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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________ to _______________
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 Ave, Cleveland, Ohio 44114
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 432-1990
--------------
- -----------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes /X/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 29, 1999
- ------------------------------------ ----------------------------
Common stock, $1 par value per share 5,286,353
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INDEX
<TABLE>
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PART I. FINANCIAL INFORMATION.......................................................................................3
ITEM 1. FINANCIAL STATEMENTS......................................................................................3
CONSOLIDATED CONDENSED BALANCE SHEETS..........................................................................3
CONSOLIDATED CONDENSED STATEMENTS OF INCOME....................................................................4
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW.................................................................5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS...........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................8
Results of Operations..........................................................................................8
Liquidity and Capital Resources...............................................................................12
Cautionary Statement for "Safe Harbor" Purposes Under the Private Securities Litigation Reform Act of 1995....13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................13
PART II. OTHER INFORMATION.........................................................................................14
ITEM 1. LEGAL PROCEEDINGS.......................................................................................14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...............................................................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................14
ITEM 5. OTHER INFORMATION.......................................................................................14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................15
(a) Index to Exhibits.........................................................................................15
(b) Reports on Form 8-K.......................................................................................15
</TABLE>
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, September 30,
1999 1998
-------------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,491 $ 51,365
Trade accounts receivable (net of allowance of $836,099 and $1,084,594) 2,275,942 3,892,141
Notes receivable 105,211 90,180
Finance contracts receivable 37,960 42,305
Inventories:
Finished goods 1,752,907 2,292,552
Work-in-progress, raw material and supplies 1,407,582 2,071,003
Deferred income taxes 1,167,426 1,342,862
Prepaid expenses 13,905 226,489
Other current assets 66,758 --
------------ ------------
Total current assets 6,846,182 10,008,897
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 1,072,400 5,010,053
------------ ------------
OTHER ASSETS:
Long-term notes receivable (less amounts due within one year) 166,584 249,821
Cost in excess of net assets of acquired businesses
(net of amortization of $2,940,769 and $2,756,642) 6,278,439 6,446,682
Deferred income taxes 2,429,741 2,253,805
Unamortized trademarks 264,707 289,162
Finance contracts receivable (less amounts due within one year) 75,919 84,610
Other 1,274 65,753
------------ ------------
Total other assets 9,216,664 9,389,833
------------ ------------
Total assets $ 17,135,246 24,408,783
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 150,216 $ 508,080
Trade accounts payable 2,761,520 5,118,002
Income taxes payable 977,832 1,126,049
Accrued expenses and other liabilities 3,049,766 3,152,908
Long-term debt due within one year 72,646 121,599
------------ ------------
Total current liabilities 7,011,980 10,026,638
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) -- 41,739
Other 145,402 241,401
------------ ------------
Total long-term liabilities 145,402 283,140
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $5 par value; authorized, 300,000 shares; issued, none -- --
Common stock, $1 par value; authorized, 10,000,000 shares;
issued, 5,368,556 shares 5,368,556 5,368,556
Capital in excess of par value 7,630,621 8,173,924
Unearned compensation, net (224,443) (522,984)
Retained earnings (deficit) (1,726,779) 3,103,052
Other comprehensive loss (Note 5) (863,257) (1,037,721)
------------ ------------
10,184,698 15,084,827
Less treasury stock 46,277 and 210,191 shares, respectively, at cost 206,834 985,822
------------ ------------
Total stockholders' equity 9,977,864 14,099,005
============ ============
Total liabilities and stockholders' equity $ 17,135,246 $ 24,408,783
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the three months ended June 30, For the nine months ended June 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 8,710,672 $ 10,091,253 $ 27,402,275 $ 29,198,032
Financing revenue and other 91,646 61,090 355,614 247,730
------------ ------------ ------------ ------------
8,802,318 10,152,343 27,757,889 29,445,762
Operating costs and expenses:
Cost of products sold 5,696,620 7,806,473 18,701,015 20,774,699
Selling, general and administrative
expenses 3,403,937 5,810,984 10,566,545 17,039,805
Interest expense 12,933 50,342 57,509 1,338,026
Impairment loss (Note 3) -- -- 2,664,574 --
Other expenses 50,642 47,722 165,077 166,910
------------ ------------ ------------ ------------
Total expenses 9,164,132 13,715,521 32,154,720 39,319,440
------------ ------------ ------------ ------------
Loss before income taxes (361,814) (3,563,178) (4,396,831) (9,873,678)
Provision (benefit) for income taxes 19,000 (1,153,334) 58,000 (2,991,947)
------------ ------------ ------------ ------------
Loss before discontinued operations (380,814) (2,409,844) (4,454,831) (6,881,731)
------------ ------------ ------------ ------------
Income from discontinued operations -
Household Rental Systems (net of
taxes of $-0-) -- -- -- 10,196
Bliss Manufacturing (net of taxes of
$-0-, $-0-, $-0- and $137,348) -- -- -- 224,094
Tube Fab Ltd. (net of taxes of $-0-,
$-0-, $-0- and $128,733) -- -- -- 207,341
------------ ------------ ------------ ------------
-- -- -- 441,631
------------ ------------ ------------ ------------
(Loss) gain on disposals-
Household Rental Systems (net of
taxes of $-0-) -- -- -- 436,889
Bliss Manufacturing (net of taxes
of $-0-, $578,712, $-0- and $6,595,911) -- 1,123,376 (375,000) 7,216,434
Tube Fab Ltd. (net of taxes of
$-0-, $-0-, $-0- and $183,269) -- -- -- (299,019)
Health-Mor Personal Care Corp. (net
of taxes of $-0-, $-0-, $-0- and $119,700) -- -- -- (195,300)
------------ ------------ ------------ ------------
-- 1,123,376 (375,000) 7,159,004
------------ ------------ ------------ ------------
Net (loss) income $ (380,814) $ (1,286,468) $ (4,829,831) $ 718,904
============ ============ ============ ============
Weighted average number of shares
outstanding 5,317,012 5,356,820 5,240,501 5,140,979
============ ============ ============ ============
Basic and diluted per share of common stock:
Loss before discontinued operations $ (0.07) $ (0.45) $ (0.85) $ (1.34)
Income from discontinued operations $ -- $ -- $ -- $ 0.09
(Loss) gain on disposals $ -- $ 0.21 $ (0.07) $ 1.39
------------ ------------ ------------ ------------
Net (loss) income $ (0.07) $ (0.24) $ (0.92) $ 0.14
============ ============ ============ ============
Cash dividends per common share
$ -- $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
For the nine months ended June 30,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (4,829,831) $ 718,904
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 655,099 1,386,036
Impairment of asset 2,664,574 --
Loss on sale of assets 47,331 --
Loss (gain) on disposal of discontinued operation 375,000 (7,159,004)
Amortization of stock awards, net 534,230 792,019
Provision for losses on receivables -- 1,963,498
Deferred income taxes (500) 3,327,478
Changes in operating assets and liabilities:
Decrease in receivables 1,697,441 2,084,180
Decrease (increase) in inventories 1,203,066 (1,805,147)
Decrease in prepaid expenses 212,584 26,403
(Increase) decrease in other current assets (66,758) 41,963
Decrease in accounts payable (2,356,482) (2,944,188)
Decrease in accrued expenses and other liabilities (574,141) (2,393,787)
Decrease in income taxes payable (148,217) (2,996,104)
Other, net 251,360 268,010
------------ ------------
Net cash used in operating activities (335,244) (6,689,739)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of businesses, net of transaction expenses of $5,229,344 -- 26,863,472
Net proceeds from sale of assets 792,670 --
Capital expenditures (41,744) (199,242)
------------ ------------
Net cash provided by investing activities 750,926 26,664,230
------------ ------------
Cash flows from financing activities:
Net repayments under credit facility (357,864) (15,140,462)
Payment of other debt (90,692) (4,992,061)
Acquisition of treasury stock -- (47,808)
------------ ------------
Net cash used in financing activities (448,556) (20,180,331)
------------ ------------
Net decrease in cash and cash equivalents (32,874) (205,840)
Cash and cash equivalents, beginning of period 51,365 239,797
============ ============
Cash and cash equivalents, end of period $ 18,491 $ 33,957
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
----------------------------------------------
BASIS FOR PREPARATION OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The interim consolidated condensed financial statements included in this report
have been prepared, without audit, by HMI Industries Inc. ("the Company") from
the consolidated statements of the Company and its subsidiaries, pursuant to the
rules and regulations of the Securities and Exchange Commission. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in annual financial
statements have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the unaudited financial information for the
interim periods presented reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998. Operating results for interim periods are not necessarily
indicative of operating results for an entire fiscal year.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the fiscal 1999
presentation.
FOREIGN CURRENCY TRANSLATION
The Company finalized the closing of its Holland sales office in February 1999.
This action resulted in an expense of $138,700, during the second quarter of
fiscal 1999, associated with the write off of the Holland cumulative translation
adjustment previously included within the other comprehensive loss caption of
the Consolidated Condensed Balance Sheets.
EARNINGS PER SHARE
The denominators for calculating the Company's basic and diluted earnings per
share are identical as all common stock equivalents are anti-dilutive as of June
30, 1999, and 1998.
2. Discontinued Operations
--------------------------
All previously recorded discontinued operations were disposed of in fiscal 1998.
Sales applicable to discontinued operations for the three and nine months ended
June 30, 1998, were $-0- and $34,174,600, respectively.
On March 19, 1999, the Company reached an agreement with Rhone Capital LLC (the
"Buyer") to resolve a dispute concerning unusable and unsaleable inventory, and
related representations and warranties stemming from the sale of Bliss
Manufacturing ("Bliss") to the Buyer in March 1998, pursuant to a Stock Purchase
Agreement, dated December 17, 1997, as subsequently amended ("Purchase
Agreement"). Certain conditions of the resolution are as follows: (1)
approximately $500,000 in funds escrowed in connection with the Purchase
Agreement were released to the Buyer;
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(2) both the Company and the Buyer agreed not to assert claims for
indemnification under specified sections of the Purchase Agreement; (3) the
Buyer agreed not to require the Company to purchase any unusable or unsaleable
inventory pursuant to the Purchase Agreement; and (4) the Buyer agreed to not
seek reimbursement for any monies actually paid in respect of environmental
damages from March 27, 1998, to and including March 31, 1999.
Also in March 1999, the Company recorded a reserve of $425,000 for future
environmental damage expenditures pursuant to the Purchase Agreement. This
reserve was offset by the reversal of $50,000 of professional fees established
in the original loss on disposal reserve recorded in fiscal year 1998 for the
sale of Bliss that will not be paid due to the release of the entire escrow to
the Buyer.
3. Property, Plant and Equipment
--------------------------------
On January 12, 1999, the Company sold its current facility and related land in
Cleveland, Ohio, to Rose Management Company, a local real estate investment
company, for $840,000. The net book value of the related land and building at
the time of sale was $3,504,600. In December 1998 the Company recorded a
non-cash impairment loss of $2,664,600 on the building to reflect the difference
between the sales price and the net book value of the property. The impairment
loss was recorded as a separate line item under operating expenses in the
Consolidated Condensed Statement of Income.
4. Debt
-------
In May 1999 the Company terminated its credit facility with its lender and
entered into a $3,500,000 revolving line of credit with a new lender consisting
of loans against the Company's eligible receivables and inventory. The new
credit agreement expires in 2002 and calls for interest to accrue at a rate of
prime plus 2%, or 10% as of June 30, 1999. A pre-payment penalty waiver for
early termination of the old credit facility was obtained from the previous
lender in February 1999.
The credit facility agreement includes various covenants that include, but are
not limited to, restrictions on paying dividends, limitations on the Company's
ability to incur additional indebtedness, and limitations on compensation to key
employees, tangible net worth and capital expenditures. There were no covenant
violations under the existing credit facility as of June 30, 1999.
5. Comprehensive Income
-----------------------
During the first quarter of fiscal 1999 the Company adopted Statement of
Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive
Income," which establishes new rules for the reporting and display of
comprehensive income and its components. In general, comprehensive income
combines net income and "other comprehensive items," which represents foreign
currency translation adjustments which are reported as a separate component of
shareholders' equity in the accompanying Consolidated Condensed Balance Sheet.
The Company presents such information in its statement of stockholders' equity
on an annual basis and in a
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footnote in its quarterly reports. The Company had a comprehensive loss of
$365,100 and $4,794,100 for the three and nine months ended June 30, 1999. For
the three and nine months ended June 30, 1998, the Company had a comprehensive
loss of $1,335,000 and comprehensive income of $360,700, respectively.
6. Long Term Compensation Plan
------------------------------
During the second fiscal quarter of 1999 the Board of Directors granted 307,832
incentive stock options and 77,500 restricted shares to key employees of the
Company in accordance with the Health-Mor Inc. 1992 Omnibus Long-Term
Compensation Plan. The majority of the options and restricted shares vest over a
36-month period with the exception of 133,332 options and 25,832 restricted
shares that vested immediately. No compensation expense was recorded related to
the stock options during fiscal 1999, as the exercise price was equal to the
fair market value at the grant date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET PRODUCT SALES-
THIRD QUARTER OF FISCAL 1999 COMPARED TO THIRD QUARTER OF FISCAL 1998
Net product sales of $8,710,700 for the quarter ended June 30, 1999, decreased
by $1,380,600 or 13.7% as compared to the same quarter in fiscal 1998. The
decrease in sales is due primarily to a decline in American and European sales.
In March 1998 the Company introduced, to the Americas Division, the 70th
Anniversary model of the Majestic (the Company's floor-care product). The
introduction of the new model contributed to higher sales in April 1998 than in
a standard month thus generating higher sales in the third quarter of fiscal
1998 as compared to the same quarter in 1999. European sales were unfavorable
for the third quarter of fiscal 1999 as compared to the same quarter in fiscal
1998 primarily as a result of sales decreases in the U.K. and Russia. Sales in
the U.K. decreased due to the difficulty in obtaining consumer financing to
complete the sales transactions. Consumer financing companies used in England
decreased from four primary lenders to one during the first quarter of fiscal
1999. To rectify this situation, the Company negotiated with a consumer finance
professional who is identifying and establishing new financial services, while
revitalizing existing relationships for the U.K. network. Sales in Russia and
its neighboring trading states have dramatically declined as a result of the
problems in the Russian economy and the fall in the value of the ruble.
FIRST NINE MONTHS OF FISCAL 1999 COMPARED TO FIRST NINE MONTHS OF FISCAL 1998
Net product sales of $27,402,300 for the nine months ended June 30, 1999
represent a decline of $1,795,800 or 6.2% compared to $29,198,000 for the nine
months ended June 30, 1998. The decline in sales is primarily a result of
decreased After Market Sales ("AMS") in Canada and Europe. In March 1998 the
Company changed the way it went to market in Canada, moving from a company owned
distribution warehouse to an importer. A trade discount, which is reduced
yearly,
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was provided to the importer in exchange for his assumption of all selling and
administrative expenses associated with the Canadian operation. This trade
discount accounts for a portion of the decrease in Canadian revenue. The main
focus of the Canadian importer has been on maintaining a strong distributor
network and stabilizing Majestic (the Company's floor care product) sales while
rebuilding the AMS program. The rebirth of the Canadian AMS program is taking
longer than originally estimated, however, Company management and the Canadian
importer have recently implemented a new strategy that they feel will improve
the growth of AMS parts sales. The new strategy is to refocus AMS as a lead
generation tool and to add sales support resources. The decrease in European AMS
sales is a direct result of the loss of business in Russia due to the economic
crisis in that region and ongoing consumer financing difficulties in the U.K. as
discussed above.
The Company's net product sales and income from continuing operations were not
materially impacted by inflation or changing prices.
GROSS PROFIT-
THIRD QUARTER OF FISCAL 1999 COMPARED TO THIRD QUARTER OF FISCAL 1998
Gross profit, exclusive of financing revenue, for the quarter ended June 30,
1999, was $3,014,000 or 34.6%, as compared to $2,284,800, or 22.6%, in the
quarter ended June 30, 1998. The favorable increase in margin is primarily
attributable to additional obsolescence expense of $520,000 recorded in June
1998, decreased overhead spending of $347,900 and decreased material cost,
offset by an unfavorable volume variance of $312,000. As a result of the
discontinuance in December 1997 of the Elektrapure product line, and after
efforts to sell the line in the first two quarters of fiscal 1998 proved
unsuccessful, the Company recorded a charge in the quarter ended June 30, 1998
of $520,000. The favorable variance in material cost and overhead spending is
reflective of improved efficiencies resulting from initiatives begun in the
fourth quarter of fiscal 1997 and continued throughout fiscal 1998 to strengthen
business processes, reduce costs, and improve quality. These initiatives
continue today as management continues to review and decrease component costs,
improve product quality and strengthen operational processes.
FIRST NINE MONTHS OF FISCAL 1999 COMPARED TO FIRST NINE MONTHS OF FISCAL 1998
Gross profit, exclusive of financing revenue, for the nine months ended June 30,
1999 was $8,701,300, or 31.8%, compared to $8,423,300, or 28.8%, for the
comparable period in fiscal 1998. The increase in the margin is primarily
attributable to decreased overhead spending of $1,267,300 and a $376,300
reduction in obsolescence expense (see Third Quarter of Fiscal 1999 Compared to
Third Quarter of Fiscal 1998 above for further explanation of decreased
obsolescence and spending), offset by a change in the way the Company went to
market in Canada (see Net Product Sales above) and an unfavorable volume
variance of $480,500.
SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative
("SG&A") expenses decreased by $2,407,000 for the quarter ended June 30, 1999,
versus the comparable quarter of fiscal 1998. SG&A expenses for the nine months
ended June 30, 1999, were $6,473,300 lower than the comparable period in fiscal
1998. The decrease in SG&A expenses for the nine month period is primarily
related to decreases in bad debt expense of $1,873,000, employee related costs
of $2,089,300 and professional fees of $1,224,200. The bad debt expense recorded
in June 1998 resulted primarily from the continuing deterioration of the
receivables associated with the
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Company's elimination of credit in North America and changes in the way the
Company went to market in the retail and Canadian channels. Decreases in
employee related costs and professional fees are attributable to the Company's
cost reduction measures undertaken in fiscal 1998 and continuing into fiscal
1999. In fiscal 1998, the Company downsized its businesses to one core business
segment, reduced its staff to an appropriate level, and reduced both non-sales
growth expenses and fixed costs. Also contributing to the decrease in SG&A
expenses are lower administrative costs relating to the Canadian and Holland
entities. These operations were downsized in fiscal 1998 as part of the
Company's overall cost reduction plan. The Holland sales office was subsequently
deregistered in February 1999.
INTEREST EXPENSE - Interest expense for the quarter ended June 30, 1999 was
$12,900 as compared to $50,300 for the same quarter in fiscal 1998. Interest
expense for the nine months ended June 30, 1999 was $57,500 compared to
$1,338,000 for the nine months ended June 30, 1998. This decrease is due
primarily to lower outstanding balances on the current credit facility as
compared to the Star Bank credit facility in fiscal 1998. The Star Bank credit
facility was retired in March 1998 from the proceeds generated from the
Company's sale of its Bliss Manufacturing operation.
IMPAIRMENT LOSS - On January 12, 1999, the Company sold its current facility and
related land in Cleveland, Ohio, to Rose Management Company, a local real estate
investment company, for $840,000. The net book value of the related land and
building at the time of sale was $3,504,600. In December 1998 the Company
recorded a non-cash impairment loss of $2,664,600 on the building to reflect the
difference between the sales price and the net book value of the property.
INCOME TAXES - The effective income tax rate for the three and nine months ended
June 30, 1999 is (5.3%) and (1.3%), respectively. The effective rate is
attributable to the establishment of a valuation allowance against current
fiscal net operating losses offset by a provision for state taxes.
DISCONTINUED OPERATIONS - All previously recorded discontinued operations were
disposed of in fiscal 1998. Sales applicable to discontinued operations for the
three and nine months ended June 30, 1998 were $-0- and $34,174,600,
respectively.
On March 19, 1999, the Company reached an agreement with Rhone Capital LLC ("the
Buyer") to resolve a dispute concerning unusable and unsaleable inventory, and
related representations and warranties stemming from the sale of Bliss
Manufacturing ("Bliss") to the Buyer in March 1998, pursuant to a Stock Purchase
Agreement, dated December 17, 1997, as subsequently amended ("Purchase
Agreement"). Certain conditions of the resolution are as follows: (1)
approximately $500,000 in funds escrowed in connection with the Purchase
Agreement were released to the Buyer; (2) both the Company and the Buyer agreed
not to assert claims for indemnification under specified sections of the
Purchase Agreement; (3) the Buyer agreed not to require the Company to purchase
any unusable or unsaleable inventory pursuant to the Purchase Agreement; and (4)
the Buyer agreed to not seek reimbursement for any monies actually paid in
respect of environmental damages from March 27, 1998, to and including March 31,
1999.
Also in March 1999 the Company recorded a reserve of $425,000 for future
environmental damage expenditures pursuant to the Purchase Agreement. This
reserve was offset by the reversal of
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$50,000 of professional fees established in the original loss on disposal
reserve recorded in fiscal year 1998 for the sale of Bliss that will not be paid
due to the release of the entire escrow to the Buyer.
YEAR 2000 - Older computer software programs that use two digits rather than
four digits to identify the year in a date field are a concern with year 2000
approaching. If not corrected, many computer applications may fail to treat
dates intended to represent years in the twenty-first century as such but
instead treat them as still in the twentieth century, potentially resulting in
system failures or miscalculations disruptive of business operations, including,
among other things, an inability to initiate, receive, process, invoice or
otherwise complete normal business activities. These Year 2000 issues affect
virtually all companies and organizations.
Through the use of internal personnel and outside consultants, the Company has
performed a detailed review to assess the impact of the Year 2000 issue on its
continuing operations. In connection with this review, the Company conducted an
inventory of IT and non-IT hardware and software, material vendors and
customers, and business processes. Each inventoried item was addressed to
evaluate its risk, to decide whether to remediate or replace, to identify its
priority to the business and to develop a plan for the system.
Plans developed in the assessment phase are being executed in the implementation
phase. Non-compliant IT and non-IT hardware and software are being remediated or
replaced. As of June 30, 1999, all the major components of the Company's IT and
non-IT hardware and software utilize Year 2000 compliant software. Remaining
non-compliant hardware and software will be remediated or replaced with Year
2000 software and hardware by September 30, 1999. A major component of the
Company's application software, which is already Year 2000 compliant, will be
replaced with a newer version in the next several months. Although the change is
not Year 2000 related, a full compliance test will be conducted. Testing, which
is expected to be completed by September 30, 1999, is currently being performed
to ensure compliance. Testing attempts to verify that all systems function
correctly and it extends to all interfaces with key business partners.
During the assessment and testing phase, no significant information technology
projects have been deferred as a result of our efforts on Year 2000.
The Company relies on third party suppliers for raw materials, water, utilities,
transportation and other key services. Interruption of supplier operations due
to Year 2000 issues could affect Company operations, financial conditions or
cash flows. We are now in the process of surveying our vendors in order to
ascertain their ability to continue supplying us with necessary services and
materials. As of June 30, 1999, with 67% (168 out of 251) of the surveys
returned, the Company has not received any negative responses. All state that
they are, or will be, compliant by late-1999. We are reviewing the remaining
non-responding vendors to determine appropriate action. In addition to the
survey, contingency plans are being developed. While approaches to reducing
risks of interruption due to supplier failures will vary, options include
identification of alternate suppliers and utility providers, accumulation of
inventory to assure production capability where feasible or warranted, and
establishment of crisis teams to address unexpected problems. These activities
are
<PAGE> 12
intended to provide a means of managing risk, but cannot eliminate the potential
for disruption due to third party failure.
The Company is also dependent upon our customers for sales and cash flow. Year
2000 issues in our customers' operations could result in decreased sales,
decreased cash flows, and increased inventory and receivables. While these
events are possible, we believe our customer base is broad enough to minimize
the effects of a single occurrence. In addition, the majority of the customer
base is not dependent upon equipment that could be affected by the Year 2000
issues. However, steps are currently being taken to monitor the status of our
customers as a means of determining risks and alternatives.
The Company estimates that the total cost to identify and fix Year 2000 problems
is approximately $350,000 of which $326,000 has been incurred to date. The
Company's policy is to expense as incurred information system maintenance and
modification costs and to capitalize the cost of any new hardware and amortize
it over the assets' useful lives. All expenses related to Year 2000 problems are
being funded through operating cash flows or the existing credit facility.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES- Cash flows from operating activities utilized net cash of
$335,200 for the nine months ended June 30, 1999, principally due to the net
loss of $4,829,800, a decrease in accounts payable of $2,356,500 and accrued
expenses and other liabilities of $574,100, offset by the $2,664,600 non-cash
expense associated with the impairment of the Company's Cleveland, Ohio facility
(See Note 3 to the Consolidated Condensed Financial Statements), and cash
inflows resulting from decreases in receivables of $1,697,400 and inventories of
$1,203,100. The decrease in receivables was due primarily to a greater majority
of customers prepaying in order to take advantage of cash discounts, versus cash
on delivery, and improved collection efforts in the greater than 120 day
category which generated approximately $500,000 during the first nine months of
fiscal 1999. Improvement in production forecasts, decreases in labor and
overhead absorption rates, utilization of excess AMS inventories, increases in
the obsolescence reserve and implementation of a Kanban system for AMS parts
primarily contributed to the decrease in inventories. Labor and overhead
absorption rates decreased as a result of increased inventory turns and lower
plant spending. The increase in the obsolescence reserve resulted from a change
in the Japanese motor that was needed to improve the quality of the unit. The
Kanban technique is used to pull products and material through and into the
manufacturing process through the use of a physical signal that identifies
points of consumption and replenishment. Accounts payable decreased by
$2,356,500 primarily due to a decrease in inventory and continued Company-wide
cost containment efforts. The decrease in accrued expenses and other liabilities
is a result of the payment of non-recurring professional fees and commissions
accrued for at September 30, 1998.
INVESTING ACTIVITIES- Net cash provided by investing activities of $750,900 for
the nine months ended June 30, 1999, primarily represents net proceeds from the
sale of the Company's facility and related land in Cleveland, Ohio (See Note 3
to the Consolidated Condensed Financial Statements).
FINANCING ACTIVITIES- Net cash used in financing activities was $448,600, which
included $357,900 for net repayments under the credit facility and $90,700 for
payment of long-term debt.
12
<PAGE> 13
In May 1999 the Company terminated its credit facility with its lender and
entered into a $3,500,000 revolving line of credit with a new lender consisting
of loans against the Company's eligible receivables and inventory. The new
credit agreement expires in 2002 and calls for interest to accrue at a rate of
prime plus 2%, or 10% as of June 30, 1999. A pre-payment penalty waiver for
early termination of the old credit facility was obtained from the previous
lender in February 1999.
The credit facility agreement includes various covenants that include, but are
not limited to, restrictions on paying dividends, limitations on the Company's
ability to incur additional indebtedness, and limitations on compensation to key
employees, tangible net worth and capital expenditures. There were no covenant
violations under the existing credit facility as of June 30, 1999.
The Company believes that its current working capital, cash flow generated from
future operations and its existing or future credit facility will be sufficient
to fund the Company's capital requirements for the foreseeable future.
CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES
LITIGATION 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, including the statements made in "Net Product Sales" regarding
revitalizing existing relationships for the U.K. network and the implementation
of a strategy to improve AMS sales growth, "Gross Profit" pertaining to the
continued improvement in the margin from operational initiatives, and "Year
2000" concerning the impact of costs incurred on the Company's future operating
results, financial condition and cash flows and the potential impact of
suppliers and customers. Such forward-looking statements are subject to
uncertainties including the improvement of sales in the U.K. and Canadian AMS
market, and the ability of the Company to continue to implement cost reduction
measures. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
14
<PAGE> 15
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
<S> <C> <C>
10.00 Material Contracts Finova Loan and Security Agreement, attached.
10.01 Material Contracts Real Estate Sale Agreement and Amendment to Real
Estate Sale Agreement, incorporated by reference
from Form 10-Q for the quarter ended December 31,
1998.
10.02 Material Contracts Bliss Stock Purchase Agreement, incorporated by
reference from Form 10-K/A3 for the year ended
September 30, 1997.
10.03 Material Contracts Bliss Stock Purchase Agreement Settlement Letter,
incorporated by reference from Form 10-Q for the
quarter ended March 31, 1999.
10.04 Material Contracts Second Amendment to Heller Financial Loan and
Security Agreement, incorporated by reference from
Form 10-Q for the quarter ended March 31, 1999.
10.05 Material Contracts Heller Financial Pre-Payment Penalty Waiver
Letter, incorporated by reference from Form 10-Q
for the quarter ended March 31, 1999.
10.06 Material Contracts Amendment to Restricted Stock Agreements,
incorporated by reference from Form 10-Q for the
quarter ended March 31, 1999.
10.07 Material Contracts Restricted Stock Agreements, incorporated by
reference from Form 10-Q for the quarter ended
March 31, 1999.
10.08 Material Contracts Incentive Stock Option Agreements, incorporated by
reference from Form 10-Q for the quarter ended
March 31, 1999.
27.00 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
15
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMI Industries Inc.
------------------
(Registrant)
Date: July 29, 1999 /s/ Julie A. McGraw
---------------------------
Julie A. McGraw
Vice President - Corporate
Controller and Chief Accounting
Officer
16
<PAGE> 1
Exhibit 10.00
[FINOVA LOGO]
FINANCIAL INNOVATORS
LOAN AND SECURITY AGREEMENT
HMI INDUSTRIES INC.
-------------------
Borrower
3631 Perkins Avenue
Cleveland, Ohio 44144
---------------------
Address
36-1202810
----------
Borrower Fed ID Tax No.
$3,500,000
----------
Credit Limit
May 12, 1999
------------
Date
================================================================================
FINOVA BUSINESS CREDIT
<PAGE> 2
LOAN AND SECURITY AGREEMENT dated May 12, 1999, between HMI INDUSTRIES INC., a
corporation organized and existing under the laws of the State of Delaware,
having its principal place of business at 3631 Perkins Avenue, Cleveland Ohio
44144, ("BORROWER"), and FINOVA CAPITAL CORPORATION, a corporation organized and
existing under the laws of the State of Delaware, qualified to do business in
the state of New York, having its principal place of business at 111 West 40th
Street, New York, New York 10018 (hereinafter called "FINOVA").
1. DEFINITIONS. All capitalized terms used in this Agreement are defined either
in this Agreement, in the attached Loan Schedule, or in the attached Definition
Schedule. The Loan Schedule and Definition Schedule are integral parts of this
Agreement and all references to "herein", "herewith" and words of similar import
shall for all purposes be deemed to include the Schedules.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
(a), LOANS. Whenever the Borrower makes a request, FINOVA shall make loans or
extend credit to or for the Borrower; but FINOVA shall not be obligated to make
loans or extend credit beyond the Total Facility set forth in the Loan Schedule
("TOTAL FACILITY"), and subject to deduction of any loan reserves ("LOAN
RESERVES"), FINOVA deems proper from time to time in its Permitted Discretion,
and less amounts FINOVA may be obligated to pay in the future on behalf of
Borrower. Advances under the Total Facility ("LOANS" and individually, a "LOAN")
shall be comprised of the amounts shown on the Loan Schedule.
(b) INTEREST AND FEES; PRINCIPAL PAYMENTS. The Borrower shall pay FINOVA the
interest and fees set forth on the Loan Schedule, but only to the maximum extent
permitted by applicable law. Except where evidenced by notes or other
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions which are in conflict with this Section (in which event the
conflicting provisions of such notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
account of Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which FINOVA elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement; PROVIDED,
HOWEVER, that any Overadvance or Overline shall be payable on demand. Borrower
shall pay principal, interest, and all other amounts payable hereunder, or under
any other Loan Document, without any deduction whatsoever, including, but not
limited to, any deduction for any setoff or counterclaim.
(c) OVERLINES; OVERADVANCES. If at any time or for any reason the outstanding
amount of advances extended or issued pursuant hereto exceeds any of the dollar
limitations ("OVERLINE") or percentage limitations ("OVERADVANCE") in the Loan
Schedule, then Borrower shall, upon FINOVA's demand, immediately pay to FINOVA,
in cash, the full amount of such Overline or Overadvance which, at FINOVA's
option, may be applied to reduce the outstanding principal balance of the Loans
or any other Obligations. Without limiting Borrower's obligation to repay to
FINOVA on demand the amount of any Overline or Overadvance, Borrower agrees to
pay FINOVA interest on the outstanding principal amount of any Overline or
Overadvance, on demand, at the rate set forth on the Loan Schedule and
applicable to the Revolving Credit Loans.
(d) COLLECTIONS. Until FINOVA notifies Borrower to the contrary, Borrower may
make collection of all Receivables for FINOVA and shall receive all such
payments or sums as trustee of FINOVA and immediately deliver all such payments
or sums to FINOVA in their original form, duly endorsed in blank or cause the
same to be deposited into a Blocked Account or Dominion Account. FINOVA or its
designee may, at any time, notify account debtors that the Receivables have been
assigned to FINOVA and of FINOVA's security interest therein, and may collect
the Receivables directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that in computing the charges under
this Agreement, all items of payment shall be deemed applied by FINOVA on
account of the Obligations two (2), business days after receipt by FINOVA of
good funds which have been finally credited to FINOVA's account, whether such
funds are received directly from Borrower or from the Blocked Account bank or
the Dominion Account bank, pursuant to this Agreement, and this provision shall
apply regardless of the amount of the Obligations outstanding or whether any
Obligations are outstanding; provided, that if any such good funds are received
after 12:00 p.m. noon New York time on any business day or at any time on any
day not constituting a business day, such funds shall be deemed received on the
immediately following business day. (The two (2) day time period referenced to
in the preceding sentence shall be reduced by one half day if FINOVA determines
that Borrower's after tax net income for the fiscal year ending September 30
-2-
<PAGE> 3
is at least $1,239,000. FINOVA is not, however, required to credit Borrower's
account for the amount of any item of payment which is unsatisfactory to FINOVA
in its Permitted Discretion and FINOVA may charge Borrower's loan account for
the amount of any item of payment which is returned to FINOVA unpaid.
(e) ESTABLISHMENT OF A LOCKBOX ACCOUNT OR DOMINION ACCOUNT. Unless Borrower
shall be otherwise directed by FINOVA in writing, Borrower shall cause all
proceeds of Collateral to be deposited into a lockbox account, or such other
"blocked account" as FINOVA may require (each, a "BLOCKED ACCOUNT") pursuant to
an arrangement with such bank as may be selected by Borrower and be acceptable
to FINOVA which proceeds, unless otherwise provided herein, shall be applied in
payment of the Obligations in such order as FINOVA determines in its sole
discretion. Borrower shall issue to any such bank an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to FINOVA,
either to any account maintained by FINOVA at said bank or by wire transfer to
appropriate account(s) of FINOVA. All funds deposited in a Blocked Account shall
immediately become the sole property of FINOVA and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. FINOVA assumes no responsibility for any Blocked Account arrangement,
including without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Alternatively, FINOVA
may establish depository accounts in the name of FINOVA at a bank or banks for
the deposit of such funds (each, a "DOMINION ACCOUNT") and Borrower shall
deposit all proceeds of Receivables and all cash proceeds of any sale of
Inventory or, to the extent permitted herein, Equipment or cause same to be
deposited, in kind, in such Dominion Accounts of FINOVA in lieu of depositing
same to Blocked Accounts, and, unless otherwise provided herein, all such funds
shall be applied by FINOVA to the Obligations in such order as FINOVA determines
in its sole discretion. FINOVA shall instruct the depository at which any
Dominion Account is located to sweep the Dominion Account daily to the extent it
is legally permitted to do so.
(f) MONTHLY ACCOUNTINGS. FINOVA shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or admissions.
(g) APPLICATION OF COLLATERAL AND PAYMENTS. Except as otherwise provided
herein, FINOVA shall have the continuing and exclusive right to apply or reverse
and re-apply any and all payments to any portion of the Obligations in such
order and manner as FINOVA shall determine in its Permitted Discretion. The
amount of all payments or amounts received by FINOVA with respect to the Loan
shall be applied to the extent applicable under this Agreement: (i) first, to
accrued interest through the date of such payment, including any Default
Interest; (ii) then, to any late fees, overdue risk assessments, Examination Fee
and expenses, collection fees and expenses and any other fees and expenses due
to FINOVA hereunder; and (iii) last, the remaining balance, if any, to the
unpaid principal balance of the Loan; provided however, while an Event of
Default exists under this Agreement, or under any other Loan Document, each
payment hereunder shall be (x) held as cash collateral to secure Obligations
relating to any other contingent obligations arising under the Loan Documents
and/or (y) applied to amounts owed to FINOVA by Borrower as FINOVA in its
Permitted Discretion may determine. In calculating interest and applying
payments as set forth above: (a) interest shall be calculated and collected
through the date a payment is actually applied by FINOVA under the terms of this
Agreement; (b) interest on the outstanding balance shall be charged during any
grace period permitted hereunder; or (c) at the end of each month, all accrued
and unpaid interest and other charges provided for hereunder shall be added to
the principal balance of the Loan. To the extent that Borrower makes a payment
or FINOVA receives any payment or proceeds of the Collateral for Borrower's
benefit that is subsequently invalidated, set aside or required to be repaid to
any other Person, then, to such extent, the Obligations intended to be satisfied
shall be revived and continue as if such payment or proceeds had not been
received by FINOVA and FINOVA may adjust the Loan balances as FINOVA, in its
Permitted Discretion.
3. SECURITY. To secure the payment and performance of the Obligations when
due, Borrower hereby grants to FINOVA a first priority security interest
(subject only to Permitted Encumbrances) in all of Borrower's now owned or
hereafter acquired or arising Inventory, Equipment, Receivables, and the
proceeds thereof, trademarks, copyrights, licenses and patents, investment
property, and general intangibles, including, without limitation, all of
Borrower's deposit accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including
-3-
<PAGE> 4
claims and credit balances), and all proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties), all
products and all books and records and computer data related to any of the
foregoing [and assigns, transfers and sets over to FINOVA all of its right,
title and interest, powers, privileges and other benefits of all leases, rental
agreements and related documents entered into by Borrower with respect to any
Equipment leased by Borrower together with all income, proceeds and other
benefits thereof] (all of the foregoing, together with all other property in
which FINOVA may be granted a lien or security interest, is referred to herein,
collectively, as the "COLLATERAL").
4. CONDITIONS OF CLOSING.
(a) INITIAL ADVANCE. The obligation of FINOVA to make the initial advance
hereunder [or to issue or arrange for the issuance of the initial Letter of
Credit hereunder] is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions on or prior to the date set
forth herein or on the Loan Schedule:
(1) All the loan and related documents listed on the Document Checklist
provided by FINOVA to Borrower.
(2) Borrower shall have complied with all additional closing conditions
set forth in the Loan Schedule.
(b) SUBSEQUENT ADVANCES. The obligation of FINOVA to make any advance
(including the initial advance), shall be subject to the further preconditions
that, on and as of the date of such advance: (a) the representations and
warranties of Borrower set forth in this Agreement shall be accurate, before and
after giving effect to such advance or issuance and to the application of any
proceeds thereof; (b) no Event of Default and no event which, with notice or
passage of time or both, would constitute an Event of Default has occurred and
is continuing, or would result from such advance or issuance or from the
application of any proceeds thereof; (c) no material adverse change has occurred
in the Borrower's business, operations, financial condition, in the condition of
the Collateral or other assets of Borrower or in the prospect of repayment of
the Obligations; and (d) FINOVA shall have received such other approvals,
opinions or documents as FINOVA shall reasonably request.
5. BORROWER REPRESENTATIONS AND COVENANTS.
(a) The Borrower is a corporation, limited liability company or partnership
duly organized and in good standing under the laws of the state appearing at the
beginning of this Agreement as the state of its organization; it is and shall be
duly qualified and in good standing in every other state in which, if accounts
are Collateral hereunder, it enters into contracts giving rise to accounts, and,
if goods of any nature are Collateral hereunder, it maintains such goods; it
keeps and shall keep its books of account and goods of any nature which are
purported to be Collateral at its address appearing at the beginning of this
Agreement; the execution, delivery and performance hereof are within the
Borrower's corporate powers, have been duly authorized and are not in
contravention of law or the terms of the Borrower's charter or by-laws or of any
undertaking by which it is bound; except for the security interest granted
hereby, the Borrower is and shall be the owner of all property located on its
premises (except as noted on a separate list signed and delivered to FINOVA on
behalf of the Borrower concurrently herewith); it owns all property purported to
be included in the Collateral free from any lien, security interest or
encumbrance; it does have and shall have the absolute right to subject the same
to a security in FINOVA; after the security interest of FINOVA shall have
attached to any such property, the Borrower's properties of any type shall not
be further subject to any security interest, lien or encumbrance of any other
person, except pursuant to FINOVA's written consent, which shall not be
unreasonably withheld to permit the Borrower to obtain further purchase money
financing from others on terms which, in FINOVA's discretion, shall not
adversely affect the interests of FINOVA; subject to any limitations stated
therein or in connection therewith, all balance sheets, earnings statements and
other financial data which have been or may hereafter be furnished to FINOVA, do
or shall fairly present the financial condition of the person reported upon as
of the dates and the results of his, her or its operations for the periods for
which the same are furnished; and all other information heretofore furnished to
FINOVA is, and all information hereafter furnished to FINOVA shall be accurate
and correct in all material respects and not fail to disclose any fact necessary
to make the information furnished not misleading.
(b) The Borrower shall at all reasonable times give FINOVA access to all
places where any part of the Collateral or records pertaining thereto may be
maintained, and shall from time to time allow FINOVA by or through any of its
officers, agents, attorneys or
-4-
<PAGE> 5
accountants, to make extracts from such records; and it shall at all times keep
FINOVA informed of the name and location of each of its bank accounts.
(c) Any loan at any time received by the Borrower from FINOVA shall not be
used directly or indirectly other than in the Borrower's business; it shall not,
directly or indirectly, pay any dividend on its stock other than a dividend
payable in shares of its own stock; it shall not, directly or indirectly, make
any loan to, or pay any claim other than for current remuneration or current
reimbursable expense payable to any person controlling, controlled by or under
common control with the Borrower, and it shall, on demand, obtain and deliver to
FINOVA subordinations in form and substance satisfactory to FINOVA of all claims
of controlling and controlled persons consistent with the foregoing.
(d) The Borrower shall keep all its properties, whether included in the
Collateral or not, in good order and repair, and shall not waste or destroy them
or any part thereof or use them or any part thereof in violation of any
applicable law; it shall not dispose of any of its properties except in the
ordinary course of business and it shall not dispose of any equipment included
in the Collateral without the prior written consent of FINOVA; it shall pay
promptly, when due, any justly owing account payable of the Borrower in which
FINOVA holds a security interest, all rents or similar charges payable with
respect to any premises where any part of the Collateral may at any time be
located and all taxes payable by it, including withholding taxes; it shall
procure and maintain theft, burglary and fire insurance containing so-called
extended coverage insurance, covering all goods included in the Collateral, all
of which insurance shall be in such reasonable amounts and written by insurers
and with lender's loss payee, additional insured, and other endorsements
satisfactory to FINOVA, and shall be, if adjustable, adjustable by FINOVA, and
payable to and for the benefit of the Borrower and FINOVA as their interests may
appear; and the Borrower shall, upon FINOVA's request, furnish FINOVA with
evidence satisfactory to FINOVA of its payment of such rent or similar charges
and taxes and with policies or certificates evidencing its compliance with such
insurance requirements. If Borrower fails to comply with this Section, FINOVA
may (but shall not be required to) procure such insurance and endorsements at
Borrower's expense and charge the cost thereof to Borrower's loan account as an
Obligation.
(e) Upon its receipt or creation of any property of the type in which FINOVA
has a security interest, the Borrower shall furnish FINOVA with information
adequate to identify such property, which information shall be in such form as
FINOVA may request, accompanying such information with specific pledges,
assignments and designations in form and substance satisfactory to FINOVA and
copies of relevant invoices and vouchers; and if accounts are included in the
Collateral, promptly after the end of each month it shall furnish FINOVA with an
aging of its receivables as of the last day of such month, showing for each of
its account debtors, identified by name and address, the amount owed by such
debtor with respect to invoices of the Borrower generated within the then past
month, each of the prior three months and at any time prior to the fourth
preceding month; and if so requested by FINOVA, it shall furnish FINOVA with
statements for each account debtor for mailing to them, reflecting the
indebtedness of such account debtor and the derivation by invoice of such
indebtedness.
(f) At the time the Borrower notifies FINOVA of the existence of any account,
such account shall be good and valid, representing an undisputed bona fide
indebtedness incurred by the debtor named therein for merchandise theretofore
delivered pursuant to a contract of sale or lease or for services theretofore
performed by the Borrower for said debtor pursuant to a contract therefor; no
agreement under which any deduction or discount may be acquired shall have been
made with such debtor except as indicated in the written schedule and invoice
furnished to FINOVA concurrently with the Borrower's notifying FINOVA of the
existence of the account; the net amount so derived of each account shall be
paid in full at its maturity as expressed in the invoice evidencing such account
and the schedule pertaining thereto; and such payment shall be delivered to
FINOVA as provided in Subsection 5(h) below.
(g) The Borrower shall immediately notify FINOVA, if accounts are included in
the Collateral, of all cases involving the return, rejection, repossession, loss
of or damage to merchandise covered by an account and of any dispute arising or
credit or adjustment granted or discount or offset taken with respect to an
account, and if goods are included in the Collateral, of any event causing loss
or depreciation in the value of such goods and the amount of such loss or
depreciation; and the Borrower shall forthwith pay FINOVA the invoice amount of
the merchandise involved or the amount of the dispute, credit, adjustment,
discount, offset, loss, damage or depreciation, as the case may be.
(h) The Borrower shall do all things necessary and usual in the ordinary
course of
-5-
<PAGE> 6
business, to sell in the ordinary course of business inventory included in the
Collateral to responsible purchasers and to collect on accounts included in the
Collateral, and shall receive IN TRUST for FINOVA, without commingling with its
other funds and assets, all cash, checks, notes, chattel paper and other
proceeds received by it with respect to any of the Collateral, and shall deliver
the same, other than merchandise returns, to FINOVA in the form received,
promptly upon the receipt thereof.
(i) If certificates of title are or shall be issued with respect to any
equipment included in the Collateral, the Borrower shall, on demand, cause the
interest of FINOVA to be properly noted thereon; if any equipment included in
the Collateral is or shall be deemed a fixture under applicable law, the
Borrower shall, on demand, furnish FINOVA with disclaimers signed by all persons
having an interest in the affected real estate, insofar as the security interest
of FINOVA is concerned; and FINOVA is authorized to destroy from time to time
papers theretofore delivered to it in connection with invoices which have become
paid.
(j) The Borrower shall, at its own expense, do all acts and execute and
deliver all writings FINOVA may at any time require to protect or enforce
FINOVA's interests, rights and remedies created by, provided in or emanating
from this Agreement.
(k) Borrower shall take all action necessary to assure that there will be no
material adverse change to Borrower's business by reason of the advent of the
year 2000, including without limitation that all computer-based systems,
embedded microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At FINOVA's request, Borrower shall provide
to FINOVA assurance reasonably acceptable to FINOVA that Borrower's
computer-based systems, embedded microchips and other processing capabilities
are year 2000 compatible.
6. INTENTIONALLY LEFT BLANK.
7. DEFAULTS AND REMEDIES.
(a), The following constitute Events of Default:
(1) The breach by the Borrower of any representation or covenant made by
it, which, provided it shall not constitute any other Event of Default, shall
remain uncured for more than 10 days after notice thereof to the Borrower; or
(2) The failure of the Borrower to pay any Obligation to FINOVA calling
for the payment of money pursuant to this or any other agreement, as and when
the same should be paid, including failure to pay such Obligation on a date set
by the Borrower for such payment and the lapse of five (5) days after such
failure of payment in the case of amounts other than principal and interest on
the Loans; the Borrower's becoming insolvent; its suspending its business; its
petitioning for or a petition against it being filed for a receivership of its
business or property or a bankruptcy or arrangement or any other legal
proceeding or action relating to the relief of debtors or the readjustment of
debts; its making an assignment for the benefit of creditors, seeking a
composition of creditors or suffering a lien against or the attachment of any of
its property; its disposing of any property included in the Collateral otherwise
than in accordance with this Agreement; its committing or suffering, by any of
its agents or employees, a fraudulent conversion of any part of the Collateral;
or, insofar as property of the type included in the Collateral is involved, its
breaching a representation or covenant contained in Section 5(f), (g) or (h)
above.
(3) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise, or the prospect of
repayment of any portion of the Obligations or the value or priority of FINOVA's
security interest in the Collateral is materially impaired;
(4) Any default shall occur under any material agreement between Borrower
and any third party including, without limitation, any default which would
result in a right by such third party to accelerate the maturity of any
indebtedness of Borrower to such third party.
(5) Any representation or warranty made or deemed to be made by Borrower,
any affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(6) More than 40% of the voting stock of Borrower is acquired in one or
more transactions by any Person or any Persons controlling, controlled by, under
common control with, or acting in concert with, such Person.
(7) Any of the persons serving as Chairman and Chief Executive Officer,
President and General Counsel, and Vice President, Treasurer and Chief Financial
Officer of the Borrower on the date hereof shall cease to serve in such capacity
and a
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<PAGE> 7
successor acceptable to FINOVA does not accept appointment to serve in such
capacity within sixty (60) days.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE RIGHT TO
CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND THEREAFTER IF AN
EVENT OF DEFAULT HAS OCCURRED.
(b) REMEDIES. Upon the occurrence of an Event of Default, FINOVA may, at its
option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, cease making Loans, terminate this Agreement and/or
declare all of the Obligations to be immediately payable in full. Borrower
agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including without limitation, the default rights and remedies of
a secured party under the Arizona Uniform Commercial Code (which includes the
right to notify account debtors of the Borrower to make payment directly to
FINOVA), and upon the occurrence of an Event of Default Borrower hereby consents
to the appointment of a receiver by FINOVA in any action initiated by FINOVA
pursuant to this Agreement and to the jurisdiction and venue set forth in this
Agreement, and Borrower waives notice and posting of a bond in connection
therewith. Further, FINOVA may, at any time, take possession of the Collateral
and keep it on Borrower's premises, at no cost to FINOVA, or remove any part of
it to such other place(s), as FINOVA may desire, or Borrower shall, upon
FINOVA's demand, at Borrower's sole cost, assemble the Collateral and make it
available to FINOVA at a place reasonably convenient to FINOVA. FINOVA may sell
and deliver any Collateral at public or private sales, for cash, upon credit or
otherwise, at such prices and upon such terms as FINOVA deems advisable, at
FINOVA's discretion, and may, if FINOVA deems it reasonable postpone or adjourn
any sale of the Collateral by an announcement at the time and place of sale or
of such postponed or adjourned sale without giving a new notice of sale.
Borrower agrees that FINOVA has no obligation to preserve rights to the
Collateral or marshall any Collateral for the benefit of any Person. FINOVA is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks and
advertising matter, or any similar property, in completing production,
advertising or selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to FINOVA's benefit. Any requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Borrower at its address set forth in the heading to this Agreement at least five
(5) days before sale or other disposition. The proceeds of sale shall be
applied, first, to all attorneys fees and other expenses of sale, and second, to
the Obligations in such order as FINOVA shall elect, in its sole discretion.
FINOVA shall return any excess to Borrower and Borrower shall remain liable for
any deficiency to the fullest extent permitted by law.
(c) STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and FINOVA
agree that the following conduct by FINOVA with respect to any disposition of
Collateral shall conclusively be deemed commercially reasonable (but other
conduct by FINOVA, including, but not limited to, FINOVA's use in its sole
discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
nonspecific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition need be given to
the Borrower or published if the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without limiting the generality of the
foregoing, Borrower expressly agrees that, with respect to any disposition of
accounts, instruments and general intangibles, it shall be commercially
reasonable for FINOVA to direct any prospective purchaser thereof to ascertain
directly from Borrower any and all information concerning the same, including,
but not limited to, the terms of payment, aging and delinquency, if any, the
financial condition of any obligor or account debtor thereon or guarantor
thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES.
(a) EXPENSES. Borrower covenants that, so long as any Obligation remains
outstanding and this Agreement remains in effect, it shall promptly reimburse
FINOVA for all costs, fees and expenses incurred by FINOVA in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of each of the Loan Documents, including, but not limited to, the
attorneys' and
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<PAGE> 8
paralegals' fees of counsel.
(b) ENVIRONMENTAL MATTERS. The Environmental Certificate dated on or about
the date of this Agreement is incorporated herein for all purposes as if fully
stated in this Agreement.
9. MISCELLANEOUS.
(a) EXAMINATION OF RECORDS; FINANCIAL REPORTING. FINOVA shall at all
reasonable times have full access to and the right to examine, audit, make
abstracts and copies from and inspect Borrower's records, files, books of
account and all other documents, instruments and agreements relating to the
Collateral and the right to check, test and appraise the Collateral. Borrower
shall furnish FINOVA, upon request and at the times specified by FINOVA, such
information and statements as FINOVA shall request from time to time regarding
Borrower's business affairs, financial condition and the results of its
operations. Failure to provide any of the requested information and statements
to FINOVA at the time specified by FINOVA shall be an Event of Default.
(b) TERM; TERMINATION; TERMINATION FEE. The Initial Term of the Revolving
Credit Loans facility and the obligation of FINOVA to make advances with respect
thereto in accordance with this Agreement shall be as set forth on the Loan
Schedule, and the Revolving Credit Loans facility and this Agreement shall be
automatically renewed for one or more Renewal Term(s) as set forth in the Loan
Schedule, unless earlier terminated as provided herein. Each party shall have
the right to terminate this Agreement effective at the end of the Initial Term
or at the end of any Renewal Term by giving the other party written notice not
less than sixty (60) days prior to the effective date of such termination, by
registered or certified mail. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash. In
addition to the procedure set forth above, Borrower may terminate this Agreement
at any time but only upon sixty (60) days' prior written notice and prepayment
of the Obligations. Upon any such early termination (or any voluntary prepayment
of any Term Loan) by Borrower or any termination of this Agreement by FINOVA
upon the occurrence of an Event of Default, then, and in any such event,
Borrower shall pay to FINOVA upon the effective date of such termination a fee
(the "TERMINATION FEE") in an amount equal to the amount shown on the Loan
Schedule.
(c) RECOURSE TO SECURITY; CERTAIN WAIVERS; NO WAIVER BY FINOVA. All
Obligations shall be payable by Borrower as provided for herein and, in full, at
the termination of this Agreement; recourse to security shall not be required at
any time. Borrower waives presentment and protest of any instrument and notice
thereof, notice of default and, to the extent permitted by applicable law, all
other notices to which Borrower might otherwise be entitled. Neither FINOVA's
failure to exercise any right, remedy or option under this Agreement, any
supplement, the Loan Documents or other agreement between FINOVA and Borrower
nor any delay by FINOVA in exercising the same shall operate as a waiver. An
Event of Default shall exist or continue or be continuing until such Event of
Default is waived in writing by FINOVA as herein provided. No waiver by FINOVA
shall be effective unless in writing and then only to the extent stated. No
waiver by FINOVA shall affect its right to require strict performance of this
Agreement. FINOVA's rights and remedies shall be cumulative and not exclusive.
(d) BINDING ON SUCCESSOR AND ASSIGNS; SEVERABILITY. All terms, conditions,
promises, covenants, provisions and warranties shall inure to the benefit of and
bind FINOVA's and Borrower's respective representatives, successors and assigns.
If any provision of this Agreement shall be prohibited or invalid under
applicable law, it shall be ineffective only to such extent, without
invalidating the remainder of this Agreement.
(e) AMENDMENTS; ASSIGNMENTS. This Agreement may not be modified, altered or
amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
FINOVA may disclose all documents and information which FINOVA now or hereafter
may have relating to Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party, FINOVA shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
-8-
<PAGE> 9
(f) INTEGRATION; SURVIVAL. This Agreement, together with the Loan Schedule
(which is a part hereof) and the other Loan Documents, reflect the entire
understanding of the parties with respect to the transactions contemplated
hereby. All of the representations and warranties of Borrower contained in this
Agreement shall survive the execution, delivery and acceptance of this Agreement
by the parties. No termination of this Agreement or of any guaranty of the
Obligations shall affect or impair the powers, obligations, duties, rights,
representations, warranties or liabilities of the parties hereto and all shall
survive such termination.
(g) EVIDENCE OF OBLIGATIONS. Each Obligation may, in FINOVA's discretion, be
evidenced by notes or other instruments issued or made by Borrower to FINOVA. If
not so evidenced, such Obligation shall be evidenced solely by entries upon
FINOVA's books and records.
(h) LOAN REQUESTS. Each oral or written request for a loan by any Person who
purports to be any employee, officer or authorized agent of Borrower shall be
made to FINOVA on or prior to 11:00 a.m., New York time, on the business day on
which the proceeds thereof are requested to be paid to Borrower and shall be
conclusively presumed to be made by a Person authorized by Borrower to do so and
the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to Borrower's
operating account set forth on the Loan Schedule.
(i) NOTICES. Any written notice, consent or other communication provided for
in this Agreement shall be delivered personally (effective upon delivery), via
facsimile (effective upon confirmation of transmission), via overnight courier
(effective the next business day after dispatch if instructed to deliver on next
business day) or via U.S. Mail (effective 3 days after ailing, postage prepaid,
first class) to each party at its address(es) and/or facsimile number(s) set
forth below its signature, or to such other address as either party shall
specify to the other in writing from time to time.
(j) BROKERAGE FEES. Borrower represents and warrants to FINOVA that, with
respect to the financing transaction herein contemplated, no Person is entitled
to any brokerage fee or other commission and Borrower agrees to indemnify and
hold FINOVA harmless against any and all such claims.
(k) COUNTERPARTS; FACSIMILE EXECUTION. This Agreement may be executed in one
or more counterparts, each of which taken together shall constitute one and the
same instrument, admissible into evidence.
(l) APPLICATION OF INSURANCE PROCEEDS. The net proceeds of any casualty
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys' fees) of collection, shall be applied, at FINOVA's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to FINOVA, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as FINOVA
may elect. In no event shall such application relieve Borrower from payment in
full of all installments of principal and interest which thereafter become due
in the order of maturity thereof.
(m) POWER OF ATTORNEY. Borrower appoints FINOVA and its designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Receivable, on drafts against customers, on assignments
of Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and to open and dispose of all mail addressed to
Borrower; and to do all other things FINOVA deems necessary or desirable to
carry out the terms of this Agreement. Borrower hereby ratifies and approves all
acts of such attorney. Neither FINOVA nor any of its designees shall be liable
for any acts or omissions nor for any error of judgment or mistake of fact or
law while acting as Borrower's attorney other than wilful misconduct or illegal
acts and in any such event FINOVA shall not be responsible for consequential
damages. This power, being coupled with an interest, is irrevocable until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder shall have terminated.
(n) GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL
BE INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF
LAWS RULES) OF THE STATE OF ARIZONA GOVERNING CONTRACTS TO BE PERFORMED
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<PAGE> 10
ENTIRELY WITHIN SUCH STATE. BORROWER HEREBY CONSENTS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA
IN THE STATE OF ARIZONA OR, AT THE SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN
WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. FINOVA and Borrower each
hereby waives the right to trial by jury in any action or proceeding based upon,
arising out of, or in any way relating to this Agreement.
(o) LIEN TERMINATION. In recognition of FINOVA's right to have all of its
attorneys' fees and other expenses incurred in connection with this Agreement
secured by the Collateral, notwithstanding the payment in full of the
Obligations, FINOVA shall not be required to execute or record any terminations
or satisfactions of any of its liens on the Collateral unless and until Borrower
and all Guarantors have executed and delivered to FINOVA general releases of all
claims, in form and substance satisfactory to FINOVA in its sole discretion.
- --------------------------------------------------------------------------------
Borrower: FINOVA:
HMI INDUSTRIES INC. FINOVA CAPITAL CORPORATION
Fed. Tax ID# 1202810
By /s/ Melissa Schneck
--------------------
By: /s/ R.M. Benedict, Jr. Title VP
----------------------- -----------------
R.M. BENEDICT, JR.
EXECUTIVE VICE PRESIDENT FINOVA'S ADDRESS FOR NOTICES;
FINOVA CAPITAL CORPORATION
BORROWER'S ADDRESS FOR NOTICES: 355 SOUTH GRAND AVE
LOS ANGELES, CA 90071
ATTN: RONALD VANEK
HMI INDUSTRIES INC. FACSIMILE: (213) 625-2486
3631 Perkins Avenue
Cleveland, Ohio 44144 WITH A COPY TO:
ATTN: FINOVA CAPITAL CORPORATION
1850 NORTH CENTRAL AVENUE
PHOENIX, AZ 85002
FACSIMILE: ATTN: JOSEPH R. D'AMORE
FACSIMILE: (602) 207-5036
AND
FINOVA CAPITAL CORPORATION
111 WEST 40TH STREET
NEW YORK, NEW YORK, NY 10018
ATTN: MARK FACILLO
FACSIMILE: (212) 403-0996
- --------------------------------------------------------------------------------
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<PAGE> 11
STATE OF New York)
)ss:
COUNTY OF New York)
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named HMI INDUSTRIES INC., a Delaware corporation,
by R.M. Benedict, Jr. its Executive Vice President, who acknowledged that he/she
did sign the foregoing agreement and that the same is he/her free act and deed
and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
NY, NY, this 7th day of May, 1999.
/s/ Laurie A. Eamma
-------------------
Notary Public
LAURIE A. EAMMA
Notary Public, State of New York
No. 01EA5088810
Qualified in New York County
Commission Expires Nov. 24, 1999
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<PAGE> 12
STATE OF NEW YORK }
} ss:
COUNTY OF NEW YORK }
----------
On the 9TH day of JUNE 1999, before me personally came MELISSA
SCHNECK to me known, who, being by me duly sworn, did depose and say that she
resides at No. 111 WEST 40TH STREET, NEW YORK, NEW YORK that she is the VICE
PRESIDENT of FINOVA Capital Corporation, the corporation described in and which
executed the foregoing instrument.
(SEAL) /s/ Gladys Maldonado
--------------------
Notary Public
My commission expires:
MARCH 17, 2001 GLADYS MALDONADO
- -------------- NOTARY PUBLIC, STATE OF NEW YORK
NO. 01MA5074495 QUEENS COUNTY
TERM EXPIRES MARCH 17 2001
<PAGE> 13
LOAN SCHEDULE
Borrower: HMI INDUSTRIES INC.
Address: 3631 Perkins Avenue
Cleveland, Ohio 44144
Date: May 12, 1999
This Loan Schedule forms an integral part of the Loan and Security Agreement
between the above Borrower and FINOVA Capital Corporation dated the above date,
and all references herein and therein to "this Agreement" shall be deemed to
refer to said Agreement, this Loan Schedule and the attached Definition
Schedule.
================================================================================
TOTAL FACILITY:
$3,500,000
----------
================================================================================
LOANS:
REVOLVING CREDIT LOANS: A revolving line of credit consisting of loans
against Borrower's Eligible Receivables ("RECEIVABLE LOANS") and against
Borrower's Eligible Inventory ("INVENTORY LOANS"), (the Receivable Loans
and the Inventory Loans shall be collectively referred to as the
"REVOLVING CREDIT LOANS") in an aggregate outstanding principal amount
not to exceed the LESSER of (a) or (b) below:
(a), Three Million Five Hundred Thousand Dollars ($3,500,000) (the
"REVOLVING CREDIT LIMIT"), LESS any Loan Reserves, or
(b) the sum of
(i) an amount equal to (A) 80% of the net amount of Eligible
Receivables which are domestic Eligible Receivables and 60% of
Eligible Receivables which are foreign Eligible Receivables, PLUS
(ii) an amount not to exceed the lesser of (A) the lesser of (i) 40%
of the value of Borrower's Eligible Inventory, calculated at cost or
(ii) 80% of the value of Borrower's Eligible Inventory calculated at
auction sale value, determined on a first-in, first-out basis, or (B)
$1,750,000; LESS
(iii) any Loan Reserves.
================================================================================
INTEREST AND FEES:
REVOLVING INTEREST RATE. Borrower shall pay FINOVA interest on the daily
outstanding balance of Borrower's Revolving Credit Loans at a per annum
rate of 2% in excess of the rate of interest announced publicly by
Citibank, N.A., (or any successor thereto), from time to time as its
"prime rate" (the " PRIME RATE") which may not be such institution's
lowest rate. The interest rate chargeable hereunder in respect of the
Revolving Credit Loans (herein, the "REVOLVING INTEREST RATE") shall be
increased or decreased, as the case may be, without notice or demand of
any kind, upon the announcement of any change in the Prime Rate. Each
change in the Prime Rate shall be effective hereunder on the first day
following the announcement of such change. Interest charges and all other
fees and charges herein shall be computed on the basis of a year of 360
days and actual days elapsed and shall be payable to FINOVA in arrears on
the first day of each month.
DEFAULT INTEREST RATE. Upon the occurrence and during the continuation of
an Event of Default, Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations and any L/C Fee at a rate per
annum which is four percent (4%) in excess of the rate which would
otherwise be applicable thereto pursuant to this Loan Schedule.
<PAGE> 14
COLLATERAL MONITORING FEE. At the closing of this transaction and on the
first day of each calendar month thereafter, Borrower shall pay FINOVA a
collateral monitoring fee of $500 ("COLLATERAL MONITORING FEE") provided
however, that Borrower agrees and acknowledges that each Loan Year a full
year's fee shall be deemed earned at the beginning of the respective Loan
Year, with the Borrower entitled to a refund of that portion of the
Collateral Monitoring Fee attributable to any period after the Revolving
Loans Facility has been terminated.
FACILITY FEE. Borrower shall pay to FINOVA a facility fee equal to 1/2 of
1% per annum of the amount of the Total Facility ("FACILITY FEE"). The
Facility Fee shall be deemed fully earned at the time when due and is
otherwise due and payable annually, commencing with the date of closing
of this transaction and continuing on each subsequent anniversary
thereof.
EXAMINATION FEE. Borrower agrees to pay to FINOVA an examination fee in
the amount of $650 per person per day in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date
hereof, plus all costs and expenses incurred in connection therewith (the
"EXAMINATION FEE"). Without limiting the generality of the foregoing,
Borrower shall pay to FINOVA an initial Examination Fee in an amount
equal to $650 per person per day, plus all costs and expenses incurred in
connection therewith. Such initial Examination Fee shall be deemed fully
earned at the time of payment and due and payable upon the closing of
this transaction, and shall be deducted from any good faith deposit paid
by Borrower to FINOVA prior to the date of this Agreement.
================================================================================
CLOSING CONDITIONS:
(l) FEES. Borrower shall have paid all fees payable by it on the Closing Date
pursuant to this Agreement.
(2) NO MATERIAL ADVERSE CHANGES. Prior to the Closing Date, there shall have
occurred no material adverse change in the financial condition of Borrower, or
in the condition of the assets of Borrower, from that shown on the draft
financial statements for Borrower dated _____________. At the closing, Borrower
shall deliver to FINOVA an officer's certification confirming that Borrower is
unaware of the existence of any such material adverse change in Borrower's
financial condition.
(3) MATERIAL AGREEMENTS. FINOVA shall have received, reviewed and approved all
material agreements to which Borrower shall be a party.
(4) FINOVA shall have received a satisfactory inventory appraisal.
(5) FINOVA shall have received a satisfactory search of the Trademark Office
records relating to all trade names used by Borrower.
(6), FINOVA shall have received in form and substance satisfactory to it a
Trademark Security Agreement.
(7), FINOVA shall have received Guarantees from HMI Incorporated, an Ontario,
Canada corporation, HealthMor International, Inc., a US Virgin Islands
corporation, HMI Acceptance Corporation, an Ontario, Canada corporation,
Health-Mor Acceptance PTY Ltd., an Australian corporation and Health-Mor
Acceptance Corporation, a Delaware corporation, together with such documents and
showings as FINOVA may require regarding the existence and good standing of each
and the due authorization, execution, delivery and enforceability of each
Guaranty.
(8) OTHER MATTERS. All other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed
and recorded and shall be in form and substance satisfactory to FINOVA and its
counsel.
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<PAGE> 15
================================================================================
BORROWER INFORMATION:
Borrower's State of Incorporation: DELAWARE
Borrower's copyrights, patents trademarks, and licenses: [BORROWER TO
SUPPLY ON SEPARATE EXHIBIT].
Fictitious Names/Prior Corporate Names:
Prior Corporate Names: HEALTH-MOR, INC.
Fictitious Names: NONE
Borrower Locations
3631 Perkins Avenue
Cleveland, OH 44144
---------------------------------------
Borrower's Federal Tax Identification Number:________________
Permitted Encumbrances: [TO BE PROVIDED ON SEPARATE EXHIBIT]
================================================================================
FINANCIAL COVENANTS:
Borrower shall comply with all of the following covenants. Compliance shall be
determined as of the end of each month, except as otherwise specifically
provided below:
Net Worth. Borrower shall maintain tangible Net Worth of not less
than, for the period from the closing of this transaction
through September 29, 1999, $2,000,000; for the period
from September 30, 1999 through September 29, 2000,
$2,500,000; for the period from September 30, 2000 through
September 29, 2001, $3,500,000; and $ 3,500,000
thereafter.
================================================================================
NEGATIVE COVENANTS:
EMPLOYEE ADVANCES: Borrower shall not make any loans or advances to Employees
except in the ordinary course of business and consistent with past practices of
Borrower in an aggregate amount not exceeding at any time $5,000.
EXISTING GUARANTIES: [Borrower to describe on separate Exhibit.]
CAPITAL EXPENDITURES: Borrower shall not make or incur any Capital Expenditure
if, after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year (beginning with the fiscal year
ending September 30, 1999) would exceed $350,000.
COMPENSATION: Borrower shall not pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of 115% of such total compensation paid in the
immediately preceding fiscal year.
INDEBTEDNESS: Borrower shall not create, incur, assume or permit to exist any
Indebtedness for Borrowed Money in excess of $350,000 other than (i) the
Obligations, (ii) other Indebtedness existing on the date of this Agreement and
reflected in EXHIBIT attached hereto (other than Indebtedness paid on the date
of this Agreement from proceeds of the initial advances hereunder).
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<PAGE> 16
================================================================================
REPORTING REQUIREMENTS:
Borrower shall provide FINOVA with:
1. Monthly agings aged by invoice date and reconciliations of Receivables
within 10 days after the end of each month.
2. Monthly accounts payable agings aged by invoice date, outstanding or
held check registers and inventory certificates within 10 days after
the end of each month.
3. Monthly perpetual inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost or market (in
accordance with GAAP) or such other inventory reports as are
reasonably requested by FINOVA, all within 10 days after the end of
each month.
4. Monthly unaudited financial statements within 30 days after the end of
each month.
5. Quarterly compilation financial statement within 45 days after the end
of each fiscal quarter.
6. Audited consolidated and consolidating fiscal financial statements
within 120 days after the end of each fiscal year, and with an opinion
issued by a Certified Public Accountant which is acceptable to FINOVA.
7. Annual operating budgets (including income statements, balance sheets
and cash flow statements, by month) for the upcoming fiscal year of
Borrower within 30 days prior to the end of each fiscal year of
Borrower.
8. As soon as available copies of all financial statements and reports
that the Borrower is required to file with the Security and Exchange
Commission or any successor or analogous entity.
================================================================================
TERM:
The initial term of this Agreement shall be three (3) years from the date
hereof (the "INITIAL TERM") and shall be automatically renewed for
successive periods of one (l) year each (each, a "RENEWAL TERM"), unless
earlier terminated as provided elsewhere in this Agreement.
================================================================================
TERMINATION FEE:
(A) REVOLVING CREDIT LOANS FACILITY. The Termination Fee applicable to
the Revolving Credit Loans facility shall be an amount equal to the
following percentage of the Revolving Credit Limit:
(i) three percent (3%), if such early termination occurs on or prior
to the first anniversary of the date of this Agreement;
(ii) two percent (2%), if such early termination occurs after the
first anniversary of the date of this Agreement but prior to the
second anniversary date of this Agreement; and
(iii) one percent (1%), if such early termination occurs after the
second anniversary date of this Agreement.
================================================================================
DISBURSEMENT:
Unless and until Borrower otherwise directs FINOVA in writing, all
loans shall be wired to Borrower's following operating account:
Firstar Bank, 425 Walnut Street, Cincinnati, OH 45202, ABA#
042000013, Account #8055204.
Payee: HMI Industries Inc.
-4-
<PAGE> 17
================================================================================
Borrower: HMI INDUSTRIES INC. FINOVA:
FINOVA CAPITAL
CORPORATION
By /s/ R.M. Benedict, Jr.
---------------------- By /s/ Melissa Schneck
R.M. BENEDICT, JR. --------------------
EXECUTIVE VICE PRESIDENT Title VP
-----------------
-5-
<PAGE> 18
STATE OF New York )
)ss:
COUNTY OF New York)
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named HMI Industries Inc, a Delaware corporation,
by R.M. Benedict, Jr. its Executive Vice President, who acknowledged that he/she
did sign the foregoing agreement and that the same is he/her free act and deed
and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
NY, NY, this 7th day of May, 1999.
/s/ Laurie A. Eamma
-------------------
Notary Public
LAURIE A. EAMMA
Notary Public, State of New York
No. 01EA5088810
Qualified in New York County
Commission Expires Nov. 24, 1999
-6-
<PAGE> 19
STATE OF NEW YORK }
} ss:
COUNTY OF NEW YORK }
On the 9TH day of JUNE , 1999, before me personally came MELISSA
SCHNECK to me known, who, being by me duly sworn, did depose and say that she
resides at No. 111 WEST 40TH STREET , NEW YORK , NEW YORK that she is the VICE
PRESIDENT of FINOVA Capital Corporation, the corporation described in and which
executed the foregoing instrument.
(SEAL) /s/ Gladys Maldonado
--------------------
Notary Public
My commission expires:
GLADYS MALDONADO
MARCH 17, 2001 Notary Public, State of New York
- -------------- No. 01MA5074495 Queens County
Term Expires March 17 2001
<PAGE> 20
DEFINITION SCHEDULE
This Definition Schedule forms an integral part of the Loan and Security
Agreement between the above Borrower and FINOVA Capital Corporation dated the
above date, and all references herein and therein to "this Agreement" shall be
deemed to refer to said Agreement, this Definition Schedule, and the Loan
Schedule.
"CAPITAL EXPENDITURES" means all expenditures made and liabilities
incurred in accordance with GAAP for the acquisition of any fixed asset or
improvement, replacement, substitution or addition thereto which has a useful
life of more than one year and including, without limitation, those arising in
connection with Capital Leases.
"CAPITAL LEASE" means any lease of property by Borrower that, in
accordance with GAAP, should be capitalized for financial reporting purposes and
reflected as a liability on the balance sheet of Borrower.
"CLOSING DATE" means the date of the initial advance made by FINOVA
pursuant to this Agreement.
"ELIGIBLE INVENTORY" means Inventory which FINOVA, in its Permitted
Discretion, deems Eligible Inventory, based on such considerations as FINOVA may
from time to time deem appropriate. Without limiting the generality of the
foregoing, no Inventory shall be Eligible Inventory unless, in FINOVA's
Permitted Discretion, such Inventory (i) consists of raw materials and finished
goods, in good, new and salable condition which are not obsolete,
unmerchantable, slow moving, returned, damaged and/or defective, (ii) are not
comprised of work in process, packaging materials or supplies; (iii) meets all
standards imposed by any governmental agency or authority; (iv) conforms in all
respects to the warranties and representations set forth herein; (v) is at all
times subject to FINOVA's duly perfected, first priority security interest; and
(vi) is situated at a location in compliance with this Agreement.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
FINOVA, in its Permitted Discretion, shall deem eligible based on such
considerations as FINOVA may from time to time deem appropriate. Without
limiting the foregoing, a Receivable shall not be deemed to be an Eligible
Receivable if (i) the account debtor has failed to pay the Receivable within a
period of ninety (90) days after invoice date, to the extent of any amount
remaining unpaid after such period; (ii) the account debtor has failed to pay
more than 25% of all outstanding Receivables owed by it to Borrower within
ninety (90), days after invoice date; (iii) the account debtor is an Affiliate
of Borrower; (iv) the goods relating thereto are placed on consignment,
guaranteed sale, "bill and hold," or other terms pursuant to which payment by
the account debtor may be conditional, provided, however, that Receivables
otherwise Eligible which are invoiced with COD terms may be considered Eligible
Receivables for thirty (30) days after the date of the relevant invoice; (y) the
account debtor is not approved by FINOVA or the account debtor is not located in
the United States or Canada unless in each case the Receivable is supported by a
letter of credit or other form of guaranty or security, in each case in form and
substance satisfactory to FINOVA or the relevant invoice is payable COD; (vi),
the account debtor is the United States or any department, agency or
instrumentality thereof or any State, city or municipality of the United States,
except as otherwise agreed to in writing by FINOVA; (vii) Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; (viii) the account debtor's total obligations to
Borrower exceed 15% of all Eligible Receivables, to the extent of such excess;
(ix) the account debtor disputes liability or makes any claim with respect
thereto (up to the amount of such liability or claim), or is subject to any
insolvency or bankruptcy proceeding, or becomes insolvent, fails or goes out of
a material portion of its business; (x) the amount thereof consists of late
charges or finance charges; (xi) the amount thereof consists of a credit balance
more than ninety (90) days past due; (xii) the face amount thereof exceeds
$10,000, unless accompanied by the invoice and evidence of shipment of the goods
relating thereto in each case satisfactory to FINOVA in its Permitted
Discretion; (xiii) the invoice constitutes a progress billing on a project not
yet completed, except that the final billing at such time as the matter has been
completed and delivered to the customer may be deemed an Eligible Receivable;
(xiv) the amount thereof is not yet represented by an invoice or bill issued in
the name of the applicable account debtor; (xv) the amount thereof is
denominated in or payable with any currency other than U.S. Dollars; or (xvi)
such Receivable is not at all times subject to FINOVA's duly perfected first
priority security interest.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's
-7-
<PAGE> 21
operations or owned by Borrower and any interest in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions, additions
or improvements to any of the foregoing, wherever located.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to FINOVA
prior to the date hereof.
"GUARANTOR" means each of the entities from which Guaranties are
required pursuant to the Schedule.
"INDEBTEDNESS" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases), or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred tax liabilities.
"INDEBTEDNESS FOR BORROWED MONEY" means without duplication, all
Indebtedness: (i) in respect of borrowed money (including, without limitation,
pursuant to the Loan Documents or any Capital Leases), (ii) evidenced by a note,
debenture, or other like written obligation to pay money (including, without
limitation, all interest on the Obligations), (iii) for the deferred purchase
price of property (other than trade payables arising in the ordinary course of
business), or (iv) in respect of obligations under conditional sales or other
title retention agreements, and all guaranties of any or all of the foregoing.
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials, work
in process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"LIEN" means any mortgage pledge, assignment, lien, charge, encumbrance
or security interest of any kind, or the interest of a vendor or lessor under
any conditional sale agreement, Capitalized Lease or title retention agreement.
"LOAN DOCUMENTS" means, collectively, this Agreement, any note or notes
executed by Borrower and payable to FINOVA, and any other present or future
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"LOAN PARTY" means Borrower, each Guarantor and each other party (other
than FINOVA), to any Loan Document.
"LOAN RESERVES" has the meaning assigned in Section 2(a) of the
Agreement.
"LOAN YEAR" means each twelve month period commencing on the Closing
Date.
"NET WORTH" at any date means the Borrower's net worth as determined in
accordance with GAAP.
"OBLIGATIONS" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by FINOVA in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, Examination Fees, Collateral Monitoring Fees, Facility Fees,
Termination Fees, and any other sums chargeable to Borrower hereunder or under
any other agreement with FINOVA.
- 8 -
<PAGE> 22
"PERMITTED DISCRETION" means FINOVA's judgment exercised in good faith
based upon its consideration of any factor which FINOVA believes in good faith:
(i) will or could adversely affect the value of any Collateral, the
enforceability or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral; (ii) suggests that
any collateral report or financial information delivered to FINOVA by any Person
on behalf of the Borrower is incomplete, inaccurate or misleading in any
material respect; (iii) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrower, any Loan
Party or any of the Collateral, or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment, FINOVA may consider
such factors already included in or tested by the definition of Eligible
Receivables or Eligible Inventory, as well as any of the following: (i) the
financial and business climate of the Borrower's industry and general
macroeconomic conditions, (ii) changes in collection history and dilution with
respect to the Receivables, (iii) changes in demand for, and pricing of,
Inventory, (iv) changes in any concentration of risk with respect to Receivables
and/or Inventory, and (v) any other factors that change the credit risk of
lending to the Borrower on the security of the Receivables and Inventory. The
burden of establishing lack of good faith hereunder shall be on the Borrower.
"PERMITTED ENCUMBRANCE" means each of the liens, mortgages and other
security interests set forth on the Loan Schedule.
"PERMITTED LIENS" means any of the following Liens: (i) Liens in the
Collateral granted to FINOVA; (ii) Liens for taxes or assessments and similar
charges, which either are (a) not delinquent or (b) being contested diligently
and in good faith by appropriate proceedings, and as to which Borrower has set
aside reserves on its books in accordance with GAAP; (iii) statutory Liens, such
as mechanic's, materialman's, warehouseman's, carrier's or other like Liens,
incurred in good faith in the ordinary course of business, provided that the
underlying obligations relating to such Liens are paid in the ordinary course of
business, or are being contested diligently and in good faith by appropriate
proceedings and as to which Borrower has set aside reserves on its books in
accordance with GAAP, or the payment of which obligations are otherwise secured
in a manner satisfactory to FINOVA; (iv) zoning ordinances, easements, licenses,
reservations, provisions, covenants, conditions, waivers or restrictions on the
use of Property and other title exceptions, in each case, that are acceptable to
FINOVA; (v) Liens to secure payment of insurance premiums (a) to be paid in
accordance with applicable laws in the ordinary course of business relating to
payment of worker's compensation, or (b) that are required for the participation
in any fund in connection with worker's compensation, unemployment insurance,
old-age pensions or other social security programs; and (vi) Permitted
Encumbrances.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), proceeds of any letters of
credit naming Borrower as beneficiary, contract rights, chattel paper,
instruments, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, whether secured or
unsecured, all merchandise returned to or repossessed by Borrower, and all
rights of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
-9-
<PAGE> 23
TABLE OF CONTENTS
1. DEFINITIONS ..................................2
-----------
2. LOANS; INTEREST RATE AND OTHER CHARGES .......2
--------------------------------------
3. SECURITY .....................................4
--------
4. CONDITIONS OF CLOSING ........................4
---------------------
5. BORROWER REPRESENTATIONS AND COVENANTS .......5
--------------------------------------
6. INTENTIONALLY LEFT BLANK. ....................8
-------------------------
8. EXPENSES AND INDEMNITIES ....................10
------------------------
9. MISCELLANEOUS. . ............................10
----------------
LOAN SCHEDULE ....................................1
DEFINITION SCHEDULE .............................10
-11-
<PAGE> 24
SCHEDULE A
----------
HMI INDUSTRIES, INC. PATENTS
----------------------------
U.S. Patent No. Date Issued Related Foreign Patents or Patent
- --------------- ----------- ---------------------------------
Applications
------------
4,199,839 April 29, 1980 Canada, Australia, Belgium, Spain,
France, Great Britain, Japan
4,225,999 October 7, 1980 Canada, Belgium, France, Great
Britain, Australia, Spain, Japan
Des. 345,413 March 22, 1994 Canada
5,658,362 August 19, 1997 None
5,593,479 January 14, 1997 None
5,651,811 July 29, 1997 None
5,641,343 June 24, 1997 None
5,248,323 September 28, 1993 None
5,515,573 May 14, 1996 None
5,522,908 June 4, 1996 None
5,603,741 February 18, 1997 None
HMI INDUSTRIES, INC. PATENT APPLICATIONS
----------------------------------------
U.S. Patent Application No. Status Date Applied
- --------------------------- ------ ------------
879/883 Allowed/Not yet issued June 20, 1997
670,548 Abandoned June 27, 1996
387,475 Abandoned February 13, 1995
820,151 Abandoned March 19, 1997
000,536 Abandoned October 16, 1992
239,583 Abandoned May 9, 1994
09/032,589 Pending/Not yet issued February 27, 1998
6
<PAGE> 25
SCHEDULE B
----------
HMI INDUSTRIES, INC. COPYRIGHT REGISTRATIONS
--------------------------------------------
Registration No. Date
- ---------------- ----
N/A N/A
HMI INDUSTRIES, INC. COPYRIGHT APPLICATIONS
-------------------------------------------
Copyright Description Copyright Application No. Date Applied
- --------------------- ------------------------- ------------
N/A N/A N/A
7
<PAGE> 26
SCHEDULE C
----------
HMI INDUSTRIES, INC. TRADEMARK REGISTRATIONS
--------------------------------------------
<TABLE>
<CAPTION>
Mark Registration No. Date
- ---- ---------------- ----
<S> <C> <C>
5-in-1 2,024,542 December 17, 1996
Captiva 2,034,466 January 28, 1997
Captiva 1,980,046 June 11, 1996
Comfort Lounger 1,944,528 December 26, 1995
Defender 2,050,553 April 8, 1997
Easy-Way 2,070,754 June 16, 1997
Elektrapure 2,010,472 October 22, 1996
Empress 1,973,733 May 14, 1996
Enviropure 1,810,559 December 14, 1993
Filter Queen 378,297 June 4, 1940
Filter Queen & Crown Design 663,742 July 1, 1958
Filter Queen & Crown Design 666,268 August 26, 1958
Filter Queen & Crown Design 663,256 June 17, 1958
Filter Queen Pow-R Clean-Up & 1,111,650 January 23, 1979
Team Design
Groomex 1,754,460 February 23, 1993
Health-Mor 1,753,732 February 23, 1993
Home Impressions 1,949,110 January 16, 1996
Majestic 1,866,813 December 13, 1994
Medi-Filter 2,062,855 May 20, 1997
Mini Pow-R-Nozzle 1,838,584 June 7, 1994
Miscellaneous Design "Bird Logo" 2,033,003 January 21, 1997
Miscellaneous Design "Cone Dude" 1,815,375 January 4, 1994
Optima 1,959,113 February 27, 1996
Optima 1,954,029 February 6, 1996
Optima Plus 2,000,968 September 17, 1996
Princess 1,941,266 December 12, 1995
Seal-Guard 1,287,898 July 31, 1984
Triangle in a Circle 1,593,851 May 1, 1990
Triple Crown 1,996,371 August 27, 1996
Vacuum Cleaner Design 1,976,252 May 28, 1996
Vacu-Queen 1,452,976 August 18, 1987
Vista 1,790,181 August 31, 1993
HMI INDUSTRIES, INC. TRADEMARK APPLICATIONS
-------------------------------------------
Mark Trademark Application No. Date Applied
- ---- ------------------------- ------------
MediPure 75/446032 March 9, 1998
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 18,491
<SECURITIES> 0
<RECEIVABLES> 3,497,715
<ALLOWANCES> 836,099
<INVENTORY> 3,160,489
<CURRENT-ASSETS> 6,846,182
<PP&E> 5,228,439
<DEPRECIATION> 4,156,039
<TOTAL-ASSETS> 17,135,246
<CURRENT-LIABILITIES> 6,861,764
<BONDS> 0
0
0
<COMMON> 5,368,556
<OTHER-SE> 4,609,308
<TOTAL-LIABILITY-AND-EQUITY> 17,135,246
<SALES> 27,402,275
<TOTAL-REVENUES> 27,757,889
<CGS> 18,701,015
<TOTAL-COSTS> 29,432,637
<OTHER-EXPENSES> 2,664,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,509
<INCOME-PRETAX> (4,396,831)
<INCOME-TAX> 58,000
<INCOME-CONTINUING> (4,454,831)
<DISCONTINUED> (375,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,829,8310)
<EPS-BASIC> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
