any Affiliate of
Bank from a
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<PAGE> 22
Borrower or any Guarantor Subsidiary of any kind, present or future, whether or
not evidenced by or arising out of this Agreement, any of the Loan Documents, or
any other agreement, transaction, extension of credit, letter of credit,
guaranty or indemnification or in any other manner, whether or not for the
payment of money, whether direct or indirect (including acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired, and including, without limitation, all interest, charges,
expenses, fees and any other sums chargeable to a Borrower or any Guarantor
Subsidiary in connection with any of the foregoing, and all Attorneys' Fees.
"PARENT LOCKED BOX" shall have the meaning ascribed thereto in SECTION
7.3 hereof.
"PARENT SPECIAL ACCOUNT" shall have the meaning ascribed thereto in
SECTION 7.4 hereof.
"PARENT'S EXISTING LOANS" shall have the meaning ascribed thereto in
SECTION 2.2 hereof.
"PATENT ASSIGNMENTS" shall have the meaning ascribed thereto in SECTION
5.2 hereof.
"PENSION PLAN" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title IV of ERISA (other than a
Multiemployer Plan) and to which a Borrower, any Guarantor Subsidiary or any
corporation, trade or business that is, along with a Borrower or any Guarantor
Subsidiary, a member of a Controlled Group may have any liability, including any
liability by reason of having been a substantial employer within the meaning of
section 4063 of ERISA at any time during the preceding six (6) years, or by
reason of being deemed to be a contributing sponsor under section 4069 of ERISA.
"PERMITTED LIENS" shall mean the liens and interests in favor of Bank
granted in connection herewith or otherwise and, to the extent reflected on the
applicable Borrower's or Guarantor Subsidiary's books and records and not
impairing the operations of such Borrower or such Guarantor Subsidiary or any
performance hereunder or contemplated hereby: (i) liens arising by operation of
law for taxes not yet due and payable; (ii) statutory liens of mechanics,
materialmen, shippers and warehousemen for services or materials for which
payment is not yet due; (iii) deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (iv) liens, if any, specifically permitted by Bank from time
to time in writing; (v) liens securing obligations under capitalized leases or
purchase money Indebtedness permitted by SECTION 10.11(iv) on the property
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<PAGE> 23
subject thereto, provided that (a) such capitalized leases and purchase money
Indebtedness shall not be secured by any of the Collateral or the Premises
granted or mortgaged to Bank on the Effective Date and thereafter, (b) any liens
relating to such capitalized leases and purchase money Indebtedness shall not
extend to cover any other property of either Borrower or any Guarantor
Subsidiary other than the property so acquired, and (c) the principal amount
(i.e., exclusive of interest, fees, expenses and other charges) of such
capitalized leases and purchase money Indebtedness shall not exceed the lesser
of (A) the fair market value of the purchased or leased property at the time of
the purchase or lease or (B) the purchase price or the total lease amount
thereof (which, in the case of property purchased subject to existing liens,
shall include the amount secured by such liens) ; (vi) liens for taxes,
assessments and other similar charges to the extent payment thereof shall not at
the time be required to be made in accordance with the provisions of SECTION
10.10; (vii) the liens granted to the Noteholders to secure the obligations
under the Note Agreement; and (viii) the following if the validity or amount
thereof is being contested in good faith and by appropriate and lawful
proceedings promptly initiated and diligently conducted of which the applicable
Borrower or Guarantor Subsidiary has given prior notice to Bank and for which
appropriate reserves (in Bank's reasonable discretion) have been established and
so long as levy and execution have been and continue to be stayed: claims of
mechanics, materialmen, shippers, warehouseman, carriers and landlords.
"PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorpo- rated organization, association, corporation,
limited liability company, institution, entity, party or government or
governmental entity.
"PLAN" shall have the meaning ascribed thereto in SECTION 10.3 hereof.
"PLEDGE AGREEMENT" shall have the meaning ascribed thereto in SECTION
5.9 hereof.
"PREMISES" shall mean, collectively and individually, the Leased
Premises, the Mortgaged Premises and the Cleveland Premises.
"PRIME RATE" shall have the meaning ascribed thereto in SECTION 3.1
hereof.
"REAL ESTATE TERM LOAN" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"REAL ESTATE TERM LOAN FACILITY" shall have the meaning ascribed thereto
in SECTION 2.1 hereof.
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<PAGE> 24
"REMITTANCES" shall have the meaning ascribed thereto in SECTION 7.3
hereof.
"REQUESTING BORROWER" shall mean any Borrower requesting a Revolving
Loan and/or a Letter of Credit.
"RESERVE AMOUNT" shall mean an amount determined by Bank, in its
reasonable discretion, as a reserve against Collateral values and potential or
anticipated obligations of either Borrower, including, without limitation, (i)
tax liabilities and other obligations owing to governmental entities including
all amounts referred to in SECTION 10.10 hereof, (ii) litigation liabilities,
(iii) the Environmental Compliance Reserve, (iv) the anticipated costs and
expenses relating to the liquidation of Collateral or the Premises, (v) unpaid
sales taxes, (vi) those reserve amounts as required to be held as reserves under
generally accepted accounting principles, (vii) liabilities and other
obligations owing by such Borrower to any lessor of real property leased by such
Borrower or to any warehouseman, (viii) with respect to the Parent, the amount
of the obligations of Parent pursuant to the terms of the Kirk Foley Guaranty,
and (ix) with respect to the Parent, the amount of the obligations of Parent (or
Bliss or any Guarantor Subsidiary, as the case may be) owing to the Noteholders
pursuant to the terms of the Note Agreement, as the same may hereafter be
amended, amended and restated, supplemented or otherwise modified. The Reserve
Amount shall be reduced from time to time to the extent of each payment by the
applicable Borrower in respect of claims and liabilities upon which the Reserve
Amount is based. On the Effective Date, the Reserve Amount with respect to the
Parent equals Two Million One Hundred Eighty-Five Thousand Seven Hundred Fifty
Dollars ($2,185,750) and the Reserve Amount with respect to Bliss equals Zero
Dollars ($0) .
"REVOLVING LOAN FACILITY" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"REVOLVING LOANS" shall have the meaning ascribed thereto in SECTION 2.3
hereof.
"SECURITY AGREEMENT" shall have the meaning ascribed thereto in SECTION
5.1 hereof.
"SOLVENT" shall mean, with respect to any Person, that (i) fair value of
the property of the Person is, on the date of determination, greater than the
total amount of liabilities (including contingent liabilities) of the Person as
of that date, (ii) as of that date, the Person is able to pay all liabilities of
the Person as those liabilities mature, and (iii) the Person does not have
unreasonably small capital for the business in which it is engaged or for any
business or transaction in which it is about to engage. In computing the
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<PAGE> 25
amount of contingent liabilities at any time, it is intended that they be
computed at the amount that, in light of all the facts and circumstances
existing at the time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"SPECIAL ACCOUNTS" shall mean, collectively, the Bliss Special Account
and the Parent Special Account, and "Special Account" shall mean either the
Bliss Special Account of the Parent Special Account, as the case may be.
"SUBSIDIARY" shall mean any Person as to which Borrower owns, directly
or indirectly, at least fifty percent (50%) of the outstanding shares of capital
stock or other interests (including, without limitation, membership interests)
having ordinary voting power for the election of directors, officers, managers,
trustees or other controlling Persons, or an equivalent controlling interest.
"TERM LOANS" shall mean, collectively, the Bliss Equipment Term Loan,
the Real Estate Term Loan and the Special Term Loan.
"TOTAL FACILITY" shall have the meaning ascribed thereto in SECTION 2.1
hereof.
"UNUSED REVOLVING LOAN FACILITY AMOUNT" shall mean, for any period, the
average daily amount for such period by which:
(i) Thirteen Million Dollars ($13,000,000) on each day during such
period
EXCEEDS
(ii) the sum of (a) the aggregate outstanding principal amount of all
Revolving Loans on each day during such period plus (b) the
aggregate Letter of Credit Face Amount of all Letters of Credit
outstanding on each day during such period .
"WELFARE PLAN" shall mean a "welfare plan", as such term is defined in
Section 3(1) of ERISA.
1.2 ACCOUNTING TERMS. Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given them in
accordance with generally accepted accounting principles.
2. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.
-----------------------------------------
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2.1 TOTAL FACILITY. Bank will make up to a Twenty Million Dollar
($20,000,000) reducing total credit facility (the "Total Facility") available to
Borrowers, subject to the terms and conditions of this Agreement and comprised
of the following loans or other financial accommodations advanced, made or made
available under the following facilities (collectively, the "Loans") : (i)
Revolving Loans (as hereinafter defined) to be advanced under the Revolving Loan
facility (the "Revolving Loan Facility"), (ii) a term loan with respect to
certain real property (the "Real Estate Term Loan") to be advanced under the
Real Estate Term Loan facility (the "Real Estate Term Loan Facility"), (iii) a
term loan with respect to machinery and equipment owned by Bliss (the "Bliss
Equipment Term Loan") to be advanced under the Bliss Equipment Term Loan
facility (the "Bliss Equipment Term Loan Facility"), (iv) a special term loan
(the "Special Term Loan") to be advanced under the Special Term Loan facility
(the "Special Term Loan Facility"), and (v) as a portion of the Revolving Loan
Facility, a letter of credit facility (the "Letter of Credit Facility"), all as
more particularly described below.
2.2 AFFIRMATION OF EXISTING LOANS. Parent acknowledges, affirms and
agrees that, as of the Effective Date, Six Million Seven Hundred Fifty Thousand
Nine Hundred Fifty-Two Dollars ($6,750,952) of the Existing Loans is currently
due and owing directly by Parent to Bank ("Parent's Existing Loans") . Bliss
acknowledges, affirms and agrees that, as of the Effective Date, Thirteen
Million Two Hundred Forty Nine Thousand Forty-Eight Dollars ($13,249,048) of the
Existing Loans is currently due and owing directly by Bliss to Bank ("Bliss'
Existing Loans").
2.3 REVOLVING LOAN FACILITY. Until the termination of this Agreement
pursuant to SECTION 11 and/or SECTION 13 hereof, revolving loans under the
Revolving Loan Facility will be lent and relent to each Borrower from time to
time (such loans being referred to collectively as the "Revolving Loans" and
each of such loans being referred to individually as a "Revolving Loan") in an
amount not to exceed the Individual Borrower Revolving Loan Borrowing Base
applicable to such Borrower. Notwithstanding the foregoing sentence, in no event
shall Bank be obligated to make Revolving Loans if, either immediately before or
after giving effect to any such Revolving Loan, (i) a Deficiency has occurred
and is continuing or shall occur, or (ii) an Event of Default has occurred and
is continuing or shall occur by making such Revolving Loan. The Eligible
Inventory will be valued at the lower of cost or market value, determined on a
"first in first out" basis, consistently applied. Bank shall, to the extent of
Four Million Five Hundred Thousand Dollars ($4,500,000) of the Parent's Existing
Loans, satisfy all or a portion of its agreement to make Revolving Loans to
Parent on
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the Effective Date by converting such amount of the Parent's Existing
Loans into a revolving Loan, whereupon such converted amount shall be a
Revolving Loahn owing by Parent for all purposes of this Agreement and the other
Loan Documents. In addition, Bank shall, to the extent of Eight Million Five
Hundred thousand dollars ($8,500,000) of Bliss' Existing Loans, satisfy all or a
portion of its agreement to make Revolving Loans to Bliss on the Effective Date
by converting such amount of Bliss' Existing Loans into a Revolving Loan,
whereupon such converted amount shall be a Revolving Loan owing by Bliss for all
purposes of this Agreement and the other Loan documents. Each such conversion
shall be deemed to have taken place at the time the applicable Borrower executes
and delivers this Agreement. the Revolving Loan Facility hereunder represents,
in part, a renewal of certain of the Existing Loans outstanding as of the
Effective Date. The amounts of the Existing Loans referred to above originally
outstanding under the Existing Credit Agreement are continuing Indebtedness of
borrowers to Bank, and nothing contained herein or in any other Loan document
shall be construed to deem such amounts paid, or to release or terminate any
lien, guaranty or security interest given to secure such amounts. Payment in
full of and satisfaction of all Indebtedness with respect to the Revolving Loans
hereunder shall also be deemed to be payment in full and satisfaction of such
amounts of the Existing Loans. The borrowers acknowledge and agree that, after
its review of the results of the collateral survey to be performed on behalf of
Bank by Barber & Mooney promptly after the Effective Date, Bank may, among other
things and without limiting the discretion of Bank hereunder, reduce the amount
available hereunder for Revolving Loans and increase the principal amount of the
Special Term Loan by the amount of any changes described in the immediately
preceding sentence after its receipt of such collateral survey, Bank shall
notify borrowers of such changes. Any such changes shall be deemed to be
effective as of the date Bank notifies Borrowers of such changes.
2.4 REAL ESTATE TERM LOAN FACILITY. The Real Estate Term Loan under the
Real Estate Term Loan Facility will be made to Bliss with respect to the
Mortgaged Premises in the amount of Two Million Two Hundred fifty Thousand
dollars ($2,250,00) on the Effective Date. The principal of the Real Estate Term
Loan shall be payable by Bliss in one hundred twenty (120) consecutive equal
monthly installments of Eighteen Thousand Seven Hundred fifty dollars ($18,750)
each, commencing on July 1, 1997 and thereafter on the first day of each
calendar month; PROVIDED, HOWEVER, that notwithstanding for foregoing
amortization schedule for the Real estate Term Loan, upon the effective date of
any temrination of this Agreement pursuant to SECTION 11 and/or SECTION 13
hereof, all amounts then outstanding under the Real Estate Term Loan shall
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become immediately due and payable without notice or demand. No repayment or
prepayment of the Real Estate Term Loan shall be reason for any relending or
additional lending of Real Estate Term Loan proceeds to Bliss. Bank shall, to
the extent of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) of
Bliss' Existing Loans, satisfy all of its agreement to make the Real Estate Term
Loan to Bliss on the Effective Date by converting such amount of Bliss' Existing
Loans into the Real Estate Term Loan, whereupon such converted amount shall be
the Real Estate Term Loan owing by Bliss for all purposes of this Agreement and
the other Loan Documents. Such conversion shall be deemed to have taken place at
the time Bliss executes and delivers this Agreement. The Real Estate Term Loan
Facility hereunder represents, in part, a renewal of certain of the Existing
Loans outstanding as of the Effective Date. The amount of the Existing Loans
referred to above originally outstanding under the Existing Credit Agreement is
continuing Indebtedness of Bliss to Bank, and nothing contained herein or in any
other Loan Document shall be construed to deem such amount paid, or to release
or terminate any lien, guaranty or security interest given to secure such
amount. Payment in full of and satisfaction of all Indebtedness with respect to
the Real Estate Term Loan hereunder shall also be deemed to be payment in full
and satisfaction of such amount of the Existing Loans.
2.5 (INTENTIONALLY OMITTED]
2.6 BLISS EQUIPMENT TERM LOAN FACILITY. The Bliss Equipment Term Loan
under the Bliss Equipment Term Loan Facility will be made to Bliss with respect
to Bliss' eligible machinery and equipment in the amount of Two Million Four
Hundred Ninety-Nine Thousand Forty-Eight Dollars ($2,499,048) on the Effective
Date. The principal of the Bliss Equipment Term Loan shall be payable by Bliss
in eighty-four (84) consecutive equal monthly installments of Twenty-Nine
Thousand Seven Hundred Fifty-One Dollars ($29,751) each, commencing on July 1,
1997 and thereafter on the first day of each calendar month; PROVIDED, HOWEVER,
that notwithstanding the foregoing amortization schedule for the Bliss Equipment
Term Loan, upon the effective date of any termination of this Agreement pursuant
to SECTION 11 and/or SECTION 13 hereof, all amounts then outstanding under the
Bliss Equipment Term Loan shall become immediately due and payable without
notice or demand. No repayment or prepayment of the Bliss Equipment Term Loan
shall be reason for any relending or additional lending of Bliss Equipment Term
Loan proceeds to Bliss. Bank shall, to the extent of Two Million Eight Hundred
Seventeen Thousand Eighty-Five Dollars ($2,817,085) of Bliss' Existing Loans,
satisfy all of its agreement to make the Bliss Equipment Term Loan to Bliss on
the Effective Date by converting such amount of Bliss' Existing Loans into the
Bliss Equipment Term Loan, whereupon such converted amount shall be the Bliss
Equipment
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<PAGE> 29
Term Loan owing by Bliss for all purposes of this Agreement and the other Loan
Documents. Such conversion shall be deemed to have taken place at the time Bliss
executes and delivers this Agreement. The Bliss Equipment Term Loan Facility
hereunder represents, in part, a renewal of certain of the Existing Loans
outstanding as of the Effective Date. The amount of the Existing Loans referred
to above originally outstanding under the Existing Credit Agreement is
continuing Indebtedness of Bliss to Bank, and nothing contained herein or in any
other Loan Document shall be construed to deem such amount paid, or to release
or terminate any lien, guaranty or security interest given to secure such
amount. Payment in full of and satisfaction of all Indebtedness with respect to
the Bliss Equipment Term Loan hereunder shall also be deemed to be payment in
full and satisfaction of such amount of the Existing Loans.
2.7 SPECIAL TERM LOAN FACILITY. The Special Term Loan under the Special
Term Loan Facility will be made to Parent in the amount of Two Million Two
Hundred Fifty Thousand Nine Hundred Fifty-Two Dollars ($2,250,952) on the
Effective Date. The principal of the Special Term Loan shall be due and payable
upon the effective date of any termination of this Agreement pursuant to SECTION
11 and/or SECTION 13 hereof. Prior to such time, Parent shall reduce the
outstanding principal amount of the Special Term Loan by (i) making a payment to
Bank of Two Million Dollars ($2,000,000) to Bank on or prior to August 31, 1997
(which payment may be made utilizing HRS Proceeds and which payment shall be
applied to the principal installments of the Special Term Loan set forth in
clause (ii) below in inverse order of maturity), and (ii) making consecutive
equal monthly principal payments of Fifty Thousand Dollars ($50,000) each,
commencing on July 1, 1997 and thereafter on the first day of each calendar
month. No repayment or prepayment of the Special Term Loan shall be reason for
any relending or additional lending of Special Term Loan proceeds to Parent.
Bank shall, to the extent of Two Million Two Hundred Fifty Thousand Nine Hundred
Fifty-Two Dollars ($2,250,952) of the Parent's Existing Loans, satisfy all of
its agreement to make the Special Term Loan to Parent on the Effective Date by
converting such amount of the Parent's Existing Loans into the Special Term
Loan, whereupon such converted amount shall be the Special Term Loan owing by
Parent for all purposes of this Agreement and the other Loan Documents. Such
conversion shall be deemed to have taken place at the time Parent executes and
delivers this Agreement. The Special Term Loan Facility hereunder represents, in
part, a renewal of certain of the Existing Loans outstanding as of the Effective
Date. The amount of the Existing Loans referred to above originally outstanding
under the Existing Credit Agreement is continuing Indebtedness of Parent to
Bank, and nothing contained herein or in any other Loan Document shall be
construed to deem such amount paid, or to release or
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<PAGE> 30
terminate any lien, guaranty or security interest given to secure such amount.
Payment in full of and satisfaction of all Indebtedness with respect to the
Special Term Loan hereunder shall also be deemed to be payment in full and
satisfaction of such amount of the Existing Loans.
2.8 (INTENTIONALLY OMITTED]
2.9 LETTER OF CREDIT FACILITY. Until the termination of this Agreement
pursuant to SECTION 11 and/or SECTION 13 hereof, Bank may issue letters of
credit for the account of either Borrower from time to time ("Letters of
Credit") under the Letter of Credit Facility; PROVIDED, HOWEVER, that the
Individual Letter of Credit Availability for each Borrower and the Aggregate
Letter of Credit Availability shall always be greater than or equal to zero (0).
In the event Bank determines that it shall issue a Letter of Credit, such Letter
of Credit shall be for an amount and a term, and shall be subject to such other
terms and conditions, as may be acceptable to Bank, in its sole discretion. In
no event shall any commercial Letter of Credit have an expiration date which is
more than ninety (90) days from the date of issuance thereof, unless Bank shall
otherwise agree. Notwithstanding the foregoing, Bank shall not be obligated to
issue Letters of Credit if, either immediately before or after giving effect to
any such issuance, (i) a Deficiency has occurred and is continuing or shall
occur or (ii) an Event of Default has occurred and is continuing or shall occur
by issuing any such Letter of Credit. All Existing Letters of Credit, including,
but not limited to, the First Chicago Letter of Credit, shall be deemed to be
outstanding hereunder as Letters of Credit for all purposes of this Agreement
and shall be subject to the terms of this Agreement from and after the Effective
Date.
2.10 DISBURSEMENT OF LOANS. All disbursements of proceeds of the Loans
requested by Borrower pursuant to SECTION 2.11 shall be effectuated by Bank's
crediting (i) Account No. 8055204 at Bank, in the case of Loans requested by
Parent, and (ii) Account No. 8055253 at Bank, in the case of Loans requested by
Bliss. Each such account is structured and utilized as a non-controlled
disbursement account; PROVIDED, HOWEVER, that Bank may at any time hereafter
elect not to credit proceeds of the Loans to the aforedescribed non- controlled
disbursement accounts, but instead may establish a similar controlled
disbursement account for either Borrower at Bank and disburse proceeds of the
Loans by crediting such controlled disbursement account of such Borrower at
Bank.
2.11 PROCEDURE FOR ADVANCING REVOLVING LOANS AND ISSUING LETTERS OF
CREDIT. Subject to the terms and conditions of this Agreement, Bank will, from
time to time on any Business Day prior to the termination of this Agreement
pursuant to SECTION 11 and/or SECTION 13 hereof, upon the oral
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or written request of a Requesting Borrower therefor, advance Revolving Loans to
such Requesting Borrower's account described in SECTION 2.10 hereof or issue
Letters of Credit, as the case may be; PROVIDED, HOWEVER, that in the event Bank
elects to establish a controlled disbursement account as set forth in SECTION
2.10 for a Borrower, then such Borrower shall thereafter be deemed to have
requested a Revolving Loan each time a check drawn on such account by such
Borrower is presented to Bank for payment thereof. The Requesting Borrower shall
specify in each such request whether a Revolving Loan or a Letter of Credit is
being requested by such Requesting Borrower. In the event a Requesting Borrower
requests a Letter of Credit, such request shall be accompanied by a completed
version of Bank's customary letter of credit application form. If Bank receives
a request from a Requesting Borrower for a Revolving Loan prior to 12:00 noon,
Cincinnati, Ohio time on a Business Day, Bank will advance such Revolving Loan
on that same Business Day. If Bank receives a request from a Requesting Borrower
for a Revolving Loan after 12:00 noon, Cincinnati, Ohio time on a Business Day,
Bank will advance such requested Revolving Loan on the next Business Day. If
Bank receives a request from a Requesting Borrower for a Letter of Credit, Bank
will issue such Letter of Credit on the third (3rd) Business Day following
receipt of such request and the application form for such Letter of Credit from
such Requesting Borrower. Notwithstanding anything in this Agreement to the
contrary, Bank shall not be obligated to advance Loans or issue Letters of
Credit if, either immediately before or after giving effect to any such Loan or
issuance of a Letter of Credit, (i) a Deficiency has occurred and is continuing
or shall occur or (ii) an Event of Default has occurred and is continuing or
shall occur by making such Loan or issuing such Letter of Credit. In the event
that any of the terms of the above- referenced letter of credit application
conflict with the terms of this Agreement, the terms of this Agreement shall
control.
2.12 NO LIMITATION ON LIENS. The limits on outstanding advances against
the Individual Borrower Revolving Loan Borrowing Bases set forth in SECTION 2.3
hereof are not intended and shall not be deemed to limit in any way Bank's
security interest in or lien on the Receivables, Inventory, Equipment, the
Premises or any other collateral for the Obligations.
2.13 DEFICIENCY. If a Deficiency occurs, the Parent or Bliss, as the
case may be, shall immediately, without demand or notice, reduce the outstanding
balance of the Loans made to Parent or Bliss, as the case may be, so that such
Deficiency shall no longer exist; PROVIDED, HOWEVER, that with respect to the
occurrence of a Discretionary Base Deficiency, the applicable Borrower shall
have ten (10)
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Business Days following the occurrence thereof to eliminate such Discretionary
Base Deficiency.
2.14 DRAWING UNDER LETTERS OF CREDIT TO CONSTITUTE REVOLVING LOANS. Upon
each drawing under a Letter of Credit, Bank shall seek reimbursement from any
amounts then on deposit in the applicable Borrower's Letter of Credit Collateral
Account. In the event that (i) no amounts are then on deposit in such Letter of
Credit Collateral Account, (ii) the amount then on deposit in such Letter of
Credit Collateral Account is insufficient to pay the amount of such drawing,
(iii) Bank is legally prevented or restrained from immediately applying amounts
on deposit in such Letter of Credit Collateral Account or (iv) the applicable
Borrower is required to make a payment under SECTION 13.3 hereof and fails to
make such payment as required, then the amount of each unreimbursed drawing
under such Letter of Credit and payment required to be made under SECTION 13.3
shall automatically be converted into a Revolving Loan made to such Borrower on
the date of such drawing for all purposes of this Agreement (but without any
requirement for compliance with any conditions to the making of Revolving Loans
contained in SECTION 6 and SECTION 2.11 hereof). To the extent that Bank applies
amounts on deposit in the applicable Borrower's Letter of Credit Collateral
Account as aforesaid and, thereafter, such application (or any portion thereof)
is rescinded or any amount so applied must otherwise be returned by Bank upon
the insolvency, bankruptcy or reorganization of such Borrower or otherwise, then
the amount so rescinded or returned shall automatically be converted into a
Revolving Loan made to such Borrower on the date of such drawing for all
purposes of this Agreement (but without any requirement for compliance with any
conditions to the making of Revolving Loans contained in SECTION 6 and SECTION
2.11 hereof). Each Borrower's obligation to reimburse Bank with respect to each
drawing under a Letter of Credit shall be absolute and unconditional under any
and all circumstances and irrespective of any setoff, counterclaim, or defense
to payment which such Borrower may have or have had against Bank or any
beneficiary of a Letter of Credit, including any defense based upon the
occurrence of an Event of Default, any draft, demand or certificate or other
document presented under a Letter of Credit proving to be forged, fraudulent,
invalid or insufficient, the failure of any drawing under a Letter of Credit to
conform to the terms of such Letter of Credit or any nonapplication or
misapplication by the beneficiary of the proceeds of such drawing or the
legality, validity, form, regularity or enforceability of such Letter of Credit.
2.15 NATURE OF REIMBURSEMENT OBLIGATIONS. Borrowers shall assume all
risks of the acts, omissions or misuse of any Letter of Credit by the
beneficiary thereof. Bank shall not be responsible for:
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(a) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any Letter of Credit or any document submitted by any
party in connection with the application for and issuance of a Letter of
Credit, even if it should in fact prove to be in any or all respects
invalid, insufficient, inaccurate, fraudulent or forged;
(b) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any instrument transfer- ring or assigning or purporting
to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof in whole or in part, which may prove to
be invalid or ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or
otherwise; or
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a drawing under a Letter of
Credit or of the proceeds thereof.
None of the foregoing shall affect, impair or prevent the vesting of any of the
rights or powers granted the Bank hereunder. In furtherance and extension, and
not in limitation or derogation of any of the foregoing, any action taken or
omitted to be taken by the Bank in good faith shall be binding upon Borrowers
and shall not put the Bank under any resulting liability to Borrowers.
2.16 EFFECT OF AMENDMENT AND RESTATEMENT. Each Borrower and, by its
execution and delivery of the Consent and Agreement attached hereto, each
Guarantor Subsidiary acknowledges and agrees that (i) this Agreement and the
documents executed and delivered in connection herewith do not constitute a
novation, payment and reborrowing, or termination of (y) the Existing Loans or
the Existing Letter of Credit Obligations under the Existing Credit Agreement
and the Existing Letter of Credit Related Documents as in effect prior to the
Effective Date or (z) the existing guaranty obligations under the Existing
Credit Agreement (the "Existing Guaranty Obligations") as in effect prior to the
Effective Date, (ii) the Existing Loans, the Existing Guaranty Obligations and
the Existing Letter of Credit Obligations are in all respects enforceable with
only the terms thereof being modified as provided by this Agreement and the
other Loan Documents, (iii) the liens and security interests of Bank securing
payment of
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<PAGE> 34
the Existing Loans, the Existing Guaranty Obligations and the Existing Letter of
Credit Obligations under the Loan Documents (as defined in the Existing
Financing Agreement) and the Existing Letter of Credit Related Documents are in
all respects continuing and in full force and effect with respect to the
Obligations hereunder, and (iv) all references to the "Credit Agreement" or
words of like import in any document, instrument or agreement executed and
delivered in connection with the Existing Credit Agreement (to the extent not
amended and restated in connection with this Agreement or expressly superseded
by any agreement, instrument or other document executed in connection with this
Agreement) shall be deemed to refer, without further amendment, to this
Agreement as this Agreement may be further amended or modified. The security
interest in, lien upon and/or conditional assignment of rights and interest of
Borrowers and each other Person granted to Bank pursuant to the Loan Documents
(as defined in the Existing Financing Agreement) are hereby ratified and shall
continue from and after the Effective Date.
3. INTEREST CHARGES; FEES.
----------------------
3.1 INTEREST ON LOANS. The applicable Borrower shall pay Bank interest
on the average daily outstanding principal amount of its (a) Revolving Loans
and all other Obligations (other than the Letter of Credit Obligations and the
Term Loans) at a per annum rate which shall vary from time to time equal to the
rate announced at Bank from time to time as its prime rate (the "Prime Rate"),
(b) Bliss Equipment Term Loan and Real Estate Term Loan at a per annum rate
which shall vary from time to time equal to the Prime Rate plus one-half
percent (.50%), and (c) Special Term Loan at a per annum rate which shall vary
from time to time equal to the Prime Rate PLUS two percent (2.00%), each such
rate to be adjusted on the effective date of any change in the Prime Rate by
Bank. Notwithstanding clause (c) above, in the event that the HRS Sale shall not
have been consummated on or before June 30, 1997, the per annum rate of interest
on the outstanding principal amount of the Special Term Loan shall be increased
to the Prime Rate PLUS two and one-quarter percent (2.25%). Such interest rate
shall be reduced to the rate referred to in clause (c) above upon the
consummation of the HRS Sale in compliance with the terms of this Agreement. The
Prime Rate is determined solely by Bank pursuant to market factors and its own
operating needs and is not necessarily Bank's best or most favorable rate for
commercial or other loans. The per annum rate of interest applicable at all
times after the occurrence of an Event of Default shall be the applicable rate
of interest set forth above plus an additional two percent (2.00%) per annum.
3.2 INCREASED COSTS - CAPITAL ADEQUACY. In case of any change in law or
governmental rules, regulations,
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guidelines or orders (or any interpretations thereof) or the introduction of new
laws, regulations or guidelines regarding capital adequacy, capital maintenance
or similar requirement or has the effect thereof (including a requirement which
affects the manner in which Bank allocates capital resources to any of its
commitments, including its commitments hereunder) and as a result of such
change or introduction, in the opinion of Bank (in its sole and absolute
discretion), the rate of return on Bank's capital as a consequence of its
lending commitments hereunder is reduced to a level below that which Bank could
have achieved but for such circumstances (taking into consideration Bank's
policies with respect to capital adequacy and capital maintenance) by an amount
deemed by Bank to be material, then and in each such case Bank may charge
Borrowers an additional fee which will compensate Bank for such reduction in the
rate of return caused by such requirements.
3.3 (INTENTIONALLY OMITTED]
3.4 TERM LOAN FEE. Borrowers shall pay Bank a closing fee of Five
Thousand Dollars ($5,000) with respect to the Bliss Equipment Term Loan and the
Real Estate Equipment Term Loan on the Effective Date.
3.5 UNUSED FACILITY FEE. Borrowers shall pay to the Bank, for the period
from and including the Effective Date and continuing until the termination of
this Agreement pursuant to SECTION 11 and/or SECTION 13 hereof, an unused
facility fee computed at the rate of one-quarter of one percent (0.25%) per
annum on the Unused Revolving Loan Facility Amount, payable for each month (or,
in the case of the first such payment, portion of the calendar month since the
Effective Date) by Borrowers monthly in arrears on the first day of the
following calendar month, commencing with the first such date following the
Effective Date, and on the date this Agreement shall have been terminated
pursuant to SECTION 11 and/or SECTION 13 hereof.
3.6 LETTER OF CREDIT FEES. The applicable Borrower shall pay Bank a
letter of credit fee equal to (a) one and one-half percent (1.50%) per annum of
the face amount of each standby Letter of Credit, computed on the basis of a
year of three hundred sixty (360) days and applied to actual days elapsed and
payable monthly in arrears on the first day of each month, and (b) Bank's
customary fees with respect to commercial Letters of Credit, payable on the date
of issuance thereof (and upon each renewal thereof, if applicable). In addition,
the applicable Borrower shall pay Bank all of Bank's standard and customary fees
and charges to issue, terminate or amend any Letter of Credit.
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3.7 INTEREST RATE PROTECTION. Each Borrower may, at such Borrower's
cost, obtain and maintain interest rate protection to protect against future
increases in the Prime Rate.
3.8 CALCULATION OF CERTAIN CHARGES. Accrued interest charges and the
fees set forth in SECTION 3.5 shall be computed on the basis of a year of three
hundred sixty (360) days and applied to actual days elapsed and shall be payable
monthly to Bank on the first day of each month hereafter. All such interest
charges and other fees hereunder shall be paid in arrears, except that the fees
set forth in SECTION 3.3 and SECTION 3.4, shall be paid in accordance with such
Sections.
3.9 CHARGING LOAN ACCOUNT. Each Borrower hereby authorizes Bank, at
Bank's option, to charge any account or charge or increase any Loan balance of
Borrower at Bank for the payment or repayment of any interest or principal of
the Loans or any fees, charges or other amounts due to Bank hereunder or
otherwise.
3.10 MAXIMUM RATE. If at any time the rate of interest computed in the
manner provided in this SECTION 3 ("Applicable Rate"), together with all fees
and charges as provided for herein or in any other Loan Document (collective-
ly, the "Charges"), which are treated as interest under applicable law exceeds
the maximum lawful rate (the "Maximum Rate") allowed under applicable law, the
rate of interest payable hereunder, together with all Charges, shall be limited
to the Maximum Rate; PROVIDED, HOWEVER, that any subsequent reduction in the
Prime Rate shall not reduce the Applicable Rate below the Maximum Rate until the
total amount of interest earned hereunder, together with all Charges, equals the
total amount of interest which would have accrued at the Applicable Rate if the
Applicable Rate had at all times been in effect. If any payment hereunder, for
any reason, results in a Borrower having paid interest in excess of that
permitted by applicable law, then all excess amounts theretofore collected by
Bank shall be credited on the principal balance owing hereunder (or, if all sums
owing hereunder have been paid in full, refunded to such Borrower), and the
amounts thereafter collectible hereunder shall immediately be deemed reduced,
without the necessity of the execution of any new document, so as to comply with
applicable law and permit the recovery of the fullest amount otherwise called
for hereunder.
4. MONTHLY ACCOUNTINGS. Bank will provide each Borrower monthly with a statement
of advances, charges and payments made pursuant to this Agreement and such
account rendered by Bank shall be presumptive evidence of the amount of the
Obligations owing and unpaid by such Borrower and shall be
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deemed binding as against such Borrower unless such statement contains manifest
errors.
5. SECURITY. The Obligations shall be secured by the documents and collateral
described in this SECTION 5 and the documents described in the Exhibits and
Schedules to this Agreement, each of which are incorporated herein by reference.
The following documents shall be in form and substance satisfactory to Bank and
its counsel, and the Collateral, the Premises, and other assets and property
covered thereby shall secure the Obligations in such order as may be determined
by Bank in its sole discretion.
5.1 SECURITY AGREEMENT. The Obligations shall be secured by a security
interest in all of the Collateral, pursuant to an Amended and Restated Security
Agreement in substantially the form of EXHIBIT A attached hereto and
incorporated herein by reference (the "Security Agreement") and accompanying
financing statements in form and substance suitable for filing under the
applicable state(s) version(s) of the Uniform Commercial Code. The Obligations
also shall be secured by a security interest in all of the Collateral of HMI
Inc., Tube-Fab and HMI Acceptance, pursuant to (i) a General Security Agreement,
dated June 6, 1997, executed by HMI Inc. in favor of Bank, (ii) a General
Security Agreement, dated June 6, 1997, executed by Tube-Fab in favor of Bank,
(iii) a General Security Agreement, dated June 6, 1997, executed by HMI
Acceptance in favor of Bank, and (iv) a Demand Debenture, dated June 6, 1997,
executed by Tube-Fab in favor of Bank, each of which is attached hereto as
EXHIBIT B and incorporated herein by reference (as the same may be further
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Canadian Security Agreements") and accompanying financing statements
in form and substance suitable for filing under Ontario's and Prince Edward
Island's equivalent of the Uniform Commercial Code.
5.2 PATENT ASSIGNMENTS. The Obligations shall be secured by an
assignment of (a) Parents's patents, trademarks, licenses and related rights
and interests, pursuant to a Contingent Patent, Trademark and License Assignment
in substantially the form attached hereto as EXHIBIT C-1, and incorporated
herein by reference, and (b) Bliss' patents, trademarks, licenses and related
rights and interests, pursuant to a Contingent Patent, Trademark and License
Assignment in substantially the form attached hereto as EXHIBIT C-2, and
incorporated herein by reference (collectively, the "Patent Assignments").
5.3 [INTENTIONALLY OMITTED]
5.4 MORTGAGES. The Obligations shall be secured by a mortgage on and
security interest in all of Bliss' and
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Newton's owned real property and all improvements thereon and all of Bliss' and
Newton's right, title and interest in and to its leasehold interest in the real
property, as applicable, located at (i) 1536 First Street, Newton Falls, Ohio
44444, (ii) 1536 First Street, Newton Falls, Ohio 44444, and (iii) 207 N. Four
Mile Run Road, Youngstown, Ohio 44515, (collectively and individually, the
"Mortgaged Premises"), pursuant to Open-End Mortgage and Security Agreements,
and First Amendments to Open-End Mortgages, in substantially the forms attached
hereto as Exhibit E-1, Exhibit E-2, Exhibit E-3 and Exhibit E-4, respectively
(collectively, the "Mortgages"), and incorporated herein by reference.
5.5 (INTENTIONALLY OMITTED]
5.6 (INTENTIONALLY OMITTED)
5.7 INTERCREDITOR AGREEMENT. Bank, Noteholders, Borrowers and the
Guarantor Subsidiaries shall enter into an Intercreditor Agreement in form and
substance satisfactory to Bank ("Intercreditor Agreement"), and incorporated
herein by reference.
5.8 GUARANTYS. The Obligations shall be unconditionally guaranteed by
(a) HMI Inc., Tube-Fab and HMI Acceptance pursuant to the terms of a Canadian
Guaranty in substantially the form of EXHIBIT I-1 attached hereto and
incorporated herein by reference (the "Canadian Guaranty") I and (b) each
Borrower and each Guarantor Subsidiary (other than HMI Inc., Tube-Fab and HMI
Acceptance) pursuant to the terms of an Amended and Restated Guaranty in
substantially the form of EXHIBIT I-2 attached hereto and incorporated herein by
reference (the "Guaranty") .
5.9 PLEDGE AGREEMENT. The Obligations shall be secured by a pledge of
and security interest in all of the outstanding shares of capital stock of Bliss
and each Guarantor Subsidiary, pursuant to a Pledge and Security Agreement in
substantially the form of EXHIBIT J attached hereto and incorporated herein by
reference (the "Pledge Agreement") .
6. DELIVERIES PRIOR TO DISBURSEMENT; FURTHER ASSURANCES. Prior to the
effectiveness of this Agreement, Borrowers shall have delivered to Bank all of
the documents, instruments and other information and shall have satisfied all
other conditions described in EXHIBIT K attached hereto and incorporated herein
by reference. Borrowers agree to execute and deliver or cause to be executed and
delivered any and all further documents and instruments and to take any and all
further actions as may be determined by Bank to be necessary or appropriate to
the transactions contemplated herein.
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7. RECEIVABLES; COLLECTION OF RECEIVABLES; DISPUTED RECEIVABLES; PROCEEDS OF
INVENTORY.
7.1 REPRESENTATIONS AND WARRANTIES REGARDING RECEIVABLES. Each Borrower
agrees, represents and warrants that each Receivable of either Borrower or of
HMI Inc. or Tube-Fab or HMI Acceptance and each invoice representing any such
Receivable (other than proceeds of letters of credit, insurance proceeds,
contract rights, chattel paper, instruments and documents not arising directly
out of a sale or lease of goods or services) will cover a bona fide sale or
lease and delivery of merchandise usually dealt in by such Borrower, HMI Inc. or
Tube-Fab or HMI Acceptance, as the case may be, or the rendition by such
Borrower, HMI Inc. or Tube-Fab or HMI Acceptance, as the case may be, of
services to customers in the ordinary course of business, and will be for a
liquidated amount maturing as stated in the schedule thereof and in the
duplicate invoice covering said sale, and Bank's security interest therein, will
not be subject to any offset, deduction, counterclaim, lien or other condition.
None of either Borrower's, HMI Inc.'s or Tube-Fab's or HMI Acceptance's invoices
shall be backdated, postdated or redated and neither Borrower nor HMI Inc. or
Tube-Fab or HMI Acceptance shall make sales on extended dating or credit terms
beyond that customary in such Borrower's, HMI Inc.'s or Tube- Fab's or HMI
Acceptance's, as the case may be, industry. If any warranty is breached as to
any Receivable or as to the invoice representing any such Receivable, then Bank
may deem such Receivable ineligible, but Bank shall retain its security interest
in such Receivable, until all Obligations have been fully satisfied. Each
Borrower shall notify Bank promptly upon, but in no event later than one (1)
Business Day after such Borrower's learning thereof, in the event any Eligible
Receivable becomes ineligible for any reason other than the aging of such
receivable and of the reasons for such ineligibility.
7.2 DISPUTES AND CLAIMS REGARDING RECEIVABLES . On request after the
occurrence of an Event of Default, the applicable Borrower, HMI Inc., or
Tube-Fab, as the case may be, shall deliver any merchandise which has been
returned to or recovered by it to Bank at a location or locations selected by
Bank in its sole discretion. Each Borrower, HMI Inc. and Tube-Fab and HMI
Acceptance shall also notify Bank in writing, simultaneously with the delivery
of the Financials required to be delivered under SECTION 8.5, of all disputes
and claims in the event that the aggregate amount of all such disputes and
claims equal or exceed Two Hundred Fifty Thousand Dollars ($250,000) at any time
during any calendar month. Each Borrower, HMI Inc. or Tube-Fab, as the case may
be, shall settle or adjust all disputes and claims at no expense to Bank, but,
after the occurrence of an Event of Default, no discount, credit or allowance
outside the ordinary course of
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business or adverse extension, compromise or settlement shall be granted to any
customer or account debtor and no returns of merchandise outside the ordinary
course of business shall be given, made or accepted by such Borrower, HMI Inc.,
or Tube- Fab, as the case may be, without Bank's prior written consent.
7.3 LOCKED BOXES. Bank may at any time deliver written notice to each
Borrower (such notice being referred to as a "Cash Collateralization Notice")
stating that on and after the date of such notice, all remittances of every kind
due such Borrower ("Remittances") must be forwarded to its Locked Box and/or
deposited into its Special Account. On and after the date on which Bank shall
have delivered a Cash Collateralization Notice to each Borrower, (a) Parent
shall rent and shall continue to rent a post office box at the U.S. Post Office
bearing an address to be determined at that time (the "Parent Locked Box"), and
(b) Bliss shall rent and shall continue to rent a post office box at the U.S.
Post Office bearing an address to be determined at that time (the "Bliss Locked
Box") . On and after the date on which Bank shall have delivered a Cash
Collateralization Notice to each Borrower, each Borrower shall notify all of its
customers and account debtors to forward all Remittances to its Locked Box (such
notices to be in such form and substance as Bank may require from time to time),
and immediately upon receipt thereof, such Borrower shall deposit all other
proceeds of Receivables, other Collateral or the Premises into its Locked Box
(or into its Special Account) . Bank shall have sole access to the Locked Boxes
at all times and Borrowers shall take all action necessary to grant Bank such
sole access. Once established, neither Borrower shall remove, or permit to be
removed by any Person other than Bank, any item from the Locked Boxes without
Bank's prior written consent, and neither Borrower shall notify any customer or
account debtor to pay any Remittance to any other place or address without
Bank's prior written consent. If either Borrower should neglect or refuse to
notify any customer or account debtor to pay any Remittance to its Locked Box,
Bank shall be entitled to make such notification. Each Borrower hereby grants to
Bank an irrevocable power of attorney, coupled with an interest, to take in
Borrower's name on and after delivery of a Cash Collateralization Notice all
action necessary (i) to grant Bank sole access to its Locked Box, (ii) to
contact account debtors to pay any Remittance to its Locked Box or for any other
reason, and (iii) to endorse each Remittance delivered to its Locked Box for
deposit to its Special Account.
7.4 SPECIAL ACCOUNTS. After delivery of a Cash Collateralization Notice,
upon collection of Remittances and other proceeds of Receivables, other
Collateral, the Premises and any other security for the Obligations from (a) the
Parent Locked Box, Bank shall deposit the same in an account to be established
at Bank for Remittances and other
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proceeds of Receivables, other Collateral, the Premises and any other security
for the Obligations of the Parent (the "Parent Special Account"), and (b) the
Bliss Locked Box, Bank shall deposit the same in an account to be established at
Bank for Remittances and other proceeds of Receivables, other Collateral, the
Premises and any other security for the Obligations of Bliss (the "Bliss Special
Account") . Prior to, on and after the date a Cash Collateralization Notice
shall have been delivered, any Remittance or other proceeds of Receivables,
other Collateral, the Premises or other security for the Obligations received by
either Borrower shall be deemed held by such Borrower in trust and as fiduciary
for Bank, and on and after the date a Cash Collateralization Notice shall have
been delivered, such Borrower immediately shall deposit the same, in its
original form, into its Locked Box or its Special Account. On and after the date
a Cash Collateralization Notice shall have been delivered, each Borrower agrees
that it will not commingle any such Remittance or other proceeds of Receivables,
other Collateral, the Premises or any other security for the Obligations with
any of such Borrower's other funds or property, but will hold it separate and
apart therefrom in trust and as fiduciary for Bank. All deposits to the Special
Accounts shall be Bank's property and shall be subject only to the signing
authority designated from time to time by Bank, and neither Borrower nor any
Person other than Bank shall have any interest therein or control thereover.
Bank shall have sole access to the Special Accounts, and neither Borrower nor
any Person other than Bank shall have access thereto. Bank shall have, and each
Borrower hereby grants to Bank, a security interest in all funds held in such
Borrower's Locked Box and Special Account as security for the Obligations. The
Special Accounts shall not be subject to any deduction, set-off, banker's lien
or any other right in favor of any person or entity other than Bank. Subject to
the terms of this Agreement, prior to the occurrence of an Event of Default,
deposits to the Special Accounts shall be applied FIRST to all accrued and
unpaid interest on the principal amount of the applicable Borrower's Loans,
SECOND to the outstanding principal amount of the applicable Borrower's
Revolving Loans, THIRD to the then outstanding principal amount of the Special
Term Loan, fourth to the principal installments of the Real Estate Term Loan in
the inverse order of maturity, FIFTH to the principal installments of the Bliss
Equipment Term Loan in the inverse order of maturity, and SIXTH to the other
Obligations in such order and method of application as may be elected by Bank in
its sole discretion. Subject to the terms of this Agreement, after the
occurrence and during the continuance of an Event of Default, deposits to the
Special Accounts may be applied against the Obligations in such order and method
of application as may be elected by Bank in its sole discretion. Any funds in
the Special Accounts which Bank elects not to apply to the Obligations as
provided in the preceding
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sentences may, at Bank's option, be paid over by Bank to the applicable Borrower
or retained in the Special Account as continuing security for the Obligations.
Each Borrower hereby indemnifies and holds Bank harmless from and against any
loss or damage with respect to any Remittance deposited in the Special Accounts
which is dishonored or returned for any reason. If any Remittance deposited in
the Special Accounts is dishonored or returned unpaid for any reason, Bank, in
its sole discretion, may charge the amount of such dishonored or returned
Remittance directly against the applicable Borrower and/or any account
maintained by such Borrower with Bank and such amount shall be deemed part of
the obligations hereunder. Bank shall not be liable for any loss or damage
resulting from any error, omission, failure or negligence on the part of Bank
under this Agreement, other than loss or damage which is the consequence of
Bank's gross negligence or willful misconduct. Each Borrower hereby agrees that
it will not assert any claims or set-off rights against Bank as a result of such
Borrower's maintaining its Special Account with Bank.
7.5 CREDITING OF REMITTANCES. On and after the date a Cash
Collateralization Notice shall have been delivered, for the purpose of
calculating interest, all Remittances and other proceeds of Receivables, other
Collateral, the Premises and any other security for the Obligations shall be
credited to the applicable Borrower (conditional upon final collection) two (2)
Business Days after Bank receives notice of deposit of the same into such
Borrower's Special Account; provided, however, in the event that Bank receives
notice of such deposit later than 12:00 noon on any Business Day, such
Remittance deposited shall be credited to such Borrower (conditional upon final
collection) three (3) Business Days after such deposit. On and after the date a
Cash Collateralization Notice shall have been delivered, for the purpose of
determining the aggregate loan availability hereunder, all such Remittances
shall be credited on the Business Day on which Bank receives notice of such
deposit into the applicable Borrower's Special Account. From time to time, Bank
may adopt such regulations and procedures as it may deem reasonable and
appropriate with respect to the operation of the Special Accounts, the Locked
Boxes and the services to be provided by Bank under this Agreement.
7.6 COST OF COLLECTION. All costs of collection of Borrowers'
Receivables, including Attorney's Fees, out-of-pocket expenses, administrative
and record- keeping costs, and all service charges and costs related to the
establishment and maintenance of the Locked Boxes and the Special Accounts shall
be the sole responsibility of Borrowers, whether the same are incurred by Bank
or either Borrower, and Bank, in its sole discretion, may charge the same
against Borrowers and/or any account maintained by
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Borrowers with Bank and the same shall be deemed part of the Obligations
hereunder.
8. EXAMINATION OF COLLATERAL AND THE PREMISES; REPORTING.
8.1 MAINTENANCE OF BOOKS AND RECORDS. Each Borrower shall keep and
maintain complete books of account, records and files with respect to its
business in accordance with generally accepted accounting principles
consistently applied and shall accurately and completely record all transactions
therein.
8.2 ACCESS AND INSPECTION. Bank may at all times have access to and the
right to examine and inspect all of either Borrower's or any Guarantor
Subsidiary's real and personal property, and access to and the right to inspect,
audit and make extracts from all of either Borrower's or any Guarantor
Subsidiary's records, files and books of account; additionally, each Borrower
shall execute and deliver at the request of Bank such instruments as may be
necessary for Bank to obtain such information concerning the business of such
Borrower or any Guarantor Subsidiary as Bank may require from any Person. Each
Borrower shall furnish Bank with such statements and reports regarding such
Borrower's or any Guarantor Subsidiary's financial condition and the results of
such Borrower's or Guarantor Subsidiary's operations, in addition to those
hereinafter required, and such other information as Bank may request from time
to time. Each Borrower shall permit Bank to discuss such Borrower's or any
Guarantor Subsidiary's financial matters with such Borrower's or Guarantor
Subsidiary's officers and accountants (and hereby authorizes such officers and
accountants to discuss such Borrower's or Guarantor Subsidiary's financial
matters with Bank) .
8.3 REPORTING REGARDING RECEIVABLES. (a) No later than forty (40) days
after the end of each month, or sooner if available, each Borrower shall provide
to Bank schedules in such form and substance and accompanied by such documents
as Bank may require describing all Receivables created or acquired by such
Borrower and by HMI Inc., Tube-Fab and HMI Acceptance.
(b) No later than forty (40) days after the end of each month, or sooner
if available, each Borrower shall deliver to Bank a monthly borrowing base
certificate in the form of Exhibit L attached hereto and incorporated herein by
reference (a "Borrowing Base Certificate") and monthly summary reports of such
Borrower's (and HMI Inc.'s and Tube-Fab's and HMI Acceptance's) sales, credits
to sales or credit memoranda applicable to sales, collections and non-cash
charges in such form and substance as Bank may require.
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(c) No later than forty (40) days after the end of each month, or sooner
if available, each Borrower shall deliver to Bank monthly summary reports in
such form and substance as Bank may require of agings, broken down by invoice
date, of accounts receivable, reconciled to the Borrowing Base Certificate for
the end of such month , together with such further information with respect
thereto as Bank may require. Each such monthly summary report also shall include
a summary report of HMI Inc.'s and Tube-Fab's and HMI Acceptance's agings,
broken down by invoice date, of accounts receivable for the end of such month,
together with such further information with respect thereto as Bank may require.
No later than forty (40) days after the end of each month, or sooner if
available, each Borrower also shall deliver to Bank monthly summary reports in
such form and substance as Bank may require of agings of accounts payable listed
by invoice date, together with such further information with respect thereto as
Bank may require. Each such monthly summary report shall include a report of HMI
Inc.'s and Tube-Fab's and HMI Acceptance's agings of accounts payable listed by
invoice date, together with such further information with respect thereto as
Bank may require.
8.4 REPORTING REGARDING INVENTORY. (a) Each Borrower shall conduct a
full and complete physical count of its Inventory (and the Inventory of HMI Inc.
and Tube-Fab and HMI Acceptance) at least quarterly or more frequently if Bank
shall require, in a manner and in accordance with procedures approved by such
Borrower's independent certified public accountants and Bank, and shall promptly
extend, price and summarize such physical counts and submit a written report
thereof to Bank no later than forty (40) days after the end of each calendar
quarter.
(b) Values shown on reports of Inventory shall be at the lower of cost
or market value determined on a "first in first out" basis, consistently
applied.
(c) No later than forty (40) days after the end of each month, or more
frequently, if Bank shall so request, each Borrower shall submit to Bank a
summary inventory report in such form and substance as Bank may require
reconciled to the Borrowing Base Certificate for the end of such month, broken
down into such detail and with such categories as Bank shall require. Each such
monthly summary report shall include an inventory report of HMI Inc. and
Tube-Fab and HMI Acceptance, broken down into such detail and with such
categories as Bank shall require
(d) No later than forty (40) days after the end of each month, or sooner
if available, each Borrower shall deliver to Bank a monthly Borrowing Base
Certificate reporting the value of such Borrower's Inventory as of the end of
the
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period for which such Borrower has provided Bank information in accordance with
SECTION 8.4(c).
8.5 MONTHLY FINANCIAL STATEMENTS. Promptly when available and in any
event not later than forty (40) days after the end of each month, Borrowers
shall furnish to Bank monthly statements, on a consolidated and consolidating
basis, showing each Borrower's and Guarantor Subsidiary's financial condition
and the results of each Borrower's and Guarantor Subsidiary' 5 operations for
the periods covered by such statements in such detail as Bank may from time to
time require, prepared in accordance with generally accepted accounting
principles consistently applied (subject to normal year-end adjustments and
excluding footnotes) and containing all disclosures (other than footnotes)
required to fully and accurately present the financial position and results of
operations of each Borrower, each Guarantor Subsidiary and each of their
respective divisions and to make such statements not misleading under the
circumstances. Said statements shall include: (i) a comparison prepared by
Borrowers of the consolidated projected financial position and results of
operations of each of the Manufactured Product Segment and the Consumer Goods
Segment of the Borrowers' and the Guarantor Subsidiaries' businesses provided
for in Section 8.6 hereof with the consolidated actual financial position and
results of operations of each of the Manufactured Product Segment and the
Consumer Goods Segment of the Borrowers' and the Guarantor Subsidiaries'
businesses and an explanation of any variations between them; and (ii) a
comparison between consolidated actual calculated results and consolidated
covenanted results for each of the Financial Covenants contained in Exhibit M
attached hereto and incorporated herein by reference.
8.6 ANNUAL PROJECTIONS. No later than thirty (30) days after the end of
each of each Borrower's fiscal years, Borrowers shall furnish to Bank detailed
consolidated projections for the next twelve (12) months setting forth
consolidated projected income and cash flow for each month and the consolidated
projected balance sheet as of the end of each month for each of the Manufactured
Product Segment and the Consumer Goods Segment of the Borrowers' and the
Guarantor Subsidiaries' businesses. Such consolidated projections shall be
prepared in a manner fully and accurately presenting the consolidated projected
financial condition and results of operations of each of the Manufactured
product Segment and the Consumer Goods Segment of the Borrowers' and the
Guarantor Subsidiaries' businesses and making such projections not misleading
under the circumstances.
8.7 AUDITED ANNUAL FINANCIAL STATEMENTS. Promptly when available and in
any event not later than ninety (90) days after the end of each of Borrowers'
fiscal years, Borrowers shall submit to Bank statements (prepared on a
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consolidated basis), showing the financial condition of the Borrowers and the
Guarantor Subsidiaries, the results of operations of the Borrowers and the
Guarantor Subsidiaries, a balance sheet and related statements of income,
shareholder's equity, and changes in cash flows of the Borrowers and the
Guarantor Subsidiaries for the year then ended. Such statements shall be
audited in accordance with generally accepted auditing standards by an
independent certified public accountant acceptable to Bank and shall be
prepared and presented in accordance with generally accepted accounting
principles consistently applied. Such statements shall be delivered to Bank
together with an audit report of such independent certified public accountant
addressed to Bank.
8.8 MANAGEMENT REPORTS. Borrowers shall furnish to Bank promptly upon
receipt copies of all management letters and any other material reports provided
by Borrowers' and the Guarantor Subsidiaries' independent accountants. Borrowers
hereby authorize Bank to communicate directly with Borrowers' and Guarantor
Subsidiaries' independent accountants to discuss Borrowers' and Guarantor
Subsidiaries' affairs, finances, accounts and such other matters as Bank deems
necessary .
8.9 FINANCIAL CERTIFICATE. Borrowers shall furnish Bank together with
all materials required pursuant to Section 8.5, Section 8.6, Section 8.7,
Section 8.11 and Section 8.12 hereof, a certificate signed by the Chief
Financial Officer of each Borrower in the form of Exhibit N attached hereto.
8.10 PUBLIC FILINGS. Borrowers shall furnish to Bank promptly upon any
filing thereof by either Borrower or any Guarantor Subsidiary with the
Securities and Exchange Commission, any annual, periodic or special report or
registration statement (without exhibits) generally available to the public and
all proxies. Borrowers also shall furnish to Bank upon release thereof any press
releases regarding Borrowers or the Guarantor Subsidiaries.
8.11 QUARTERLY FINANCIAL STATEMENTS. Promptly when available and in any
event not later than forty-five (45) days after the end of each quarter,
Borrowers shall furnish to Bank quarterly statements, on a consolidated and
consolidating basis, showing each Borrower's and Guarantor Subsidiary's
financial condition and the results of each Borrower's and Guarantor
Subsidiary's operations for the periods covered by such statements in such
detail as Bank may from time to time require, prepared in accordance with
generally accepted accounting principles consistently applied (subject to normal
year-end adjustments and excluding footnotes) and containing all disclosures
(other than footnotes) required to fully and accurately present the financial
position and results of
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operations of each Borrower, each Guarantor Subsidiary and each of their
respective divisions and to make such statements not misleading under the
circumstances. Said statements shall include: (i) a comparison prepared by
Borrowers of the consolidated projected financial position and results of
operations of each of the Manufactured Product Segment and the Consumer Goods
Segment of the Borrowers' and the Guarantor Subsidiaries' businesses provided
for in Section 8.6 hereof with the consolidated actual financial position and
results of operations of each of the Manufactured Product Segment and the
Consumer Goods Segment of the Borrowers' and the Guarantor Subsidiaries'
businesses and an explanation of any variations between them; and (ii) a
comparison between consolidated actual calculated results and consolidated
covenanted results for each of the Financial Covenants contained in Exhibit M
attached hereto and incorporated herein by reference.
8.12 UNAUDITED ANNUAL FINANCIAL STATEMENTS. Promptly when available and
in any event not later than ninety (90) days after the end of each of Borrowers'
fiscal years, Borrowers shall submit to Bank statements (prepared on a
consolidated and consolidating basis), showing the financial condition of each
Borrower and each Guarantor Subsidiary, the results of operations of each
Borrower and each Guarantor Subsidiary, a balance sheet (which balance sheet
shall be a consolidated balance sheet, if applicable) and related statements of
income, and shareholder's equity of each Borrower and each Guarantor Subsidiary
for the year then ended. Such statements shall be prepared and presented by
Borrowers in accordance with generally accepted accounting principles
consistently applied. Said statements shall include: (i) a comparison prepared
by Borrowers of the consolidated projected financial position and results of
operations of each of the Manufactured Product Segment and the Consumer Goods
Segment of the Borrowers' and the Guarantor Subsidiaries' businesses provided
for in SECTION 8.6 hereof with the consolidated actual financial position and
results of operations of each of the Manufactured Product Segment and the
Consumer Goods Segment of the Borrowers' and the Guarantor Subsidiaries'
businesses and an explanation of any variations between them; and (ii) a
comparison between consolidated actual calculated results and consolidated
covenanted results for each of the Financial Covenants contained in Exhibit M
attached hereto and incorporated herein by reference.
9. WARRANTIES, REPRESENTATIONS AND COVENANTS. In order to induce Bank to enter
into this Agreement and to make Loans hereunder, each Borrower warrants,
represents and covenants that, on the Effective Date, on each date upon which a
Loan is made hereunder, and until the Obligations are fully paid, per- formed
and satisfied, the representations, warranties and covenants set forth below are
and shall remain true.
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9.1 ORGANIZATION, ETC. Each Borrower and each Guarantor Subsidiary is
and shall remain duly organized, validly existing and in good standing under the
laws of the states and other jurisdictions set forth on SCHEDULE 1 attached
hereto and incorporated herein by reference, and is and shall remain qualified
to do business and is and shall remain in good standing as a foreign corporation
under the laws of the states and other jurisdictions set forth on SCHEDULE 1
attached hereto and incorporated herein by reference and in each other
jurisdiction in which the failure to be so qualified and in good standing could
have a Material Adverse Effect. Each Borrower and each Guarantor Subsidiary has
and shall maintain all requisite power and authority, corporate or otherwise, to
conduct its business, to own its property and to execute, deliver and perform
all of its obligations under this Agreement and each of the other Loan Documents
to which it is a party.
9.2 DUE AUTHORIZATION. VALIDITY, ETC. This Agreement and each of the
other Loan Documents have been duly executed and delivered and authorized by all
requisite corporate, organizational or other action of each Borrower and each
Guarantor Subsidiary, and each will constitute, upon the due execution and
delivery thereof, the legal, valid, and binding obligation of each Borrower and
each Guarantor Subsidiary, enforceable in accordance with its respective terms.
9.3 NO VIOLATION. The execution, delivery and/or performance by either
Borrower or any Guarantor Subsidiary of this Agreement and the other Loan
Documents does not and will not (i) constitute a violation of any applicable law
or a breach of any provision contained in such Borrower's or such Guarantor
Subsidiary's Articles or Certificate of Incorporation or Code of Regulations or
By-Laws or contained in any order of any court or other governmental agency or
in any agreement, instrument or document to which such Borrower or such
Guarantor Subsidiary is a party or by which such Borrower or such Guarantor
Subsidiary or any of such Borrower's or such Guarantor Subsidiary's properties
is bound or (ii) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of such Borrower's or such
Guarantor Subsidiary's properties (other than in favor of Bank hereunder) .
9.4 USE OF LOAN PROCEEDS. Each Borrower's uses of the proceeds of the
Loans made by Bank to such Borrower pursuant to this Agreement are, and will
continue to be, legal and proper corporate uses (duly authorized by such
Borrower' s Board of Directors), such uses do not and shall not violate any
applicable laws or statutes as in effect as of the date hereof or hereafter, and
the Loans are not and shall not be secured, directly or indirectly, by any stock
For the
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purpose of purchasing or carrying any margin stock or for any
purpose which would violate either Regulation U, 12 C.F.R.
Part 221, or Regulation X, 12 C.F.R. Part 224, promulgated by
the Board of Governors of the Federal Reserve System.
9.5 MANAGEMENT: OWNERSHIP OF ASSETS, LICENSES, PATENTS. ETC. Each
Borrower and each Guarantor Subsidiary possesses and shall continue to possess
active, full-time, professional management adequate to handle its affairs and
adequate employees, assets, governmental approvals, permits, licenses, patents,
copyrights, trademarks and trade names to continue to conduct its business as
heretofore and hereafter conducted by it, and all such governmental approvals,
permits, licenses, patents, copyrights, trademarks and trade names are described
in Schedule 2 attached hereto and incorporated herein by reference.
9.6 INDEBTEDNESS. Except for (i) Indebtedness disclosed in either the
Financials delivered on or before the Effective Date or in SCHEDULE 3 attached
hereto and incorporated herein by reference, (ii) the Obligations, (iii)
Indebtedness (a) which is unsecured, (b) which is not for borrowed money, (c)
which has been incurred in the ordinary course of business, (d) which is not
otherwise prohibited under any provision of this Agreement or any other Loan
Document, and (e) the nonpayment or other default under which would not have a
Material Adverse Effect, and (iv) other Indebtedness permitted to be incurred or
paid by such Borrower or such Guarantor Subsidiary pursuant to Section 10.11,
neither Borrower nor any Guarantor Subsidiary has Indebtedness, and, except as
otherwise set forth in Schedule 3 attached hereto, has not guaranteed the
obligations of any other Person.
9.7 TITLE TO PROPERTY; NO LIENS. Each Borrower and each Guarantor
Subsidiary has good, indefeasible and merchantable title to and ownership of, or
leasehold interest in, all of its real and personal property, including, without
limitation, its Collateral, the Premises, and other security for the
Obligations, free and clear of all liens, claims, security interests,
assignments, mortgages, pledges and encumbrances, except Permitted Liens and
except as described in SCHEDULE 4 attached hereto and incorporated herein by
reference.
9.8 RESTRICTIONS; LABOR DISPUTES; LABOR CONTRACTS, ETC. Except as
described in Schedule 5 attached hereto and incorporated herein by reference,
neither Borrower nor any Guarantor Subsidiary is a party or subject to any
charge, restriction, judgment, decree or order, adversely affecting its
business, property, assets, operations or condition, financial or otherwise, or
any labor dispute which could have a Material Adverse Effect; and there are not
any
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strikes or walkouts relating to any labor contracts and, except as described in
SCHEDULE 5 attached hereto, no such contract is scheduled to expire within three
(3) years of the date hereof. Except as described in Schedule 5 attached hereto
and incorporated herein by reference, neither Borrower nor any Guarantor
Subsidiary is a party to any or labor contract .
9.9 NO VIOLATION OF LAW; HAZARDOUS MATERIALS. Except as described in
Schedule 6 attached hereto and incorporated herein by reference, Borrower is
not in violation of any applicable statute, regulation or ordinance of any
governmental entity (including, but not limited to, any Environmental Law) ,
the violation of which could have a Material Adverse Effect. Without limiting
the generality of the foregoing sentence, no Hazardous Material (i) is located
on any real property owned or leased by either Borrower or any Guarantor
Subsidiary except to the extent that such presence is maintained in compliance
with all applicable laws, the noncompliance with which could have a Material
Adverse Effect, or (ii) has been discharged or is penetrating into any real
property or surface or subsurface rivers or streams crossing or adjoining any
real property owned or leased by either Borrower or any Guarantor Subsidiary or
the aquifer underlying any real property owned or leased by either Borrower or
any Guarantor Subsidiary except to the extent that such discharge or penetration
does not violate any applicable law, the violation of which could have a
Material Adverse Effect, or give rise to any claim against such Borrower or such
Guarantor Subsidiary under any applicable law to the extent such claim could
have a Material Adverse Effect. "Hazardous Material" as used herein means any
existing or future asbestos, polychlorinated byphenyls and petroleum products,
solid wastes, ureaformaldehyde, discharges of sewer or effluent, paint
containing lead and any other hazardous or toxic material, substance or waste
which is defined, determined or identified by those or similar terms or is
regulated as such under any such statute, law, ordinance, rule or regulation
(whether now existing or hereafter promulgated) or any local, state or federal
authority, or any judicial or administrative interpretation of any such
statute, law, ordinance, rule or regulation, including but not limited to any
material, substance or waste which is a hazardous substance within the meaning
of 33 U.S.C. +SC 1251 et seq., as amended, or 42 U.S.C. 9601 et seq., as
amended, or a hazardous waste within the meaning of 42 U.S.C. 6901 et seq., as
amended) . All inventory manufactured and produced by each Borrower has been and
shall continue to be manufactured and produced in compliance with all applicable
requirements of Sections 6, 7 and 12 of the Fair Labor Standards Act, as
amended, and all regulations and orders of the United States Department of
Labor.
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9.10 ABSENCE OF DEFAULT. Neither Borrower nor any Guarantor Subsidiary
is in default under any note, indenture, loan agreement, mortgage, lease, or
other similar agreement relating to the borrowing of monies or the incurring of
indebtedness to which such Borrower or such Guarantor Subsidiary is a party or
by which such Borrower or such Guarantor Subsidiary or any of such Borrower's or
such Guarantor Subsidiary's assets are bound, which default could have a
Material Adverse Effect.
9.11 ACCURACY OF FINANCIALS; NO MATERIAL CHANGES. The Financials have
been prepared in accordance with generally accepted accounting principles
consistently applied (except that, in the case of unaudited internally prepared
Financials (other than unaudited annual Financials), such Financials lack
footnotes and are subject to normal recurring year-end adjustments) and are
true, correct and complete in all material respects; all Financials fairly
present each Borrower's and each Guarantor Subsidiary's assets, liabilities and
financial condition and results of operations and those of such other Persons
described therein as of the date thereof (subject to the lack of footnotes and
normal recurring year- end adjustments, in the case of unaudited internally
prepared Financials (other than unaudited annual Financials)); there are no
omissions from the Financials or other facts or circumstances not reflected in
the Financials which are or may be material; except as set forth in SCHEDULE 14
attached hereto, there has been no material and adverse change in either
Borrower's or any Guarantor Subsidiary's assets, liabilities or financial
condition since the date of the Financials attached to EXHIBIT T to this
Agreement and delivered on the Effective Date nor has there been any material
damage to or loss of any of either Borrower's or any Guarantor Subsidiary's
assets or properties since such date.
9.12 PENSION PLANS. No "reportable event" or "prohibited transaction,"
as defined by the Employee Retirement Income Security Act of 1974 ("ERISA"),
has occurred or is continuing as to any plan of either Borrower, any Guarantor
Subsidiary or any Controlled Group member, which poses a threat of termination
of such plans (or trusts related thereto) or the imposition of taxes or
penalties against such plans (or trusts related thereto); neither Borrower nor
any Guarantor Subsidiary or Controlled Group member has violated the
requirements of any "qualified pension benefit plan," as defined in ERISA and
the Internal Revenue Code of 1986 or done anything to create liability under the
Multi-Employer Pension Plan Amendments Act; and except as set forth in Schedule
7 attached hereto and incorporated herein by reference, neither Borrower nor any
Guarantor Subsidiary or Controlled Group member has incurred any liability to
the Pension Benefit Guaranty Corporation in connection with such plans.
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9.13 TAXES AND OTHER CHARGES. Except as set forth on Schedule 15
attached hereto, each Borrower and each Guarantor Subsidiary has (a) filed and
shall file all federal, state and local tax returns and other reports which it
is required by law to file, (b) paid all taxes, assessments and other similar
charges that are due and payable, except for any such taxes, assessments or
charges which are being contested in good faith by appropriate proceedings
promptly commenced and diligently prosecuted, for which adequate reserves in
accordance with generally accepted accounting principles have been set aside on
its books, and the continuance of which will neither result in any part of the
Collateral or the Premises or any other property of the Borrower being made the
subject of any proceeding in foreclosure, or of any levy or execution, which
cannot be stayed or dismissed, or the subject of any seizure or other loss, nor
prevent Bank from acquiring and/or maintaining a perfected first priority
security interest in the Collateral or a first priority mortgage of the
Mortgaged Premises after the Effective Date or with respect to future advances
hereunder, (c) withheld all employee and similar taxes which it is required by
law to withhold, and (d) maintained adequate reserves for the payment of all
taxes and similar charges. No tax liens have been filed with respect to either
Borrower or any Guarantor Subsidiary and no claims are being asserted with
respect to any such taxes, assessments or charges (and, to the best knowledge of
Borrowers (after due inquiry), no basis exists for any such claims) .
9.14 NO LITIGATION. There is not any litigation, action or proceeding
pending or, to the best of Borrowers' knowledge (after due inquiry), threatened,
against either Borrower or any Guarantor Subsidiary, which, if adversely
determined, is could have a Material Adverse Effect. Schedule 8 attached hereto
and incorporated herein by reference correctly sets forth all litigation,
actions and proceedings pending or, to the best of Borrowers' knowledge (after
due inquiry), threatened, against either Borrower or any Guarantor subsidiary as
of the Effective Date (none of which could have a Material Adverse Effect) .
9.15 NO BROKERAGE FEE. No brokerage, finder's or similar fee or
commission is due to any party by reason of either Borrower entering into this
Agreement or by reason of any of the transactions contemplated hereby or
thereby, and each Borrower shall indemnify and hold Bank harmless from all such
fees and commissions.
9.16 AFFILIATES. All Persons who are Borrowers' and Guarantor
Subsidiaries' Affiliates (other than members of the immediate family of each
shareholder, officer, and director of the Borrowers and Guarantor Subsidiaries)
are identified in SCHEDULE 9 attached hereto and incorporated herein by
reference. Parent has no Subsidiaries. other than
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Bliss, the Guarantor Subsidiaries, Health-Mor Mexicana S.A. de C.V., Home
Impressions, Inc. and Experimental Distributing, Inc. None of the Guarantor
Subsidiaries, Health-Mor Mexicana S.A. de C.V., Home Impressions, Inc. or
Experimental Distributing, Inc. has any Subsidiaries.
9.17 CAPITALIZATION; WARRANTS, ETC. The authorized capital stock of each
Borrower and each Guarantor Subsidiary and the number of shares of such
authorized stock outstanding as of the Effective Date is set forth on Schedule
10 attached hereto and incorporated herein by reference; each outstanding share
of capital stock is duly authorized, validly issued, fully paid and
nonassessable. All warrants, puts, subscriptions, options, instruments and
agreements under which any shares of capital stock of either Borrower or any
Guarantor Subsidiary are or may be redeemed, retired, encumbered, bought, sold
or issued are described in Schedule 10 attached hereto.
9.18 NONCOMPETITION AGREEMENTS. Neither Borrower nor any Guarantor
Subsidiary is subject to any contract or agreement containing a covenant not to
compete in any line of business with any Person.
9.19 DEPOSIT AND OTHER ACCOUNTS. All of the accounts maintained by each
Borrower and each Guarantor Subsidiary with any bank, brokerage house or other
financial institution are set forth in SCHEDULE 11 attached hereto and
incorporated herein by reference, and, after the delivery by Bank of a Cash
Collateralization Notice (except as may be agreed upon by Bank in writing), none
of such other accounts (other than accounts designated as "Payroll Accounts") is
subject to withdrawal other than by transfers of amounts therein to one (1) of
the Locked Boxes or the Special Accounts .
9.20 SOLVENCY. Each Borrower and each Guarantor Subsidiary is Solvent as
of the Effective Date and will be Solvent after receipt and application of the
Loans in accordance with the terms of this Agreement.
9.21 FULL DISCLOSURE. No representation or warranty made by either
Borrower, any Guarantor Subsidiary or any of their respective Affiliates, as the
case may be, in this Agreement or any Loan Document or other document furnished
from time to time in connection herewith or therewith contains or will contain
at the time such representation is made or such document furnished, any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements herein or therein not misleading. There is no
fact known to either Borrower, any Guarantor Subsidiary or any of their
respective Affiliates which adversely affects, or which, in Borrowers'
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reasonable judgment, could in the future adversely affect (i) the business,
property, assets, operations, prospects or condition, financial or otherwise, of
either Borrower, any Guarantor Subsidiary or any of their respective Affiliates,
(ii) the ability of either Borrower, any Guarantor Subsidiary or any of their
respective Affiliates to perform any of their respective payment or other
Obligations under this Agreement any of the other Loan Documents, or (iii) the
ability of Bank to exercise its rights and remedies with respect to or otherwise
realize upon any of the Collateral or the Premises.
9.22 CASUALTIES. Neither the business nor the properties of either
Borrower or any Subsidiary Guarantor are affected by any fire, explosion,
accident, drought, storm, hail, earthquake, embargo, act of God or of the public
enemy or other Casualty Loss (whether or not covered by insurance) which could
have a Material Adverse Effect.
9.23 LEASES. Except as described in Schedule 12 attached hereto and
incorporated herein by reference, neither Borrower nor any Guarantor Subsidiary
is a party to any lease, assignment, sublease, or other agreement relating to
any real property or leasehold, or any equipment or other personal property.
9.24 INSURANCE POLICIES. Schedule 13 attached hereto and incorporated
herein by reference correctly sets forth all of the insurance policies
maintained by each Borrower and each Guarantor Subsidiary, including, without
limitation, the carriers thereof, and the types of coverage (which coverage
shall include environmental liability insurance) and insured amounts covered
thereby. Each Borrower and each Guarantor Subsidiary is in compliance with all
requirements of such insurance and is in compliance with all insurance
requirements set forth in any purchase orders or other agreements with its
customers.
9.25 CONSENTS. No authorization or approval or other action by, and no
notice to or filing with, any govern- mental authority or regulatory body or
other Person is required for (i) the due execution, delivery and performance by
either Borrower or any Guarantor Subsidiary of any Loan Document to which it is
or will be a party, (ii) the conduct of either Borrower' s or any Guarantor
Subsidiary' s business or (iii) the ownership or the lease of any of either
Borrower's or any Guarantor Subsidiary's properties.
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10. COVENANTS. Until the Obligations are fully paid, performed and
satisfied and this Agreement is terminated, each Borrower will comply, and will
cause each Guarantor Subsidiary to comply, with each of the covenants set forth
below in this SECTION 10, unless Bank shall have given Borrower its prior
written consent.
10.1 PAYMENT OF CERTAIN EXPENSES. Each Borrower will pay to Bank
immediately any and all fees, costs and expenses which Bank pays to a bank or
other similar institution arising out of or in connection with (i) the
forwarding to either Borrower, or any other Person on either Borrower's behalf,
by Bank of proceeds of Loans made by Bank to either Borrower pursuant to this
Agreement, and (ii) the depositing for collection by Bank of any check or item
of payment received and/or delivered to Bank on account of the Obligations and
reimburse Bank, immediately, for any claims asserted by any bank at which a
blocked account is established for the deposit of proceeds of the Collateral and
the Premises in connection with such blocked account or any returned or
uncollected checks received by such bank as proceeds of the Collateral or the
Premises.
10.2 NOTICE OF LITIGATION. Each Borrower will notify Bank in writing,
promptly upon such Borrower's learning thereof, of any litigation, suit or
administrative proceeding which may materially and adversely affect either
Borrower's or any Guarantor Subsidiary's (a) operations, financial condition or
business, (b) the ability of either Borrower or any Guarantor Subsidiary to
perform any of its payment or other Obligations under this Agreement or any of
the other Loan Documents or (c) Bank's lien on or security interest in the
Collateral, the Premises or other security for the Obliga- tions, whether or not
the claim is considered by either Borrower to be covered by insurance.
10.3 NOTICE OF ERISA EVENTS. Each Borrower will notify Bank in writing
(i) promptly upon the occurrence of any event described in Section 4043 of ERISA
relating to either Borrower or any Guarantor Subsidiary, other than a
termination, partial termination or merger of a "Plan" (as defined in ERISA) or
a transfer of a Plan's assets, and (ii) prior to any termination, partial
termination or merger of a Plan or a transfer of a Plan's assets relating to
either Borrower or any Guarantor Subsidiary.
10.4 NOTICE OF LABOR DISPUTES. Each Borrower will notify Bank in
writing, promptly upon either Borrower's learning thereof, of any material labor
dispute to which either Borrower or any Guarantor Subsidiary may become a party,
any strikes or walkouts relating to any of either Borrower's or any Guarantor
Subsidiary's plants or other facilities, and the expiration of any labor contra
.ct to which
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either Borrower or any Guarantor Subsidiary is a party or by which either
Borrower or any Guarantor Subsidiary is bound.
10.5 COMPLIANCE WITH LAWS, ETC. Each Borrower will comply, and each
Borrower will cause each Guarantor Subsidiary to comply, with the requirements
of all applicable laws, statutes, regulations, rules or ordinances of any
governmental entity, or of any agency thereof (including, but not limited to,
any Environmental Laws), the noncompliance with which could have a Material
Adverse Effect.
10.6 NOTICE OF VIOLATIONS OF LAW, TAX ASSESSMENTS. Each Borrower will
notify Bank in writing, promptly upon either Borrower's learning thereof, of (i)
any violation by either Borrower or any Guarantor Subsidiary of any law,
statute, regulation, rule or ordinance of any govern- mental entity, or of any
agency thereof, which violation could have a Material Adverse Effect, (ii) the
nonpayment of any federal, state or local withholding tax applicable to either
Borrower or any Guarantor Subsidiary to the extent the amount involved equals or
exceeds One Hundred Thousand Dollars ($100,000), and (iii) any federal, state or
local tax assessment applicable to either Borrower or any Guarantor Subsidiary
to the extent such assessment equals or exceeds One Hundred Thousand Dollars
($100,000).
10.7 COMPLIANCE WITH OTHER AGREEMENTS. Each Borrower will comply, and
each Borrower will cause each Guarantor Subsidiary to comply, with the
provisions of each note, indenture, loan agreement, mortgage, lease, deed or
other similar agreement to which either Borrower or any Guarantor Subsidiary is
a party or by which either Borrower or any Guarantor Subsidiary is bound, the
noncompliance with which could have a Material Adverse Effect. 10.8 Notice of
Violations of Certain Agreements. Each Borrower will notify Bank in writing,
promptly upon the occurrence thereof, of either Borrower's or any Guarantor
Subsidiary's default under any note, indenture, loan agreement, mortgage, lease,
deed or other similar agreement to which either Borrower or any Guarantor
Subsidiary is a party or by which either Borrower or any Guarantor Subsidiary is
bound.
10.9 NOTICE OF CUSTOMER DEFAULTS. Each Borrower will notify Bank in
writing, promptly upon the occurrence thereof, of (a) any default by any obligor
under any note or other evidence of debt payable to either Borrower or any
Guarantor Subsidiary having outstanding indebtedness thereunder or relating
thereto (or face amount in the case of any letter of credit) of One Hundred
Thousand Dollars ($100,000) or more, or (b) anything which might have a
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material adverse effect on the credit of a customer of either Borrower or any
Guarantor Subsidiary.
10.10 TAXES AND CHARGES. Each Borrower will (i) file, and will cause
each Guarantor Subsidiary to file, all federal, state and local tax returns and
other reports which either Borrower or any Guarantor Subsidiary is required by
law to file, (ii) pay, and will cause each Guarantor Subsidiary to pay, all
taxes, assessments and other sirnilar charges that are due and payable;
PROVIDED, HOWEVER, that no such taxes, assessments or charges need be paid
during such period as they are being contested in good faith by the applicable
Borrower or applicable Guarantor Subsidiary, in appropriate proceedings promptly
commenced and diligently prosecuted, if adequate reserves in accordance with
generally accepted accounting principles have been set aside on the applicable
Borrower's or applicable Guarantor Subsidiary's books, and the continuance of
such contest shall neither result in any part of the Collateral or the Premises
or any other property of either Borrower or any Guarantor Subsidiary being made
the subject of any proceeding in foreclosure, or of any levy or execution, which
shall not have been stayed or dismissed, or the subject of any seizure or other
loss, nor prevent Bank from acquiring a perfected first priority security
interest in the Collateral after the Effective Date or with respect to future
advances hereunder; and PROVIDED, FURTHER, that the applicable Borrower or
applicable Guarantor Subsidiary will promptly pay such tax when the dispute is
finally settled, (iii) withhold, and will cause each Guarantor Subsidiary to
withhold, all employee and similar taxes which the applicable Borrower or
applicable Guarantor Subsidiary is required by law to withhold, and (iv)
maintain adequate reserves for the payment of all taxes and similar charges.
10.11 INDEBTEDNESS; GUARANTIES. Neither Borrower will, and each Borrower
will cause each Guarantor Subsidiary not to, incur or pay any Indebtedness other
than (i) the Obligations, (ii) Indebtedness reflected in the Financials
delivered on or before the Effective Date or described in SCHEDULE 3 attached
hereto, (iii) Indebtedness (a) which is unsecured, (b) which is not for borrowed
money, (c) which has been incurred in the ordinary course of business, (d) which
is not otherwise prohibited under any provision of this Agreement or any other
Loan Document, and (e) the nonpayment or other default under which would not
have a Material Adverse Effect, (iv) Indebtedness in respect of capitalized
leases and purchase money Indebtedness so long as the aggregate amount of such
Indebtedness does not exceed Five Hundred Thousand Dollars ($500,000) at any one
time outstanding, (v) Indebtedness in respect of taxes, assessments or
governmental charges to the extent that payment thereof shall not at the time be
required to be made in accordance with the provisions of SECTION 10.10, (vi)
with respect to
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Pty, Indebtedness secured by the First Chicago Letter of Credit, (vii) with
respect to Parent, Indebtedness under the Note Agreement, and (viii)
Indebtedness in respect of operating leases so long as the aggregate amount of
such Indebtedness incurred by Borrowers and Guarantor Subsidiaries in any fiscal
year does not exceed Three Hundred Thousand Dollars ($300,000); PROVIDED that no
Indebtedness (y) for borrowed money permitted under this SECTION 10.11 (other
than the Indebtedness described in clauses (vi) and (vii) above), shall contain
any provisions making a default under or in respect of some other Indebtedness
for money borrowed, a default thereunder, and (z) otherwise permitted to be
incurred shall be permitted to be incurred if, after giving effect to the
incurrence thereof, any Event of Default shall have occurred. Neither Borrower
will, and each Borrower will cause each Guarantor Subsidiary not to, guarantee
the obligations of any other Person except as set forth on SCHEDULE 3 attached
hereto; PROVIDED, HOWEVER, that the Borrowers and the Guarantor Subsidiaries may
guarantee the obligations of each other to the extent that the obligations
guaranteed are permitted to be incurred under the terms of this Agreement.
10.12 TITLE TO PROPERTY; NO LIENS. Each Borrower will, and each Borrower
will cause each Guarantor Subsidiary, Home Impressions, Inc. and Experimental
Distributing, Inc. to, continue to maintain good, indefeasible and merchantable
title to and ownership of, or interest (leasehold or otherwise) in, all of its
real and personal property, including, without limitation, the Collateral, the
Premises, and other security for the Obligations, free and clear of all liens,
claims, security interests, assignments, mortgages, pledges and encumbrances,
except Permitted Liens and except as described on Schedule 4 attached hereto and
incorporated herein by reference.
10.13 RESTRICTIONS; LABOR DISPUTES, ETC. Neither Borrower will, and each
Borrower will cause each Guarantor subsidiary not to, become a party or subject
to any (a) charge, restriction, judgment, decree or order, which could have a
Material Adverse Effect, or (b) any labor dispute, strike or walkout which could
have a Material Adverse Effect.
10.14 PENSION PLANS. Neither Borrower will permit any "reportable event"
or "prohibited transaction," as defined by ERISA, to occur or to continue as to
any plan of either Borrower, any Guarantor Subsidiary or any Controlled Group
member, which poses a threat of (i) termination of such plans (or trusts related
thereto) or (ii) the imposition of taxes or penalties against such plans (or
trusts related thereto) ; neither Borrower will, and each Borrower will cause
each Guarantor Subsidiary and each Controlled Group member not to, violate the
requirements of any "qualified pension benefit
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plan," as defined in ERISA and the Internal Revenue Code of 1986 or do anything
to create liability under the Multi- Employer Pension Plan Amendments Act; and
except as set forth on SCHEDULE 6 attached hereto and incorporated herein by
reference, neither Borrower will, and each Borrower will cause each Guarantor
Subsidiary and each Controlled Group member not to, incur, any liability to the
Pension Benefit Guaranty Corporation in connection with such plans.
10.15 SOLVENCY. Each Borrower and each Guarantor Subsidiary will
continue to be Solvent.
10.16 PROPERTY INSURANCE. (a) Each Borrower and each Guarantor
Subsidiary will insure all of its real and personal property, including, without
limitation, the Collateral, the Premises and other security for the Obligations,
in Bank's name against loss or damage by fire, theft, burglary, pilferage, loss
in transit and such other hazards as Bank shall specify in amounts and under
policies by insurers acceptable to Bank; if applicable, each policy with respect
to such insurance shall name Bank (and no other party) as mortgagee under a New
York Standard Mortgage clause or other similar clause acceptable to Bank; each
such policy shall contain a lender's loss payable clause acceptable to Bank
naming Bank (and no other party) as loss payee thereunder and shall provide that
such policy may not be amended or cancelled without thirty (30) days prior
written notice to Bank. Bank acknowledges that the insurance coverage set forth
on Schedule 13 attached hereto as of the Effective Date meets the foregoing
requirements and is acceptable to Bank as of the Effective Date.
(b) The policies or a certificate thereof signed by the insurer
evidencing that such insurance coverage is in effect for periods of not less
than one (1) year shall be delivered to Bank within five (5) Business Days after
the issuance of the policies and after each renewal thereof.
(c) All premiums thereon shall be paid by the applicable Borrower or
applicable Guarantor Subsidiary monthly in advance; and if any Borrower or any
Guarantor Subsidiary fails to do so, Bank may (but shall not be required to)
procure such insurance and charge the cost to either Borrower's account as part
of the Obligations payable on demand and secured by the Collateral, the Premises
and other security for the Obligations.
10.17 LIABILITY INSURANCE. Each Borrower and each Guarantor Subsidiary
will, at all times, maintain in full force and effect such liability insurance
with respect to its activities and business interruption, product liability and
other insurance as may be required by Bank, such insurance to be provided by
insurer(s) acceptable to Bank, and if requested
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by Bank such insurance shall name Bank (and no other party) as an additional
insured as its interest may appear.
10.18 DEPOSIT ACCOUNTS. Each Borrower and each Guarantor Subsidiary
(other than HMI Inc. and Tube-Fab and HMI Acceptance) will consider maintaining
throughout the term of this Agreement all of such Borrower's or such Guarantor
Subsidiary's depository, disbursement, trust, payroll and other account
relationships with Bank and not alter existing account relationships which bear
on the creditworthiness of Borrower and/or the pricing of the Loans or this
credit arrangement or such other account relationships. Each Borrower hereby
agrees that it will not, and each Borrower will cause each Guarantor subsidiary
not to, assert any claims or set off rights against Bank as a result of its
maintaining any account relationship with Bank or any Affiliate of Bank.
10.19 MERGER, ETC. Neither Borrower will, and each Borrower will cause
each Guarantor subsidiary not to, merge or consolidate or form a joint venture
or partnership with or acquire any other Person; provided, however, that,
notwithstanding the foregoing, (a) any Guarantor Subsidiary may merge or
consolidate with another Guarantor subsidiary but only so long as (i) both
immediately before and after giving effect thereto, no Event of Default exists
or shall exist and (ii) the Parent shall own, either directly or indirectly, one
hundred percent (100%) of the equity interests of the surviving or resulting
entity, and (b) the Parent may merge or consolidate with Bliss or a Subsidiary
Guarantor but only so long as (i) both immediately before and after giving
effect thereto, no Event of Default exists or shall exist and (ii) the Parent
shall be the surviving or resulting entity.
10.20 INVESTMENTS. Neither Borrower will, and each Borrower will cause
each Guarantor Subsidiary not to, make any investment in the securities of any
Person other than investments in Cash Equivalents which are pledged to Bank as
collateral and security for the Obligations.
10.21 DIVIDENDS. Neither Borrower will, and each Borrower will cause
each Guarantor Subsidiary not to, declare or pay cash or stock dividends upon
any of its stock (including, without limitation, any preferred stock now or
hereafter issued) or make any distributions of its assets, or make any loans,
advances and/or extensions of credit, to any Persons, including, without
limitation, any of either Borrower' s or any Guarantor Subsidiary's Affiliates,
officers or employees; PROVIDED, HOWEVER, that Borrowers may make loans and
advances to employees for (i) entertainment, travel and other similar expenses
in the ordinary course of business not to exceed Fifty Thousand Dollars
($50,000) in the aggregate at any time outstanding and (ii) moving and other
relocation expenses in the ordinary course of business not to exceed
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Three Hundred Thousand Dollars ($300,000) in the aggregate at any time
outstanding; and PROVIDED, FURTHER, that intercompany loans, advances and/or
extensions of credit may be made by (i) Parent to Bliss or any Guarantor
Subsidiary, or (ii) Bliss to Parent or any Guarantor Subsidiary, but only so
long as, in each case, either immediately before or after giving effect thereto,
no Event of Default exists or shall exist. In no event shall either Borrower or
any Guarantor Subsidiary make any distributions of its assets to, or make any
loans, advances and/or extensions of credit to, or engage in any other
transaction with, Home Impressions, Inc. or Experimental Distributing, Inc.
10.22 REDEMPTION OF STOCK. Neither Borrower will, and each Borrower will
cause each Guarantor Subsidiary not to, voluntarily or pursuant to any
contractual or other obligations redeem, retire, purchase, repurchase or
otherwise acquire, directly or indirectly, or exercise any call rights relating
to, any of its capital stock or any other securities now or hereafter issued by
either Borrower or any Guarantor Subsidiary (including, without limitation, any
warrants).
10.23 STOCK RIGHTS. Neither Borrower will, and each Borrower will cause
each Guarantor Subsidiary not to, change the rights or obligations associated
with, or the terms of any class of its stock or issue any new class of stock, or
its Articles or Certificate of Incorporation or its Code of Regulations or
By-laws to the extent any such action could have a Material Adverse Effect.
10.24 CAPITAL STRUCTURE, Etc. Neither Borrower will, and each Borrower
will cause each Guarantor Subsidiary not to, make any change in its capital
structure or in any of its business objectives, purposes and operations which
might in any way materially and adversely affect the repayment of the
Obligations.
10.25 AFFILIATE TRANSACTIONS. Neither Borrower will, and each Borrower
will cause each Guarantor Subsidiary not to, enter into, or be a party to, any
transaction with any of its Affiliates, except in the ordinary course of
business, pursuant to the reasonable requirements of its business, and upon fair
and reasonable terms which are fully disclosed in any filings with the
Securities and Exchange Commission and are no less favorable to it than it could
obtain in a comparable arm's length transaction with a Person not its Affiliate.
10.26 [INTENTIONALLY OMITTED]
10.27 SALE OF ASSETS. Neither Borrower will, and each Borrower will
cause each Guarantor Subsidiary, Home Impressions, Inc. and Experimental
Distributing, Inc. not to,
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sell, lease or otherwise dispose of or transfer, whether by sale, merger,
consolidation, liquidation, dissolution, or otherwise, any of its assets,
including, without limitation, the Collateral, the Premises and other security
for the Obligations, except for (i) the sale of Inventory in the ordinary course
of business, (ii) the sale of individual tangible assets consisting of personal
property (as opposed to the sale of all or substantially all of the tangible
assets of either Borrower, any Guarantor Subsidiary, Home Impressions, Inc.,
Experimental Distributing, Inc. or any division or business thereof) having a
purchase price not in excess of One Hundred Thousand Dollars ($100,000), and in
any fiscal year, having aggregate purchase prices in excess of Two Hundred Fifty
Thousand Dollars ($250,000), and (iii) subject to the other terms of this
Agreement, the HRS Sale; PROVIDED, HOWEVER, that the proceeds of the sale of any
assets permitted pursuant to this SECTION 10.27 shall be immediately paid over
to Bank and
(a) in the case of sales of any of the Parent's or Bliss'
Equipment, (1) first, applied to all accrued and unpaid interest on the
principal of all of the Loans, and (2) SECOND, one hundred percent
(100%) of the remainder of such proceeds equal to the appraised value
(as of the Effective Date) of the Equipment sold (i.e., after the
applications set forth in clause (a) (1) above) applied up to the amount
of the principal installments of the Bliss Equipment Term Loan, as
applicable, in the inverse order of maturity;
(b) in the case of (A) any remaining proceeds after the
applications set forth in clauses (a) (1) an (a) (2) above, (B) sales of
any of the Parent's or Bliss' Equipment where the Bliss Equipment Term
Loan has been paid in full or (C) sales of any other assets permitted to
be sold under this SECTION 10.27 (other than Inventory in the ordinary
course of business and other than the assets sold in connection with the
HRS Sale), applied (1) FIRST, to all accrued and unpaid interest on the
principal of all of the Loans to the extent not previously applied in
clause (a) above, (2) SECOND, fifty percent (50%) of the remainder of
such proceeds (i.e., after the applications set forth in clause (b) (1)
above) to the outstanding principal amount of the applicable Revolving
Loans, (3) THIRD, twenty-five percent (25%) of the remainder of such
proceeds (i.e., after the applications set forth in clause (b) (1)
above) to the principal installments of the Special Term Loan in the
order of maturity, (4) FOURTH, twenty-five percent (25%) of the
remainder of such proceeds (i.e., after the applications set forth in
clause (b) (1) above) to the principal installments of the Special Term
Loan in the inverse order of maturity, and (5) FIFTH, to the payment
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of the other Obligations, in a manner satisfactory to Bank, in its sole
discretion; and
(c) in the case of the HRS Sale, Two Million Dollars
($2,000,000) of the HRS Proceeds shall be applied to the principal
installments of the Special Term Loans in the inverse order of maturity
and the remainder of the HRS Proceeds shall be applied to the
outstanding principal amount of the Revolving Loans,
The proceeds of the sales of Inventory in the ordinary course of business shall
be applied to the principal of and interest on the Revolving Loans. The purchase
price in connection with the sale of any assets permitted pursuant to this
SECTION 10.27 (other than, subject to the terms of this Agreement, the HRS Sale)
shall be payable solely in cash. With respect to the sales of assets referred to
in clause (ii) above, the applicable Borrower or applicable Guarantor Subsidiary
shall give Bank prior written notice of any such sale of assets in the event the
sale price of the assets proposed to be sold exceeds Seventy-Five Thousand
Dollars ($75,000). In the event Bank shall have given its prior written consent
to any sale of assets not otherwise permitted under this Section 10.27, the
proceeds of such permitted sale shall be immediately paid over to Bank and
applied in a manner similar to the manner of application set forth in clauses
(a) and (b) above.
10.28 CONSIGNMENTS. Etc. Neither Borrower will, and each Borrower will
cause each Guarantor Subsidiary not to, make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment
or any other repurchase or return basis.
10.29 CHANGE IN MANAGEMENT OR BUSINESS. Neither Borrower will, and each
Borrower will cause each Guarantor Subsidiary not to, permit to occur any
seizure, vesting or intervention by or under the authority of any government by
which its management is displaced or its authority in the conduct of its
business is curtailed.
10.30 CLAIMS AGAINST COLLATERAL OR PREMISES. Neither Borrower will, and
each Borrower will cause each Guarantor Subsidiary not to, (a) permit to occur
any attachment or distraint of any material portion of the Collateral, the
Premises or other security for the Obligations or (b) permit any material
portion of the Collateral or other security for the Obligations to become
subject, at any time, to any mandatory court order or other legal process.
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10.31 JUDGMENTS. Neither Borrower will, and
each Borrower will cause each Guarantor Subsidiary not to,
permit any judgment in excess of Two Hundred Thousand Dollars
($200,000) or any number of judgments in excess of Three
Hundred Thousand Dollars ($300,000), in the aggregate, to be
rendered against it; PROVIDED, HOWEVER, that this SECTION
10.31 shall not be breached to the extent that (a) any such
judgment(s) is discharged or satisfied within thirty (30) days
after the date of the order, decree or process under which or
pursuant to which such judgment(s) was entered, or (b) a stay
of execution is secured pending appeal of such judgment, and
during the appeal of such judgment, a bond is posted in the
full amount of the judgment (plus interest) and the full
amount of the judgment (plus interest) is adequately reserved
for on the applicable Borrower's or Subsidiary Guarantor's
books.
10.32 STOCK OWNERSHIP. Parent will at all times own one hundred percent
(100%) of the stock (voting or otherwise) of Bliss and each Guarantor Subsidiary
(other than Personal Care which shall be owned as set forth in Schedule 10
attached hereto).
10.33 FINANCIAL COVENANTS. Each Borrower will comply with all of the
financial covenants contained in Exhibit M (the "Financial Covenants") attached
hereto and incorporated herein by reference.
10.34 CHANGE OF OFFICERS; Good Standing Certificates. (a) Each Borrower
will, and each Borrower will cause each Guarantor Subsidiary to, notify Bank in
writing of (i) any removal, resignation, or replacement of any of either
Borrower's officers holding office on the Effective Date, prior to any such
removal, resignation or replacement, and (ii) the creation of any category of
officer not in place on the Effective Date and the name of the Person who will
act in such capacity, prior to such creation.
(b) Upon Bank's request therefor, each Borrower will furnish to Bank a
certificate from the Secretary of State of the state or other jurisdiction of
formation of each Borrower and each Guarantor Subsidiary indicating that each
Borrower and each Guarantor Subsidiary is in good standing under the laws of
such state or jurisdiction and certificates indicating that each Borrower and
each Guarantor Subsidiary is qualified to do business under the laws of all
states and jurisdictions where the failure to be so qualified could have a
Material Adverse Effect.
10.35 HRS SALE; HRS PROCEEDS. The cash consideration for the HRS Sale
shall be at least Two Million Dollars ($2,000,000) and such sale shall be
consummated on or before August 31, 1997. Any non-cash consideration for such
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sale shall be pledged to Bank as security for the Obligations. Any cash
consideration for the HRS Sale in excess of Two Million Dollars ($2,000,000)
shall be applied as set forth in clause (c) of Section 10.27 hereof.
10.36 AMENDMENTS TO NOTE AGREEMENT. Parent will not, and will not permit
any other Person to (i) replace any of the promissory notes issued under the
Note Agreement which are in place as of the Effective Date, (ii) waive
compliance with any of the terms of the Note Agreement or any of the agreements,
instruments or other documents executed in connection therewith to the extent
such waiver could materially and adversely affect the Bank or otherwise could
have a Material Adverse Effect, or (iii) replace, amend, supplement or otherwise
modify any of the terms or provisions of the Note Agreement or any of the
agreements, instruments or other documents executed in connection therewith as
in effect on the Effective Date to the extent any such action (u) changes the
maturity date of such Indebtedness, (v) increases the principal amount of such
Indebtedness, (w) changes the amortization schedule for such Indebtedness, (x)
increases the interest charged on the principal amount of such Indebtedness, (y)
grants the holder(s) of such Indebtedness rights with respect thereto greater
than those in effect on the Effective Date, or (z) otherwise could materially
and adversely affect Bank or could have a Material Adverse Effect.
10.37 AMENDMENTS TO PTY INDEBTEDNESS. Parent and/or Pty will not, and
will not permit any other Person to (i) replace any of the promissory notes
issued under the Indebtedness secured by the First Chicago Letter of Credit
which are in place as of the Effective Date, (ii) waive compliance with any of
the terms or provision of or relating to such Indebtedness to the extent such
waiver could materially and adversely affect the Bank or otherwise could have a
Material Adverse Effect, or (iii) replace, amend, supplement or otherwise modify
any of the terms or provisions of or relating to such Indebtedness as in effect
on the Effective Date to the extent any such action (u) changes the maturity
date of such Indebtedness, (v) increases the principal amount of such
Indebtedness, (w) changes the amortization schedule for such Indebtedness, (x)
increases the interest charged on the principal amount of such Indebtedness, (y)
grants the holder(s) of such Indebtedness rights with respect thereto greater
than those in effect on the Effective Date, or (z) otherwise could materially
and adversely affect Bank or could have a Material Adverse Effect. Parent and/or
Pty will not permit the Indebtedness secured by the First Chicago Letter of
Credit to be secured by any rights, liens, mortgages or security interests in
any assets of either Borrower or any Guarantor Subsidiary (other than the First
Chicago Letter of Credit) .
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10.38 FISCAL YEAR. Neither Borrower will, and each Borrower will cause
each Guarantor Subsidiary not to, change its fiscal year from a year ending
September 30.
10.39 PAYMENT OF OUTSTANDING FEES AND EXPENSES. On or before the
Effective Date, Borrowers shall pay or reimburse to Bank all (a) legal fees and
expenses, (b) fees and expenses of any appraisers and environmental consultants,
(c) UCC search fees and filing fees, and (d) other similar fees, which, in each
case, have been incurred and/or paid by Bank prior to the Effective Date and
which remain unpaid or unreimbursed as of the Effective Date. Bank shall provide
Borrowers with the amount of the foregoing fees and expenses on or prior to the
Effective Date, together with copies of any invoices therefor which the Bank may
have in its possession.
11. EFFECTIVE DATE; TERMINATION.
11.1 EFFECTIVE DATE AND TERMINATION DATE. This Agreement shall be
effective on the date upon which all of the conditions set forth herein and in
Exhibit K attached hereto have been fully satisfied in a manner satisfactory to
Bank and upon which the initial Loans have been made by Bank to Borrowers.
Unless otherwise terminated in accordance with the provisions of this Agreement,
this Agreement shall terminate on October 1, 1998.
11.2 RECOURSE TO SECURITY. Recourse to security will not be required at
any time. Each Borrower waives presentment and protest of any instrument and
notice thereof, notice of default and all other notices to which such Borrower
might otherwise be entitled.
11.3 ACCELERATION UPON TERMINATION. Upon the effective date of any
termination of this Agreement, all of each Borrower' s and each Guarantor
Subsidiary' 5 Obligations to Bank shall become immediately due and payable
without notice or demand.
11.4 BORROWERS REMAINS LIABLE. Notwithstanding any termination, until
all of the Obligations have been fully performed, paid and satisfied, each
Borrower and each Guarantor Subsidiary shall remain liable for the full and
prompt performance and payment of the Obligations and the indemnification set
forth in Section 15.10, and Bank shall retain all of its rights and privileges
hereunder, including, without limitation, the retention of its interest in and
to all of the Collateral, the Premises and other security for the Obligations .
12. EVENTS OF DEFAULT. Each of the following shall consti- tute an "Event of
Default" hereunder:
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(a) either Borrower shall fail to pay, when due (whether by demand,
at maturity or otherwise) , any portion of the principal amount
of any of the Loans;
(b) either Borrower shall fail to pay, when due (whether by demand,
at maturity or otherwise), any portion of any interest on or
with respect to any of the Loans and such failure shall continue
for three (3) consecutive Business Days;
(c) either Borrower shall fail to pay, when due (whether by demand,
at maturity or otherwise), any portion of any of the other
Obligations owing from such Borrower to Bank and such failure
shall continue for five (5) consecutive Business Days after Bank
shall have delivered notice to such Borrower of such failure;
(d) either Borrower shall commit any breach of Section 8.1, Section
10.10, Section 10.14, Section 10.16(b) or Section 10.34(a) of
this Agreement and such Borrower shall not have cured such
breach within ten (10) days after the occurrence of such breach;
(e) either Borrower shall commit any breach of this Agreement (other
than under Section 8.1, Section 10.10, Section 10.14, Section
10.16(b) or Section 10.34(a) hereof), as amended or
supplemented;
(f) any representation or warranty made by either Borrower herein,
in connection with this Agreement, in connection with any
transaction relating to this Agreement, or in any of the other
Loan Documents is, or becomes, untrue or misleading in any
respect when made or deemed made;
(g) any representation or warranty made by any Guarantor Subsidiary
or any other guarantor of the Obligations herein or in any other
Loan Document to which it is a party is, or becomes, untrue or
misleading in any respect when made or deemed made;
(h) either Borrower, any Guarantor Subsidiary or any other guarantor
of the Obligations, as the case may be, shall: (i) fail to be
Solvent, (ii) become generally unable to pay its debts as they
become due, (iii) make an assignment for the benefit of
creditors, (iv) call a meeting of creditors for the composition
of debts, (v) make any misrepresentation to Bank in connection
with this Agreement or any transaction relating hereto, (vi)
make any misrepresentation to any Affiliate of Bank, or
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(vii) fail to make any payment due to any Affiliate of Bank
(subject to any applicable grace periods);
(i) (i) there shall be filed by or against either Borrower, any
Guarantor subsidiary or any other guarantor of the obligations,
as the case may be, a petition in bankruptcy or for
reorganization, or (ii) a custodian, receiver or agent shall be
appointed or authorized to take charge of any of their
respective properties;
(j) there shall occur any material and adverse change in the
business operations or condition, financial or otherwise, of the
Borrowers and the Guarantor Subsidiaries, taken as a whole;
(k) either Borrower or any Guarantor Subsidiary or any other
guarantor of the obligations shall be in default under its
guaranty of the obligations;
(1) any Guarantor subsidiary or any other guarantor of the
obligations shall be in default under any other agreement to
which it is a party and such default could have a Material
Adverse Effect;
(m) either Borrower or any Guarantor Subsidiary or any other
guarantor of the obligations dies, denies its obligation to
guarantee any then existing obligations or attempts to limit
or terminate its obligation to guarantee any future
obligations (including, without limitation, any future advance
by Bank to Borrowers);
(n) there shall occur a casualty Loss in excess of One Hundred
Thousand Dollars ($100,000) with respect to the Collateral, the
Premises or other security for the Obligations which is not
covered by insurance;
(o) the audit report required pursuant to Section 8.7 is not an
unqualified audit report, unless the reason for qualification is
not material to either Borrower's or any subsidiary Guarantor's
financial condition in Bank's reasonable opinion;
(p) a Discretionary Base Deficiency shall occur and shall not have
been eliminated by the applicable Borrower within ten (10)
Business Days following the occurrence thereof;
(q) a Deficiency, other than a Discretionary Base Deficiency, shall
occur;
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(r) t:he Collateral, or other security for the obliga- tions shall
decline in value with the result that Bank's security for the
Obligations is materially diminished;
(s) any default shall occur under the terms applicable to any
Indebtedness owing (i) to Bank or any Affiliate of Bank (other
than Indebtedness incurred in connection with this Agreement) by
either Borrower or any Guarantor subsidiary (subject to any
applicable grace periods), or (ii) to any other Person by either
Borrower or any Guarantor Subsidiary in an aggregate amount
exceeding Two Hundred Fifty Thousand Dollars ($250,000) which
represents any borrowing or financing or arises under any other
agreement from, by or with any such Person (subject to any
applicable grace periods);
(t) a contribution failure occurs with respect to any Pension Plan,
Multiemployer Plan or Welfare Plan sufficient to give rise to a
lien under Section 302(f) of ERISA;
(u) there shall have been instituted against either Borrower or any
Guarantor subsidiary any criminal proceedings for which
forfeiture of any assets having an aggregate value of One
Hundred Thousand Dollars ($100,000) is a potential penalty; or
(v) either Borrower or any Guarantor subsidiary shall default in the
due performance and observance of any covenant or agreement
contained in, or otherwise commit any breach of, any Loan
Document to which it is a party (other than this Agreement) or
any other agreement between Bank and such Borrower (other than
this Agreement) or between such Borrower and any Affiliate of
Bank (subject, in each case, to any applicable grace periods) .
13. BANK'S RIGHTS AND REMEDIES.
13.1 ACCELERATION, ETC. Upon the occurrence of any Event of Default, in
addition to all other rights and remedies provided herein or available at law or
in equity, Bank may, without further notice or demand, declare the Loans and all
other Obligations to be immediately due and payable (except that with respect to
any Event of Default under SECTION 12(h) or(i), such acceleration of the Loans
shall be automatic), and, to the extent that the maximum amount of the Total
Facility has not yet been used or fully drawn on by Borrowers, terminate the
undrawn balance of same, and Bank shall have all rights to realize upon the
Collateral, the premises and other security for the Obligations set forth in the
documents
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providing for such security as described in SECTION 5 hereof, the terms of which
are incorporated herein by reference as if set forth herein in full, and as
otherwise provided by applicable law. Bank's rights and remedies under this
Agreement shall be cumulative and not exclusive of any other right or remedy
which Bank may have.
13.2 FEES AND EXPENSES. Each Borrower shall pay to Bank, immediately and
as part of the Obligations, all costs and expenses, including court costs,
Attorneys' Fees and costs of sale, incurred by Bank in exercising any of its
rights or remedies hereunder .
13.3 ACTIONS IN RESPECT OF THE LETTERS OF CREDIT. If any Event of
Default shall have occurred and be continuing, Bank may, whether in addition to
taking any of the actions described in Section 13.1 above or otherwise, if any
Letters of Credit shall have been issued and be outstanding for the account of a
Borrower, make demand upon such Borrower to, and forthwith upon such demand such
Borrower will, pay to Bank in same day funds at Bank's office designated in such
demand, for deposit in a special non-interest bearing cash collateral account
for such Borrower (each such account maintained for each Borrower being referred
to as the "Letter of Credit Collateral Account") to be maintained at such office
of Bank, an amount equal to the aggregate Letter of Credit Face Amount for such
Borrower. Each Letter of Credit Collateral Account shall be in the name of the
applicable Borrower (as a cash collateral account), but under the sole dominion
and control of Bank and subject to the terms of this Agreement.
13.4 LETTER OF CREDIT COLLATERAL ACCOUNT.
(a) Each Borrower hereby pledges, and grants to Bank a lien and
security interest in, all funds held in its Letter of Credit Collateral
Account from time to time and all proceeds thereof, as security for the
payment of all amounts due and to become due from such Borrower to Bank
under the Loan Documents.
(b) Bank may, at any time or from time to time after funds are
deposited in a Letter of Credit Collateral Account, apply funds then
held in such Letter of Credit Collateral Account to the payment of any
amounts, in such order as Bank may elect, as shall have become or shall
become due and payable by the applicable Borrower to Bank under the Loan
Documents first, in respect of the Letters of Credit of such Borrower
and second, in respect of all other Obligations.
(c) Neither Borrower nor any person claiming on behalf of or
through either Borrower shall have any right to withdraw any of the
funds held in a Letter of Credit
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Collateral Account, except as otherwise provided in subsection (d)
below.
(d) So long as no Event of Default shall be continuing, Bank
will apply to the Obligations, at the written request of the applicable
Borrower, funds held in such Borrower' 5 Letter of Credit Collateral
Account in an amount up to but not exceeding the excess, if any
(immediately prior to the release of any such funds), of (i) the total
amount of funds held in such Letter of Credit Collateral Account over
(ii) the Letter of Credit Obligations of such Borrower. If at any time
the Letter of Credit Obligations of such Borrower shall have been
indefeasibly paid or otherwise satisfied in full and no Event of Default
shall then exist, Bank will apply any remaining amount on deposit in
such Letter of Credit Collateral Account to the other Obligations of
Borrower to Bank in such order and method of application as may be
elected by Bank in its sole discretion and/or retain such amount as
continuing security for the Obligations.
(e) Each Borrower agrees that it will not (i) sell or otherwise
dispose of any interest in its Letter of Credit Collateral Account or
any funds held therein, or (ii) create or permit to exist any lien,
security interest or other charge or encumbrances upon or with respect
to its Letter of Credit Collateral Account or any funds held therein
other than in favor of Bank.
(f) Bank shall exercise reasonable care in the custody and
preservation of any funds held in each Letter of Credit Collateral
Account and shall be deemed to have exercised such care if such funds
are accorded treatment substantially equivalent to that which Bank
accords its own property, it being understood that Bank shall not have
any responsibility for taking any necessary steps to preserve rights
against any parties with respect to any such funds.
(g) If any Event of Default shall have occurred and be
continuing:
(i) Bank may, without notice to the applicable Borrower
at any time or from time to time, charge, set-off and otherwise
apply all or any part of the obligations of such Borrower now or
hereafter existing under any of the Loan Documents against its
Letter of Credit Collateral Account or any part thereof.
(ii) Bank may also exercise in respect of a Letter of
Credit Collateral Account, in addition to other rights and
remedies provided for herein or
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otherwise available to it, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code in
effect in the State of Ohio at that time, and Bank may, without
notice except as specified below, sell such Letter of Credit
Collateral Account or any part thereof in one or more parcels at
public or private sale, at any of Bank's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other
terms as Bank may deem commercially reasonable. Each Borrower
agrees that, to the extent notice of sale shall be required by
law, at least five (5) days' notice to such Borrower of the time
and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification.
Bank shall not be obligated to make any sale of a Letter of
Credit Collateral Account, regardless of notice of sale having
been given. Bank may adjourn any public or private sale from
time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(iii) Any cash held by Bank in a Letter of Credit
Collateral Account, and all cash proceeds received by Bank in
respect of any sale of, collection from or other realization
upon all or any part of such Letter of Credit Collateral Account
shall, then be applied (after payment of any amounts payable
pursuant to Section 13.2) in whole by Bank against the
Obligations in such order as Bank shall elect. Any surplus of
such cash or cash proceeds held by Bank and remaining after
payment in full of all the Obligations shall be paid over to the
applicable Borrower or to whomsoever may be lawfully entitled to
receive such surplus.
14. WAIVER; AMENDMENTS; SUCCESSORS AND ASSIGNS.
14.1 RELEASE OF COLLATERAL AND PREMISES. Bank's rights with respect to
the Collateral, the premises and other security for the Obligations and its
liens thereon and security interest therein shall continue unimpaired, and each
Borrower shall remain obligated in accordance with the terms hereof,
notwithstanding the release or substitution of any Collateral, the Premises or
other security for the Obligations at any time(s), or any rights or interests
therein, or any delay, extension of time, renewal, compromise or other
indulgence granted by Bank in reference to any Obligations, and each Borrower
hereby waives all notice of the same. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
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<PAGE> 73
14.2 WAIVERS AND AMENDMENTS IN WRITING. Failure by Bank to exercise any
right, remedy or option under this Agreement or any supplement hereto or in any
other agreement between either Borrower or any Guarantor Subsidiary and Bank or
delay by Bank in exercising the same shall not operate as a waiver by Bank of
its right to exercise any such right, remedy or option. No waiver by Bank shall
be effective unless it is in writing and then only to the extent specifically
stated. This Agreement cannot be changed or terminated orally .
14.3 ASSIGNMENT. Bank shall have the right to assign all or any part of
this Agreement and/or the other Loan Documents. Neither Borrower may assign,
transfer or otherwise dispose of any of its rights or obligations hereunder or
under any of the other Loan Documents to which it is a party, by operation of
law or otherwise, and any such assignment, transfer or other disposition without
Bank's written consent shall be void. All of the rights, privileges, remedies
and options given to Bank hereunder shall inure to the benefit of Bank's
successors and assigns, and all the terms, conditions, covenants, provisions and
warranties herein shall inure to the benefit of and bind the representatives,
successors and assigns of each Borrower and Bank, respectively.
15. MISCELLANEOUS.
15.1 SEVERABILITY. Each provision of this Agreement shall be interpreted
in such manner as to be valid under applicable law, but if any provision hereof
shall be invalid under applicable law, such provision shall be ineffective to
the extent of such invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof .
15.2 GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AT
AND SHALL BE DEEMED TO HAVE BEEN MADE AT CLEVELAND, OHIO. THIS AGREEMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF OHIO. For purposes of any action or proceeding involving this
Agreement, each Borrower hereby expressly submits to the nonexclusive
jurisdiction of all federal and state courts located in the State of Ohio and
consents that it may be served with any process or paper by registered mail or
by personal service within or without the State of Ohio in accordance with
applicable law, provided a reasonable time for appearance is allowed.
15.3 WAIVER OF JURISDICTION. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWERS, EACH BORROWER
AGREES THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT, ITS VALIDITY OR PERFORMANCE, AT THE SOLE
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OPTION OF BANK, ITS SUCCESSORS AND ASSIGNS, AND WITHOUT LIMITATION ON THE
ABILITY OF BANK, ITS SUCCESSORS AND ASSIGNS, TO EXERCISE ALL RIGHTS AS TO THE
COLLATERAL, THE PREMISES AND OTHER SECURITY FOR THE OBLIGATIONS OR INITIATE AND
PROSECUTE IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT OF THE
OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR
SUCCESSORS AND ASSIGNS AT CLEVELAND, OHIO. BANK AND EACH BORROWER EACH CONSENTS
TO AND SUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT
SITUATED AT CLEVELAND, OHIO HAVING JURISDICTION OVER THE SUBJECT MATTER, WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO THE APPLICABLE BORROWER
AND BANK AT THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION 15.9 BELOW OR AS
OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF OHIO. EACH BORROWER WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT .
15.4 SURVIVAL OF REPRESENTATIONS ANA WARRANTIES. Each Borrower
covenants, warrants and represents that all of its representations and
warranties contained in this Agreement are true at this time, shall survive the
execution, delivery and acceptance hereof by the parties hereto and the closing
of the transactions described herein or related hereto, and shall remain true
until the Obligations are fully performed, paid and satisfied, subject to such
changes as may not be prohibited hereby, do not constitute Events of Default
hereunder, and have been consented to by Bank in writing.
15.5 EVIDENCE OF LOANS. Each loan or advance made by Bank to either
Borrower pursuant to this Agreement may or may not (at Bank's sole discretion)
be evidenced by notes or other instruments issued or made by such Borrower to
Bank. Where such loans or advances are not so evidenced, such loans and advances
shall be evidenced solely by entries upon Bank's books and records. The
Replacement Revolving Note, dated as of February 28, 1997, executed by Borrowers
and the Guarantor Subsidiaries in favor of Bank in the principal amount of up to
$20,000,000 shall be deemed to be replaced by the terms and provisions of this
Agreement and the Guaranty at the time the Borrowers and the Guarantor
Subsidiaries execute and deliver this Agreement and the Guaranty.
15.6 BANK'S ABILITY REGARDING COLLATERAL AND PREMISES. All of the
Obligations shall constitute one loan secured by all security as described in
Section 5 above and by all other security now and from time to time hereafter
granted by either Borrower and any Subsidiary Guarantor to Bank. Bank may, in
its sole discretion, (i) exchange, enforce, waive or release any such security
or portion thereof, (ii) apply such
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<PAGE> 75
security and direct the order or manner of sale thereof as Bank may, from time
to time, determine and (iii) settle, compromise, collect or otherwise liquidate
any such security in any manner without affecting or impairing its right to take
any other further action with respect to any security or any part thereof.
15.7 APPLICATION OF PAYMENTS, ETC. Bank shall have the continuing right
to apply or reverse and reapply any payments to any portion of the Obligations,
subject to the terms of this Agreement. To the extent either Borrower or any
Guarantor Subsidiary makes a payment or payments to Bank or Bank receives any
payment or proceeds of the Collateral, the Premises or any other security for
either Borrower's or any Guarantor Subsidiary's benefit, which payment(s) or
proceeds or any part thereof are subsequently voided, invalidated, declared to
be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the Obligations or part thereof intended to be satisfied
shall be revived and shall continue in full force and effect, as if such payment
or proceeds had not been received by Bank.
15.8 FEES AND EXPENSES. Borrowers shall reimburse Bank for all costs,
fees, expenses and liabilities incurred by Bank or for which Bank becomes
obligated in connection with or arising out of: (i) the negotiation,
preparation, closing and enforcement of this Agreement, any amendment hereof and
any agreements, documents and instruments in any way relating hereto and any of
Bank's rights hereunder; (ii) any loans or advances made by Bank hereunder;
(iii) any transaction contem- plated by this Agreement; (iv) any inspection
and/or audit and/or verification of the Collateral, the Premises and/or other
security for the Obligations and/or either Borrower or any Guarantor Subsidiary;
(v) any liability under Section 3505 of the Internal Revenue Code and all other
local, state and federal statutes of similar import; and (vi) costs of settle-
ment incurred by Bank after the occurrence of an Event of Default (a) in
enforcing any Obligation or in foreclosing against the Collateral or the
Premises or exercising or enforcing any other right or remedy available by
reason of such Event of Default, (b) in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or in any insolvency or bankruptcy proceeding, (c) in
commencing, defending or intervening in any litigation or in filing a petition,
complaint, answer, motion or other pleadings in any legal proceeding relating to
either Borrower or any Guarantor Subsidiary and related to or arising out of the
transactions contemplated hereby or by any of the Loan Documents, (d) in taking
any other action in or with respect to any suit or
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proceeding (whether in bankruptcy or otherwise), (e) in protecting, preserving,
collecting, leasing, selling, taking possession of, or liquidating any of the
Collateral or the Premises, (f) attempting to enforce or enforcing any lien on
or security interest in any of the Collateral or the Premises or any other
rights under the Loan Documents or (g) in meeting with either Borrower or any
Guarantor Subsidiary to discuss such Event of Default and the course of action
to be taken in connection therewith. The foregoing costs, fees, expenses and
liabilities shall include, without limitation, Attorneys' Fees and fees of other
professionals all lien search and title search fees, all title insurance
premiums, all filing and recording fees and all travel expenses. All of the
foregoing shall be part of the Obligations, payable upon demand, and secured by
the Collateral and other security for the Obligations described in Section 5
above. The Obligations described under this Section 15.8 shall survive any
termination of this Agreement.
15.9 NOTICES. Any notice required, permitted or contemplated hereunder
shall be in writing and addressed to the party to be notified at the address set
forth below or at such other address as each party may designate for itself from
time to time by notice hereunder, and shall be deemed validly given (i) three
(3) days following deposit in the U.S. mails, with proper postage prepaid, or
(ii) the next business day after such notice was delivered to a regularly
scheduled overnight delivery carrier with delivery fees either prepaid or an
arrangement, satisfactory with such carrier, made for the payment thereof, or
(iii) upon receipt of notice given by telecopy, mailgram, telegram, telex or
personal delivery:
To Bank: Star Bank, National Association
1350 Euclid Avenue
Cleveland, Ohio 44115
Attention: Large Corporate Lending Department
Telecopy No: (216) 623-9208
To Either
Borrower or any
Guarantor
Subsidiary: c/o HMI Industries Inc.
3631 Perkins Avenue
Cleveland, Ohio 44114
Attention: Chief Executive Officer
Telecopy No: (216) 432-0013
15.10 INDEMNIFICATION. In consideration of the execution and delivery of
this Agreement by Bank and the extension of the commitments hereunder, each
Borrower hereby indemnifies, exonerates and holds Bank and each of its officers,
directors, employees and agents (collectively the "Indemnified Parties" and,
individually, an "Indem-
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<PAGE> 77
nified Party") free and harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities, damages, and expenses actually
incurred in connection therewith (irrespective of whether such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or arising
out of, or relating to, or as a direct or indirect result of:
(a) any transaction financed or to be financed in whole or in
part or directly or indirectly with the proceeds of any Loan;
(b) the entering into and performance of this Agreement and the
other Loan Documents by any of the Indemnified Parties;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by either Borrower or any Guarantor
Subsidiary of all or any portion of the stock or all or substantially
all the assets of any Person, whether or not Bank is party thereto; and
(d) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by either Borrower or any Guarantor
Subsidiary of any Hazardous Material (including, without limitation, any
losses, liabilities, damages, injuries, costs, expenses or claims
asserted or arising under the Comprehensive Environmental Response,
Compensation and Liability Act, any so-called "Superfund" or "Superlien"
law, or any other federal, state, local or other statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating
to or imposing liability or standards on conduct concerning, any
Hazardous Material), regardless of whether or not caused by, or within
the control of, either Borrower or any Guarantor Subsidiary;
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of Indemnified Party's gross negligence
or willful misconduct or breach by such Indemnified Party of its obligations
under the Loan Documents, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, each Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law, except as
aforesaid to the extent not payable by reason of the Indemnified Party's gross
negligence or willful misconduct or breach of such
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obligations. The Obligations described under this SECTION 15.10 shall survive
any termination of this Agreement.
15.11 EQUITABLE RELIEF. Each Borrower recognizes that, in the event such
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement or any of the other Loan Documents, any remedy
of law may prove to be inadequate relief to Bank; therefore, each Borrower
agrees that Bank, if Bank so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
15.12 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
of the parties with respect to its subject matter and supersedes all previous
understandings, written or oral, in respect thereof. 15.13 Headings. Section
headings in this Agreement are included for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
15.14 WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED INDUCEMENT FOR
BANK TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO EACH BORROWER, EACH
BORROWER AND BANK EACH WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM,
SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT AND/OR THE
CONDUCT OF THE RELATIONSHIP BETWEEN BANK AND BORROWERS.
15.15 REVOCATION OF APPOINTMENT OF PARENT AS AGENT. Each Borrower and,
by its execution and delivery of the Consent and Agreement attached hereto, each
Guarantor Subsidiary hereby agrees that the appointment of Parent as agent for
the Borrowing Group (as defined in the Existing Credit Agreement) is hereby
revoked. Bank hereby acknowledges and consents to such revocation.
15.16 NO STRICT CONSTRUCTION. Notwithstanding the fact that this
Agreement has been initially drafted and prepared by one of the parties, all of
the parties hereto confirm that they and their respective counsel have reviewed,
negotiated and adopted this Agreement as the joint agreement and understanding
of the parties, and the language used in this Agreement shall be deemed to be
the language chosen by the parties hereto to express their mutual intent, and no
rule of strict construction shall be applied against any person.
15.17 CONFESSION OF JUDGMENT. Each Borrower hereby irrevocably
authorizes and empowers any attorney-at-law to appear for such Borrower in any
action upon or in connection with this Agreement at any time after the Loans
and/cr other obligations become due, as herein provided, in any court in or of
the State of Ohio or elsewhere, and waives with and
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<PAGE> 79
irrevocably authorizes and empowers any such attorney-at-law to confess judgment
in favor of Bank against such Borrower, the amount due thereon or hereon, plus
interest as herein provided, and all costs of collection, and waives and
releases all errors in said proceedings and judgments and all rights of appeal
from the judgment rendered. Each Borrower agrees and consents that the attorney
confessing judgment on behalf of such Borrower may also be counsel to the Bank
or any of Bank's Affiliates, waives any conflict of interest which might
otherwise arise, and consents to Bank paying such confessing attorney a
reasonable legal fee or allowing such attorney's reasonable fees to be paid from
the proceeds of collection of the Loans and/or Obligations or proceeds of
Collateral, the Premises or any other security for the Loans and the other
Obligations.
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<PAGE> 80
IN WITNESS WHEREOF, this Agreement has been duly executed by each
Borrower as of the ____ day of June, 1997.
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.
Signed and acknowledged
in the presence of: HMI INDUSTRIES INC.
/s/ Carl A. Young III By: /s/ Mark A. Kirk
- --------------------------------- -------------------------------
Name: Carl A. Young III Its: Vice President
---------------------------- ------------------------------
- ---------------------------------
Name:
-----------------------------
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.
Signed and acknowledged
in the presence of: BLISS MANUFACTURING COMPANY
/s/ Carl A. Young III By: /s/ Mark A. Kirk
- --------------------------------- -------------------------------
Name: Carl A. Young III Its: Vice President
---------------------------- ------------------------------
- ---------------------------------
Name:
-----------------------------
<PAGE> 81
STATE OF OHIO )
) ss:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before me this 6th day of
June, 1997, by Mark A. Kirk, Vice President of HMI Industries Inc., a Delaware
corporation, on behalf of the company.
c /s/ Caroline A. Gale
-----------------------------
CAROLYN A. GALE
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires Jan. 28, 2001
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
The foregoing instrument was acknowledged before, this 6th day of June,
1997, by Mark A. Kirk, Vice President of Bliss Manufacturing Company, an Ohio
corporation, on behalf of the company.
/s/ Caroline A. Gale
-----------------------------
CAROLYN A. GALE
Notary Public, State of Ohio, Cuy. Cty.
My Commission Expires Jan. 28, 2001
Accepted at Cleveland, Ohio,
as of June 6, 1997
STAR BANK, NATIONAL ASSOCIATION
By: /s/ John D. Barrett
- -------------------------------
John D. Barrett, Senior Vice President
<PAGE> 82
Schedule 1
INCORPORATION AND QUALIFICATION JURISDICTION
--------------------------------------------
BORROWERS STATE/PROVINCE OF INCORPORATION
- --------- --------------------------------
HMI Industries Inc. Delaware
Bliss Manufacturing Company Ohio
GUARANTOR SUBSIDIARIES
- -----------------------
Tube Form, Inc. Ohio
Health-Mor Acceptance Corporation Delaware
Newton Falls Holding Company Delaware
Tube-Fab Ltd. Ontario
Health-Mor International Inc. US Virgin Islands
HMI Acceptance Corporation Ontario
Health-Mor Acceptance PTY LTD Australia
HMI Incorporated Ontario
Health-Mor Personal Care Corp. Delaware
Home Impressions, Inc.
Experimental Distributing, Inc. Ohio
<PAGE> 83
SCHEDULE 2
LICENSES, PATENTS, ETC.
-----------------------
Set forth below is a list of each Borrower's and Guarantor Subsidiary's
governmental approvals, permits, licenses, patents, copyrights, trademarks and
trade names.
U.S. TRADEMARKS REGISTRATION NUMBERS
- --------------- ---------------------
Ascension Plus 1,727,261
Ascension 1,720,029
Miscellaneous Design "Bird Logo" 2,033,003
Captiva 2,034,466
Captiva 1,980,046
Comfort Lounger 1,944,528
Defender 2,050,553
ElektraPure 2,010,472
Empress 1,973,733
Enviropure 1,810,559
Filter Queen 378,297
Filter Queen & Crown Design 663,742
Filter Queen & Crown Design 663,256
Filter Queen Pow-R-Nozzle & Crown Design 1,070,550
Filter Queen Pow-R Clean-Up Team & Design 1,111,650
Miscellaneous Filter Design "Cone Dude" 1,815,375
GentleJet 2,021,467
Groomex 1,754,460
Health-Mor 1,753,732
Home Impressions 1,949,110
Majestic 1,866,813
Mini Pow-R-Nozzle 1,838,584
Optima 1,954,079
Optima 1,959,113
Optima Plus 2,000,968
Preci-Jet 1,438,533
Princess 1,941,266
Seal Guard 1,287,898
Triangle in a Circle 1,593,851
Triple Crown 1,996,371
True Colors 2,051,602
Vacu-Queen T33286
Vacuum Cleaner Design 1,976,252
Vista 1,790,181
5-in-1 2,024,542
<PAGE> 84
U.S. PATENTS PATENT NUMBERS
- ------------ --------------
Suction Cleaner Power Nozzle 4,199,839
Multi-motor suction cleaner (upright) 4,225,999
Top cover for tank type suction cleaner D260, 151
Design for hand suction cleaner D268,057
Seal Guard 1,287,898
Power nozzle sudser for a cannister vac 4,507,819
Medicine vial adaptor for injector 4,662,878
Needless hypodermic injector 4,722,728
Central Vac housing design D294,187
Vacuum cleaner and filter thereof 5,248,323
Elbow design D345,413
Vacuum cleaner canister base connector 5,515,573
Filter bag for a vacuum cleaner 5,522,908
Telescoping Flagpole 5,572,835
Filter System 5,593,479
Vacuum cleaner and filter bag with
air management 5,603,741
<PAGE> 85
SCHEDULE 3
PERMITTED INDEBTEDNESS
HMI Industries Inc. 3/31/97
STAR Bank revolving line of credit and term facility $20,000,000
- actual usage at 3/31/97 was $17,880,000.
Private Placement Notes $1,666,667
- 7 year, 9.86% promissory notes
-due Nov. '97
Distributor deposits (normal course of business) $446,555
Capitalized lease obligations
- Computer hardware and software $212,176
- Filter Cone machine lease $331,214
- Computer lease $25,075
STAR Bank building mortgage/loan $2,214,923
Hollandsche-Unit Bank loan (Rotterdam) $542,741
-actual loan total is 1,000,000 Netherland Guilders
Industrial Revenue Bond - Lombard property $911,715
Bliss Manufacturing Company
STAR BANK leases
-#410 $119,416
-#411 $164,434
-#412 $75,362
-#413 $495,775
<PAGE> 86
SCHEDULE 3 (continued)
PERMITTED INDEBTEDNESS
Health-Mor Acceptance Pty Ltd.
NBD Bank line of credit $727,050
- actual loan availability is 840,000 Australian $
Health-Mor Personal Care Corp.
Mortgage on land and building $316,537
- details to be arranged
HMI Incorporated
Distributor deposits (normal course of business) $202,590
Tube-Fab Ltd.
DIPP Government grant (MPD Div.) $99,447
Various other indebtedness not exceeding $100,000 which does not have a
material adverse effect on the Borrowers' and Guarantors' financial condition.
<PAGE> 87
SCHEDULE 4
PERMlTTED LIENS
HMI Industries Inc.
STAR Bank revolving line of credit and term facility
Private Placement Notes
- - 7 year, 9.86% promissory notes
- -due Nov. '97
Capitalized lease obligations
- - Computer hardware and software
- - Filter Cone machine lease
- - Computer lease
STAR Bank building mortgage/loan
Surety Bond Indemnifications
The practise since HMI Industries Inc. acquired HMI Incorporated in 1987
has been to continue to have HMI Incorporated guarantee the surety bonds of
distributors so that the distributors can be bonded to carry on business in
Canada.
As of 1997, the bonding company (London Guarantee) is requiring that
those bonds requiring a corporate guarantee of HMI be done under the name of HMI
Industries Inc.
As of May 1997, the status of these bonds are as follows:
Active Bonds $162,000
Lapsed bonds (within discovery period) $702,000
The amount of lapsed bonds represents a) the proactive move to have the
Regional Distributor indemnify the bonds, b) the proactive nature of having
distributors stand on their own (or under their Regional Distributor) and c) the
elimination of distributors whose bond the company had previously indemnified
(clean up).
<PAGE> 88
SCHEDULE 4 (continued)
PERMITTED LIENS
Bliss Manufacturing Company
STAR BANK leases
-#410, #411, #412, #413
Health-Mor Acceptance Pty Ltd.
NBD Bank line of credit
Health-Mor Personal Care Corp.
Mortgage on land and building
<PAGE> 89
SCHEDULE 5
RESTRICTIONS, LABOR ISSUES
--------------------------
1. Except as set forth herein, neither Borrower nor Guarantor Subsidiary is
a party or subject to any charge, restriction, judgment, decree or
order.
None
2. Except as set forth herein, neither Borrower's nor any Guarantor
Subsidiary's labor contracts are scheduled to expire within three years
of the date of the Agreement.
None
3. Except as set forth herein, neither Borrower nor any Guarantor
Subsidiary is a party to any employment contract or labor contract.
Kirk Foley
Gary Moore
Ted Timmers
Carl Young
Mark Kirk
Jim Malone
Robert Benedict
Bliss Manufacturing Employees Association - expires 8/31/2001
<PAGE> 90
SCHEDULE 6
VIOLATION OF LAW
-----------------
No violations
<PAGE> 91
SCHEDULE 7
PENSION PLAN LIABILITY
----------------------
None
<PAGE> 92
SCHEDULE 8
LITIGATION
----------
See Litigation Status Report attached hereto.
<PAGE> 93
LITIGATION STATUS REPORT
------------------------
May 1997
MULTIPLE ALABAMA CUSTOMER LAWSUITS
- -----------------------------------
HMI Industries is a principal defendant, with its distributor Ike
Walden, d/b/a Filter Queen Center, and his distributor, Mance Terry, d/b/a
Mance Modern Air, in 11 lawsuits filed in as many separate counties in Alabama
by lawyers representing Alabama purchasers of the Majestic Filter Queen during
the last six years. At the outset of litigation, there were 206 plaintiffs.
Insurance
- ---------
Chubb Insurance, the company's present insurance carrier, is providing
the defense and has set aside reserves per claimant.
Unlike Chubb, the company's prior insurance carrier Cigna has refused to
either defend or indemnify the company on the claims. While Cigna's policy was
in effect when certain of the purchases were made, Cigna has maintained that
because the claim arose in the fall of 1995 when the plaintiffs knew or should
have known of the misrepresentations, the Cigna policy is not applicable. We are
exploring on behalf of HMI potential claims against Cigna for "bad faith"
refusal to defend.
Status
- ------
The litigation has been resolved as a result of a mediation conference
held February 17, 1997 in Birmingham, Alabama. Settlement documents are being
completed. Costs of settlement for plaintiffs approximate $250,000, with a
similar amount being paid by Chubb.
Hatch v. Health-Mor, Inc. et al.
- ---------------------------------
Suit by consumer against distributor and HMI for fraud and
misrepresentation that Filter Queen sold as a black lung machine.
ACTION SINCE LAST REPORT: Matter settled as part of overall settlement
of Alabama litigation.
MICHELLE ARNOLD V. DENNIS BRUCE PULLEN, D/B/A A-1 VACUUM & SUPPLY
- ------------------------------------------------------------------
Negligent hiring/supervision claim alleged against HMI by an employee of
a distributor. Claim against HMI is that it "forced" distributor to hire
assailant.
ACTION SINCE LAST REPORT: Summary judgment grant HML
<PAGE> 94
HMI V. NORIAN. FEDERAL DISTRICT COURT
- -------------------------------------
ACTION SINCE LAST REPORT: Matter settled. Apology, noncompete and
promissory note calling for payment of $63,000 by Norton.
HMI V. UNIVERSAL VACUUM CORPORATION AND HARLAN WILSON, GRAND RAPIDS, MICHIGAN
- -----------------------------------------------------------------------------
Suit filed by HMI to secure materials purchased from UVC in an asset
purchase agreement. UVC unable to produce machines due to lack of funds and
inept management. Trial court has granted HMI's request for product and
materials to be sent to HMI for production. Universal has counterclaimed.
Mediation in August 1996 resulted in a positive award to HMI. Mediation rejected
by Universal, which seeks sums in excess of $200,000. Matter set for trial May
28, 1997.
HMI V. MCLAIN, FEDERAL DISTRICT COURT, NORTHERN DISTRICT OF OHIO
- -----------------------------------------------------------------
HMI has sued former distributor Brian McLain for violation of HMI's
Filter Queen trademark and in an action on an account. HMI terminated its
relationship with McLain in August 1995 due to customer complaints and bad
business practices. McLain never filed a responsive pleading or motion and HMI
won a default. On December 4, 1995, the day before a scheduled default judgment
hearing which would have ended the case, McLain filed a petition for Chapter 7
bankruptcy, staying HMI's action against him. HMI's Complaint was filed
September 8, 1995.
MCLAIN V. HMI. FEDERAL DISTRICT COURT. NORTHERN DISTRICT OF TEXAS
- ------------------------------------------------------------------
On June 19, 1996, Brian McLain filed an action against HMI seeking in
excess of $50,000 in damages for tortious interference with business
relationships and breach of contract. HMI agreed to waive service of summons and
a responsive pleading or motion is due on August 19, 1996 We have sought
dismissal or transfer of venue as compulsory counterclaim to HMI's action in
Ohio.
BEAGLE V. HMI, ET AL., JEFFERSON COUNTY, TEXAS
- ----------------------------------------------
The Beagles brought an action in Texas state court stemming from their
purchase of a Filter Queen from Brian McLain. According to the Beagels, McLain
and HMI engaged in deceptive sales practices and breached the purchase contract,
among other things. Through local counsel, HMI has answered the Complaint,
denying liability as to HMI. No written agreement exists between HMI and Brian
McLain. There has been no other action in the case.
<PAGE> 95
R&D DISTRIBUTING AND RONALD STEAD V. HMI INDUSTRIES INC.
- --------------------------------------------------------
In December 1996, after negotiations with distributor Ronald Stead
failed to produce any resolution, Stead commenced legal action in state court in
Michigan. HMI has removed the action to federal court and counterclaimed for
sums in excess of $150,000. Stead had announced to HMI his desire to retire and
wished to provide for himself a "retirement package" that was neither justified
nor warranted by past actions. The counterclaim of HMI is based on nonpayment by
Stead for various items purchased. Stead is now working for a competitor of HMI.
Discovery to commence.
<PAGE> 96
SCHEDULE 9
Affiliates
----------
Set forth below is a list of all persons who own 10% or more of the
outstanding common stock of HMI Industries, Inc.
NAME OWNERSHIP PERCENTAGE
---- --------------------
Kirk W. Foley 14.31%
Barry S. Needler 37.97%
Affiliates also include those officers and directors of Borrowers and
Guarantor Subsidiaries and such additional Persons as are included in the
definition of Affiliate.
<PAGE> 97
Schedule 10
CAPITALIZATION
--------------
HMI INDUSTRIES INC.
Preferred stock, $5 par value
300,000 authorized, none issued
Common Stock, $1 par value
10,000,000 authorized, 5,295,556 issued $5,295,556
Capital Paid in Excess of Par Value $7,634,886
Common Stock Held in Treasury $1,790,202
(see Proxy Statement for Shareholdings)
BLISS MANUFACTURING COMPANY
Outstanding shares 100% owned by HMI Industries Inc.
TUBE FORM, INC.
Outstanding shares 100% owned by HMI Industries Inc.
HEALTH-MOR ACCEPTANCE CORPORATION
Outstanding shares 100% owned by HMI Industries Inc.
NEWTON FALLS HOLDING COMPANY
Outstanding shares 100% owned by Bliss Manufacturing Company
TUBE-FAB LTD.
Outstanding shares 100% owned by HMI Industries Inc.
HEALTH-MOR INTERNATIONAL, INC.
Outstanding shares 100% owned by HMI Industries Inc.
HMI ACCEPTANCE CORPORATION
Outstanding shares 100% owned by HMI Industries Inc.
<PAGE> 98
HEALTH-MOR ACCEPTANCE PTY LTD
Outstanding shares 100% owned by HMI Industries Inc.
HMI INCORPORATED
Outstanding shares 100% owned by HMI Industries Inc.
EXPERIMENTAL DISTRIBUTING, INC.
Outstanding shares 100% owned by HMI Industries Inc.
HEALTH-MOR PERSONAL CARE CORP.
Common Stock, $1 par value
10,000 shares authorized and issued
Shareholder # shares % $
HMI Industries Inc. 8,500 85% $ 8,500
Gary Moore/MIl Investment Corp. 1,000 10% $ 1,000
Four other investors 500 5% $ 500
-------
$10,000
=======
Capital Paid in Excess of Par Value $ 6,000
=======
<PAGE> 99
SCHEDULE 11
DEPOSIT AND OTHER ACCOUNTS
Attached is a list of all bank accounts for the Borrowers and the
Guarantor Subsidiaries.
<PAGE> 100
<TABLE>
<CAPTION>
Bank Accounts for HMI Industries Inc. & Subsidiaries
HMI Industries Inc.
Federal ID #36-1202810
<S> <C>
805-8828 48573-9981
Control led Disbursements-Payroll Workman's Compensation Checking
Star Bank Star Bank
1301 Euclid Ave 1301 Euclid Ave
Cleveland, Ohio 44115 Cleveland, Ohio 44115
Contact: John Barrett 623-9220 Contact: John Barrett 623-9220
48039-0012 48573-9791
Guaranteed Loans - Checking Supernaturals Acct
Star Bank Star Bank
1301 Euclid Ave 1301 Euclid Ave
Cleveland, Ohio 44115 Cleveland, Ohio 44115
Contact: John Barrett 623-9220 Contact: John Barrett 623-9220
805-5238 805-5204
Business Checking - Payables Checking - Concentration Account
Star Bank Star Bank
1301 Euclid Ave 1301 Euclid Ave
Cleveland, Ohio 44115 Cleveland, Ohio 44115
Contact: John Barrett 623-9220 Contact: John Barrett 623-9220
HMAC
Federal ID #34-1639758
805-5702
HMAC Business Checking
Star Bank
1301 Euclid Ave
Cleveland, Ohio 44115
Contact: John Barrett 623-9220
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
BANK ACCOUNTS FOR AMT INDUSTRIES INC. & SUBSIDIARIES
BLISS MANUFACTURING
FEDERAL ID# 34-1231433
<S> <C>
805-5253 GT-09337-49
Business Checking Business Checking
Star Bank Painewebber Inc.
1301 Euclid Ave 3701 Boardman-Canfield Rd.
Cleveland, Ohio 44115 PO Box 100
Contact: John Barrett Canfield, Ohio 44406
(216) 623-9220 Contact: Ray McCune
(330) 533-7191
ACCT CLOSED AS OF 5/27/97
10383 147303
Business Checking Business Checking
Bank One Bank One
6 Federal Plaza West 6 Federal Plaza West
Youngstown, Ohio 44503 Youngstown, Ohio 44503
Contact: Patty Nesbitt Contact: Patty Nesbitt
(330) 742-6778 (330) 742-6678
</TABLE>
<PAGE> 102
BANK ACCOUNTS FOR HMI INDUSTRIES INC. & SUBSIDIARIES
HMI INC.
<TABLE>
<CAPTION>
<S> <C>
37-02618 02-06016
HMI Inc. - $CDN HMI Inc. - $US
CIBC CIBC
2866 Dufferin St. 2866 Dufferin St.
North York, Ontario M6B 3S6 North York, Ontario M6B 3S6
Contact: Eric Macklin Contact: Eric Macklin
(416) 781-5613 (416) 781-5613
43-05914 35-05219
Household Rental Systems - $CDN FQ Home Shoppe-Burlington - $CDN
CIBC CIBC
2866 Dufferin St. 2866 Dufferin St.
North York, Ontario M6B 3S6 North York, Ontario M6B 3S6
Contact: Eric Macklin Contact: Eric Macklin
(416) 781-5613 (416) 781-5613
36-03717 36-03512
FQ H S-Burlington - Defender $CDN FQ Home Shoppe - Vancouver $CDN
CIBC CIBC
2866 Dufferin St 2866 Dufferin St.
North York, Ontario M6B 3S6 North York, Ontario M6B 3S6
Contact: Eric Macklin Contact: Eric Macklin
(416) 781-5613 (416) 781-5613
36-03415 43-03814
FQ H S -Vancouver-Defender $CDN HMI Acceptance Corp $CDN
CIBC CIBC
2866 Dufferin St. 136 Rexdale Blvd.
North York, Ontario M6B 3S6 Rexdale, Ontario M9W 1P6
Contact: Eric Macklin Contact: Terri Politi
(416) 781-5613 (416) 743-8291
1040-624 1029-591
HMI Inc. - MASTERCARD - $ CDN FQ H S-Burlington-Mastercard-$CDN Bank of
MONTREAL Bank of Montreal
155 Rexdate Blvd. 777 Guelph Line
Rexdale, Ontario M9W 5Z8 Burlington, Ontario L7R 3N2
Contact: Nancy Van Wert Contact: Mastercard a/c rep.
(416) 744-6367 (905) 632-7000
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
BANK ACCOUNTS FOR HMI INDUSTRIES INC. & SUBSIDIARIES
TUBE FAB LTD & MANUFACTURED PRODUCTS DIVISION
<S> <C>
91-02116 02-03416
Business Checking -CDN $ Business Checking -US $
CIBC CIBC
Markborough Place Markborough Place
671 1 Mississauga Road 671 1 Mississauga Road
Mississauga, Ontario L5N 2W3 Mississauga, Ontario L5N 2W3
Contact: Janet Ashby Contact: Janet Ashby
(905) 826-3771 (905) 826-3771
HEALTH-MOR INTERNATIONAL, INC.
719-1-298715
Business CHECKING
Chase Manhattan
PO Box 309600
St. Thomas, VI 00803-9600
Contact: Diane Forde
(809) 693-1726
HEALTH-MOR PERSONAL CARE CORP.
73-3002099-6 73-3002100-2
Business Checking Payroll Account
First Bank of America-Kankakee First Bank of America-Kankakee
1 Dearborn Square 1 Dearborn Square
Kankakee, IL 60901 Kankakee, IL 60901
No individual assigned as contact No individual assigned as contact
(815) 693-3600 (815) 935-3600
</TABLE>
<PAGE> 104
<TABLE>
<CAPTION>
BANK ACCOUNTS FOR HMI INDUSTRIES INC. & SUBSIDIARIES
HEALTH-MOR ACCEPTANCE PTY. LTD.
<S> <C>
10620801 10620800
Distributor Acct - Checking Business Checking
State Bank Of New South Wales State Bank of New South Wales
342 Victoria Ave 342 Victoria Ave
Chatswood NSW 2067 Chatswood NSW 2067
Contact: the Manager Contact: the Manager
0011 1612 9412 2811 0011 1612 9412 2811
Loan Acct
First Chicago Australia
Level 24 Grosvenor Place
225 George Street
Sydney NSW 2000
Contact: Bill Giffen
Oll 1612 9954 3677
HMI INDUSTRIES - INC. ROTTERDAM
61 9907 819 62 8161 999
HBU Bank HBU Bank
PO Box 249 PO Box 249
3000 AE Rotterdam 3000 AE Rotterdam
Contact: C. de Jong Contact: C. de Jong
011 31 10 2820282 Oll 31 10 2820282
</TABLE>
<PAGE> 105
JULY 17, 1996
TO: KELLEY CROOKSTON FROM HELEN NORRIS
CANADIAN BANK ACCOUNT LISTING
------------------------------
<TABLE>
<CAPTION>
============================================================================================================
<S> <C> <C> <C>
BANK NAME Canadian Imperial Bank of Canadian Imperial Bank of Canadian Imperial Bank of
Commerce Commerce Commerce
- ------------------------------------------------------------------------------------------------------------
BANK ADDRESS 2866 Dufferin St. 2866 Dufferin St. 2866 Dufferin St.
North York, Ontario North York, Ontario North York, Ontario
M6B 3S6 M6B 3S6 M6B 3S6
- ------------------------------------------------------------------------------------------------------------
ACCOUNT NUMBER 37-02618 02-06016 43-05914
- ------------------------------------------------------------------------------------------------------------
ACCOUNT NAME HMI Incorporated HMI Incorporated Household Rental Systems
- ------------------------------------------------------------------------------------------------------------
TYPE OF ACCOUNT Current - Canadian Funds U.S. Funds Current - Canadian Funds
- ------------------------------------------------------------------------------------------------------------
SIGNING AUTHORITIES Kirk Foley - Unlimited Kirk Foley - Unlimited Kirk Foley - Unlimited
AND LIMITS Kevin Dow - Unlimited Kevin Dow - Unlimited Kevin Dow - Unlimited
Helen Norris - Unlimited Helen Norris - Unlimited Helen Norris - Unlimited
Frank Solloh - Unlimited
- ------------------------------------------------------------------------------------------------------------
NUMBER OF SIGNATURES Any two of the above Any two of the above Any two of the above
REQUIRED
=============================================================================================================
<CAPTION>
=========================================================================================
<S> <C> <C>
BANK NAME Canadian Imperial Bank of Canadian Imperial Bank of
Commerce Commerce
- ------------------------------------------------------------------------------------------
BANK ADDRESS 2866 Dufferin St. 2866 Dufferin St.
North York, Ontario North York, Ontario
M6B 3S6 M6B 3S6
- ------------------------------------------------------------------------------------------
ACCOUNT NUMBER 35-05219 36-03717
- ------------------------------------------------------------------------------------------
ACCOUNT NAME Filter Queen Home Shoppe- Filter Queen Home Shoppe-
Burlington Burlington "Defender"
- ------------------------------------------------------------------------------------------
TYPE OF ACCOUNT Current - Canadian Funds Current - Canadian Funds
- ------------------------------------------------------------------------------------------
SIGNING AUTHORITIES Kirk Foley - Unlimited Kirk Foley - Unlimited
AND LIMITS Kevin Dow - Unlimited Kevin Dow - Unlimited
Helen Norris - Unlimited (*) Helen Norris - Unlimited
Jim Adams - Unlimited (*) Jim Adams - Unlimited
- ------------------------------------------------------------------------------------------
NUMBER OF SIGNATURES (*) One sign, up to $2000 Any two of the above
REQUIRED or any two of the above
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================
<S> <C> <C> <C>
BANK NAME Canadian Imperial Bank of Canadian Imperial Bank of Canadian Imperial Bank of
Commerce Commerce Commerce
- --------------------------------------------------------------------------------------------------------------
BANK ADDRESS 2866 Dufferin St. 2866 Dufferin St. 136 Rexdale Boulevard
North York, Ontario North York, Ontario Rexdale, Ontario
M6B 3S6 M6B 3S6 M9W 1P6
- --------------------------------------------------------------------------------------------------------------
ACCOUNT NUMBER 36-03512 36-03415 43-03814
- --------------------------------------------------------------------------------------------------------------
ACCOUNT NAME Filter Queen Home Shoppe- Filter Queen Home Shoppe- HMI Acceptance Corporation
Vancouver Vancouver "Defender"
- --------------------------------------------------------------------------------------------------------------
TYPE OF ACCOUNT Current - Canadian Funds Current - Canadian Funds Current - Canadian Funds
- --------------------------------------------------------------------------------------------------------------
SIGNING AUTHORITIES Kirk Foley - Unlimited Kirk Foley - Unlimited Kevin Dow - Unlimited
AND LIMITS Kevin Dow - Unlimited Kevin Dow - Unlimited Robert Abrahams-Unlimited
Helen Norris - Unlimited (*) Helen Norris - Unlimited Helen Norris - Unlimited
Amin Behbahany - Unlimited (*) Amin Behbahany - Unlimited
- --------------------------------------------------------------------------------------------------------------
NUMBER OF SIGNATURES (*) One sign, up to $2000 Any two of the above Any two of the above
REQUIRED or any two of the above
==============================================================================================================
<CAPTION>
======================================================================================
<S> <C> <C>
BANK NAME Bank of Montreal Bank of Montreal
- -------------------------------------------------------------------------------------
BANK ADDRESS 155 Rexdale Boulevard 777 Guelph Line
Rexdale, Ontario Burlington, Ontario
M9W 5Z8 L7R 3N2
- -------------------------------------------------------------------------------------
ACCOUNT NUMBER 1040-624 1029-591
- -------------------------------------------------------------------------------------
ACCOUNT NAME HMI Incorporated Filter Queen Home Shoppe-
Burlington
- -------------------------------------------------------------------------------------
TYPE OF ACCOUNT Mastercard - Cdn. Funds Mastercard - Cdn. Funds
- -------------------------------------------------------------------------------------
SIGNING AUTHORITIES Kirk Foley - Unlimited Kevin Dow - Unlimited
AND LIMITS Kevin Dow - Unlimited Helen Norris - Unlimited (*)
Helen Norris - Unlimited Jim Adams - Unlimited (*)
- -------------------------------------------------------------------------------------
NUMBER OF SIGNATURES Any one of the above (*) One sign up to $2000
REQUIRED or any two of the above
====================================================================================
</TABLE>
<PAGE> 106
TO: KEVIN DOW
FROM: CHARLES HALL
TUBE-FAB LTD. - CANADIAN BANK ACCOUNT LISTING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank Name: Canadian Imperial Bank of Commerce Bank Name: Canadian Imperial Bank of Commerce
Bank Address: Markborough Place Bank Address: Markborough Place
6711 Mississauga Road 6711 Mississauga Road
Mississauga Mississauga
Ontario. L5N 2W3 Ontario. L5N 2W3
Account Number: 91-02116 Account Number: 02-03416
Account Name: Tube-Fab Ltd. Account Name: Tube-Fab Ltd.
Type of Account: Current - Canadian Funds Type of Account: US $ Operating
Signing Authorities John Dalziel - Unlimited Signing Authorities John Dalziel - Unlimited
and Limits: Mark Kirk - Unlimited and Limits: Mark Kirk - Unlimited
Denis Pickler - Unlimited Denis Pickler - Unlimited
Kevin Dow - Unlimited Kevin Dow - Unlimited
Helen Norris - Unlimited Helen Norris - Unlimited
Mike Harper - Unlimited Mike Harper - Unlimited
Charles Hall - $2,500.00 Charles Hall - $2,500.00
Margaret Burns - $2,500.00 Margaret Burns - $2,500.00
Number of Signatures Number of Signatures
Required: Any two of the above Required: Any two of the above
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 107
SCHEDULE 12
LEASES
- ------
Attached is a schedule of propety lease for various locations.
VARIOUS OTHER LEASES NONE OF WHICH IN THE AGREGATE EXCEEDS $100,000
WHICH DO OT HAVE A MATERIAL ADVERSE EFFECT ON THE BORROWERS' FINANCIAL
CONDITION.
<PAGE> 108
HMI MEMORANDUM
--------------
May 27, 1997
To: Kevin Dow
From: Helen Norris
Re: Canadian Property Leases
<TABLE>
<CAPTION>
=================================================================================================================================
MONTHLY RENT
LOCATION CHARACTER SQUARE FOOTAGE PAYEE [NET] EXPIRY DATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
#3-9670 188TH STREET Lexington
Surrey, BC [HRS] Office & Warehouse 4,100 Properties $2,135.42 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
9407 - 47th Street #657346 Alberta
Edmonton, AB [HRS] Office & Warehouse 3,513 Ltd. $663.00 March 1996
- ---------------------------------------------------------------------------------------------------------------------------------
220 Guthrie Avenue
Dorval, QC [HRS] Office & Warehouse 4,762 La Prudent $1,488.00 March 1997 ***
- ---------------------------------------------------------------------------------------------------------------------------------
6500 Van Deemter Ct.
Mississauga, ON [HRS] Office & Warehouse 10,372 Ulmar Holdings $3,457.33 Month to Month
- ---------------------------------------------------------------------------------------------------------------------------------
2440 New Street Rosehall Mgmt.
Burlington, ON [FQHS] Office & Retail Store 1,100 Inc. $870.83 June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
3594 Main Street Burritt Brothers
Vancouver, BC [FQHS] Office & Retail Store 2,292 Carpet $3,200.00 April 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
6845 Davand Drive
Mississauga, ON Office, Warehouse and 38,400 Director Industrial
[HMI, HRS, TFL] Manufacturing Properties, Inc. $11,830.00 September 30, 2006
==================================================================================================================================
</TABLE>
Note: Monthly Rent [Net] - Does not include property taxes, management fees,
insurance by Landlord, or any other fees from Landlord [GST Extra]
<PAGE> 109
SCHEDULE 13
INSURANCE POLICIES
- ------------------
The purpose of this schedule is the summarize the commercial liability
and property insurance in effect together with confirmation of the naming of
STAR Bank, N.A. as a loss payee. These coverages renewed on May 31, 1997 and
accordingly, I have included confirmation by way of two Certificates of
Insurance with STAR Bank N.A. as loss payee (one for STAR Bank N.A. and one for
STAR's Equipment Division).
<PAGE> 110
<TABLE>
<CAPTION>
=============================================================================================================
ACORD(TM) DATE (MM/DD/YY)
5/30/97
- ---------------------------------------------------------------------------------------------------
<S> <C>
PRODUCER | THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
JOHNSON & HIGGINS | ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
1301 E. Ninth St. Suite 1900 | HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
CLEVELAND, OHIO 44114-1824 | ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
|------------------------------------------------------------
| COMPANIES AFFORDING COVERAGE
----------------------------------------------------------
| COMPANY
IFFANY ZELINKO (216) 523-3559 | A FEDERAL INS CO
- ----------------------------------------------------------------------------------------------------------
INSURED | COMPANY
BLISS MFG. | B
HMI INDUSTRIES, INC. ------------------------------------------------------------
3631 Perkins Avenue | Company
Cleveland, Ohio 44114 | C
-------------------------------------------------------------
| Company
| D
- --------------------------------------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY POLICY EFFECTIVE POLICY EXPIRATION
LTR NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A | GENERAL LIABILITY 35326461 5/31/97 5/31/98 GENERAL AGGRETAGE $2,000,000
| -------------------------------------
| [X ] COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OP AGG $2,000,000
| -------------------------------------
| [ ] [ ] CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $1,000,000
| -------------------------------------
| [ ] OWNERS & CONTRACTOR'S PROT EACH OCCURRENCE $1,000,000
| -------------------------------------
| [ ] ___________________________ FIRE DAMAGE $1,000,000
| (Any one fire)
| -------------------------------------
| [ ] ___________________________ MED EXP (Any one person) $ 10,000
- ----------------------------------------------------------------------------------------------------------------------------------
A | AUTOMOBILE LIABILITY 73203691 5/31/97 5/31/98 COMBINED SINGLE LIMIT $1,000,000
| -------------------------------------
| [X ] ANY AUTO BODILY INJURY
| (Per Person) $
| [ ] ALL OWNED AUTOS -------------------------------------
|
| [ ] SCHEDULED AUTOS -------------------------------------
|
| [X ] HIRED AUTOS BODILY INJURY $
| (Per Accident)
| [X ] NON-OWNED AUTOS
| ------------------------------------
| [ ] ____________________ PROPERTY DAMAGE $
| [ ]
- ----------------------------------------------------------------------------------------------------------------------------------
| GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
| ------------------------------------
| [ ] AUTO AUTO OTHER THAN AUTO ONLY:
| ------------------------------------
| [ ] ___________________________ EACH ACCIDENT $
| ------------------------------------
| [ ] AGGREGATE $
| ------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
A | EXCESS LIABILITY 79747037 5/31/97 5/31/98 EACH OCCURRENCE $8,000,000
| ------------------------------------
| [X ] UMBRELLA FORM AGGREGATE $8,000,000
| ------------------------------------
| [ ] OTHER THAN UMBRELLA FORM $
| ------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
A | WORKER'S COMPENSATION AND 71634449 5/31/97 5/31/98 |X| WC STATU- | | OTH- |
| EMPLOYERS' LIABILITY TORY LIMITS | | ER |
| ------------------------------------
| THE PROPRIETOR/ [ ] INCL EL EACH ACCIDENT $1,000,000
| ------------------------------------
| PARTNERS/EXECUTIVE EL DISEASE-POLICY LIMIT $1,000,000
| ------------------------------------
| OFFICERS ARE: [ ] EXCL EL DISEASE-EA EMPLOYEE $1,000,000
| ------------------------------------
- -------------------------------------------------------------------------------------------------------------------
A | OTHER 35326461 5/31/97 5/31/98 BLANKET LIMIT
| REAL & PERSONAL $10,000 DEDUCTIBLE
| PROPERTY, SPECIAL
| FORM INCL THEFT
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS (LIMITS MAY BE SUBJECT TO DEDUCTIBLES OR RETENTIONS).
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
- -----------------------------------------------------------------------------------------------------------------------------------
STAR BANK SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
NATIONAL ASSOCIATION EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL
425 WALNUT STREET, LOC. 8135 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,
CINCINNATI, OH 45202 BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR
LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR
REPRESENTATIVES.
------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE /s/ Nancy A. Baker
- -----------------------------------------------------------------------------------------------------------------------------------
Certificate No. 002001-00059
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
===================================================================================================
ACORD (TM) Date (MM/DD/YY)
5/30/97
- ---------------------------------------------------------------------------------------------------
<S> <C>
PRODUCER | THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
JOHNSON & HIGGINS | ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
1301 E. Ninth St. Suite 1900 | HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
CLEVELAND, OHIO 44114-1824 | ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
|---------------------------------------------------------
| COMPANIES AFFORDING COVERAGE
----------------------------------------------------------
| COMPANY
IFFANY ZELINKO (216) 523-3559 | A FEDERAL INS CO
- ----------------------------------------------------------------------------------------------------------
INSURED | COMPANY
HMI INDUSTRIES, INC. AND | B
ITS SUBSIDIARIES ------------------------------------------------------------
3631 Perkins Avenue | Company
Cleveland, Ohio 44114 | C
-------------------------------------------------------------
| Company
| D
- --------------------------------------------------------------------------------------------------------------
COVERAGES
- --------------------------------------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED
TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED, NOTWITHSTANDING ANY
REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO
WHICH THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN, THE INSURANCE AFFORDED BY
THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND
CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CO TYPE OF INSURANCE POLICY POLICY EFFECTIVE POLICY EXPIRATION
LTR NUMBER DATE (MM/DD/YY) DATE (MM/DD/YY) LIMITS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A | GENERAL LIABILITY 35326461 5/31/97 5/31/98 GENERAL AGGRETAGE $2,000,000
| -------------------------------------
| [X ] COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OP AGG $2,000,000
| -------------------------------------
| [ ] [ ] CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $1,000,000
| -------------------------------------
| [ ] OWNERS & CONTRACTOR'S PROT EACH OCCURRENCE $1,000,000
| -------------------------------------
| [ ] ___________________________ FIRE DAMAGE $1,000,000
| (Any one fire)
| -------------------------------------
| [ ] ___________________________ MED EXP (Any one person) $ 10,000
- ----------------------------------------------------------------------------------------------------------------------------------
A | AUTOMOBILE LIABILITY 73203691 5/31/97 5/31/98 COMBINED SINGLE LIMIT $1,000,000
| -------------------------------------
| [X ] ANY AUTO BODILY INJURY
| (Per Person) $
| [ ] ALL OWNED AUTOS -------------------------------------
|
| [ ] SCHEDULED AUTOS -----------------------------------
|
| [X ] HIRED AUTOS BODILY INJURY $
| (Per Accident)
| [X ] NON-OWNED AUTOS
| ------------------------------------
| [ ] ____________________ PROPERTY DAMAGE $
| [ ]
- ----------------------------------------------------------------------------------------------------------------------------------
| GARAGE LIABILITY AUTO ONLY - EA ACCIDENT $
| ------------------------------------
| [ ] AUTO AUTO OTHER THAN AUTO ONLY:
| ------------------------------------
| [ ] ___________________________ EACH ACCIDENT $
| ------------------------------------
| [ ] AGGREGATE $
| ------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
A | EXCESS LIABILITY 79747037 5/31/97 5/31/98 EACH OCCURRENCE $8,000,000
| ------------------------------------
| [X ] UMBRELLA FORM AGGREGATE $8,000,000
| ------------------------------------
| [ ] OTHER THAN UMBRELLA FORM $
| ------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
A | WORKER'S COMPENSATION AND 71634449 5/31/97 5/31/98 |X| WC STATU- | | OTH- |
| EMPLOYERS' LIABILITY TORY LIMITS | | ER |
| ------------------------------------
| THE PROPRIETOR/ [ ] INCL EL EACH ACCIDENT $1,000,000
| ------------------------------------
| PARTNERS/EXECUTIVE EL DISEASE-POLICY LIMIT $1,000,000
| ------------------------------------
| OFFICERS ARE: [ ] EXCL EL DISEASE-EA EMPLOYEE $1,000,000
| ------------------------------------
- -------------------------------------------------------------------------------------------------------------------
A | OTHER 35326461 5/31/97 5/31/98 BLANKET LIMIT
| REAL & PERSONAL $10,000 DEDUCTIBLE
| PROPERTY, SPECIAL
| FORM INCL THEFT
- -----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS (LIMITS MAY BE SUBJECT TO DEDUCTIBLES OR RETENTIONS).
IT IS AGREED THAT CERTIFICATE HOLDER IS ADDED AS ADDITIONAL INSURED/LOSS PAYEE AS RESPECT LEASED FORKLIFTS AND A TURRET PRESS
PUNCH.
- -----------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
- -----------------------------------------------------------------------------------------------------------------------------------
STAR BANK NA SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
EQUIPMENT FINANCE DIVISION EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL
ATTN: KAREN M. WARTMAN 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,
425 WALNUT STREET, LOC. #8135 BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR
CINCINNATI, OH 45202 LIABILITY OF ANY KIND UPON THE COMPANY, ITS AGENTS OR
REPRESENTATIVES.
--------------------------------------------------------------------------
AUTHORIZED REPRESENTATIVE/s/ Nancy A. Baker
- ------------------------------------------------------------------------------------------------------------------------------------
Certificate No. 001001-00026
</TABLE>
<PAGE> 112
SCHEDULE 14
SEVERANCE/LOSS ON SALE OF ASSETS
Severance charge related to Kirk Foley's retirement on May 14, 1997, and
the Company-wide layoffs of May 28, 1997.
Loss, if any, on disposal of non-core assets.
<PAGE> 113
SCHEDULE 15
TAX LIABILITIES
Health-Mor International, Inc. FSC has a tax liability currently due but
unpaid to the Internal Revenue Service for the fiscal year 1996 tax year. This
liability will be offset by a refund to be received by HMI Industries Inc. upon
filing an amended return for the same tax period.
<PAGE> 1
Exhibit 10.10(a)
EXECUTION COPY
WAIVER AND AMENDMENT NO. 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This WAIVER AND AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment"), made as of this 5th day of December, 1997, among STAR BANK,
NATIONAL ASSOCIATION, a national banking association ("Bank"), HMJ INDUSTRIES
INC., a Delaware corporation ("Parent"), and BLISS MANUFACTURING COMPANY, an
Ohio corporation ("Bliss") (Parent and Bliss being sometimes hereinafter
collectively referred to as the "Borrowers" and individually as a "Borrower").
WITNESSETH:
WHEREAS, the Borrowers and Bank have entered into that certain Amended
and Restated Credit Agreement, dated as of June 6, 1997 (the "Credit
Agreement"), pursuant to which Bank has made certain loans and financial
accommodations available to the Borrowers;
WHEREAS, the Borrowers and Bank desire to amend the Credit Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Bank and the Borrowers agree as
follows:
SECTION 1. DEFINED TERMS.
-------------------------
Each defined term used herein and not otherwise defined herein has the
meaning ascribed to such term in the Credit Agreement.
SECTION 2. AMENDMENT TO CREDIT AGREEMENT.
------------------------------------------
The Credit Agreement is amended, effective as of the date of all of the
conditions set forth in SECTION 4 hereof shall have been satisfied, as follows:
2.1 AMENDMENT TO PRELIMINARY SECTION. The first paragraph following
WITNESSETH in the Credit Agreement is amended in its entirety to read as
follows:
WHEREAS, HMI Incorporated, an Ontario corporation ("HMI Inc."), Newton
Falls Holding Company, a Delaware corporation ("Newton"), Tube-Fab Ltd., an
Ontario corporation ("Tube-Fab"), Tube Form, Inc., an Ohio corporation ("Tube
Form", which at the time of the execution and delivery of the Existing Credit
Agreement was a subsidiary of Parent), Health-Mor International, Inc., a U.S.
Virgin Islands corporation ("International"), Health-Mor Acceptance Corporation,
a Delaware corporation ("Acceptance"), HMI Acceptance Corporation, an Ontario
corporation ("HMI Acceptance"), and Health-Mor
<PAGE> 2
Acceptance Pty. Ltd., an Australian corporation ("Pty") (HMI Inc.,
Newton, Tube-Fab, International, Acceptance, HMI Acceptance, Pty and
Health-Mor Personal Care Corporation, a Delaware corporation ("Personal
Care") being sometimes hereinafter collectively referred to as the
"Guarantor Subsidiaries" and individually as a "Guarantor Subsidiary"),
Borrowers and Bank entered into that certain Credit Agreement, dated as
of August 14, 1996, as amended by that certain First Amendment to Credit
Agreement, dated as of November 15, 1996, and as further amended by
that certain Second Amendment to Credit Agreement, dated as of December
19, 1996, that certain Third Amendment to Credit Agreement, dated as of
March 7, 1997, and that certain Fourth Amendment to Credit Agreement,
dated as of April 7, 1997 (collectively, the "Existing Credit
Agreement");
2.2 AMENDMENT TO SECTION 2.7. Section 2.7 of the Credit Agreement is
amended in its entirety to read as follows:
2.7 SPECIAL TERM LOAN FACILITY. The Special Term Loan under the
Special Term Loan Facility will be made to Parent in the amount of Two
Million Two Hundred Fifty Thousand Nine Hundred Fifty-Two Dollars
($2,250,952) on the Effective Date. The principal of the Special Term
Loan shall be payable as set forth in this Agreement. The principal of
the Special Term Loan then outstanding shall be due and payable upon the
effective date of any termination of this Agreement pursuant to SECTION
11 and/or SECTION 13 hereof. No repayment or prepayment of the Special
Term Loan shall be reason for any relending or additional lending of
Special Term Loan proceeds to Parent. Bank shall, to the extent of Two
Million Two Hundred Fifty Thousand Nine Hundred Fifty-Two Dollars
($2,250,952) of the Parent's Existing Loans, satisfy all of its
agreement to make the Special Term Loan to Parent on the Effective Date
by converting such amount of the Parent's Existing Loans into the
Special Term Loan, whereupon such converted amount shall be the Special
Term Loan owing by Parent for all purposes of this Agreement and the
other Loan Documents. Such conversion shall be deemed to have taken
place at the time Parent executes and delivers this Agreement. The
Special Term Loan Facility hereunder represents, in part, a renewal of
certain of the Existing Loans outstanding as of the Effective Date. The
amount of the Existing Loans referred to above originally outstanding
under the Existing Credit Agreement is continuing Indebtedness of Parent
to Bank, and nothing contained herein or in any other Loan Document
shall be construed to deem such amount paid, or to release or terminate
any lien, guaranty or security interest given to secure such amount.
Payment in full of and satisfaction of all Indebtedness with respect to
the Special Term Loan hereunder shall also be deemed to be payment in
full and satisfaction of such amount of the Existing Loans. As of
December 5, 1997, the outstanding principal amount of the Special Term
Loan is One Million Five Hundred Eighty Thousand Fifty-Two Dollars
($1,580,052).
2.3 ADDITION OF SECTION 2.17. Section 2 of the Credit Agreement
is amended by the addition of the following Section 2.17 in proper
numeric order:
2.17 SPECIAL PAYMENT BY PARENT. On or prior to March 31, 1998,
if this Agreement has not been terminated pursuant to SECTION 11 and/or
SECTION 13 hereof, Parent
<PAGE> 3
shall make a payment to Bank of Two Million Dollars ($2,000,000), to be
applied (1) first, to the outstanding principal of the Special Term
Loan, (2) second, to all accrued and unpaid interest on the Special Term
Loan, and (3) third, to the payment of the other Obligations, in a
manner satisfactory to Bank, in its sole discretion.
2.4 AMENDMENT TO EXHIBIT M. Exhibit M to the Credit Agreement is amended
in its entirety to read as set forth on Exhibit M to this Waiver and Amendment
No.1 to Amended and Restated Credit Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Each Borrower represents and warrants to Bank as follows:
3.1 THE AMENDMENT. This Amendment has been duly and validly executed by
an authorized executive officer of each Borrower and constitutes the legal,
valid and binding obligation of such Borrower, enforceable against such Borrower
in accordance with its terms.
3.2 CLAIMS AND DEFENSES. Each Borrower hereby represents, warrants and
acknowledges that as of the date of this Amendment, it has no defenses, claims,
counterclaims or setoffs with respect to the Credit Agreement, as amended by
this Amendment, or its Obligations thereunder or with respect to any actions of
the Bank or any of its officers, directors, shareholders, employees, agents or
attorneys, and each Borrower irrevocably and absolutely waives any such
defenses, claims, counterclaims and setoffs and releases the Bank and each of
its officers, directors, shareholders, employees, agents and attorneys from the
same.
3.3 CREDIT AGREEMENT. The Credit Agreement, as amended by this
Amendment, remains in full force and effect and remains the valid and binding
obligation of each Borrower enforceable against each Borrower in accordance with
its terms. Each Borrower hereby ratifies and confirms the Credit Agreement, as
amended by this Amendment.
3.4 NONWAIVER. Except as otherwise expressly provided herein, the
execution, delivery, performance and effectiveness of this Amendment shall not
operate nor be deemed to be nor construed as a waiver (i) of any right, power or
remedy of Bank under the Credit Agreement, nor (ii) of any term, provision,
representation, warranty or covenant contained in the Credit Agreement or any
other documentation executed in connection therewith. Further, except as
otherwise specifically set forth herein, none of the provisions of this
Amendment shall constitute, be deemed to be or construed as, a waiver of any
Event of Default under the Credit Agreement, as amended by this Amendment.
3.5 REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof", "herein", or words of like import shall mean
and be a reference to the Credit Agreement, as amended hereby, and each
reference to the Credit Agreement in any other document, instrument or agreement
executed and/or delivered in connection with the Credit Agreement shall mean and
be a reference to the Credit Agreement, as amended hereby.
<PAGE> 4
SECTION 4. CONDITIONS PRECEDENT TO EFFECTIVENESS
------------------------------------------------
OF THIS AMENDMENT NO. 1
-----------------------
In addition to all of the other conditions and agreements set forth
herein, the effectiveness of this Amendment is subject to the each of the
following conditions precedent:
4.1 WAIVER AND AMENDMENT NO.1 TO AMENDED AND RESTATED CREDIT AGREEMENT.
Bank shall have received an original counterpart of this Waiver and Amendment
No. 1 to Amended And Restated Credit Agreement, executed and delivered by a duly
authorized officer of each Borrower and acknowledged, consented to and agree to
by each Guarantor Subsidiary.
4.2 CONSENT, AGREEMENT AND ACKNOWLEDGMENT. Bank shall have received an
original counterpart of the Consent, Agreement and Acknowledgment to this
Amendment executed and delivered by a duly authorized officer of each Guarantor
Subsidiary.
4.3 PAYMENT OF ALL LEGAL FEES AND EXPENSES. The Borrowers shall have
paid to Bank all of Bank's legal fees and expenses incurred through the date
hereof, in connection with the Credit Agreement, this Amendment and all other
matters, and documentation relating thereto and which is unpaid as of the date
hereof.
SECTION 5. WAIVER OF PAST DEFAULT.
----------------------------------
Subject to and conditioned on the effectiveness of this Amendment, Bank
hereby waives the Events of Default existing as of the date of this Amendment as
a result of the Borrowers' defaults under SECTION 10.33 of the Credit Agreement
caused by Borrowers' failure to comply with SUBSECTIONS (B), (C) and (D) of
EXHIBIT M to the Financing Agreement for the quarter ended 9/30/97.
SECTION 6. MISCELLANEOUS.
-------------------------
6.1 GOVERNING LAW. This Amendment has been delivered and accepted at and
shall be deemed to have been made at Cleveland, Ohio. This Amendment shall be
interpreted and the rights and liabilities of the parties hereto determined in
accordance with the laws of the State of Ohio, without regard to principles of
conflict of law, and all other laws of mandatory application.
6.2 SEVERABILITY. Each provision of this Amendment shall be interpreted
in such manner as to be valid under applicable law, but if any provision hereof
shall be invalid under applicable law, such provision shall be ineffective to
the extent of such invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
6.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which, when taken together, shall constitute but one and
the same agreement.
<PAGE> 5
6.4 CONFESSION OF JUDGMENT. Each Borrower hereby irrevocably authorizes
and empowers any attorney-at-law to appear for such Borrower in any action upon
or in connection with this Amendment at any time after the Loans and/or other
Obligations become due, as herein provided, in any court in or of the State of
Ohio or elsewhere, and waives the issuance and service of process with respect
thereto, and irrevocably authorizes and empowers any attorney-at-law to confess
judgment in favor of Bank against such Borrower, the amount due thereon or
hereon, plus interest as herein provided, and all costs of collection, and
waives and releases all errors in said proceedings and judgments and all rights
of appeal from the judgment rendered. Each Borrower agrees and consents that the
attorney confessing judgment on behalf of such Borrower may also be counsel to
Bank or any of Bank's Affiliates, waives any conflict of interest which might
otherwise arise, and consents to Bank paying such confessing attorney a
reasonable legal fee or allowing such attorney's reasonable fees to be paid from
the proceeds of collection of the Loans and/or Obligations or proceeds of any
Collateral, the Premises or any other security for the Loans and the other
Obligations.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE> 6
IN WITNESS WHEREOF, each Borrower has caused this Waiver and
Amendment No. 1 to Amended And Restated Credit Agreement to be duly executed and
delivered by its duly authorized officer as of the date first above written.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED
GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Signed and acknowledged
in the presence of: HMI INDUSTRIES INC.
__________________________________ By:________________________________
Name:_____________________________ Its:_______________________________
__________________________________
Name:_____________________________
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.
Signed and acknowledged
in the presence of: BLISS MANUFACTURING COMPANY
__________________________________ By:________________________________
Name:_____________________________ Its:_______________________________
__________________________________
Name:_____________________________
<PAGE> 7
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
December, 1997, by __________________, ___________ of HMI Industries Inc., a
Delaware corporation, on behalf of the company.
---------------------------
Notary Public
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
December, 1997, by __________________, ___________ of Bliss Manufacturing
Company, an Ohio corporation, on behalf of the company.
---------------------------
Notary Public
Accepted at Columbus, Ohio,
as of December ___, 1997.
STAR BANK, NATIONAL ASSOCIATION
By:_____________________________
Mark E. Storer, Vice President
<PAGE> 8
Exhibit M
---------
Financial Covenants
--------------------
FINANCIAL COVENANTS. Each Borrower agrees that it shall:
(A) CAPITAL EXPENDITURES. Not permit the Borrowers and the Guarantor
Subsidiaries to make any Capital Expenditures, all as determined on a
Consolidated basis (net after trade-ins, if any), in an aggregate amount
exceeding One Million Three Hundred Thousand Dollars ($1,300,000) for
the Fiscal Year ending September 30, 1997; and Three Million Dollars
($3,000,000) for the Fiscal Year ending September 30, 1998 and for each
Fiscal Year thereafter.
(B) TANGIBLE NET WORTH. Not, at any time on or after March 31, 1998, permit
Borrowers' and the Guarantor Subsidiaries' Consolidated Tangible Net
Worth to be less than an amount equal to (a) Eighteen Million Dollars
($18,000,000), plus (b) either (i) fifty percent (50%) of Net Income at
such time if Net Income is a positive number at such time or (ii) zero
percent (0%) of Net Income at such time if Net Income is a negative
number at such time, minus (c) the aggregate Permitted Special Charges
(after Taxes) taken as of such time. Notwithstanding the forgoing, if
the FASB 106 Adjustment is equal to or less than Eight Million Five
Hundred Thousand Dollars ($8,500,000), then each Borrower agrees that it
shall not, permit Borrowers' and the Guarantor Subsidiaries'
Consolidated Tangible Net Worth to be less than an amount equal to (r)
Nine Million Six Hundred Ninety Four Thousand Dollars ($9,694,000),
MINUS the amount of the FASB 106 Adjustment at any time during the
period commencing on March 31, 1998 and ending on April 29, 1998, (s)
Nine Million Six Hundred Sixty Nine Thousand Dollars ($9,669,000), MINUS
the amount of the FASB 106 Adjustment at any time during the period
commencing on April 30, 1998 and ending on May 30, 1998, (t) Nine
Million Six Hundred Forty Four Thousand Dollars ($9,644,000), MINUS the
amount of the FASB 106 Adjustment at any time during the period
commencing on May 31, 1998 and ending on June 29, 1998, (u) Nine Million
Six Hundred Nineteen Thousand Dollars ($9,619,000), MINUS the amount of
the FASB 106 Adjustment at any time during the period commencing on June
30, 1998 and ending on July 30, 1998, (w) Nine Million Four Hundred
Seventy Nine Thousand Dollars ($9,479,000), MINUS the amount of the FASB
106 Adjustment at any time during the period commencing on July 31, 1998
and ending on August 30, 1998, (x) Nine Million Four Hundred Sixty
Thousand Dollars ($9,460,000), MINUS the amount of the FASB 106
Adjustment at any time during the period commencing on August 31, 1998
and ending on September 29, 1998, (y) Nine Million Four Hundred Forty
Two Thousand Dollars ($9,442,000), MINUS the amount of the FASB 106
Adjustment at any time during the period commencing on September 30,
1998 and ending on October 31, 1998, and (z) Nine Million Four Hundred
Thousand Dollars ($9,400,000), MINUS the amount of the FASB 106
Adjustment at any time after October 31, 1998. For purposes of the
foregoing, Net Income shall be accounted for commencing on
<PAGE> 9
June 1, 1997.
(C) LEVERAGE RATIO. Not, at any time on or after March 31, 1998, permit
Borrowers and the Guarantor Subsidiaries' Leverage Ratio, determined on
a Consolidated basis, to exceed 0.6 to 1.0 at any time. Notwithstanding
the forgoing, if the FASB 106 Adjustment is equal to or less than Eight
Million Five Hundred Thousand Dollars ($8,500,000), then each Borrower
agrees that it shall not, at any time, permit Borrowers and the
Guarantor Subsidiaries' Leverage Ratio, determined on a Consolidated
basis (computed as if the FASB 106 Adjustment had not been made), to
exceed (i) 0.68 to 1.0 at any time during the period commencing on March
31, 1998 and ending on April 29, 1998, (ii) 0.67 to 1.0 at any time
during the period commencing on April 30, 1998 and ending on May
30,1998, (iii) 0.69 to 1.0 at any time during the period commencing on
May 31, 1998 and ending on June 29, 1998, (iv) 0.69 to 1.0 at any time
during the period commencing on June 30, 1998 and ending on October 31,
1998, and (z) 0.7 to 1.0 at any time during at any time after October
31, 1998.
(D) FIXED CHARGE COVERAGE RATIO. Not permit Borrowers' and the Guarantor
Subsidiaries' Fixed Charge Coverage Ratio, determined on a Consolidated
basis, to be less than (i) -0.08 to 1.0 at any time during the period
commencing on March 31, 1998 and ending on April 29, 1998, (ii) -0.03 to
1.0 at any time during the period commencing on April 30, 1998 and
ending on May 30, 1998, (iii) 0.01 to 1.0 at any time during the period
commencing on May 31, 1998 and ending on June 29, 1998, (iv) 0.16 to 1.0
at any time during the period commencing on June 30, 1998 and ending on
July 30, 1998, (iv) 0.29 to 1.0 at any time during the period commencing
on July 31, 1998 and ending on August 30, 1998, (iv) 0.36 to 1.0 at any
time during the period commencing on August 31, 1998 and ending on
September 29, 1998, and (iv) 0.39 to 1.0 at any time after September 29,
1998. Such Fixed Charge Coverage Ratio will be calculated based on (i)
the cumulative and annualized results for each period commencing on June
1, 1997 and ending on the date of calculation until May 31, 1998 and
(ii) after May 31, 1998, the cumulative results for the most-recently
concluded twelve (12)-month period.
II. DEFINITIONS TO FINANCIAL COVENANTS
(A) The term "CAPITAL EXPENDITURES" for purposes of this EXHIBIT M shall
mean any and all amounts invested, expended or incurred (including by
reason of Capitalized Lease Obligations incurred by Borrowers and
Guarantor Subsidiaries) in respect of the purchase, acquisition,
improvement, renovation or expansion of any properties or assets of the
Borrowers and Guarantor Subsidiaries, including, without limitation,
expenditures required to be capitalized in accordance with GAAP.
(B) The term "CAPITALIZED LEASE OBLIGATIONS" means, as to any Person, the
obligations of such Person to pay rent or other amounts under leases of,
or other agreements conveying the right to use real and/or personal
property, which obligations are required to be classified and
<PAGE> 10
accounted for as capital leases on a balance sheet of such Person,
prepared in accordance with GAAP.
(C) The term "CONSOLIDATED TANGIBLE NET WORTH" for purposes of this EXHIBIT
M shall mean an amount equal to the sum of (i) Assets, MINUS (ii)
Intangibles, MINUS (iii) GAAP Liabilities, of each of the Borrowers and
the Guarantor Subsidiaries, determined on a Consolidated basis in
accordance with GAAP, applied on a consistent basis.
(D) The term "LEVERAGE RATIO" for purposes of this EXHIBIT M shall mean, as
at any time, the ratio of (a) Consolidated Indebtedness at such time to
(b) the sum of (i) Consolidated Tangible Net Worth at such time PLUS
(ii) Consolidated Indebtedness at such time PLUS (iii) the aggregate
Permitted Special Charges (after Taxes) taken as of such time.
(E) The term "CONSOLIDATED INDEBTEDNESS" for purposes of this EXHIBIT M
shall mean Indebtedness for Borrowed Money of the Borrowers and the
Guarantor Subsidiaries on a Consolidated basis.
(F) The term "INDEBTEDNESS FOR BORROWED MONEY" for purposes of this EXHIBIT
M shall mean, for any Person at any date, without duplication, (i) all
obligations of such Person for borrowed money, including, without
limitation, all borrowings under insurance policies, (ii) all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay
the deferred purchase price for property or services, except accounts
payable in the ordinary course of business, (iv) all Capitalized Lease
Obligations of such Person, (v) all Indebtedness for Borrowed Money of
others secured by a lien on any asset of such Person, whether or not
such Indebtedness for Borrowed Money is assumed by such Person, and (vi)
all Indebtedness for Borrowed Money of others Guaranteed by such Person.
(G) The term "GUARANTEED" or to "GUARANTEE" for purposes of this EXHIBIT M
as applied to an obligation shall mean and include (a) a guarantee or
guaranty (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), directly or indirectly,
in any manner, of any part of all of such obligation and (b) an
agreement, direct or indirect, contingent or otherwise, and whether or
not constituting a guaranty, the practical effect of which is to assure
the payment or performance (or payment of damages in the event of
non-performance) of any part or all of such obligation whether by (i)
the purchase of securities or obligations, (ii) the purchase, sale or
lease (as lessee or lessor) of property or the purchase of sale of
services primarily for the purpose of enabling the obligor with respect
to such obligation to make any payment or performance (or payment of
damages in the event of non-performance) of or on account of any part of
all of such obligation, or to assure the owner of such obligation
against loss, (iii) the supplying of funds to or in any other manner
investing in the obligor with respect to such obligation, (iv) repayment
of amounts drawn down by beneficiaries of letters of credit or (v) the
supplying of funds to or investing in a Person on account of all or any
part of such Person's obligation under a Guarantee of any obligation of
indemnifying or holding harmless, in any way such Person against any
part or all of such obligation.
<PAGE> 11
(H) The term "PERMITTED SPECIAL CHARGES" for purposes of this EXHIBIT M
shall mean non-cash charges, not to exceed an aggregate amount equal to
Five Million Dollars ($5,000,000), of the Borrowers and the Guarantor
Subsidiaries related to (a) employee severance costs, (b) costs in
connection with the retirement of Kirk Foley, and (c) the sale of stock
or assets of Personal Care or the Tubular Products Division of Bliss or
the HRS Sale.
(I) The term "TAXES" for purposes of this EXHIBIT M shall mean all federal,
state and local or foreign income, payroll, withholding, excise, sales,
use, real and personal property, use and occupancy, business and
occupation, mercantile, real estate, capital stock and franchise or
other taxes, including interest and penalties thereon, and including
estimated taxes thereof.
(J) The term "FIXED CHARGE COVERAGE RATIO" for purposes of this EXHIBIT M
shall mean, as at any time, the ratio of (a) Consolidated Cash Flow at
such time to (b) Fixed Charges at such time.
(K) The term "NET INCOME" for purposes of this EXHIBIT M shall mean the
Consolidated net income, after payment of all Taxes, of the Borrowers
and the Guarantor Subsidiaries determined in accordance with GAAP
applied on a consistent basis.
(L) The term "FISCAL YEAR" for purposes of this EXHIBIT M means a period
consisting of four (4) Quarters ending on September 30.
(M) The term "QUARTER" for purposes of this EXHIBIT M means a period of
three (3) successive calendar months ending on March 31, June 30,
September 30 or December 31.
(N) The term "GAAP" for purposes of this EXHIBIT M means generally accepted
accounting principles as consistently applied in the United States on
the Effective Date.
(O) The term "CONSOLIDATED" for purposes of this EXHIBIT M means on a
consolidated basis for the Borrowers and the Guarantor Subsidiaries, as
determined in accordance with GAAP.
(P) The term "ASSETS" for purposes of this EXHIBIT M means all items which,
in accordance with GAAP applied on a consistent basis, would be included
in determining total assets as shown on the asset side of a balance
sheet as of the date on which Assets are to be determined.
(Q) The term "INTANGIBLES" for purposes of this EXHIBIT M means any Assets
which, in accordance with GAAP applied on a consistent basis, would be
treated as intangible assets, including without limitation, such items
as goodwill, trademarks, trade names, service marks, patents, licenses,
rights with regard to any such items, unamortized debt discount,
deferred charges and organization expenses.
(R) The term "GAAP LIABILITIES" for purposes of this EXHIBIT M means all
items which, in accordance with GAAP applied on a consistent basis,
would be included in determining
<PAGE> 12
total liabilities as shown on the liability side of a balance sheet as
of the date on which liabilities are to be determined.
(S) The term "CONSOLIDATED CASH FLOW" for purposes of this EXHIBIT M means,
for any period, the sum of (a) Net Income for such period, PLUS (b)
depreciation for such period, PLUS (c) amortization for such period,
PLUS (d) other non-cash charges for such period, plus (e) interest
expense for such period, PLUS (f) Taxes in respect of income for such
period, PLUS (g) the aggregate Permitted Special Charges taken during
such period to the extent not already included in clause (d) above, all
as determined on a Consolidated basis in accordance with GAAP applied on
a consistent basis.
(T) The term "FIXED CHARGES" for purposes of this EXHIBIT M means, for any
period or at any time, the aggregate of (a) interest expense for such
period, PLUS (b) the current portion of Funded Indebtedness at such
time, PLUS (e) Capital Expenditures for such period, PLUS (d)
Distributions for such period, all as determined on a Consolidated basis
in accordance with GAAP applied on a consistent basis.
(U) The term "FUNDED INDEBTEDNESS" for purposes of this EXHIBIT M means
Indebtedness for Borrowed Money (other than any such Indebtedness
described in clause (vi) of the definition of "Indebtedness for Borrowed
Money".
(V) The term "DISTRIBUTION" for purposes of this EXHIBIT M means any payment
or distribution or transfer to, redemption, acquisition or purchase
from, or exchange with (directly or indirectly), a Shareholder made in
respect of his Equity Interest, of any property, including, without
limitation, cash, whether or not the same shall be made from earnings of
the Borrowers and the Guarantor Subsidiaries or a redemption of a
Shareholder's Equity Interest, but, excluding in all cases, any of the
foregoing made by a Guarantor Subsidiary to the Parent or stock
dividends or splits of the capital stock of the Parent.
(W) The term "SHAREHOLDER" for purposes of this EXHIBIT M means each Person
owning or possessing any Equity Interest (or right to acquire an Equity
Interest by warrant, option or otherwise).
(X) The term "FASB 106 ADJUSTMENT" for purposes of this EXHIBIT M means the
adjustment to the Borrowers' and the Guarantor Subsidiaries'
Consolidated Liabilities pursuant to the Financial Accounting Standards
Board Statement No.106, Postretirement Benefits Other Than Pensions, as
determined by Coopers & Lybrand L.L.P.
(Y) All capitalized terms used in this EXHIBIT M and not otherwise defined
in this EXHIBIT M shall have the meanings ascribed thereto in the
Agreement.
<PAGE> 13
CONSENT. AGREEMENT AND ACKNOWLEDGMENT
The undersigned, HMI Incorporated, an Ontario corporation, Newton Falls
Holding Company, a Delaware corporation, Tube-Fab Ltd., an Ontario corporation,
Health-Mor International, Inc., a U.S. Virgin Islands corporation, Health-Mor
Acceptance Corporation, a Delaware corporation, HMI Acceptance Corporation, an
Ontario corporation, Health-Mor Acceptance Pty. Ltd., an Australian corporation,
and Health-Mor Personal Care Corporation, an Illinois corporation, hereby
acknowledge, consent and agree to the terms of the foregoing Waiver and
Amendment No.1 to Amended and Restated Credit Agreement, dated as of December 5,
1997, among Star Bank, National Association, HMI Industries, Inc. and Bliss
Manufacturing Company (the "Amendment"). All capitalized terms used herein and
not otherwise defined herein shall have the meaning ascribed thereto in the
Amendment. Each of the undersigned represents and warrants to Bank that its
obligations under or in connection with the Credit Agreement, as amended by the
Amendment, remain the valid and binding obligations of each of the undersigned,
enforceable against them in accordance with their respective terms. Each of the
undersigned, having guaranteed the indebtedness of the Borrowers under the
Credit Agreement, as amended by the Amendment, pursuant to the Amended and
Restated Guaranty, and/or the Canadian Guaranty (collectively, the
"Guaranties"), the Security Agreement and the Canadian Security Agreements
(collectively, the "Security Agreements"), executed and delivered by the
undersigned to Bank, hereby acknowledges and agrees to the terms of the
foregoing Amendment and to the terms of the Credit Agreement, as amended through
the date hereof. Each of the undersigned represents and warrants to Bank that
the respective Guaranties and the respective Security Agreements to which it is
a party remain the valid and binding obligation of each of the undersigned,
enforceable against it in accordance with its terms. Each of the undersigned
hereby represents, warrants and acknowledges that as of the date of the
Amendment, it has no defenses, claims, counterclaims or setoffs with respect to
the Credit Agreement, as amended by the Amendment, the Guaranties or its
Obligations (as defined in each such document) thereunder or with respect to any
actions of the Bank or any of its officers, directors, shareholders, employees,
agents or attorneys, and each of the undersigned irrevocably and absolutely
waives any such defenses, claims, counterclaims and setoffs and releases the
Bank and each of its officers, directors, shareholders, employees, agents and
attorneys from the same. Each of the undersigned acknowledges and agrees that
the execution of this Consent, Agreement and Acknowledgment to the Amendment
does not grant to any of the undersigned the right or power to require notice to
the undersigned of, or the consent of any of the undersigned to, any future
waiver, amendment, consent, termination or other modification of, or with
respect to, the Credit Agreement or any other Loan Document.
HMI INCORPORATED NEWTON FALLS HOLDING COMPANY
By: ______________________ By: ______________________________
Its: ______________________ Its: ____________________________
<PAGE> 14
TUBE-FAB LTD. HEALTH-MOR PERSONAL CARE CORPORATION
By: ______________________ By: _____________________________
Its: ______________________ Its: ____________________________
HEALTH-MOR INTERNATIONAL, INC. HEALTH-MOR ACCEPTANCE CORPORATION
By: ______________________ By: _____________________________
Its: ______________________ Its: ____________________________
HMI ACCEPTANCE CORPORATION HEALTH-MOR ACCEPTANCE PTY. LTD.
By: ______________________ By: _____________________________
Its: ______________________ Its: ____________________________
Dated: December 5, 1997
<PAGE> 1
Exhibit 10.10(b)
EXECUTION COPY
AMENDMENT NO.2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDMENT NO.2 TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), made as of this 24th day of December, 1997, among STAR BANK,
NATIONAL ASSOCIATION, a national banking association ("Bank"), HMI INDUSTRIES
INC., a Delaware corporation ("Parent"), and BLISS MANUFACTURING COMPANY, an
Ohio corporation ("Bliss") (Parent and Bliss being sometimes hereinafter
collectively referred to as the "Borrowers" and individually as a "Borrower").
WITNESSETH:
-----------
WHEREAS, the Borrowers and Bank have entered into that certain Amended
and Restated Credit Agreement, dated as of June 6, 1997, as amended by that
certain Waiver and Amendment No.1 to Amended and Restated Credit Agreement
("Amendment No. 1"), dated December 5, 1997 (collectively the "Credit
Agreement") pursuant to which Bank has made certain loans and financial
accommodations available to the Borrowers;
WHEREAS, as of the date of this Amendment, Amendment No. 1 remains
ineffective as a result of the Borrower's failure to satisfy the condition
precedent set forth in Section 4.3 of Amendment No. 1;
WHEREAS, the Borrowers and Bank desire to amend the Credit Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Bank and the Borrowers agree as
follows:
SECTION 1. DEFINED TERMS.
-------------------------
Each defined term used herein and not otherwise defined herein has the
meaning ascribed to such term in the Credit Agreement.
SECTION 2. AMENDMENT TO CREDIT AGREEMENT.
-----------------------------------------
The Credit Agreement is amended, effective as of the date all of the
conditions set forth in SECTION 4 hereof shall have been satisfied, as follows:
<PAGE> 2
2.1 AMENDMENT TO PRELIMINARY SECTION. The first paragraph following
WITNESSETH in the Credit Agreement is amended in its entirety to read as
follows:
WHEREAS, HMI Incorporated, an Ontario corporation ("HMI Inc."),
Newton Falls Holding Company, a Delaware corporation ("Newton"),
Tube-Fab Ltd., an Ontario corporation ("Tube-Fab"), Tube Form, Inc., an
Ohio corporation ("Tube Form"), Health-Mor International, Inc., a U.S.
Virgin Islands corporation ("International"), Health-Mor Acceptance
Corporation, a Delaware corporation ("Acceptance"), HMI Acceptance
Corporation, an Ontario corporation ("HMI Acceptance"), and Health-Mor
Acceptance Pty. Ltd., an Australian corporation ("Pty") (HMI Inc.,
Newton, Tube-Fab, Tube Form, International, Acceptance, HMI Acceptance,
Pty and Health-Mor Personal Care Corporation, a Delaware corporation
("Personal Care") being sometimes hereinafter collectively referred to
as the "Guarantor Subsidiaries" and individually as a "Guarantor
Subsidiary"), Borrowers and Bank entered into that certain Credit
Agreement, dated as of August 14, 1996, as amended by that certain First
Amendment to Credit Agreement, dated as of November 15, 1996, and as
further amended by that certain Second Amendment to Credit Agreement,
dated as of December 19, 1996, that certain Third Amendment to Credit
Agreement, dated as of March 7, 1997, and that certain Fourth Amendment
to Credit Agreement, dated as of April 7, 1997 (collectively, the
"Existing Credit Agreement");
2.2 AMENDMENT TO SECTION 1.1. Section 1.1 of the Credit Agreement is
amended by adding the following new definitions in proper alphabetical order:
"SPECIAL TERM LOAN" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"SPECIAL TERM LOAN FACILITY" shall have the meaning ascribed
thereto in SECTION 2.1 hereof.
"SPECIAL TERM LOAN B" shall have the meaning ascribed thereto in
SECTION 2.1 hereof.
"SPECIAL TERM LOAN B FACILITY" shall have the meaning ascribed
thereto in SECTION 2.1 hereof.
2.3 AMENDMENT TO SECTION 1.1. The definition of "Term Loans" in Section
1.1 of the Credit Agreement are amended in their entirety to read as follows:
"TERM LOANS" shall mean, collectively, the Bliss Equipment Term Loan,
the Real Estate Term Loan, the Special Term Loan, and the Special Term Loan B.
2
<PAGE> 3
2.4 AMENDMENT TO SECTION 2.1. Section 2.1 of the Credit Agreement is
amended in its entirety to read as follows:
2.1 TOTAL FACILITY. Bank will make up to a Twenty Million Dollar
($20,000,000) reducing total credit facility (the "Total Facility")
available to Borrowers, subject to the terms and conditions of this
Agreement and comprised of the following loans or other financial
accommodations advanced, made or made available under the following
facilities (collectively, the "Loans"): (i) Revolving Loans (as
hereinafter defined) to be advanced under the Revolving Loan facility
(the "Revolving Loan Facility"), (ii) a term loan with respect to
certain real property (the "Real Estate Term Loan") to be advanced under
the Real Estate Term Loan facility (the "Real Estate Term Loan
Facility"), (iii) a term loan with respect to machinery and equipment
owned by Bliss (the "Bliss Equipment Term Loan") to be advanced under
the Bliss Equipment Term Loan facility (the "Bliss Equipment Term Loan
Facility"), (iv) a special term loan (the "Special Term Loan") to be
advanced under the Special Term Loan facility (the "Special Term Loan
Facility"), (v) a special term loan (the "Special Term Loan B") to be
advanced under the Special Term Loan B facility (the "Special Term Loan
B Facility"), and (vi) as a portion of the Revolving Loan Facility, a
letter of credit facility (the "Letter of Credit Facility"), all as more
particularly described below.
2.5 AMENDMENT TO SECTION 2. Section 2 of the Credit Agreement is amended
by adding the following new Section 2.18:
2.18 SPECIAL TERM LOAN B FACILITY. The Special Term Loan B under
the Special Term Loan B Facility will be made to Parent in the amount of
Two Million Dollars ($2,000,000) on or after December 24, 1997, upon the
oral or written request of Parent. The principal of the Special Term
Loan B then outstanding, together with and all accrued and unpaid
interest thereon, shall be due and payable upon the earlier to occur of
(i) the effective date of any termination of this Agreement pursuant to
SECTION 11 and/or SECTION 13 hereof, or (ii) March 31, 1998. No
repayment or prepayment of the Special Term Loan B shall be reason for
any relending or additional lending of Special Term Loan B proceeds to
Parent. The Special Term Loan B may be prepaid in whole or in part so
long as such prepayment is accompanied by the fee referred to in SECTION
3.11 hereof. Any payments required to be made pursuant to this SECTION
2.18 shall be in addition to any payments made pursuant to SECTION 2.17
hereof.
2.6 AMENDMENT TO SECTION 3.1. Section 3.1 of the Credit Agreement is
amended in its entirety to read as follows:
3.1 INTEREST ON LOANS. The applicable Borrower shall pay Bank
interest on the average daily outstanding principal amount of its (a)
Revolving Loans and all other Obligations (other than the Letter of
Credit Obligations and the Term Loans) at a per annum rate which shall
vary from time to time equal to the rate announced at Bank from time to
time as its prime rate (the "Prime Rate"), (b) Bliss Equipment Term Loan
and Real Estate
3
<PAGE> 4
Term Loan at a per annum rate which shall vary from time to time
equal to the Prime Rate PLUS one-half percent (.50%), (c)
Special Term Loan at a per annum rate which shall vary from time
to time equal to the Prime Rate PLUS two and one-quarter percent
(2.25%), and (d) Special Term Loan B at a per annum rate which
shall vary from time to time equal to the Prime Rate PLUS two
percent (2%), each such rate to be adjusted on the effective
date of any change in the Prime Rate by Bank. The Prime Rate is
determined solely by Bank pursuant to market factors and its own
operating needs and is not necessarily Bank's best or most
favorable rate for commercial or other loans. The per annum rate
of interest applicable at all times after the occurrence of an
Event of Default shall be the applicable rate of interest set
forth above plus an additional two percent (2.00%) per annum.
2.7 ADDITION OF SECTION 3.11. Section 3 of the Credit Agreement is
amended by the addition of the following Section 3.11 in proper numeric order:
3.11 SUCCESS FEE. Borrowers shall pay Bank a success fee of Eighty
Thousand Dollars ($80,000) with respect to the Special Term Loan B on the date
any payment is made upon the Special Term Loan B.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
Each Borrower represents and warrants to Bank as follows:
3.1 THE AMENDMENT. This Amendment has been duly and validly executed by
an authorized executive officer of each Borrower and constitutes the legal,
valid and binding obligation of such Borrower, enforceable against such Borrower
in accordance with its terms.
3.2 CLAIMS AND DEFENSES. Each Borrower hereby represents, warrants and
acknowledges that as of the date of this Amendment, it has no defenses, claims,
counterclaims or setoffs with respect to the Credit Agreement or its Obligations
thereunder or with respect to any actions of the Bank or any of its officers,
directors, shareholders, employees, agents or attorneys, and each Borrower
irrevocably and absolutely waives any such defenses, claims, counterclaims and
setoffs and releases the Bank and each of its officers, directors, shareholders,
employees, agents and attorneys from the same.
3.3 CREDIT AGREEMENT. The Credit Agreement, as previously amended and as
further amended by this Amendment, remains in full force and effect and remains
the valid and binding obligation of each Borrower enforceable against each
Borrower in accordance with its terms. Each Borrower hereby ratifies and
confirms the Credit Agreement, as previously amended and as farther amended by
this Amendment.
3.4 NONWAIVER. Except as otherwise expressly provided herein, the
execution, delivery, performance and effectiveness of this Amendment shall not
operate nor be deemed to be nor construed as a waiver (i) of any right, power or
remedy of Bank under the Credit Agreement, nor (ii) of any term, provision,
representation, warranty or covenant contained in the
4
<PAGE> 5
Credit Agreement or any other documentation executed in connection therewith.
Further, except as otherwise specifically set forth herein, none of the
provisions of this Amendment shall constitute, be deemed to be or construed as,
a waiver of any Event of Default under the Credit Agreement, as previously
amended and as further amended by this Amendment. Nor shall this Amendment
constitute, be deemed to be or construed as, consent to the Bliss Sale or the
Bliss Sale Documents.
3.5 REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. Upon the
effectiveness of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof', "herein", or words of like import shall mean
and be a reference to the Credit Agreement, as amended hereby, and each
reference to the Credit Agreement in any other document, instrument or agreement
executed and/or delivered in connection with the Credit Agreement shall mean and
be a reference to the Credit Agreement, as previously amended and as further
amended hereby.
3.6 DELIVERY OF BLISS SALE DOCUMENTS. The Borrowers have delivered to
Bank true, correct and complete fully executed copies of that certain Stock
Purchase Agreement, dated December 17, 1997, between Parent and Rhone Capital
LLC, together with all exhibits and schedules thereto, and other agreements,
instruments and other documents executed and/or delivered in connection with
such Stock Purchase Agreement (collectively the "Bliss Sale Documents").
3.7 CONSENTS. No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or other
Person is required for the execution, delivery and performance by Borrowers or
any Guarantor Subsidiary, as the case maybe, of this Amendment or any of the
agreements, instruments and documents required to be executed and/or delivered
in connection herewith as conditions precedent hereof (such agreements,
instruments and documents, together with this Amendment, are Collectively
referred to as the "Amendment Documents").
3.8 NO VIOLATION. The execution, delivery and/or performance by
Borrowers or the Guarantor Subsidiaries of the Amendment Documents do not and
will not (i) constitute a violation of any applicable law or breach any
provision contained in the Borrowers' or Guarantor Subsidiaries' Articles or
Certificate of Incorporation or Code of Regulations or By-Laws or contained in
any order of any court or other governmental agency or in any agreement,
instrument or document to which any of them is a party or by which any of them
or their respective properties are bound, or (ii) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of their property.
5
<PAGE> 6
SECTION 4. CONDITIONS PRECEDENT TO
----------------------------------
EFFECTIVENESS OF THIS AMENDMENT NO.2
------------------------------------
In addition to all of the other conditions and agreements set forth
herein, the effectiveness of this Amendment is subject to the each of the
following conditions precedent:
4.1 AMENDMENT NO.2 TO AMENDED AND RESTATED CREDIT AGREEMENT. Bank shall
have received an original of this Amendment No.2 to Amended And Restated Credit
Agreement, executed and delivered by a duly authorized officer of each Borrower.
4.2 CONSENT, AGREEMENT AND ACKNOWLEDGMENT. Bank shall have received an
original counterpart of the Consent, Agreement and Acknowledgment to this
Amendment executed and delivered by a duly authorized officer of each Guarantor
Subsidiary.
4.3 BLISS SALE DOCUMENTS. Bank shall have received executed copies of
the Bliss Sale Documents certified as true, correct and complete by a duly
authorized officer of each Borrower.
4.4 PROCEEDINGS OF BORROWERS. Bank shall have received certificates of
the Secretary of each Borrower and each Guarantor Subsidiary dated as of the
date hereof as to (i) true copies of all action taken by each Borrower and each
Guarantor Subsidiary, as the case may be, approving or otherwise relating to the
Amendment Documents, and (ii) the incumbency and signature of the respective
officers of each Borrower and each Guarantor Subsidiary, as the case maybe,
executing the Amendment Documents, together with satisfactory evidence of the
incumbency of each such Secretary.
4.5 PAYMENT OF ALL LEGAL FEES AND EXPENSES. The Borrowers shaH have paid
to Bank all of Bank's legal fees and expenses incurred through the date hereof,
in connection with the Credit Agreement, this Amendment and all other matters,
and documentation relating thereto and which is unpaid as of the date hereof.
4.6 COOPERS & LYBRAND LETTER. Bank shall have received and
satisfactorily reviewed a letter from Coopers & Lybrand explaining the loss
carry-back and containing an estimation of the tax refund which will be due to
Parent.
SECTION 5. MISCELLANEOUS.
------------------------
5.1 GOVERNING LAW. This Amendment has been delivered and accepted at and
shall be deemed to have been made at Cleveland, Ohio. This Amendment shall be
interpreted and the rights and liabilities of the parties hereto determined in
accordance with the laws of the State of Ohio, without regard to principles of
conflict of law.
5.2 SEVERABILITY. Each provision of this Amendment shall be interpreted
in such manner as to be valid under applicable law, but if any provision hereof
shall be invalid
6
<PAGE> 7
under applicable law, such provision shall be ineffective to the extent of such
invalidity, without invalidating the remainder of such provision or the
remaining provisions hereof.
5.3 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which, when taken together, shall constitute but one and
the same agreement.
5.4 NO CONSENT. In no event shall Borrower's delivery of, and Bank's
receipt of, the Bliss Sale Documents Constitute, be deemed to be or construed
as, consent to the consummation of the transactions contemplated by the Bliss
Sale Documents. Such consent shall only be given by Bank in writing after its
satisfactory review of the Bliss Sale Documents. Borrowers acknowledge and agree
that the transactions contemplated by the Bliss Sale Documents cannot and will
not be consummated without the Bank's prior written consent. Any breach of the
foregoing shall constitute an Event of Default under the Credit Agreement, as
previously amended, as amended hereby and as the same may be hereafter further
amended.
5.5 CONFESSION OF JUDGMENT. Each Borrower hereby irrevocably authorizes
and empowers any attorney-at-law to appear for such Borrower in any action upon
or in connection with this Amendment at any time after the Loans and/or other
Obligations become due, as herein provided, in any court in or of the State of
Ohio or elsewhere, and waives the issuance and service of process with respect
thereto, and irrevocably authorizes and empowers any attorney-at-law to confess
judgment in favor of Bank against such Borrower, the amount due thereon or
hereon, plus interest as herein provided, and all costs of collection, and
waives and releases all errors in said proceedings and judgments and all rights
of appeal from the judgment rendered. Each Borrower agrees and consents that the
attorney confessing judgment on behalf of such Borrower may also be counsel to
Bank or any of Bank's Affiliates, waives any conflict of interest which might
otherwise arise, and consents to Bank paying such confessing attorney a
reasonable legal fee or allowing such attorney's reasonable fees to be paid from
the proceeds of collection of the Loans and/or Ohhgations or proceeds of any
Collateral, the Premises or any other security for the Loans and the other
Obligations.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
7
<PAGE> 8
IN WITNESS WHEREOF, each Borrower has caused this Amendment No.2 to
Amended And Restated Credit Agreement to be duly executed and delivered by its
duly authorized officer as of the date first above written.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT
CAN BE USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY
HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY
GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY
OTHER CAUSE.
Signed and acknowledged
in the presence of: HMI INDUSTRIES INC.
________________________ By:_______________________________
Name:___________________________________ Its:______________________________
Name:______________________________
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.
Signed and acknowledged
in the presence of: BLISS MANUFACTURING COMPANY
__________________________________________ By:____________________________
Name:_____________________________________ Its:___________________________
Name:______________________________
8
<PAGE> 9
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
December, 1997, by ____________________, _____________ of HMI Industries Inc., a
Delaware corporation, on behalf of the company.
-----------------------------
Notary Public
STATE OF )
) ss:
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
December, 1997, by ___________________, ____________ of Bliss Manufacturing
Company, an Ohio corporation, on behalf of the company.
-----------------------------
Notary Public
Accepted at _____________, Ohio,
as of December ___, 1997.
STAR BANK, NATIONAL ASSOCIATION
By:_____________________________
Mark E. Storer, Vice President
9
<PAGE> 10
CONSENT, AGREEMENT AND ACKNOWLEDGMENT
-------------------------------------
The undersigned, HMI Incorporated, an Ontario corporation, Newton Falls
Holding Company, a Delaware corporation, Tube Form, Inc., and Ohio corporation,
Tube-Fab Ltd., an Ontario corporation, Health-Mor International, Inc., a U.S.
Virgin Islands corporation, Health-Mor Acceptance Corporation, a Delaware
corporation, HMI Acceptance Corporation, an Ontario corporation, Health-Mor
Acceptance Pty. Ltd., an Australian corporation, and Health-Mor Personal Care
Corporation, an Illinois corporation, hereby acknowledge, consent and agree to
the terms of the foregoing Amendment No. 2 to Amended and Restated Credit
Agreement, dated as of December 24, 1997, among Star Bank, National Association,
HMI Industries, Inc. and Bliss Manufacturing Company (the "Amendment"). All
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed thereto in the Amendment. Each of the undersigned represents
and warrants to Bank that its obligations under or in connection with the Credit
Agreement, as amended by the Amendment, remain the valid and binding obligations
of each of the undersigned, enforceable against them in accordance with their
respective terms. Each of the undersigned, having guaranteed the indebtedness of
the Borrowers under the Credit Agreement, as amended by the Amendment, pursuant
to the Amended and Restated Guaranty, and the Canadian Guaranty, (collectively,
the "Guaranties"), the Security Agreement and the Canadian Security Agreements
(collectively, the "Security Agreements"), executed and delivered by the
undersigned to Bank, hereby acknowledges and agrees to the terms of the
foregoing Amendment and to the terms of the Credit Agreement, as amended through
the date hereof. Each of the undersigned represents and warrants to Bank that
the respective Guaranties and the respective Security Agreements to which it is
a party remain the valid and binding obligation of each of the undersigned,
enforceable against it in accordance with its terms. Each of the undersigned
hereby represents, warrants and acknowledges that as of the date of the
Amendment, it has no defenses, claims, counterclaims or setoffs with respect to
the Credit Agreement, as amended by the Amendment, the Guaranties or its
Obligations (as defined in each such document) thereunder or with respect to any
actions of the Bank or any of its officers, directors, shareholders, employees,
agents or attorneys, and each of the undersigned irrevocably and absolutely
waives any such defenses, claims, Counterclaims and setoffs and releases the
Bank and each of its officers, directors, shareholders, employees, agents and
attorneys from the same. Each of the undersigned acknowledges and agrees that
the execution of this Consent, Agreement and Acknowledgment to the Amendment
does not grant to any of the undersigned the right or power to require notice to
the undersigned of, or the consent of any of the undersigned to, any future
waiver, amendment, consent, termination or other modification of, or with
respect to, the Credit Agreement or any other Loan Document.
HMI INCORPORATED NEWTON FALLS HOLDING COMPANY
By________________________________ By___________________________________
Its_______________________________ Its___________________________________
<PAGE> 11
TUBE-FAB LTD. HEALTH-MOR PERSONAL CARE CORPORATION
By_____________________ By______________________________
Its____________________ Its______________________________
HEALTH-MOR INTERNATIONAL, INC. HEALTH-MOR ACCEPTANCE CORPORATION
By_____________________ By______________________________
Its____________________ Its______________________________
HMI ACCEPTANCE CORPORATION HEALTH-MOR ACCEPTANCE PTY. LTD.
By_____________________ By______________________________
Its____________________ Its______________________________
TUBE FORM, INC.
By____________________
Its___________________
Dated: December 24, 1997
2
<PAGE> 1
Exhibit 10.11
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- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
By and Between
HMI INDUSTRIES INC.
and
RHONE CAPITAL LLC
------------------------
Dated
December 17, 1997
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- --------------------------------------------------------------------------------
<PAGE> 2
STOCK PURCHASE AGREEMENT
Table of Contents
<TABLE>
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Page
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<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES
1.1 Sale and Purchase of Shares ................................ 1
1.2 Purchase Price ............................................. 2
1.3 Closing .................................................... 4
ARTICLE II POST-CLOSING ADJUSTMENTS
2.1 Adjustment of Purchase Price .............................. 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Organization, Standing and Authority of Seller ............ 8
3.2 Authorization ............................................. 8
3.3 No Violations, No Conflict ................................ 9
3.4 Consents .................................................. 9
3.5 Certificate of Incorporation, By-Laws and Regulations ..... 10
3.6 Outstanding Shares ........................................ 11
3.7 Ownership of Shares ....................................... 11
3.8 Authorized Shares ......................................... 11
3.9 Financial Statements ...................................... 11
3.10 Title to Assets ........................................... 12
3.11 Intellectual Property ..................................... 13
3.12 Real Property ............................................. 13
3.13 Contracts ................................................. 14
3.14 Accounts Receivable ....................................... 15
3.15 Inventory ................................................. 16
3.16 Litigation and Compliance with Laws ....................... 16
3.17 Defaults and Permits ...................................... 18
3.18 Insurance ................................................. 19
3.19 Environmental Matters ..................................... 19
3.20 Employee Benefit Plans .................................... 20
3.21 Employee Matters .......................................... 23
3.22 Taxes and Returns ......................................... 23
3.23 Absence of Material Changes ............................... 24
3.24 Broker's Commission or Finder's Fees ...................... 26
3.25 Vendors and Customers ..................................... 26
3.26 Accounts Payable .......................................... 27
3.27 Affiliate Transactions .................................... 27
3.28 Knowledge ................................................. 27
3.29 Disclosure ................................................ 28
3.30 Information in Proxy Statement ............................ 28
</TABLE>
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<CAPTION>
<S> <C>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Organization, Standing and Authority of Buyer .............. 28
4.2 Authorization .............................................. 29
4.3 No Conflict, No Violation .................................. 29
4.4 Consents ................................................... 30
4.5 Litigation ................................................. 30
4.6 Investment Intent .......................................... 31
4.7 Financing .................................................. 31
4.8 No Dealing with Affiliates ................................. 31
4.9 Broker's Commission or Finder's Fees ....................... 31
4.10 Information in Proxy Statement ............................. 32
ARTICLE V ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 Ordinary Course ............................................ 32
5.2 Access and Confidentiality ................................. 34
5.3 Preservation of and Access to Records ...................... 35
5.4 Regulatory and Other Authorizations ........................ 36
5.5 Further Assurances ......................................... 36
5.6 Agreements with Respect to Insurance ....................... 36
5.7 Employee and Employee Benefit Matters ...................... 37
5.8 Accounts Receivable and Inventory .......................... 39
5.9 Other Offers ............................................... 40
5.10 Restrictive Covenants ...................................... 41
5.11 Shareholder Approval; Proxy Statement ...................... 41
5.12 Proposed Liquidation, Distribution, Etc .................... 41
5.13 Payment to Profit Sharing Plan ............................. 42
5.14 Supplements to Schedules ................................... 42
ARTICLE VI CONDITIONS TO CLOSING
6.1 Seller's Conditions to Close ............................... 43
6.2 Buyer's Conditions to Close ................................ 44
ARTICLE VII THE CLOSING
7.1 Seller's Deliveries ........................................ 46
7.2 Buyer's Deliveries ......................................... 47
ARTICLE VIII INDEMNIFICATION
8.1 Indemnification by Buyer ................................... 48
8.2 Indemnification by Seller .................................. 49
8.3 Limitation on Indemnity .................................... 50
8.4 Indemnification Procedures ................................. 51
8.5 Environmental Matters ...................................... 53
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IX TAXES
9.1 Apportionment and Indemnification ....................... 57
9.2 Filing of Tax Returns ................................... 59
9.3 Section 338(h)(l0) Election ............................. 60
ARTICLE X TERMINATION
10.1 Termination ............................................. 61
10.2 Effect of Termination ................................... 61
ARTICLE XI MISCELLANEOUS
11.1 Expenses ................................................ 62
11.2 Public Disclosure ....................................... 62
11.3 Survival ................................................ 62
11.4 Governing Law ........................................... 62
11.5 Notices ................................................. 62
11.6 Assignment .............................................. 64
11.7 Section Headings ........................................ 64
11.8 Counterparts ............................................ 64
11.9 Amendment ............................................... 64
11.10 Waiver .................................................. 64
11.11 Miscellaneous ........................................... 65
</TABLE>
SCHEDULES
EXHIBIT A - ESCROW AGREEMENT
ANNEX A - FORM OF OPINION OF COUNSEL TO SELLER
ANNEX B - FORM OF OPINION OF COUNSEL TO BUYER
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of December
17, 1997, by and between HMI Industries Inc., a Delaware corporation ("Seller"),
and Rhone Capital LLC, a Delaware limited liability company, and together with
its assigns, collectively, "Buyer").
Seller owns all of the issued and outstanding shares of common stock
(the "Shares") of Bliss Manufacturing Company, an Ohio corporation (the
"Company"). Subject to the terms and conditions stated herein, Seller wishes to
sell and Buyer wishes to purchase from Seller all of the Shares of the Company
owned by Seller which constitute 100% of the issued and outstanding shares of
the capital stock of the Company. The term "Business" shall mean the business
and operations conducted by the Company and Newton Falls Holding Company, a
Delaware corporation ("Sub").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 SALE AND PURCHASE OF SHARES. On the terms and subject to the
conditions herein expressed and based on the representations, warranties,
covenants and agreements contained herein, Seller agrees to sell, assign,
transfer and convey to Buyer, and Buyer agrees to purchase, acquire and accept
from Seller at the Closing, as that term is hereinafter defined, all of Seller's
right, title and interest in and to the Shares.
<PAGE> 6
1.2 PURCHASE PRICE. (a) In consideration for the sale and transfer of
the Shares described in Section 1.1 above, at the Closing, Buyer shall deliver
(D to Seller an amount equal to $30,500,000 by wire transfer of immediately
available funds to Seller's account at Star Bank, N.A. and (b) to The Chase
Manhattan Bank or such other escrow agent reasonably agreeable to the parties
(the "Escrow Agent"), under an Escrow Agreement substantially in the form
attached hereto as EXHIBIT A (the "Escrow Agreement"), $1,000,000 (the "Escrow")
by wire transfer of immediately available funds to an interest bearing account
specified by the Escrow Agent (the amounts described in clauses (i) and (ii)
being referred to as the "Purchase Price"). Seller shall pay and distribute from
the portion of the Purchase Price that is delivered by Buyer to Seller at the
Closing the following closing payments: (x) $1,000,000 shall be paid to Liberty
Steel in accordance with the letter agreement between Seller and Liberty Steel
referred to in SCHEDULE 5.1 and (y) $500,000 shall be paid to the Company to
fund future employee benefits (the "Closing Payments"). The Purchase Price shall
be subject to post-closing adjustments in accordance with the procedures set
forth in Article II hereof.
(b) If Buyer delivers to Seller the Acceptance Notice referred to
in Section 2.1(d) or fails to deliver an Objection Notice (as defined below)
within the forty-five (45) day period required by Section 2.1(d), then, as soon
as practicable (but not more than two (2) business days) after final
determination of the Final Net Current Assets (as defined below), (j) in the
event the Final Net Current Assets are less than the Reference Net Current
Assets (as defined below), Seller and Buyer shall provide joint written
instructions to the Escrow Agent directing the Escrow Agent to remit to Buyer,
the amount by which the Reference Net Current Assets exceeds the Final Net
Current Assets (PROVIDED that, to the extent that such amount would reduce the
Escrow to less than $500,000, only an amount that
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<PAGE> 7
would reduce the Escrow to $500,000 shall be paid to Buyer out of the Escrow and
Seller shall remit to Buyer the balance of such amount owed to Buyer pursuant to
this clause (i)), or (ii) in the event the Final Net Current Assets exceed the
Reference Net Current Assets, Buyer shall remit to Seller the amount by which
the Final Net Current Assets is greater than the Reference Net Current Assets.
Alternatively, if Buyer delivers to Seller the Objection Notice referred to in
Section 2.1(d), within two (2) business days after such delivery, (y) Seller and
Buyer shall provide joint written instructions to the Escrow Agent directing the
Escrow Agent to remit to Buyer the amount, if any, by which the undisputed
portion of the Final Net Current Assets is less than the Reference Net Current
Assets (PROVIDED that, to the extent that such amount would reduce the Escrow to
less than $500,000, only an amount that would reduce the Escrow to $500,000
shall be paid to Buyer out of the Escrow and Seller shall remit to Buyer the
balance of such amount owed to Buyer pursuant to this clause (y)), or (z) Buyer
shall remit to Seller the amount, if any, by which the undisputed portion of
the Final Net Current Assets is greater than the Reference Net Current Assets.
Within two (2) business days after the resolution of any dispute by the parties
or the Unrelated Accounting Firm (as defined below) relating to the Objection
Notice, Seller and Buyer shall provide joint written instructions to the Escrow
Agent directing the Escrow Agent to remit to Buyer (PROVIDED that, to the extent
that such amount would reduce the Escrow to less than $500,000, only an amount
that would reduce the Escrow to $500,000 shall be paid to Buyer out of the
Escrow and Seller shall remit to Buyer the balance of such amount owed to
Buyer), in the case where the portion of the Final Net Current Assets is less
than the Reference Net Current Assets, or Buyer shall remit to Seller, in the
case where the portion of the Final Net Current Assets is more than the
Reference Net Current Assets, the amount of any further adjustment required.
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<PAGE> 8
(c) Any payment pursuant to Section 1.2(b) shall be made by certified
or bank cashier's check, or, at the recipient's option, by wire transfer of
immediately available funds.
1.3 CLOSING. The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Squire, Sanders & Dempsey
L.L.P., 4900 Key Tower, 127 Public Square, Cleveland, Ohio 44114-1304 (or at
such other place as the parties may agree in writing), at 10:00 a.m. on March
15, 1998, or such other date mutually designated by Seller and Buyer, but in no
event later than five (5) business days after the date when each of the
conditions specified in Article VI has been fulfilled (or waived by the party
entitled to waive that condition). The date on which the Closing is held is
referred to in this Agreement as the "Closing Date." At the Closing, the parties
shall execute and deliver the documents referred to in Article VII.
ARTICLE H
POST-CLOSING ADJUSTMENTS
2.1 ADJUSTMENT OF PURCHASE PRICE. (a) The Purchase Price
shall be adjusted as follows:
(i) For purposes hereof, "Final Net Current Assets" shall mean the
current assets of the Business less the current liabilities of the Business, as
reflected in the Final Balance Sheet (as defined in Section 2.1(b)). "Reference
Net Current Assets" shall mean the current assets of the Business less the
current liabilities of the Business as reflected on the Reference Balance Sheet
(as defined in Section 3.9).
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<PAGE> 9
(ii) If the amount of the Final Net Current Assets determined in
accordance with this Section 2.1 is less than the Reference Net Current Assets,
the Purchase Price shall be decreased by an amount equal to the difference
between the Final Net Current Assets and the Reference Net Current Assets.
(iii) If the amount of the Final Net Current Assets is greater than
the Reference Net Current Assets, the Purchase Price shall be increased by an
amount equal to the difference between the Final Net Current Assets and the
Reference Net Current Assets.
(b) The Final Net Current Assets shall be determined as of the close of
business on the day immediately preceding the day of the Closing (the
"Determination Time") on the basis of the balance sheet of the Business as of
the Determination Time (the "Final Balance Sheet"). The Final Balance Sheet
shall be prepared by Seller in accordance with generally accepted accounting
principles applied on a basis consistent with the principles used in the
preparation of the Reference Balance Sheet (the "Accounting Principles") and
shall be reported upon by Coopers & Lybrand LLP ("C&L"). For purposes of
calculating the Purchase Price adjustment, any current assets and current
liabilities relating to (j) the adoption of FAS 106 and (ii) current or deferred
income tax shall be excluded from both the Reference Balance Sheet and the Final
Balance Sheet. Additionally, Seller and Buyer agree that the only amount to be
accrued for employee profit sharing and incentive compensation shall be at the
rate of $75,000 per month in the aggregate for each month commencing October 1,
1997 until the Final Balance Sheet date, PROVIDED that the accrual shall be pro
rata for any partial month. C&L shall hereinafter be referred to as the
"Auditor" . Seller shall be responsible for the fees and expenses of the
Auditor.
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<PAGE> 10
(c) Seller shall engage the Auditor to examine the Final Balance Sheet
and shall deliver to Buyer the Final Balance Sheet within sixty (60) days after
the Closing, together with a report of the Auditor thereon (j) setting forth the
amount of Final Net Current Assets reflected in the Final Balance Sheet, (ii)
stating that (y) the examination has been made in accordance with generally
accepted auditing standards as supplemented by the Accounting Principles, and
(z) the Final Balance Sheet has been prepared in conformity with the Accounting
Principles, and (iii) setting forth the amount of any required adjustment to the
Purchase Price pursuant to this Section 2.1. Buyer and Seller shall take such
actions as are necessary to cause the Auditor's audit of the Final Balance Sheet
to be performed expeditiously. During the period from the Closing Date until the
date of delivery of the Final Balance Sheet, Buyer shall give Seller, the
Auditor and other appropriate personnel such assistance and access to the assets
and books and records of the Company as Seller and the Auditor shall reasonably
request during normal business hours in order to enable them to prepare and
examine, respectively, the Final Balance Sheet. Price Waterhouse LLP or such
other independent accounting firm engaged by Buyer at Buyer's sole expense
(which shall not be the Unrelated Accounting Firm referred to below) ("Buyer's
Auditor") shall have the opportunity to observe the taking of the inventory of
the Business in connection with the preparation of the Final Balance Sheet, and
to examine the work papers, schedules and other documents prepared by Seller in
connection with its preparation of the Final Balance Sheet. Seller shall use its
reasonable efforts to cause the Auditor to permit Buyer and Buyer's Auditor to
examine the Auditor's work papers used in connection with its audit of the Final
Balance Sheet.
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<PAGE> 11
(d) Within forty-five (45) days following the delivery of the Final
Balance Sheet and the related report of the Auditor, Buyer shall deliver to
Seller a notice of objection (an "Objection Notice") or a notice of acceptance
(an "Acceptance Notice") with respect to the Final Balance Sheet and related
Auditor's report. Such Final Balance Sheet and related Auditor's report shall be
final and binding on the parties if an Acceptance Notice is delivered to Seller
or if no Objection Notice is delivered to Seller within such forty-five (45) day
period. Any Objection Notice shall specify in reasonable detail the items on the
Final Balance Sheet disputed and shall describe in reasonable detail the basis
for the objection and all information in the possession of the objecting party
which forms the basis thereof, as well as the amount in dispute. If an Objection
Notice is given, the parties shall consult with each other with respect to the
objection. If the parties are unable to reach agreement within fifteen (15) days
after an Objection Notice has been given, any unresolved disputed items shall be
promptly referred to Arthur Andersen LLP (the "Unrelated Accounting Firm"). The
Unrelated Accounting Firm shall be directed to render a written report on the
unresolved disputed issues with respect to the Final Balance Sheet as promptly
as practicable and to resolve only those issues of dispute set forth in the
Objection Notice. The resolution of the dispute by the Unrelated Accounting Firm
shall be final and binding on the parties. The fees and expenses of the
Unrelated Accounting Firm shall be borne equally by Seller and Buyer. Within two
(2) business days following the latest to occur of (D the delivery by Buyer of
an Acceptance Notice, (ii) the expiration of the 45-day objection period or
(iii) the receipt of the written report rendered by the Unrelated Accounting
Firm, Buyer and Seller shall direct the Escrow Agent to release to Seller from
the Escrow, in immediately available funds to Seller's account as specified in
Section 1.2(a) or as otherwise directed by Seller, an amount that, after making
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<PAGE> 12
any payments from the Escrow to Buyer, would leave a remaining balance of
$500,000 in the Escrow Account.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer (which representations and
warranties shall survive the Closing to the extent provided in Section 11.3
hereof) that:
3.1 ORGANIZATION, STANDING AND AUTHORITY OF SELLER. Seller, the Company
and Sub are corporations duly organized, validly existing and in good standing
under the laws of the states indicated on SCHEDULE 3.1 and Seller has full
corporate power and authority to enter into and perform this Agreement, the
Escrow Agreement and the Stockholder Voting Agreement dated the date hereof
among Seller, the shareholders of Seller named therein and Buyer (the "Voting
Agreement"). Each of the Company and Sub is duly qualified to do business and is
in good standing in each jurisdiction in which the properties owned or leased by
it or the conduct of the Business requires such qualification, except where the
failure to be so qualified or in good standing would not have a material adverse
effect on the operations of the Business taken as a whole.
3.2 AUTHORIZATION. The execution, delivery and performance of each of
this Agreement, the Escrow Agreement and the Voting Agreement by Seller have
been duly authorized by all necessary corporate action of Seller, and this
Agreement and the Voting Agreement constitute and, when executed and delivered,
the Escrow Agreement will constitute the valid and binding obligation of Seller
enforceable against it in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
-8-
<PAGE> 13
moratorium or other similar laws affecting the enforcement of creditors' rights
in general and subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
3.3 NO VIOLATIONS, NO CONFLICT. Subject to receipt of the consents and
approvals listed in SCHEDULE 3.3, the execution, delivery and performance of
this Agreement, the Voting Agreement and the Escrow Agreement and the
consummation of the transactions contemplated hereby and thereby by Seller will
not (j) violate or conflict with the certificates of incorporation or the
by-laws or regulations, as the case may be, of Seller, the Company or Sub, (ii)
conflict with, or result in the breach of, or termination of, or constitute a
default under (whether with notice or lapse of time or both), or accelerate or
permit the acceleration of the performance required by, any indenture, mortgage,
lien, lease, agreement, commitment or other instrument, or any order, judgment
or decree, to which Seller or the Company or Sub is a party or by which Seller
or the Company or Sub or any of their properties are bound, (iii) constitute a
violation of any law, regulation, order, writ, judgment, injunction or decree
applicable to Seller or the Company or Sub, or (iv) result in the creation of
any lien, charge or encumbrance upon the capital stock, properties or assets of
Seller or the Company or Sub, other than violations, conflicts, breaches,
terminations, accelerations and defaults specified in the foregoing clauses (ii)
and (iv) which could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the Company or Sub or on Seller's
ability to perform its obligations under this Agreement, the Voting Agreement or
the Escrow Agreement.
3.4 CONSENTS. The only authorization, consent, approval or notice of
any federal, state, local or foreign regulatory body required to be obtained or
given or waiting period
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<PAGE> 14
required to expire with respect to Seller in order that this Agreement, the
Voting Agreement or the Escrow Agreement and the transactions contemplated
hereby or thereby may be consummated by the Buyer and Seller is (a) notification
to the Federal Trade Commission and the Antitrust Division of the Department of
Justice pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
and the rules promulgated thereunder (the "HSR Act", and such notification, an
"HSR Filing") and the expiration of the applicable waiting periods under the HSR
Act and (b) filings with the Pension Benefit Guaranty Corporation (the "PBGC"),
the Internal Revenue Service (the "IRS"), the Department of Labor (the "DOL")
and any other similar governmental entity with respect to the transfer of assets
and liabilities of Plans (as defined below). Except as disclosed in SCHEDULE 3.3
or 3.4, no consent or approval of any other party (other than any governmental
entity referred to above) is required to be obtained by Seller for the
execution, delivery or performance of this Agreement, the Voting Agreement or
the Escrow Agreement or the performance by Seller of the transactions
contemplated hereby and thereby, except where the failure to obtain any such
consent or approval would not prevent or delay the consummation of the
transactions contemplated hereby, or otherwise prevent Seller from performing
its obligations under this Agreement, the Voting Agreement or the Escrow
Agreement or would not, individually or in the aggregate, have a material
adverse effect on Seller or the Company or Sub.
3.5 CERTIFICATE OF INCORPORATION, BY-LAWS AND REGULATIONS. SCHEDULE 3.5
sets forth correct and complete copies of the certificates of incorporation, as
amended and restated from time to time, and the regulations and by-laws, as the
case may be, of the Company and Sub. SCHEDULE 3.5 sets forth a list of the
directors and officers of each of the Company and Sub.
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<PAGE> 15
3.6 OUTSTANDING SHARES. The authorized capital stock of the Company and
Sub, the number of shares issued and outstanding and the shareholders of the
Company and Sub are set forth on SCHEDULE 3.6.
3.7 OWNERSHIP OF SHARES. The Shares of the Company and the outstanding
capital stock of Sub are owned by Seller and the Company, respectively,
beneficially and of record, free and clear of all liens, encumbrances or claims.
At the Closing, Seller will transfer and deliver to Buyer valid title to all of
the Shares, free and clear of any liens, claims, charges, pledges, security
interests, options or other legal or equitable encumbrances of any kind
(collectively "Claims"). Except for Sub and except as disclosed in SCHEDULE 3.7
hereto, the Company is neither the record nor beneficial holder of any capital
stock, membership interest in any limited liability company, partnership
interest or other similar interest or right to acquire any capital stock,
membership interest in any limited liability company, partnership interest or
other similar interest in any entity.
3.8 AUTHORIZED SHARES. All of the Shares of the Company and shares of
capital stock of Sub are duly authorized, validly issued, fully paid and
nonassessable. Except for this Agreement, there are no options or rights of any
kind to acquire any shares of any class of securities or any securities
convertible into or exchangeable for any capital stock of the Company or Sub.
3.9 FINANCIAL STATEMENTS. SCHEDULE 3.9 sets forth financial statements
including the balance sheet as of September 30, 1997 (the "Reference Balance
Sheet"), and the income statements for the fiscal years ended September 30,
1995, 1996 and 1997 for the Company and Sub (together with the Reference Balance
Sheet, the "Financial Statements"). SCHEDULE 3.9 sets forth certain items which
represent a combination of actual events and transactions
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<PAGE> 16
that occurred in the year ended September 30, 1997. The Financial Statements
present fairly, in all material respects, the financial condition and results of
operations of the Company and Sub as of the dates and for the periods indicated
therein. Such Financial Statements were used in the preparation of Seller's
consolidated financial statements and were prepared in accordance with generally
accepted accounting principles and the Financial Statements were prepared in
accordance with past accounting practices applied consistently except as noted
in SCHEDULE 3.9. Since September 30, 1997, there has been no adverse change to
the business, assets, operations, properties, financial condition, liabilities,
or results of operations of the Company or Sub which change is material to the
Company and Sub taken as a whole (a "Material Adverse Change"). Except as set
forth in SCHEDULE 3.9 there has been no Material Adverse Change since September
30, 1997 involving the relationship or agreements with any customers, suppliers
or labor force of the Company. Except as reflected in the Financial Statements
or as set forth in SCHEDULE 3.9 or in any other Schedule to this Agreement, or
as incurred since September 30, 1997 in the ordinary course of business
consistent with past practice, there are no debts, obligations, guaranties of
obligations of others or liabilities (whether accrued, absolute, contingent or
otherwise) that would be required to be disclosed on a consolidated balance
sheet of the Company prepared under generally accepted accounting principles.
3.10 TITLE TO ASSETS. Each of the Company and Sub has good and
marketable title to all real and tangible personal property reflected on the
Reference Balance Sheet as currently owned and used in the operation of the
Business (excluding inventory and obsolete equipment that may have been sold in
the ordinary course of business consistent with past practice from September 30,
1997) and such property is free from all Claims, except for (j)
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<PAGE> 17
liens for taxes not yet due and payable and similar liens arising by operation
of law in the ordinary course of business for which adequate reserves have been
made on the Company's balance sheets, (ii) such liens, charges, options or
encumbrances noted in the title report furnished to Buyer that individually or
in the aggregate do not materially affect the use of such assets in the Business
in accordance with Company's past practice or (iii) except as otherwise
described in SCHEDULE 3.10 to this Agreement.
The assets reflected on the Reference Balance Sheet constitute all
assets currently used or held for use in the Business, constitute all assets
necessary to continue to operate the Business consistent with current and
historical practice and, except as set forth in SCHEDULE 3.10 are in good
repair, working order and operating condition (subject to normal wear and tear).
The Company owns all of the rights, properties and assets used in and which are
necessary for the conduct of the Business as presently conducted.
3.11 INTELLECTUAL PROPERTY. Except for the logo set forth in SCHEDULE
3.11 neither the Company nor Sub owns or uses in the Business any patents,
patent applications, trade names, trademarks, services marks or other names,
logos or marks or any licenses, proprietary or other intellectual property
rights. The logo of the Company has not been registered. To Seller's knowledge,
such logo does not infringe on any rights owned or held by any other person.
3.12 REAL PROPERTY. SCHEDULE 3.12 sets forth a list of all real
property owned by the Company or Sub on the date of this Agreement which is
necessary to the conduct of the Business as presently conducted. Neither the
Company nor Sub leases any real property. With respect to the real property
owned by the Company or Sub and the improvements thereon, (i) neither the
Company nor Sub has received any written notice of condemnation
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<PAGE> 18
proceedings pending or threatened against any portion thereof, (ii) such
property is not in violation of any zoning or building laws, except where such
violations would not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Change, (iii) such property does not violate any
restrictive covenants or encroach on any property owned by others, except where
such violations or encroachments would not, individually or in the aggregate,
reasonably be expected to result in a Material Adverse Change, and (ix) the
improvements thereon have been maintained in accordance in all material respects
with all applicable laws, ordinances, regulations and orders.
3.13 CONTRACTS. Except for this Agreement or any agreement contemplated
hereby, and agreements, contracts and commitments listed in SCHEDULE 3.13 (which
Schedule includes contracts entered into with key management personnel),
complete and correct copies or descriptions of which have previously been made
available to Buyer or included in the Schedules to this Agreement, neither the
Company nor Sub is a party to any written or oral:
(a) contract for the sale of goods or the purchase of inventory,
materials, supplies, services, equipment or any capital item or items
that involve a payment of more than $25,000 in one year or that cannot be
cancelled by the Company without penalty in less than six months from the
date of this Agreement;
(b) agreement, indenture or other instrument relating to the
borrowing of more than $25,000 or the guaranty of any obligation for the
borrowing of more than $25,000;
(c) lease of personal property, including capital leases,
involving a consideration of more than $25,000 and which has a term,
including renewal
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options exercisable by any party thereto, ending more than six (6) months
after the date of this Agreement;
(d) distribution, agency, sales representative, compensation,
labor or employment contract which is not terminable by the Company
without penalty upon notice of sixty (60) days or less;
(e) lease or agreement with an affiliated company;
(f) agreement or understanding regarding the disposition of any
stock or assets of the Company or Sub;
(g) noncompete agreements or other documents that will limit the
freedom of Buyer, the Company or Sub to compete in any line of business;
or
(h) any other agreement, contract or commitment that is material
to the Company or Sub or not made in the ordinary course of business
consistent with past practice.
Neither the Company nor Sub is in breach or default in any material respect
under any of the agreements, contracts or commitments set forth in SCHEDULE
3.13, except for such breaches or defaults as would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Change. All of the
agreements, contracts and commitments set forth in SCHEDULE 3.13 are in full
force and effect and enforceable against the Company or Sub, as the case may be,
except for such agreements, contracts and commitments as would not reasonably be
expected to have, singly or in the aggregate, a Material Adverse Change.
3.14 ACCOUNTS RECEIVABLE. All of the Company's accounts receivable that
are reflected in the Financial Statements have arisen in the ordinary course of
business consistent with past practice. The reserves for doubtful accounts
reflected on the Financial Statements
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<PAGE> 20
were determined in accordance with generally accepted accounting principles
consistent with past practice and are reasonable in light of the Company's past
experience and expected future collections. Net accounts receivable less
allowances, as reflected in the Financial Statements, will be collectible in the
ordinary course of business consistent with past practice within 90 days after
the Closing Date.
3.15 INVENTORY. The inventory is of a quality and quantity usable and
saleable in the ordinary course of business of the Company consistent with past
practice, except for obsolete items or items below standard quality as to which
a provision determined in a manner consistent with the prior practice of the
Business has been made in the Financial Statements. The value of all inventory
items, including finished goods, work-in-process and raw materials, has been
recorded on the books of the Company as reflected in the Financial Statements at
the lower of cost (FIFO) (determined in accordance with generally accepted
accounting principles consistently applied and as set forth in the Reference
Balance Sheet, except as disclosed in SCHEDULE 3.15) or fair market value. As
the Business is currently conducted by the Company, net inventory after reserves
will be usable and saleable, with respect to work-in-process and finished goods,
within 90 days, and, with respect to raw materials, within six (6) months from
the Closing Date, except as disclosed in SCHEDULE 3.15.
3.16 LITIGATION AND COMPLIANCE WITH LAWS. (a) There are no judicial or
administrative actions, proceedings or investigations pending or, to Seller's
knowledge, threatened, that question the validity of this Agreement or any
action taken or to be taken by Seller or the Company in connection with this
Agreement. Except as set forth in SCHEDULE 3.16, there is no, and in the
preceding three years there has been no, action, claim, litigation, proceeding
or governmental investigation pending or, to Seller's knowledge,
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<PAGE> 21
threatened, or any order, injunction or decree outstanding, against the Company
involving more than $25,000 individually or $100,000 in the aggregate and Seller
knows of no basis for any such action, claim, litigation, proceeding or
investigation.
(b) The Business is not affected by any present or, to the
knowledge of Seller, threatened strike, walkout, slowdown or other labor
disturbance except as described in SCHEDULE 3.16. All litigation required to be
disclosed by Seller under the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, for fiscal years 1993 and 1994 were
properly disclosed in Seller's periodic reports.
(c) Except as disclosed in SCHEDULE 3.16, (j) each of the Company
and Sub has complied and is in compliance with all laws, regulations, rules and
orders applicable to the Business (other than Environmental Laws (as defined in
Section 8.5)), including, without limitation, laws, rules, regulations, permits,
franchises, licenses, judgments and orders relating to occupational safety and
health ("OSHA Laws"), except where the failure to so be in compliance would not,
individually or in the aggregate, reasonably be expected to result in a Material
Adverse Change and (ii) to Seller's knowledge, there is no present condition
relating to the Company or Sub or the real property described in SCHEDULE 3.12
that would, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Change for violation of any OSHA Laws or other federal,
state or local laws, rules, regulations, permits, franchises, licenses,
judgments and orders (other than Environmental Laws). Except as set forth on
SCHEDULE 3.16, neither the Company nor Sub is subject to any order, writ,
injunction or decree relating to the operations of the Business or affecting its
properties except where such orders, writs, injunctions or decrees would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Change.
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<PAGE> 22
(d) Except as set forth in SCHEDULE 3.16, to Seller's knowledge,
(j) neither the Company nor Sub has violated or is in violation of any
requirements of any Environmental Laws, (ii) there are no present or past
conditions relating to the Company or Sub or relating to the real property
described in SCHEDULE 3.12 or any other real property owned or operated by the
Company or any of its present or past affiliates, or any real property or
surface or subsurface rivers or streams crossing or adjoining any such real
property, or any appurtenances to or improvements on any such real property,
that would, individually or in the aggregate, reasonably be expected to lead to
any material liability against, or have a Material Adverse Change for violation
of any Environmental Laws and (iii) each of the Company and Sub has operated the
real property described in SCHEDULE 3.12 and all appurtenances thereto and
improvements thereon and has received, handled, used, stored, treated, shipped
and disposed of all hazardous or toxic materials, substances and wastes (whether
or not on its properties or properties owned or operated by others) in
compliance with all applicable Environmental Laws.
3.17 DEFAULTS AND PERMITS. Except as disclosed in SCHEDULE 3.17, no
event of default has occurred under any agreement, contract or other instrument
relating to the Business to which the Company or Sub is a party, and, as of the
date hereof there does not exist thereunder any event or condition that, with or
without the lapse of time or the giving of notice, or both, would have a
material effect on the Business. Except as set forth in SCHEDULE 3.17 all
franchises, licenses, ordinances and permits material to and relating to the
Business are in full force and effect, no violations have been recorded in
respect thereof and no proceeding (not including any application for renewal) is
pending or, to Seller's knowledge, threatened which would have the effect of
revoking or materially limiting any such franchises,
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<PAGE> 23
licenses, ordinances or permits. Except as set forth in SCHEDULE 3.17, the
Business has all franchises, licenses, ordinances and permits necessary to the
conduct of the Business as currently conducted, and which if not present, or not
in full force and effect, would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Change. Except as disclosed in SCHEDULE
3.17, this Agreement and the transactions contemplated by this Agreement will
not result in the denial of the application for renewal or the revocation,
nonrenewal or suspension of any franchise, license, ordinance or permit relating
to the Business or held by the Company or Sub and Seller knows of no basis for
any such denial, revocation, nonrenewal or suspension. A current list of such
material franchises, licenses, ordinances and permits is set forth on SCHEDULE
3.17 to this Agreement.
3.18 INSURANCE. SCHEDULE 3.18 sets forth a list of all material
policies of insurance pursuant to which the Company or Sub is insured and sets
forth the types and amounts of coverage under such policies. Neither the Company
nor Sub has received any notice of cancellation with respect to any such policy,
and, except as set forth in SCHEDULE 3.18, no claims are pending. SCHEDULE 3.18
sets out all claims made by or on behalf of the Company or Sub under any policy
of insurance during the past 12 months with respect to the Business. There are
no other claims asserted, and Seller knows of no basis for any such claims to be
asserted by the Company or Sub under any insurance policy. Insurance has been
maintained by or for the benefit of the Company and Sub without interruption
since July 1, 1990 of a type that is and has been not less than that generally
maintained by persons owning properties and engaging in operations similar to
those of the Company and Sub.
3.19 Environmental Matters. Except as set forth on SCHEDULE
3.19, (a)(i) neither the Company nor Sub has received since July 1, 1990, any
claim, action, cause of
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<PAGE> 24
action, proceeding, investigation, request for information, notice or citation
(collectively, "Citation") from any governmental agency for noncompliance with
such agency's requirements with respect to air, water, ground or environmental
pollution pertaining to the Business and (ii) there are no pending or unresolved
Citations against the Company or Sub.
(b) Neither the Company nor Sub has received any Citation that it is
or may be potentially responsible with respect to any investigation or clean-up
of any threatened or actual release of any hazardous substance (as that or any
similar term is presently defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq. ("CERCLA"), comparable state law or any other Environmental Law) or
petroleum products, regardless of whether such threatened or actual release took
place at any location owned, operated or leased by the Company or Sub (whether
or not prior to or during the Company's or Sub's ownership, operation or leasing
thereof) or elsewhere with respect to the Business.
3.20 EMPLOYEE BENEFIT PLANS. SCHEDULE 3.20 sets forth (j) a list of
the employee pension benefit plans (as defined in section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) established and
maintained by the Company or with respect to which the Company is a
participating or contributing employer (the "Pension Plans"), (b) a brief
description of the employee benefit plans and arrangements with employees for
profit-sharing, stock ownership, stock purchase, stock option, phantom stock,
stock appreciation right, disability, death benefit, life insurance, medical,
hospitalization, disability, workers' compensation, supplemental unemployment,
vacations, severance pay, retirement, insurance or other employee benefits
maintained by the Company not set forth in the foregoing clause (i), and (iii) a
list containing a description of any other employment,
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<PAGE> 25
consulting or severance contract, bonus program, incentive compensation
arrangement, deferred compensation arrangement, or employee or retiree benefits
maintained by the Company and not described in (i) or (ii) above (individually,
a "Plan"; collectively, the "Plans"). No employee of the Business is a
participant in any employee benefit plan or arrangement other than a Plan. The
Company has no liability (including, without limitation, any potential or
contingent liability under Title IV of ERISA) with respect to any employee
benefit plan, other than a Plan. Seller has delivered to Buyer true and complete
copies of (A) each Plan, (B) the summary plan description for each Plan, (C) the
latest annual report which has been filed with the IRS for each Plan for which
such filing was required, (D) the most recent IRS determination letter for each
Pension Plan, (E) copies of any report for the three most recent Plan years
showing compliance with discrimination rules under those of Code Sections
401(a), 401(k), 401(m), 419, 419A, 505, 501(c)(9), 105(h), 125 or 129 applicable
to such Plan, and (F) all correspondence with any governmental agency concerning
any audit, investigation, or controversy concerning any Plan. With respect to
Pension Plans: (a) no liability has been incurred by the Company to the PGBC or
the IRS or to the participants or beneficiaries thereof, other than claims for
Pension Plan benefits and other immaterial benefits in the ordinary course which
claims have been satisfied in full and each Pension Plan has been operated in
all material respects in accordance with its terms and with applicable law; (b)
no prohibited transaction, within the meaning of section 406 or 408 of ERISA,
has occurred with respect to any Pension Plan; (c) all governmental filings and
all disclosures and communications to participants and beneficiaries required to
be made pursuant to ERISA with respect to the Pension Plans and related trusts
have been made in a timely manner; (d) each Pension Plan is qualified within the
meaning of section 401(a) of the Internal Revenue Code
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<PAGE> 26
of 1986, as amended (the "Code"), and each related trust is exempt from taxation
under section 501(a) of the Code and no event has occurred and no circumstance
exists that would adversely affect such qualification or exemption; (e) a
favorable determination letter has been received from the IRS with respect to
each Pension Plan; and (D no Pension Plan is a multiemployer plan (within the
meaning of section 3(37) of ERISA). No material liability, contingent or
otherwise, exists with respect to any Plan other than retiree welfare benefit
liabilities disclosed in SCHEDULE 5.7(a) which liabilities are accurately
reflected on such Schedule. No Plan is subject to the provisions of Section 412
of the Code or Part 3 of Subtitle B of Title I of ERISA. There are no actions,
claims, lawsuits or arbitrations (other than routine claims for benefits)
pending, or, to the knowledge of Seller, threatened, with respect to any Plan or
the assets of any Plan, and Seller has no knowledge of any facts which could
give rise to any such actions, claims, lawsuits or arbitrations (other than
routine claims for benefits). With respect to each Plan, all contributions and
insurance premiums paid by the Company are tax deductible. The Company has paid
all contributions (including employee salary reduction contributions) and all
insurance premiums that have become due and any such expense accrued but not yet
due has been properly reflected in the financial information furnished pursuant
to Section 3.9. Except as disclosed in SCHEDULE 5.7(a), no Plan provides or is
required to provide, now or in the future, health, medical, dental, accident,
disability, death or survivor benefits to or in respect of any person beyond
termination of employment with the Company, except to the extent required under
the state insurance law or under Part 6 of Subtitle B of Title I of ERISA and
under Section 4980(B) of the Code. No Plan covers any individual other than with
respect to periods of employment with the Company, other than spouses and
dependents of employees of the Company under health and child care Plans
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disclosed to Buyer. The consummation of the transactions contemplated by this
Agreement will not entitle any employee of the Company to severance pay or
termination benefits for which Buyer or any of its affiliates (including the
Company) may become liable, or accelerate the time of payment or vesting or
increase the amount of compensation due to any such employee or former employee
of the Company for which Buyer or any of its affiliates (including the Company)
may become liable.
3.21 EMPLOYEE MATTERS. Except for the Bliss Manufacturing Employees
Association (the "Employee Association"), no other employee association or union
represents members of the Company's workforce. Set forth in SCHEDULE 3.21 is a
list of the members of the Employee Association. No controversies or disputes
are pending or, to Seller's knowledge, threatened between the Company and any of
its employees other than controversies and disputes with individual employees
arising in the ordinary course of business that would not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Change.
3.22 TAXES AND RETURNS. All federal, state, county, local, foreign and
other income, franchise, gross receipts, sales and use, payroll, real and
personal property and other taxes and governmental charges, assessments and
contributions of the Company with respect to the Business or with respect to
which Buyer or the Company could have any liability, including interest and
penalties, as a result of being a member of a controlled, combined or affiliated
group of corporations ("Taxes") required to be paid, collected or withheld with
respect to all open years have been paid, collected or withheld and remitted to
the appropriate governmental agency except for (j) those Taxes which the Company
is contesting in good faith and (ii) accrued and unpaid Taxes as to which
appropriate reserves have been established by the
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Company ("Tax Reserves"). The Company has filed all tax returns and reports
required to be filed by it, or requests for extensions to file such returns or
reports have been timely filed and granted and have not expired, and all tax
returns and reports are complete and accurate in all material respects. No
requests for waivers of the time to assess any Taxes against the Company have
been granted or are pending, except for requests with respect to such taxes as
to which appropriate reserves have been established by the Company. SCHEDULE
3.22 sets forth the amount of Taxes that the Company is contesting in good faith
and the amount of Taxes not yet paid which are accrued to the extent not
specifically set forth in the Financial Statements. All tax returns required to
be filed by Seller with respect to Taxes have been filed in a timely manner, and
all Taxes reflected on such returns as being due have been paid. No election
under section 341(f) of the Code has been made to treat the Company as a
"consenting corporation." The Company has not been a United States real property
holding company within the meaning of section 897(c)(2) of the Code during the
period specified in section 897(c)(l)(A)(ii) of the Code. The Company is not a
party to a tax sharing or tax indemnity agreement or any other agreement of a
similar nature that remains in effect. The Company is not a party to any
contract that would result, separately or in the aggregate, in the requirement
to pay any "excess parachute payments" within the meaning of Section 2800 of the
Code. The Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
3.23 ABSENCE OF MATERIAL CHANGES. Except as has previously been
disclosed to Buyer, or as otherwise disclosed in Section 3.9 or SCHEDULE 3.23
hereof, since September 30, 1997, there has not been:
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<PAGE> 29
(a) any material damage, destruction or other casualty loss to any
property material to the Business;
(b) any disposition by the Company or Sub of any asset other than
sales of inventory in the ordinary course of business, consistent with past
practice;
(c) except as set forth on SCHEDULE 3.23(c), any direct or indirect
redemption, purchase or other acquisition of, or any declaration, setting aside
or payment of any dividend or other distribution on or in respect of, any Shares
or any other securities of the Company or Sub;
(d) any obligation or liability (whether absolute, accrued,
contingent or otherwise, and whether due or to become due) incurred by the
Company or Sub, other than liabilities or obligations incurred in the ordinary
course of business, consistent with past practice;
(e) any change in the accounting methods or practices followed by
the Company or Sub or any change in depreciation or amortization policies or
rates theretofore adopted;
(f) any capital expenditure or commitment therefor in excess of
$25,000 for any single item or $50,000 in the aggregate for additions to
property, plant or equipment of the Company or Sub;
(g) any cancellation of any debts or claims owing to the Company or
Sub without the Company or Sub receiving consideration equal to the amount of
such debt or claim or any amendment, termination or waiver of any rights of
value to the business of the Company or Sub;
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<PAGE> 30
(h) any write-down of the value of any inventory or other asset of
the Company or Sub or any write-off as uncollectible of any accounts or notes
receivable or any portion thereof, other than in the ordinary course of business
and consistent with past practice;
(i) amend, extend, terminate or waive any provision under any
employment or labor agreement or other agreement, except as required by law or
in accordance with the terms of such agreement and in the ordinary course of
business, consistent with past practice; or
(j) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Company (whether absolute, accrued,
contingent or otherwise, and whether due or to become due), except in the
ordinary course of business and consistent with past practice.
3.24 BROKER'S COMMISSION OR FINDER'S FEES. Neither Seller nor its
affiliates have entered into any agreement with any other party and are not
responsible for claims by any other party for brokerage or other commissions
related to this Agreement or the transactions contemplated hereby, except that
Seller has retained McDonald & Company Securities, Inc. ("McDonald") as Seller's
financial advisor and Seller is responsible for, and shall, indemnify Buyer
against, any obligations with respect to the fee of McDonald.
3.25 VENDORS AND CUSTOMERS. SCHEDULE 3.25 contains a complete and
correct list of the largest 20 vendors to the Company by dollar volume for the
year ended September 30, 1997 and a complete and correct list of the largest 20
customers of the Company by dollar volume for each of the three years ended
September 30, 1997. As of the date hereof, neither Seller nor the Company is
aware of any fact, circumstance or other matter on which to form a reasonable
belief that any vendor or customer intends to terminate or materially and
adversely
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<PAGE> 31
modify any relationship with the Company (whether prior to or following the
consummation of the transactions contemplated by the Agreement).
3.26 ACCOUNTS PAYABLE. Set forth in SCHEDULE 3.26 is a complete and
correct list of all accounts payable of the Company as of November 30, 1997.
Such list sets forth with respect to each payable thereon the payee and the
invoice date. The accounts payable set forth in SCHEDULE 3.26 were incurred in
the ordinary course of business, consistent with past practice.
3.27 AFFILIATE TRANSACTIONS. Except as set forth in SCHEDULE 3.27, no
current or former director, officer, employee or shareholder of the Company or
any associate or affiliate (as defined in the rules promulgated under the
Securities Exchange Act of 1934, as amended) thereof, or any relative with a
relationship of not more remote than first cousin or spouse of any of the
foregoing, is presently, or during the 12-month period ending on the date hereof
has been (a) a party to any transaction with the Company or (b) the direct or
indirect owner of an interest in any corporation, firm, association or business
organization which is a present (or potential) competitor, supplier or customer
of the Company, nor does any such person receive income from any source other
than the Company which relates to the business of, or should properly accrue to,
the Company.
3.28 KNOWLEDGE. As used in this Article III, "knowledge", "know" or any
derivation thereof means the actual knowledge of the Company's currently elected
officers and what such persons should have known after making due inquiry into
the subject matter thereof with the Company's or Sub's management responsible
for oversight of such matters, and with respect to Joseph Dubaj, Fred Chordas,
Terry Duvall, Andrew A. Welch, Michael Hildack, and Roger Wellman, the actual
knowledge of each of such individuals as to the
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matters addressed in this Agreement, obtained in the normal course of their
respective duties, but without any further investigation or inquiry by any of
such individuals.
3.29 DISCLOSURE. No representation or warranty of Seller contained in
this Agreement, and no statement contained in any certificate, schedule, annex,
list or other writing furnished to Buyer pursuant hereto, contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein in light of the circumstances under
which they were made, not misleading.
3.30 INFORMATION IN PROXY STATEMENT. None of the information supplied
by Seller or the Company or Sub for inclusion or incorporation by reference in
the Proxy Statement prepared in connection with a special meeting of Seller's
shareholders to approve this Agreement and the consummation of the transactions
contemplated hereby (the "Proxy Statement") will, at the date mailed to Seller's
shareholders and at the time of Seller's special shareholder meeting convened to
vote on this Agreement and the transactions contemplated hereby, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller (which representations and
warranties shall survive the Closing to the extent provided in Section 11.3
hereof) as follows:
4.1 ORGANIZATION, STANDING AND AUTHORITY OF BUYER. Rhone is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of
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<PAGE> 33
Delaware and has full liability company power and authority to enter into and to
perform this Agreement, the Escrow Agreement and the Voting Agreement.
4.2 AUTHORIZATION. The execution, delivery and performance of each of
this Agreement, the Escrow Agreement and the Voting Agreement and the
consummation of the transactions contemplated hereby or thereby by Buyer have
been duly authorized by all necessary liability company action of Buyer,
including by Buyer's members, if required, and the Agreement and the Voting
Agreement constitute, and, when executed, the Escrow Agreement will constitute,
the valid and binding obligation of Buyer and will be enforceable against Buyer
in accordance with its terms, except to the extent enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.3 NO CONFLICT. NO VIOLATION. The execution, delivery and performance
of this Agreement, the Voting Agreement and the Escrow Agreement by Buyer will
not: (j) violate or conflict with the certificate of formation, operating
agreement or other constitutive documents of Buyer; (ii) conflict with, or
result in the breach or termination of, or constitute a default under (whether
with notice or lapse of time or both), or accelerate or permit the acceleration
of the performance required by, any indenture, mortgage, lien, lease, agreement,
commitment or other instrument or any order, judgment or decree, to which Buyer
is a party or by which it or its properties are bound; (iii) constitute a
violation of any law, regulation, order, writ, judgment, injunction or decree
applicable to Buyer; or (iv) result in the creation of any lien, charge or
encumbrance upon the partnership interests, properties or assets of Buyer, other
than violations, conflicts, breaches, terminations, accelerations and defaults
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<PAGE> 34
specified in the foregoing clauses (ii) and (iv) which would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
Buyer and on Buyer's ability to perform its obligations under this Agreement,
the Voting Agreement or the Escrow Agreement.
4.4 CONSENTS. The only authorization, consent, approval or notice of any
federal, state, local or foreign regulatory body required to be obtained or
given or waiting period required to expire with respect to Buyer in order that
this Agreement, the Voting Agreement or the Escrow Agreement and the
transactions contemplated hereby or thereby may be consummated by Buyer and
Seller is (a) an HSR Filing and the expiration of the applicable waiting periods
under the HSR Act and (b) filings with the PBOC, the IRS, the DOL and any other
similar governmental entity referred to above with respect to the transfer of
assets and liabilities of Plans. No consent or approval of any other party
(other than any governmental entity) is required to be obtained by Buyer for the
execution, delivery or performance of this Agreement, the Voting Agreement or
the Escrow Agreement or the performance by Buyer of the transactions
contemplated hereby or thereby, except where the failure to obtain any such
consent or approval would not prevent or delay the consummation of the
transactions contemplated hereby, or otherwise prevent Buyer from performing its
obligations under this Agreement, the Voting Agreement or the Escrow Agreement
or would not, individually or in the aggregate materially impair or delay the
consummation of the transactions contemplated hereby.
4.5 LITIGATION. There are no judicial or administrative actions,
proceedings or investigations pending or, to the best of Buyer's knowledge,
threatened, that question the validity of this Agreement or any action taken or
to be taken by Buyer in connection with this
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Agreement. There is no, and has been no, action, claim, litigation, proceeding
or governmental investigation pending or, to the best of Buyer's knowledge,
threatened, or any order, injunction or decree outstanding, against Buyer that,
if adversely determined, would have a material adverse effect upon Buyer's
ability to perform its obligations under this Agreement.
4.6 INVESTMENT INTENT. Buyer is acquiring the Shares solely for the
purpose of investment and not with a view to, or for sale in connection with,
any distribution thereof. Buyer acknowledges that the Shares are not registered
under the Securities Act of 1933, as amended, and that such Shares may not be
transferred or sold except pursuant to the registration provisions of such Act
or pursuant to an applicable exemption therefrom and pursuant to state
securities laws and regulations as applicable.
4.7 FINANCING. Buyer has sufficient funds or has secured a firm
commitment from a third party or parties to provide sufficient funds to pay the
Purchase Price and related fees and expenses.
4.8 NO DEALING WITH AFFILIATES. Except as set forth on SCHEDULE 4.8,
Buyer has no agreement, commitment, understanding or arrangement, express or
implied, with any subsidiary or other affiliate of Seller, or with any person
employed thereby, other than such agreements as may be expressly contemplated by
this Agreement.
4.9 BROKER'S COMMISSION OR FINDER'S FEES. Buyer has not entered into any
agreement with any other party and is not responsible for any claims by any
other party for brokerage or other commissions related to this Agreement or the
transactions contemplated hereby, and shall indemnify Seller against, any
obligations with respect to any such fee.
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4.10 INFORMATION IN PROXY STATEMENT. None of the information supplied by
Buyer for inclusion or incorporation by reference in the Proxy Statement will,
at the date mailed to Seller's shareholders and at the time of Seller's special
shareholder meeting convened to vote on this Agreement and the transactions
contemplated hereby, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
ARTICLE
ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 ORDINARY COURSE. From the date hereof until the Closing, except as
Buyer may, in its sole discretion, otherwise agree in writing, or except as set
forth in SCHEDULE 5.1, Seller shall cause the Company and Sub to conduct their
business in the ordinary course consistent with past practice, and neither the
Company nor Sub shall:
(a) borrow any sums or enter into any financial guarantees or
otherwise incur any indebtedness, including for the payment of trade
payables, other than in the ordinary course of business consistent with
past practice; PROVIDED THAT neither the Company nor Sub shall have any
obligation with respect to indebtedness for borrowed money or
guarantees with respect thereto; or
(b) make or authorize any compensation increase for any
employee of the Company or Sub whether such increase relates to base
compensation, commissions, bonuses, or benefits, or otherwise unless
such increase is consistent with the Company's prior practices with
regard to such increases and
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Buyer consents to such increases, except that, as set forth in SCHEDULE
5.1(b), the Company shall, immediately prior to the Closing, pay (j)
certain employees discretionary bonuses for fiscal 1997 in accordance
with past practice the aggregate amount of which bonuses shall not
exceed $300,000, (ii) amounts that shall become due and payable at the
time of the Closing under those contracts set forth in SCHEDULE 3.13
hereto; and (iii) up to $250,000 for a one-time cash bonus for
employees eligible for the Company's profit sharing plan, PROVIDED,
that any payments made pursuant to this clause (iii) shall reduce the
amount to be paid pursuant to Section 5.13; or
(c) except for the sale by the Company of inventory or
work-in-process and in the ordinary course of business consistent with
past practice, sell, assign, transfer, lease, mortgage, pledge or make
or cause to become subject to any Claim, any of the assets of the
Company or Sub; or
(d) enter into any agreement with respect to the Business
pursuant to which the aggregate obligation of the Company and Sub
subsequent to the date hereof may exceed $50,000 individually or in the
aggregate, and which is not terminable by the Company without penalty
upon 90 days' notice or less; or
(e) manage inventories and other supplies and parts other than
in the ordinary course of business consistent with past practice; or
(f) issue or sell any shares of its capital stock of any
class, or issue or sell any securities convertible into, or options
with respect to, or warrants to purchase or rights to subscribe to, any
shares of its capital stock of any class, nor make any commitment to
issue or sell any such shares or securities; or
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(g) except as may be disclosed on SCHEDULE 3.9, declare, pay
or set aside for payment any dividend, distribution or return of
capital in respect of its capital stock nor, directly or indirectly,
redeem, purchase or otherwise acquire any shares of its capital stock;
or
(h) settle or compromise any Tax liability; or
(i) without limiting the generality of the foregoing, take any
action or omit to take any action, which act or omission would result
in a breach of any of the representations or warranties set forth in
clauses (a) through (j) of Section 3.23; or
(j) otherwise enter into any transaction not in the ordinary
course of business.
5.2 ACCESS AND CONFIDENTIALITY. (a) Upon reasonable notice, Seller shall
afford Buyer and its representatives (including, without limitation, its
independent public accountants and counsel) reasonable access during regular
business hours from the date hereof until the Closing to any and all of the
premises, properties, contracts, books, records and data of or relating to the
Business and the Company and Sub, and Seller shall, and shall cause the Company
and Sub to furnish to Buyer during that period all documents and copies of
documents and information concerning the Business as Buyer reasonably may
request.
(b) From and after the Closing Date: (i) Seller shall permit Buyer, the
Company and their respective affiliates and representatives reasonable access,
during reasonable business hours and at Buyer's expense, to the relevant books
and records (including all relevant tax returns and related work papers) of
Seller in existence at the Closing Date relating to the Business or the Company
or Sub (ii) Seller shall provide such information to Buyer or the
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Company as it may reasonably request in connection with the Business prior to
the Closing Date; and (iii) Seller shall use its reasonable efforts to cause its
independent accountants to consult with Buyer and the Company, and an
independent auditor of Buyer or the Company, and to permit Buyer and the
Company, and an independent auditor of Buyer or the Company, to examine work
papers of such accountant of Seller relating to the Business or the Company or
Sub; PROVIDED that Seller shall not be required to maintain any records relating
to the Business for a period of more than five (5) years from the Closing.
(c) Buyer shall hold, and shall cause its representatives to hold, all
such information and documents and all other information and documents delivered
pursuant to this agreement confidential and, if the transactions contemplated by
this Agreement are not consummated for any reason, shall return to Seller all
such information and documents and any copies as soon as practicable and not
disclose any such information (that has not previously been disclosed by a party
other than Buyer, its affiliates or representatives) to any third party unless
required to do so pursuant to a request or order under applicable laws and
regulations or pursuant to a subpoena or other legal process. Buyer's
obligations under this Section shall survive the termination of this Agreement.
5.3 PRESERVATION OF AND ACCESS TO RECORDS. Buyer agrees that it shall
preserve and keep the records of the Company delivered to it hereunder for
period of five (5) years from the Closing, or for any longer period as may be
required by any governmental agency or ongoing litigation, and shall make such
records available to Seller and its affiliates as may be reasonably required by
Seller and its affiliates in connection with any legal proceedings against or
governmental investigations of Seller or its affiliates or in connection with
any tax examination of Seller or its affiliates. In the event Buyer wishes to
destroy such records after
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that time, it shall first give 90 days' prior written notice to Seller and
Seller shall have the right at its option, upon prior written notice given to
Buyer within said 90-day period, to take possession of said records within 180
days after the date of Seller's notice to Buyer hereunder.
5.4 REGULATORY AND OTHER AUTHORIZATIONS. The parties hereto shall use
their reasonable efforts to file within twenty (20) business days after the
receipt of the Phase II Study (as defined in Section 8.5(a)), HSR Filings and
documentary material that comply with the provisions of the HSR Act, and will
promptly file any additional information requested as soon as practicable after
receipt of the request. The parties hereto will not take any action that is
designed to have the effect of delaying, impairing or impeding the receipt of
any required approvals, including the consents referred to in Sections 3.3 and
3.4, and will use their reasonable efforts to secure such approvals as promptly
as possible.
5.5 FURTHER ASSURANCES. At any time and from time to time after the
Closing, the parties agree to cooperate with each other, to execute and deliver
such other documents, instruments of transfer or assignment, files, books and
records and do all such further acts and things as may be reasonably required to
carry out the transactions contemplated hereunder.
5.6 AGREEMENTS WITH RESPECT TO INSURANCE.
(a) Seller and Buyer acknowledge that the policies of insurance
applicable to the Business are not necessarily exclusive to the Business whereby
certain coverages and limits may be impaired by claims arising from other
companies currently or previously owned by Seller, by whom Seller is owned or
with whom Seller is otherwise affiliated. Except as otherwise disclosed in
Section 3.18 hereof, Seller makes no representations or warranties in respect of
any policy of insurance and shall not be responsible for any allocations,
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determinations as to coverage or lack thereof or any decision or interpretation
made by insurers or their agents with respect thereto.
(b) If, on or prior to the Closing Date, any property owned or leased by
the Company or Sub suffers any material damage, destruction or loss, Seller
shall surrender to Buyer (i) all insurance proceeds received by Seller or the
Company with respect to such damage or loss and (ii) all rights of Seller or the
Company with respect to any causes of action, whether or not litigation has
commenced on the Closing, in connection with such damage or loss.
5.7 EMPLOYEE AND EMPLOYEE BENEFIT MATTERS.
(a) EMPLOYEE BENEFIT OBLIGATIONS AND PLANS. On and after the Closing,
Seller shall have no liability whatever, except as provided for in Article VIII
hereof, for providing or causing the Company to provide employee welfare
benefits for the employees of the Company or fulfilling collective bargaining
agreement obligations or negotiations. Buyer agrees to cause the Company to
fulfill the collective bargaining obligations of the Company in accordance with
the Basic Labor Agreement effective as of September 1, 1995, between the Company
and the Employee Association (the "Collective Bargaining Agreement") during the
term thereof, and to cause the Company to maintain for no less than 12 months
after the Closing Date, employee welfare benefits, arrangements and commitments
to employees of the Company substantially comparable in the aggregate to those
currently in effect for such employees, PROVIDED, HOWEVER, that this sentence
shall under no circumstances confer upon any person not a party to this
Agreement the rights of a third party beneficiary of this Agreement.
Specifically, and not by way of limitation, Buyer shall cause the Company to
recognize employees' vacation time and sick leave accrued prior to the Closing
and to fulfill
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the Company's obligations existing at the date of the Closing under the employee
and retiree plans described in SCHEDULE 5.7(a).
(b) CONTINUED PLANS. (j) Subject to Section 3.20 and Article VIII
hereof, as of the Closing, Buyer shall cause the Company to be fully responsible
for the maintenance and administration of the Plans and for all expenses,
liabilities, and obligations with respect thereto arising on or after the
Closing.
(ii) Subject to Section 3.20 and Article VIII hereof, Buyer shall cause
the Company to be fully responsible and to indemnify and hold Seller harmless
for any and all liabilities, obligations, expenses, losses or taxes arising on
or after the Closing with respect to: (v) any and all benefits and claims for
benefits under any Plan; (w) compliance with the reporting and disclosure
requirements of the Code and ERISA for plan years occurring on and after the
Closing with respect to each Plan; (x) the minimum funding obligations under the
Code and ERISA with respect to any Plan for plan years ending after the Closing;
(y) the termination of any Plan that occurs after the Closing; and (z) any act
or omission of Buyer that adversely affects the qualification of any Plan under
section 401(a) of the Code for any year.
(c) EMPLOYER PLAN. With respect to the Pension Plans, Seller agrees to
cause the Company to make to such Pension Plans all contributions required to be
made with respect to the time period prior to the Closing in accordance with the
terms of the Collective Bargaining Agreement. Buyer agrees to cause to be made
to such Pension Plans all contributions required to be made with respect to the
time period beginning on the Closing in accordance with the terms of the
Collective Bargaining Agreement as long as such agreement remains in force.
Subject to Article VIII hereof, Buyer shall cause the Company to indemnify
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Seller against all contributions required and liabilities assessed under such
Pension Plans after the Closing.
5.8 ACCOUNTS RECEIVABLE AND INVENTORY. Seller and Buyer agree that, with
respect to Sections 3.14 and 3.15 hereof, in the event that (j) (x) 90% of the
accounts receivable of the Company reflected on the Final Balance Sheet are not
collected within ninety (90) days after the Closing Date, at Buyer's option,
Buyer shall assign to Seller, and Seller shall purchase from Buyer, the
uncollected accounts receivable reflected on the Final Balance Sheet so that the
Company shall have received cash for 90% of the accounts receivable reflected on
the Final Balance Sheet and (y) the remaining 10% of the accounts receivable of
the Company reflected on the Final Balance Sheet are not collected within 180
days after the Closing Date, at Buyer's option, the Company shall assign to
Seller, and Seller shall purchase from Buyer, the uncollected accounts
receivable reflected on the Final Balance Sheet so that the Company shall have
received cash for such remaining 10% of the accounts receivable reflected on the
Final Balance Sheet; and (ii) the inventory of the Company reflected on the
Final Balance Sheet is not useable and saleable within, with respect to matters
disclosed on SCHEDULE 3.15, twelve months, with respect to all other
work-in-process and finished goods, 90 days, and, with respect to all other raw
materials, six (6) months, after the Closing Date, at Buyer's option, the
Company shall sell to Seller, and Seller shall purchase from the Company such
unuseable and unsaleable inventory. The purchase price for any such uncollected
accounts receivable or unuseable and unsaleable inventory, as the case may be,
shall be an amount equal to the amount reflected on the Final Balance Sheet for
such items, less applicable pro rated reserves.
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5.9 OTHER OFFERS. Until the termination of this Agreement, neither
Seller, the Company nor any of their respective affiliates will, nor will they
authorize the officers, directors, employees, representatives or other agents of
Seller, the Company or any of such affiliates to, directly or indirectly, (a)
take any action to solicit or initiate any Acquisition Proposal (as defined
below) or (b) engage in negotiations with, or disclose any nonpublic information
relating to the Company or Sub or afford access to the properties, books or
records of the Company or Sub to, any person that has advised the Company or
Seller or otherwise made known the fact that such person may be considering
making, or that has made, an Acquisition Proposal. The Company will promptly
notify Buyer orally and in writing after receipt of any Acquisition Proposal or
any notice that any person is considering making an Acquisition Proposal or any
request for nonpublic information relating to the Company or Sub or for access
to the properties, books or records of the Company or its Sub by any person that
has advised the Company or Seller or otherwise made known the fact that such
person may be considering making, or that has made, an Acquisition Proposal and
will promptly disclose to Buyer the status and details of any such Acquisition
Proposal, indication or request. Seller shall (j) immediately cease and cause to
be terminated as of the date of this Agreement any ongoing discussions or
negotiations with any third parties concerning an Acquisition Proposal and
direct such third parties to return to Seller all information received by them
from the Company or Seller or their respective representatives and (b) direct
and cause all of its representatives to cease engaging in the foregoing. For
purposes of this Agreement, "Acquisition Proposal" means any offer or proposal
for, or any written indication of interest in, a merger or other business
combination involving the Company or Sub or the acquisition of any significant
equity interest in, or a significant portion of the assets of, the
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Company or its subsidiary, other than the transactions with Buyer contemplated
by this Agreement.
5.10 RESTRICTIVE COVENANTS.
(a) For a period of three (3) years commencing on the Closing,
Seller shall not, directly or indirectly, solicit the employment of any employee
of the Company or Sub or induce any such employee to leave the employment of the
Company or Sub.
(b) To the extent permitted by law, for a period of five years from
and after the Closing Date, Seller shall not, and shall not permit any of its
subsidiaries or other affiliates to, directly or indirectly, conduct any
business competitive with the Company or Sub or assist others in engaging in any
such business.
5.11 SHAREHOLDER APPROVAL; PROXY STATEMENT. Seller will duly call, give
notice of, convene and hold a meeting of its shareholders for the purpose of
approving this Agreement and the transactions contemplated hereby. Seller will,
through its Board of Directors, recommend to its shareholders approval of this
Agreement and the transactions contemplated hereby. As promptly as practicable,
Seller shall prepare and file with the Securities Exchange Commission ("SEC")
the Proxy Statement. Seller shall use its reasonable efforts to cause the Proxy
Statement to be mailed to Seller's shareholders as promptly as practicable after
the date of this Agreement.
5.12 PROPOSED LIQUIDATION, DISTRIBUTION. Etc. Seller shall give Buyer
written notice, at least 30 days in advance, of the proposed liquidation,
distribution, sale, assignment, exchange or other transfer, in one transaction
or in a series of related transactions, of all or substantially all of the
property or assets of Seller or the dissolution of Seller.
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5.13 PAYMENT TO PROFIT SHARING PLAN. Subject to 5.1(b), Seller shall
make a contribution on or about the Closing to the Company's profit sharing plan
in an amount of up to $1,000,000 out of the portion of the Purchase Price that
is received by Seller from Buyer at the Closing pursuant to Section 1.2(a)
hereof, PROVIDED that any amount in excess of the liabilities reflected in the
Financial Statements shall not have any impact on the Purchase Price adjustments
described in Article II.
5.14 SUPPLEMENTS TO SCHEDULES. From time to time prior to the Closing
Date, Seller may amend or supplement the Schedules with respect to any matter
that, if existing or occurring at or prior to the Closing Date, would be
required to be set forth or described in any Schedule or that would be necessary
to complete or correct any information in any representation or warranty
contained in Article III, other than any matter that, to Seller's knowledge on
the date hereof, was required to be set forth or described in such Schedule or
otherwise necessary to render such representation or warranty true and correct
in all material respects on the date hereof. Each such amendment or supplement
shall be given effect for all purposes under or in connection with this
Agreement and the transactions contemplated hereby, other than for purposes of
determining the fulfillment of the conditions precedent set forth in Section
6.2(a) and Section 6.2(b); PROVIDED that Buyer's consummation of the Closing
shall constitute, without any further action on the part of Buyer, a waiver by
Buyer of its right to require satisfaction of the conditions precedent in
Section 6.2(a) and Section 6.2(b); provided further, that nothing set forth in
this Section 5.14 shall affect or limit in any way Seller's liability to Buyer
under this Agreement for a breach by Seller of any of Seller's covenants or
agreements set forth in this Agreement.
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ARTICLE VI
CONDITIONS TO CLOSING
6.1 SELLER'S CONDITIONS TO CLOSE. The obligations of Seller under this
Agreement are subject to the satisfaction at or prior to the Closing of each of
the following conditions, but compliance with any or all of such conditions may
be waived by Seller:
(a) The representations and warranties of Buyer contained in
Article IV shall be true and correct in all respects;
(b) Buyer shall have performed and complied with all of the
covenants and agreements in all material respects, including the
delivery of the documents specified in Section 7.2, and satisfied all
the conditions applicable to Buyer required by this Agreement, the
Escrow Agreement and the Voting Agreement to be performed or complied
with or satisfied by Buyer at or prior to the Closing;
(c) The applicable waiting periods under the HSR Act shall have
expired, and there shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory
agency of competent jurisdiction directing that the transactions
contemplated herein, or any of them, not be consummated;
(d) Buyer shall have provided Seller evidence satisfactory to
Seller that Buyer shall have obtained the consents and approvals listed
in Section 4.4;
(e) The Escrow Agreement shall have been duly executed and
delivered by Buyer and the Escrow Agent; and
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(f) This Agreement and the transactions contemplated herein
shall have been adopted and approved by the holders of more than 50% of
the shares of common stock of Seller in accordance with applicable law
and the provisions of Seller's certificate of incorporation and by-laws.
6.2 BUYER'S CONDITIONS TO CLOSE. The obligations of Buyer under this
Agreement are subject to the satisfaction at or prior to the Closing of each of
the following conditions, but compliance with any or all of any such conditions
may be waived by Buyer:
(a) The representations and warranties of Seller contained in
Article III shall be true and correct in all respects;
(b) Seller shall have performed and complied with all the
covenants and agreements in all material respects, including the
delivery of the documents specified in Section 7.1, and satisfied all
the conditions applicable to Seller required by this Agreement, the
Escrow Agreement and the Voting Agreement to be performed or complied
with or satisfied by it at or prior to the Closing;
(c) The applicable waiting periods under the HSR Act shall have
expired, and there shall be in effect no preliminary or permanent
injunction or other order of a court or governmental or regulatory
agency of competent jurisdiction directing that the transactions
contemplated herein, or any of them, not be consummated;
(d) Since the date of this Agreement, there shall not have
occurred any Material Adverse Change or a material adverse change with
respect to Seller;
(e) The Phase II Study (as defined in Section 8.5(a)) shall have
been completed, Buyer shall have received a true and complete copy of
the written
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report prepared by the consultants regarding the Phase II Study and
Buyer shall be satisfied that the reasonably likely aggregate
Environmental Damages (as defined in Section 8.5 hereof) shall not
exceed $2 million; PROVIDED, HOWEVER, that this condition shall expire
ten (10) business days after receipt by Buyer of any such report on the
Phase II Study;
(f) Seller shall have provided Buyer evidence satisfactory to
Buyer that Seller and the Company shall have obtained the consents and
approvals listed in schedules 3.3 and 3.4;
(g) The Escrow Agreement shall have been duly executed by Seller
and the Escrow Agent;
(h) Seller shall have entered into a transitional services
agreement with the Company, in form and substance reasonably
satisfactory to Buyer, to provide to the Company and Sub administrative
services of the same nature and scope as presently provided, at no cost
to the Company or Sub, for a period of six (6) months from and after the
Closing Date; and
(i) This Agreement and the transactions contemplated herein
shall have been adopted and approved by the holders of more than 50% of
the shares of common stock of Seller in accordance with applicable law
and the provisions of Seller's certificate of incorporation and by-laws.
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ARTICLE VII
THE CLOSING
7.1 SELLER'S DELIVERIES. At the Closing, Buyer shall receive from Seller
the following documents:
(a) Copies of duly adopted resolutions of Seller's board of
directors and Seller's shareholders approving the execution, delivery
and performance of this Agreement and the transactions contemplated
hereby, as required, certified by Seller's Secretary;
(b) A certificate of good standing as to the corporate status of
the Company from the Secretary of State of the State of Ohio and of Sub
from the Secretary of State of the State of Delaware;
(c) A complete and correct copy of the certificate of
incorporation of each of Seller, Company and Sub certified by the
Secretary of State of the State of Ohio or Delaware, as the case may be;
(d) A complete and correct copy of the by-laws or regulations of
Seller, the Company and Sub, each certified by the Secretary of Seller,
the Company or Sub, as the case may be;
(e) A certificate, dated the Closing Date, from Seller's and the
Company's Secretary to Buyer stating that Seller's, the Company's and
Sub's certificate of incorporation and regulations or by-laws, as the
case may be, have not been amended since the date hereof;
(f) A certificate, dated the Closing Date, of an appropriate
officer or agent of Seller with respect to the matters described in
Sections 6.2(a) and (b);
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(g) A certificate or certificates representing the Shares with
valid stock powers attached, together with the stock ledger of the
Company and Sub;
(h) A Certification of Non-Foreign Status under and in
accordance with Section 897 and Section 1445 of the Code;
(i) The resignations of all of the directors of the Company and
Sub;
(j) The resignations of all of the officers of the Company and
Sub;
(k) An opinion of Squire, Sanders & Dempsey L.L.P., counsel to
Seller, with respect to the matters described on Annex A hereto;
(1) Seller shall have paid the Closing Payments specified in
Section 1.2; and
(m) Such other documents and certificates as Buyer may
reasonably request in connection with the consummation of the
transactions contemplated by this Agreement.
7.2 BUYER'S DELIVERIES. At the Closing, Seller shall have received from
Buyer the following documents:
(a) Copies of duly adopted resolutions of Buyer's member, if
required, approving the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, as required,
certified by an appropriate officer of Buyer;
(b) A certificate of good standing as to the limited liability
company status of Buyer from the Secretary of State of the State of
Delaware;
(c) A complete and correct copy of the certificate of formation
of Buyer certified by the Secretary of State of the State of Delaware;
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(d) A complete and correct copy of the operating agreement or
similar governing agreement of Buyer certified by an appropriate officer
of Buyer;
(e) A certificate, dated the Closing Date, of a principal
officer of Buyer with respect to the matters described in Sections
6.1(a) and (b);
(f) Evidence satisfactory to Seller of the wire transfer by
Buyer to Seller of $30,500,000;
(g) An opinion of Howard, Darby & Levin, counsel to Buyer, with
respect to matters described on Annex B hereto; and
(h) Such other documents and certificates as Seller may
reasonably request in connection with the consummation of the
transactions contemplated by this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION BY BUYER. From and after the Closing, Buyer shall,
without any further responsibility or liability of or recourse to Seller or its
affiliates or any of Seller's or its affiliates' directors, shareholders,
beneficiaries, officers, employees, agents, consultants, representatives,
successors or assigns (collectively, the "Seller Indemnified Parties"),
absolutely and irrevocably indemnify, defend and hold harmless the Seller
Indemnified Parties from and against any and all losses, liabilities,
obligations, damages (whether actual or punitive), deficiencies, costs or
expenses (including interest, penalties and reasonable attorneys' fees and
disbursements) (individually, a "Loss"; collectively, "Losses") of any of
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the foregoing persons, after netting any related tax benefit realized or to be
realized by such persons, arising from, asserted against or associated with:
(a) a breach of any representation or warranty made by Buyer in
this Agreement, the Escrow Agreement or the Voting Agreement;
(b) the failure to perform any covenant, obligation or agreement
of Buyer made herein, the Escrow Agreement or the Voting Agreement; or
(c) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters
referred to in clauses (a) through (b) of this Section 8.1.
8.2 INDEMNIFICATION BY SELLER. From and after the Closing, Seller shall,
without any further responsibility or liability of or recourse to Buyer or its
affiliates or any of Buyer's or its affiliates' directors, shareholders,
partners, members, beneficiaries, officers, employees, agents, consultants,
representatives, successors or assigns (collectively, the "Buyer Indemnified
Parties"), absolutely and irrevocably indemnify, defend and hold harmless the
Buyer Indemnified Parties from and against any and all Losses of any of the
foregoing persons after netting any related tax benefit realized or to be
realized by such persons, arising from, asserted against or associated with:
(a) a breach of any representation or warranty made by Seller in
this Agreement, the Escrow Agreement or the Voting Agreement; or
(b) failure to perform any covenant, obligation or agreement of
Seller made herein, the Escrow Agreement or the Voting Agreement; or
(c) the business formerly conducted by the Company regarding the
manufacture of metal vacuum cleaner tubular components and the sale of
such
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business, including (without limitation) any and all obligations under
the Asset Purchase Agreement and the Supply Transition Agreement, each
dated as of August 27, 1997, between the Company and H-P Products, Inc.;
or
(d) any product sold by the Company or Sub or any product
processed or manufactured by the Company or Sub but not yet sold by the
Company or Sub prior to the Closing;
(e) in connection with the Company's classification of the
different inventory valuation method adopted by the Company, as
described in Schedules 3.9, 3.15 and 3.23, as a change in method rather
than a change in principle; or
(f) any and all actions, suits, proceedings, demands, judgments,
costs and legal and other expenses incident to any of the matters
referred to in clauses (a) through (e) of this Section 8.2; or
8.3 LIMITATION ON INDEMNITY. Except with respect to the representations
and warranties contained in Sections 3.1, 3.6, 3.7 and 3.8 hereof or claims
arising out of fraud (collectively, "Excluded Claims"), liability for which
shall be unlimited, Seller's, on the one hand, and Buyer's, on the other hand,
maximum aggregate liability under Section 8.1 or 8.2, as the case may be, shall
in no event exceed Five Million Dollars ($5,000,000). No claim for
indemnification under Section 8.1 or Section 8.2 may be made more than two years
after the Closing; PROVIDED, HOWEVER, that (j) claims regarding Excluded Claims
may be made at any time after the Closing and (ii) if prior to two years after
the Closing, any claim for indemnity hereunder shall have been made and such
claim shall not have been finally resolved or disposed of at such date, such
claim shall in no way be prejudiced or impaired by the passage of time and any
representation or warranty that is the basis for such claim shall continue to
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survive as to such claim and shall remain a basis for indemnity until such claim
is finally resolved or disposed of.
8.4 INDEMNIFICATION PROCEDURES. The obligation to indemnify under
Sections 8.1, 8.2 and 8.5 is conditioned upon receiving from the party seeking
indemnification (the "Indemnified Party") written notice of the assertion or
institution of a claim arising from or related to any Loss ("Claim") after the
Indemnified Party has actual knowledge of such a Claim, PROVIDED that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its indemnification obligation under this
Agreement except to the extent that such failure results in a lack of notice to
the Indemnifying Party and the Indemnifying Party is materially prejudiced as a
result of such failure to give notice. Upon written unqualified acknowledgement
of its indemnification obligations with respect to a third-party Claim, the
party from whom indemnification is sought (the "Indemnifying Party") shall have
the absolute right, in its sole discretion and expense, to elect to defend,
contest, settle or otherwise protect against any such Claim with legal counsel
reasonably acceptable to the Indemnified Party; PROVIDED that the relief sought
in any such Claim is for money damages only and the Indemnified Party reasonably
determines that the Indemnifying Party has the financial resources to pay such
damages; and PROVIDED FURTHER that the Indemnifying Party shall not settle or
compromise any Claim without the consent of the Indemnified Party, which consent
to settlement or compromise shall not be unreasonably withheld. If the
Indemnifying Party conducts such defense, the Indemnified Party shall have the
right, but not the obligation, to participate, at its own expense, in the
defense thereof through counsel of its own choice and shall have the right, but
not the obligation, to assert any and all cross-claims or counterclaims it may
have. The Indemnified Party shall, and shall
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<PAGE> 56
cause its affiliates to, at the cost of the Indemnifying Party, at all times
cooperate in all reasonable ways with, make their relevant files and records
available for inspection and copying by, and make their employees available or
otherwise render reasonable assistance to the Indemnifying Party in its defense
of any action being indemnified hereunder. In the event the Indemnified Party,
without the prior consent of the Indemnifying Party (which consent shall not be
unreasonably withheld), makes any settlement with respect to any Claim, the
Indemnifying Party shall not be bound to such settlement. In the event the
Indemnifying Party fails timely to defend, contest or otherwise protect against
any suit, action, investigation, claim or preceding related to a Claim,
Indemnified Party shall have the right, but not the obligation, to defend,
contest, assert crossclaims, or counterclaims or otherwise protect against the
same and may make any compromise or settlement thereof and recover and be
indemnified for the entire cost thereof from the Indemnifying Party including,
without limitation, legal expenses, disbursements and all amounts paid as a
result of such suit, action, investigation, claim, proceeding, crossclaim or
counterclaim or compromise or settlement thereof, and provided, further, if the
Indemnified Party should incur any such expense, the Indemnifying Party shall
pay the Indemnified Party's interest incurred on all such amounts, from the date
incurred by the Indemnified Party through the date of payment by the
Indemnifying Party, at a rate per annum equal to the publicly announced base
interest rate of Citibank, N.A., in New York City, in effect from time to time,
which rate shall change as and when such base interest rate shall change.
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8.5 ENVIRONMENTAL MATTERS.
(a) Upon the signing of this Agreement, (j) Seller shall cause the
Company to conduct Phase II environmental testing (the "Phase II Study"),
including soil and ground water sampling, on the premises owned or leased by the
Company and such adjacent areas with respect to which the Company or Sub might
reasonably be expected to have liability, and Seller shall make, or shall cause
the Company to make, available to Buyer all data collected and reports prepared
in connection with the Phase II Study, or (ii), at Buyer's option, Seller shall
perform an analysis, which may be based on existing data (to the extent existing
data is sufficient for such purpose), to determine if any contaminants which
might reasonably be expected to be found would not present unreasonable risks to
health or the environment under continued industrial use of the property. The
Phase II Study shall be conducted by environmental consultants reasonably
acceptable to Buyer, and the scope of work in the Phase II Study shall be
reasonably acceptable to Buyer. Buyer and its representatives shall have the
right to observe the Company's environmental consultants during the course of
their on-site examination of the relevant properties, review the findings of
such consultants and discuss with the Company, Seller and their respective
representatives, including such environmental consultants, the nature of the
study and the findings therefrom. Seller shall cause the Company to use its
reasonable efforts to make such environmental consultants available to the Buyer
for such purpose. Seller shall be solely responsible for providing any required
notifications under any federal, state or local law, regulation, standard,
order, decree, rule, ordinance, permit, franchise, license or judgment now
existing or hereafter developing, relating to protection of health, safety or
the environment, including without limitation CERCLA and the Solid Waste
Disposal Act, 42 U.S.C. Section 6901 ET SEQ. (such laws, regulations,
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<PAGE> 58
standards, orders, decrees, rule, ordinance, permit, franchise, license or
judgment, collectively, "Environmental Laws").
(b)(i) Subject to Section 8.5(d)(vii), this Section 8.5(b) governs the
allocation between the Seller Indemnified Parties, on the one hand, and the
Buyer Indemnified Parties and the Company and Sub (collectively, the "Buyer
Environmental Indemnitees"), on the other hand, of Environmental Damages to any
Buyer Indemnified Party, the Company or Sub arising from or in connection with
(A) the operations of the Business or of any predecessor-in-interest of the
Company or Sub on or prior to the Closing, (B) any environmental condition
existing as of the Closing (including any future spreading of contamination
existing at such time) on any real property owned or leased by the Company or
Sub and on any property adjacent to such owned or leased real property,
PROVIDED, that the Environmental Damages do not result from acts or omissions of
Buyer after the Closing (whether or not caused by the Company or Sub), (C) in
response to a claim, demand, investigation or inquiry made against any Buyer
Environmental Indemnitee by any third party, including any governmental
authority or agency, or (D) to correct or remediate any environmental condition
as required by authority or any Environmental Law or a governmental authority or
agency, to achieve compliance with any Environmental Law. For the purpose of
this Agreement, "Environmental Damages" shall mean any and all Losses,
including, without limitation, costs of investigation, attorneys and
consultants, analysis, cleanup, containment or other environmental remediation,
actually incurred by any Buyer Environmental Indemnitee in connection with any
matter described in any of clauses (A) through (D) above.
(ii) With respect to any Environmental Damages pursuant to which a
claim is made by any Buyer Environmental Indemnitee against Seller: (a) before
or on the
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second anniversary of the Closing, Seller shall indemnify and hold Buyer
harmless to the extent of 90% of such Environmental Damages and Buyer shall pay
for 10% of such Environmental Damages; (b) after the second anniversary but
before or on the third anniversary of the Closing, Seller shall indemnify and
hold Buyer harmless to the extent of 80% of such Environmental Damages, and
Buyer shall pay for 20% of such Environmental Damages; (c) after the third
anniversary but before or on the fourth anniversary of the Closing, Seller shall
indemnify and hold Buyer harmless to the extent of 70% of such Environmental
Damages, and Buyer shall pay for 30% of such Environmental Damages; (d) after
the fourth anniversary but before or on the fifth anniversary of the Closing,
Seller shall indemnify and hold Buyer harmless to the extent of 60% of such
Environmental Damages, and Buyer shall pay for 40% of such Environmental
Damages; or (e) after the fifth anniversary but before or on the seventh
anniversary of the Closing, Seller shall indemnify and hold Buyer harmless to
the extent of 50% of such Environmental Damages, and Buyer shall pay for 50% of
such Environmental Damages.
(c) No claim for indemnification made pursuant to this Section 8.5
may be made more than seven years after the Closing; PROVIDED that if prior to
seven years after the Closing, any claim for indemnity under this Section 8.5
shall have been made and such claim shall not have been finally resolved or
disposed of at such date, such claim shall in no way be prejudiced or impaired
by the passage of time and the obligations of Seller under this Section 8.5 with
respect to such claim shall continue to survive as to such claim and shall
remain a basis for indemnity until such claim is finally resolved or disposed
of.
(d) It is further agreed as follows:
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<PAGE> 60
(i) The parties hereto agree to act in good faith in undertaking
work to address environmental matters that give rise to a claim for
indemnification hereunder with a view toward avoiding unnecessary costs.
(ii) Environmental Damages shall be limited to damages directly
related to rectifying the environmental matter to the minimum extent (A)
satisfactory to the governmental authority or agency with responsibility for
such matter or (B) that a prudent business owner would, in its reasonable
business judgment, consider reasonably necessary, in light of prior use of the
properties and facilities of the Company and demonstrated unreasonable risks
associated with the environmental conditions. Each party agrees that, except as
required by Environmental Law or a governmental authority or agency or in
accordance with the preceding sentence, it shall not by voluntary or
discretionary action, accelerate the timing, or increase the cost, of any
obligations of the party under this Section 8.5.
(iii) At Buyer's election, Buyer shall have the right to control
and manage all discussions with third parties and all proceedings and activities
regarding the satisfaction and discharge of any Environmental Damages, and
planning or performing any work at such property, PROVIDED that Seller shall
have the right, at its expense, to participate in all such discussions and all
proceedings and activities.
(iv) If Seller is required to investigate, clean up or otherwise
address Environmental Damages, Buyer shall give Seller and its authorized
representatives and agents reasonable access to the Company's property, all
natural materials (including without limitation, water, dirt, clay and related
materials) on such property and all equipment,
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facilities and utilities on such property, all subject to this Section 8.5.
Seller shall make commercially reasonable efforts to avoid interfering with
operations of the Business.
(v) Buyer will take all reasonable measures to reduce the cost
of any required remediation, including, without any limitation, permitting
Seller to file on or prior to Closing a deed permanently restricting use of the
Company's property for commercial or industrial purposes, PROVIDED that Buyer
will take such reasonable measures commensurate with existing zoning with
respect to adjacent property.
(vi) The party performing the remedial or other work relating to
Environmental Damages shall keep the other party regularly advised of any
studies, reports, correspondence or other significant documents relating to the
project, and shall, to the extent practicable, provide the other party with
reasonable advance notice of any planned activities.
(vii) If Environmental Damages are attributed to transactions or
occurrences that take place before and after the Closing Date and to which both
Seller and a Buyer Environmental Indemnitee have contributed, Seller's liability
hereunder shall be further apportioned on a reasonable basis, taking into
account, in addition to other relevant factors, the degree of contribution on
the part of Seller and such Buyer Environmental Indemnitee before and after the
Closing Date.
ARTICLE IX
TAXES
9.1 APPORTIONMENT AND INDEMNIFICATION. (a) Seller and Buyer agree that
the Company will be included in the consolidated federal income Tax return and
the combined Tax return for Ohio and any other state, where permitted, in which
Tax returns are filed by the Company or its parent for the period from September
30, 1997 through the Closing. Prior
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<PAGE> 62
to the Closing, the Company shall not increase the Tax Reserves other than in
the ordinary course of business.
(b) Seller shall indemnify and hold Buyer harmless against any and
all Taxes of Seller and its affiliates and the Company for any taxable year or
period ending on or before the Closing, and the portion of any such Taxes for
any taxable year or period beginning before and ending after the Closing that is
attributable to the portion of such year or period prior to the Closing, in
either case, however, only to the extent such Taxes exceed the Tax Reserves, and
Seller shall be entitled to all refunds of such Taxes. In determining the Taxes
attributable to any year or period prior to the Closing, the books and records
of the Company will be closed as of the Closing, in accordance with Seller's
past practices, and the taxable income of the Company attributable to the
portion of the year or period prior to the Closing will be determined from such
closed books and records.
(c) Buyer shall indemnify and hold Seller harmless against any and
all Taxes relating to the Company, or any affiliated group of which the Company
becomes a member, after the Closing for any taxable year or period beginning on
or after the Closing, and the portion of any such Taxes for any taxable year or
period beginning before and ending after the Closing that is attributable to the
portion of such year or period beginning after the Closing Date (determined in
the manner parallel to that described in Section 9.1(b) above), and Buyer shall
be entitled to all refunds of such Taxes.
(d) Any payment by Seller or Buyer under this Section 9.1 will be
treated for Tax purposes as an adjustment to the Purchase Price.
(e) Whenever it is necessary for purposes of this Article IX to
determine the Tax liability of a taxable entity for a taxable year or period
that begins before and ends after a prescribed date, the determination shall be
made by apportioning the total Tax liability in the
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<PAGE> 63
manner described in Section 9.1(b) and (c) above, except that exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a time basis.
9.2 FILING OF TAX RETURNS.
(a) Seller shall file or cause to be filed when due all returns in
respect of Taxes of the Company for taxable years or periods ending before or on
the Closing. Seller shall be responsible for the audits of such returns.
(b) Buyer shall file or cause to be filed when due all returns in
respect of Taxes of the Company for taxable years or periods ending after the
Closing. Buyer shall be responsible for the audits of such returns and shall be
entitled to receive from Seller reimbursement for any payment that it makes in
connection with the settlement or other disposition of such proceeding, to the
extent such Taxes exceed the Tax Reserves.
(c) Buyer and Seller agree to furnish or cause to be furnished to
each other, upon request, as promptly as practicable, such information
(including access to books and records) and assistance relating to the Company
and the Business as is reasonably necessary for preparation of and filing of any
return, for the preparation for any audit, and for the prosecution or defense of
any claim, suit or proceeding relating to any proposed adjustment. Buyer and
Seller shall cooperate with each other in the conduct of any audit or other
proceedings involving the Company or any other entity with which they may be
consolidated or combined for any Tax purposes and Buyer and Seller shall each
execute and deliver such powers of attorney and other documents as are necessary
to carry out the intent of this Section 9.2; PROVIDED, that Buyer shall have the
right to control the resolution of such audit or settlement of proceedings for
which Buyer is to bear the cost of any resulting Tax, interest or penalties;
and, PROVIDED, FURTHER, that Seller shall have the right to control the
resolution of
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such audit or settlement of proceedings for which Seller is to bear the cost of
any resulting Tax, interest or penalties.
9.3 SECTION 338(H)(10) ELECTION.
(a) Buyer shall be responsible for and prepare, and Buyer and Seller
shall sign and deliver, timely and irrevocable elections under section 33 8(h)(
10) of the Code and, if permissible, similar elections under any applicable
state and local income tax laws. Each of Seller and Buyer shall report the
transaction consistent with such elections under section 33 8(h)( 10) of the
Code or any similar state or local tax provision (the "Elections") and shall
take no position contrary thereto unless and to the extent required to do so
pursuant to a determination (as defined in section 1313(a) of the Code or any
similar state or local tax provision). Seller shall pay, and indemnify the
Company and Buyer for, any and all Taxes that result from any of the Elections
that is properly prepared and filed; provided, however, that Seller shall not
pay nor indemnify the Company or the Buyer for any Taxes resulting from, or
otherwise be responsible for any consequences of, an invalid, ineffective, or
untimely Election.
(b) Each of Seller and Buyer shall execute at Closing any and all
forms necessary to effectuate the Elections (including, without limitation, IRS
Form 8023-A and any similar forms under applicable state and local income tax
laws (the "Section 338 Forms")). Each of Seller and Buyer shall cause the
Section 338 Forms to be duly executed by an authorized person and shall duly and
timely file the Section 338 Forms in accordance with applicable Tax laws and the
terms of this Agreement.
(c) Each of Seller and Buyer agrees to allocate the Aggregate Deemed
Sale Price (as defined under applicable Treasury Regulations) of the assets of
the Company as set forth in SCHEDULE 9.3. Each of Seller and Buyer will reflect
such allocation in all applicable
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tax returns filed by any of them, including but not limited to the Section 338
Forms. Each of Seller and Buyer shall not take a position before any taxing
authority or otherwise (including in any tax return) inconsistent with such
allocation unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar state or
local law).
ARTICLE X
TERMINATION
10.1 TERMINATION. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated only (a) by the mutual written
consent of the parties to this Agreement, (b) by Buyer or Seller if, for any
reason, the Closing has not occurred prior to April 30, 1998 or (c) by Buyer in
the event that the condition set forth in Section 6.2(e) with respect to
Environmental Damages would not be satisfied as of the Closing; PROVIDED that if
the failure to close by such date is due to Buyer's or Seller's breach of this
Agreement, such party shall not be entitled to terminate this Agreement.
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, other
than with respect to the Buyer's obligations under Section 4.9, Seller's
obligations under Section 3.24 and Buyer's and Seller's obligations under
Section 11.1, this Agreement shall thereafter become void and have no effect,
and without any liability on the part of any party or its shareholders,
directors or officers in respect thereof, except that nothing herein will
relieve any party from liability for any breach of this Agreement.
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<PAGE> 66
ARTICLE XI
MISCELLANEOUS
11.1 EXPENSES. Unless otherwise indicated, the parties shall bear their
own respective expenses (including, but not limited to, all compensation and
expenses of counsel, financial advisors, consultants, actuaries and independent
accountants) incurred in connection with the preparation and execution of this
Agreement and consummation of the transactions contemplated hereby.
11.2 PUBLIC DISCLOSURE. Each of the parties hereto hereby agrees that,
except as and to the extent required to comply with the requirements of
applicable law, no press releases or similar public announcement or
communication will be made or caused to be made concerning the execution, terms
or performance of this Agreement unless specifically approved in advance by all
parties. The parties shall consult with one another prior to making any press
release or announcement required to be disclosed by law and shall use their
reasonable efforts to reach agreement on any such press release or announcement.
11.3 SURVIVAL. Subject to the provisions of Sections 5.2, 5.3 and 5.10
and Article VIII hereof, the representations, warranties, covenants and
agreements made by the parties pursuant to this Agreement shall survive the
Closing for a period of two (2) years.
11.4 GOVERNING LAW. This Agreement shall be deemed to be made in, and in
all respects shall be interpreted, construed and governed by and in accordance
with the law of, the State of Ohio without giving effect to the provisions
thereof relating to conflicts of law.
11.5 NOTICES. All notices, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given upon (a)
delivery in person, (b) confirmation of receipt of telex or telecopier
transmission, (C) confirmed delivery by a standard overnight carrier or (d) when
mailed by registered or certified service, postage
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<PAGE> 67
prepaid, return receipt requested, on the expiration of the fifth business day
thereafter, addressed to the respective parties at the following addresses or
such other address as shall be specified by like notice):
(a) If to Seller:
HMI Industries Inc.
3631 Perkins Avenue
Cleveland, Ohio 44114
Telecopier No. (216) 432-0329
ATTENTION: Carl H. Young, General Counsel
with a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Telecopier No. (216) 479-8793
ATTENTION: Carolyn J. Buller, Esq.
(b) If to Buyer:
Rhone Capital LLC
1330 Avenue of the Americas
New York, NY 10019
Telecopier No. (212) 757-1718
ATTENTION: David R. Ramsay
Ferdinand P. Oroos
M. Brett Herman
Nancy Cooper
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, NY 10019
Telecopier No. (212) 841-1010
ATTENTION: Kelly Vance, Esq.
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<PAGE> 68
11.6 ASSIGNMENT. This Agreement may not be assigned, by operation of or
otherwise, except that Buyer may assign its rights under this Agreement in whole
or in part, as collateral security to parties providing financing to Buyer or
the Company in connection with the transactions contemplated hereby and to one
or more affiliates of Buyer which will take title to the Shares and will assume
all obligations of Buyer hereunder; PROVIDED, HOWEVER, that in such event, Buyer
will remain fully liable for the fulfillment of all such obligations, and except
that this Agreement shall be binding upon any assignee, transferee or successor
to all or substantially all of the business of Seller.
11.7 SECTION HEADINGS. The section headings contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.9 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.10 WAIVER. At any time prior to the Closing, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the others parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(C) waive compliance with any of the agreements of conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
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<PAGE> 69
11.11 MISCELLANEOUS. This Agreement (including the SCHEDULES, Exhibit A,
Annexes A and B and the Voting Agreement and the other documents and instruments
referred to herein): (a) constitutes the entire agreement and supersedes ail
prior agreements and understandings, both written and oral, among the parties,
with respect to the subject matter hereof, including, without limitation, any
transaction between or among the parties hereto, and Seller and Buyer hereby
release each other from any claims which Seller and Buyer may now or hereafter
have under any Environmental Law; PROVIDED, HOWEVER, that this Section 11.11
shall not release Buyer and Seller from their respective obligations under
Article VIII of this Agreement; (b) is not intended to confer upon any other
persons, including, but not limited to, employees of Seller or the Company, any
rights or remedies hereunder except as specifically provided in Section 5.2(b)
or 5.10 or Article VIII; and (e) in case any provision in this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby. Seller agrees to use its best efforts to cause stockholders of Seller
that together own or control a majority of Seller's outstanding common stock to
execute, within two business days after the date hereof, the Stockholder Voting
Agreement in the form of Exhibit B attached to this Agreement (the "Stockholder
Voting Agreement"). Notwithstanding anything to the contrary set forth in this
Agreement, in the event Seller fails to cause all of such stockholders to
execute the Stockholder Voting Agreement within such two business day period, by
notice to Seller within two business days thereafter, Buyer may terminate this
Agreement and have no further obligation to Seller hereunder.
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<PAGE> 70
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed as of the date first above written.
RHONE CAPITAL LLC
By: /s/ David Ramsey
-----------------------------
Name: David Ramsey
Title:
HMI INDUSTRIES INC.
By: /s/ Mark A. Kirk
-----------------------------
Name: Mark A. Kirk
Title: President
-66-
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<PERIOD-START> OCT-01-1996
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<CASH> 239,797
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<RECEIVABLES> 17,586,610
<ALLOWANCES> 5,512,063
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