-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oenj5Vbr8mWAIabZuYsjnqfLJj4XVRoWilcuJr420loBdy7fhv7G3FDI7fo/nDiC x6K++9oK+xUlgqW9zuCmTA== 0000950152-98-004603.txt : 19980518 0000950152-98-004603.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950152-98-004603 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMI INDUSTRIES INC CENTRAL INDEX KEY: 0000046445 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 361202810 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-30905 FILM NUMBER: 98622810 BUSINESS ADDRESS: STREET 1: 3631 PERKINS AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2164321990 MAIL ADDRESS: STREET 1: 3631 PERKINS AVENUE CITY: CLEVELAND STATE: OH ZIP: 44114 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH MOR INC DATE OF NAME CHANGE: 19920703 10-Q 1 HMI INDUSTRIES 10-Q 1 ================================================================================ 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 MARCH 31, 1998 -------------- 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 April 27, 1998 ------------------------------- ----------------------------- Common stock, $1 par value per share 5,357,222 ================================================================================ 2 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED BALANCE SHEET MARCH 31, 1998 AND SEPTEMBER 30, 1997
(Unaudited) March 31, September 30, 998 1997 - --------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 905,972 $ 239,797 Trade accounts receivable (net of allowance of $4,819,349 and $5,512,063) 7,477,577 10,357,999 Finance contracts receivable 441,243 496,044 Notes receivable 440,112 228,414 Inventories 4,893,375 4,152,858 Income tax receivable -- 3,373,898 Deferred income taxes 4,067,337 8,239,080 Prepaid expenses 141,641 123,099 Other current assets 1,183,051 83,307 Net assets held for sale at realizable value 89,066 12,900,184 --------------- ---------------- Total current assets 19,639,374 40,194,680 --------------- ---------------- PROPERTY, PLANT AND EQUIPMENT, NET 5,432,814 6,194,868 --------------- ---------------- OTHER ASSETS: Cost in excess of net assets of acquired businesses (net of amortization of $2,633,892 and $2,511,140) 6,600,897 6,735,578 Unamortized trademarks 373,351 339,823 Finance contracts receivable (less amounts due within one year) 882,487 992,090 Other 25,648 133,094 --------------- ---------------- Total other assets 7,882,383 8,200,585 --------------- ---------------- Total assets $ 32,954,571 $ 54,590,133 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $ -- $ 480,822 Trade accounts payable 6,666,681 6,939,040 Income taxes payable 1,529,389 1,349,163 Accrued expenses and other liabilities 5,187,349 8,125,620 Long-term debt due within one year 122,831 20,464,632 --------------- ---------------- Total current liabilities 13,506,250 37,359,277 --------------- ---------------- LONG-TERM LIABILITIES: Long-term debt (less amounts due within one year) 412,878 762,777 Deferred income taxes 264,052 573,613 Other 1,162,264 1,342,961 --------------- ---------------- Total long-term liabilities 1,839,194 2,679,351 --------------- ---------------- STOCKHOLDERS' EQUITY: Preferred stock, $5 par value; authorized, 300,000 shares; issued, none -- -- Common stock, $1 par value; authorized, 10,000,000 shares; issued, 5,295,556 shares 5,295,556 5,295,556 Capital in excess of par value 9,502,019 8,050,212 Unearned compensation (1,072,613) (191,500) Retained earnings 6,083,143 4,077,771 Cumulative translation adjustment (973,450) (1,418,762) --------------- ---------------- 18,834,656 15,813,277 Less treasury stock 261,560 shares, at cost 1,225,529 1,261,772 --------------- ---------------- Total stockholders' equity 17,609,127 14,551,505 =============== ================ Total liabilities and stockholders' equity $ 32,954,571 $ 54,590,133 =============== ================
See accompanying notes to consolidated condensed financial statements. 1 3 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------ --------------------------- REVENUES: Net product sales $10,195,589 $13,557,785 $19,106,779 $ 28,008,528 Financing revenue and other 86,315 167,535 186,640 337,680 ----------- ----------- ----------- ------------ 10,281,904 13,725,320 19,293,419 28,346,208 OPERATING COSTS AND EXPENSES: Cost of products sold 6,837,731 10,101,448 12,968,225 19,478,793 Selling, general and administrative expenses 5,876,063 8,200,700 11,228,821 13,753,046 Interest expense 755,009 498,947 1,287,684 1,044,032 Other expenses 103,332 104,275 119,189 218,934 ----------- ----------- ----------- ------------ Total expenses 13,572,135 18,905,370 25,603,919 34,494,805 ----------- ----------- ----------- ------------ Loss before income taxes (3,290,231) (5,180,050) (6,310,500) (6,148,597) Benefit for income taxes (923,171) (2,021,254) (1,838,613) (2,332,322) ----------- ----------- ----------- ------------ LOSS BEFORE DISCONTINUED OPERATIONS (2,367,060) (3,158,796) (4,471,887) (3,816,275) ----------- ----------- ----------- ------------ Income (loss) from discontinued operations - Household Rental Systems (net of taxes of $-0-, $-0-, $-0- and $-0-) (252,022) (254,547) 10,196 (134,703) Bliss Manufacturing (net of taxes of $152,045, $308,706, $137,348 and $644,077) (248,073) 503,792 224,094 1,050,863 Bliss Tubular (net of taxes of $-0-, $65,357, $-0- and $67,728) - (106,634) - (110,503) Tube Fab Ltd (net of taxes of $-0-, $-0-, $128,733 and $-0-) (2,697) 135,990 207,341 183,092 Health-Mor Personal Care Corp. (net of taxes of $-0-, $83,849, $-0- and $191,512) - (136,806) - (312,467) ----------- ----------- ----------- ------------ (502,792) 141,795 441,631 676,282 ----------- ----------- ----------- ------------ Gain (loss) on disposals- Household Rental Systems (net of taxes of $-0-, $-0-, $-0- and $-0-) 436,889 - 436,889 - Bliss Manufacturing (net of taxes of $6,017,199, $-0-, $6,017,199 and $-0-) 6,093,058 - 6,093,058 - Tube Fab Ltd (net of taxes of $183,269, $-0-, $183,269 and $-0-) (299,019) - (299,019) - Health-Mor Personal Care Corp. (net of taxes of $119,700, $-0-, $119,700 and $-0-) (195,300) - (195,300) - ----------- ----------- ----------- ------------ 6,035,628 - 6,035,628 - =========== =========== =========== ============ NET INCOME (LOSS) $ 3,165,776 $(3,017,001) $ 2,005,372 $ (3,139,993) =========== =========== =========== ============ Weighted average number of shares outstanding, basic and diluted 5,034,034 4,929,534 5,033,059 4,924,414 =========== =========== =========== ============ BASIC AND DILUTED PER SHARE OF COMMON STOCK: Loss before discontinued operations $ (0.47) $ (0.64) $ (0.89) $ (0.77) Loss (income) from discontinued operations $ (0.10) $ 0.03 $ 0.09 $ 0.14 Gain on disposals $ 1.20 $ -- $ 1.20 $ -- =========== =========== =========== ============ Net income (loss) $ 0.63 $ (0.61) $ 0.40 $ (0.63) =========== =========== =========== ============ Cash dividends per common share $ - $ - $ - $ - =========== =========== =========== ============
See accompanying notes to consolidated condensed financial statements. 2 4 HMI INDUSTRIES INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited)
1998 1997 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,005,372 $ (3,139,993) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 906,254 1,470,202 Gain on disposal of discontinued operations, net (6,035,628) - Amortization of stock awards, net 606,938 - Provision for loss on asset write-down - 160,000 Provision for losses on receivables - 1,906,721 Deferred income taxes 3,872,574 (533,299) Changes in operating assets and liabilities: Decrease (increase) in receivables 685,761 (1,625,594) (Increase) decrease in inventories (1,739,442) 2,457,037 Decrease in prepaid expenses 63,523 796,962 Increase in other current assets (91,088) - Decrease in accounts payable (1,162,290) (725,482) (Decrease) increase in accrued expenses and other liabilities (1,240,996) 972,993 Decrease in income taxes payable (2,000,475) (49,290) Other, net 358,992 145,460 ----------------------------------- Net cash (used in) provided by operating activities (3,770,505) 1,835,717 ----------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of businesses, net of transaction expenses of $5,229,344 25,724,406 1,120,916 Capital expenditures (110,841) (579,519) ----------------------------------- Net cash provided by investing activities 25,613,565 541,397 ----------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from credit facility 22,953,000 380,000 Payment of credit facility (39,258,219) - Payment of long term debt (4,871,666) (2,891,988) ----------------------------------- Net cash used in financing activities (21,176,885) (2,511,988) ----------------------------------- Net increase (decrease) in cash and cash equivalents 666,175 (134,874) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 239,797 472,408 ----------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 905,972 $ 337,534 ===================================
See accompanying notes to consolidated condensed financial statements. 3 5 PART I - ITEM 1 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS In the opinion of HMI Industries, Inc. (the "Company"), these consolidated condensed financial statements contain all of the adjustments necessary to present fairly the financial position as of March 31, 1998 and the results of operations for the three and six months ended March 31, 1998 and 1997, and cash flows for the six months ended March 31, 1998. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS FOR PREPARATION OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements included in this report have been prepared, without audit, by 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. It is suggested that these consolidated condensed financial statements, which are subject to year-end audit adjustments, be read in conjunction with the Company's latest Annual Report on Form 10-K, as amended. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION In January 1998, accrued severance in the amount of $1,523,500, relating to the settlement transaction with Mr. Foley, the Company's former CEO, was applied to the loss on disposal reserve for the Tube-Fab Ltd. sale in connection with the transfer of Tube-Fab Ltd. in settlement of the Company's obligations to him. Also during the quarter, the Company relinquished land and a building in the amount of $523,400 and the related mortgage of $316,500 in exchange for an increase in a note receivable due from an officer of the Company (see Related Party Transactions). RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the fiscal 1998 presentation. 4 6 EARNINGS PER SHARE Earnings per share have been computed according to Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Because all common stock equivalents are anti-dilutive as of March 31, 1998 and 1997, the denominators for calculating the Company's basic and diluted earnings per share are identical. 2. DISCONTINUED OPERATIONS On January 8, 1998 the Company completed the sale of its Tube-Fab Ltd entity (see Related Party Transactions). An additional loss on disposal of $482,300 ($299,000 net of taxes) was recorded during the quarter. On March 27, 1998, the Company completed the sale of Bliss Manufacturing Company ("Bliss") to an investor group led by Mervin Dunn and Rhone Capital, LLC. The purchase price was $31,660,000 and is subject to post-closing adjustments. The purchase agreement contains a mechanism to adjust the final sales price at closing based upon the net change in current assets less current liabilities. The final purchase price adjustment will not be known until completion of the audit of the closing balance sheet, which is due to the Buyer sixty days after closing. Net of transaction fees and expenses the Company recorded a gain on the sale of Bliss of approximately $12,110,300 ($6,093,100 net of taxes). The difference between the federal statutory income tax rate of 34% and the effective tax rate recognized on the gain on the sale of Bliss is primarily attributable to a permanent tax basis difference associated with the Company's stock purchase of Bliss in 1990. Proceeds from the sale were applied to the retirement of substantially all of the Company's debt, certain vendor obligations, transaction costs and related expenses, certain employee benefit payments, and funding for Bliss profit sharing. On March 31, 1998, the Company completed the sale of certain assets of Household Rental Systems (HRS) to the Integrated Capital Management Group for $1,050,000. This amount was recorded in other current assets on the consolidated condensed balance sheet and is treated as a non-cash item in the consolidated condensed statement of cash flows as these proceeds were not received until April 1998. Assets sold primarily consisted of inventory, fixed assets, and other intangible assets relating to the carpet and upholstery cleaning business. Net of transaction expenses and fees, the Company recorded a gain from the sale of $436,900. On April 29, 1998, the Company sold substantially all the assets of Health-Mor Personal Care Corporation (HMPCC), its marketer of the AdvantaJet needle-free insulin injector and other health care products. These assets were sold to Eidolon Corporation, a Canadian company, for $89,100. As a result of the sale, the Company has recorded an additional loss on disposal of $315,000 ($195,300 net of taxes) for the quarter ended March 31, 1998. Sales applicable to the discontinued operations were $16,665,100 and $18,453,400 and $34,174,600 and $35,945,700 for the three and six months ended March 31, 1998 and 1997, respectively. 5 7 3. INVENTORIES Inventories at March 31, 1998 and September 30, 1997 consist of the following:
March 31, September 30, ---------- ---------- Finished goods $3,619,380 $2,438,282 Work-in-progress, raw materials and supplies 1,273,995 1,714,576 ---------- ---------- $4,893,375 $4,152,858 ========== ==========
4. DEBT Upon the completion of the sale of Bliss Manufacturing, the Company retired its debt to Star Bank under the terms of the amended and restated credit agreement entered into in June 1997 including interest and fees ($19,636,100), the special term loan entered into in December of 1997 ($2,000,000) and paid off equipment leases at Bliss Manufacturing ($410,000). Additionally, the Company received additional financing of $1,200,000 from the bank upon the filing of its fiscal 1997 tax return in January 1998. Upon receipt of the refund from the fiscal 1997 tax return ($3,600,000), the principal amount of $1,200,000 was repaid plus fees and interest. The remainder of the tax refund was used to fund working capital requirements. Also upon the sale of Bliss, the Company made the final payment of $1,748,800 on the unsecured, 9.86%, seven year private placement term notes, paid off the Australian Unsecured Demand Authorization ($237,600), and made a repayment on all outstanding amounts under the bank credit facility utilized by the Netherlands operation ($431,900). Effective April 1998, the Company entered into a $5,000,000 credit facility with Heller Financial, Inc. The new credit agreement expires in April 2001 and requires an unused facility fee, computed at .375% per annum on the unused revolving credit facility. The secured facility consists of a $4.25 million revolving credit line and a $.75 million term loan. Interest rates accrue at prime plus 1.25% on the revolving credit facility and at prime plus 1.50% for the term loan. No amounts are outstanding against this credit facility. 5. LONG-TERM COMPENSATION PLAN On March 25, 1998, restricted stock agreements were finalized with three of the Company's executives in lieu of a deferred bonus agreement outlined in fiscal year 1997. Each employee shall receive 85,200 shares of Common Stock subject to certain conditions and continued employment. The shares vest ratably over eight quarters beginning with the quarter ended March 31, 1998. The non-vested portion of the restricted stock awards are recorded as unearned compensation in the condensed consolidated balance sheet. 6 8 6. RELATED PARTY TRANSACTIONS In January 1998, the Company completed the transfer of Tube-Fab Ltd., a Canadian subsidiary, to former CEO Kirk W. Foley in settlement of its obligations to him. As a result of this transaction, the Company recorded an additional loss on disposal of $299,000, net of $183,300 of taxes. In 1995, the Company converted $750,000 of accounts receivable from a former Filter Queen distributor to notes receivable. This distributor is an officer of a majority owned subsidiary of the Company. In 1996, the officer contributed various assets and liabilities to the subsidiary in exchange for a reduction in the note receivable. The note receivable of $228,414 is reflected in current assets as a note receivable at September 30, 1997. During the quarter ended March 31, 1998, the Company relinquished land and a building in the amount of $523,400 and the related mortgage of $316,500 in exchange for an increase in the note receivable noted above. PART I - ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis contained in this section relates only to the continuing operations of the Company. RESULTS OF OPERATIONS NET PRODUCT SALES- Net product sales for the quarter ended March 31, 1998 decreased by $3,362,200 or 24.8% in the comparable quarter of fiscal 1997. Net product sales of $19,106,800 for the six months ended March 31, 1998 represent a decline of $8,901,700 or 31.8% compared to $28,008,500 for the six months ended March 31, 1997. The decrease in sales is due primarily to the distressed economic conditions in the Asian markets and lower sales in North America. Weak sales in the U.S. are attributable to a correction of high inventory levels in the distribution network, lower sales to end consumers and a reduction in the distributor base. Additionally, excess credit granted in prior years to the Company's distributors resulted in an overall deterioration of liquidity in the distribution network. Effective January 1, 1998, the Company instituted a cash basis policy for North American distributors which temporarily depressed sales, but over time should improve the fiscal health of the distribution network. Sales in Asia were adversely affected by economic conditions in that region and the devaluation of certain currencies, especially in Korea. FINANCING REVENUE AND OTHER INCOME- Financing revenues represent the interest and fees generated on the contracts financed by the Company's Australian, Canadian, and United States Subsidiaries. The decline in these revenues is consistent with the sales decrease experienced mainly in North America. 7 9 GROSS PROFIT- Gross profit for the quarter ended March 31, 1998 was $3,357,900 or 32.9 % as compared to $3,456,300 or 25.5% in the quarter ended March 31, 1997. Gross profit for the six months ended March 31, 1998 was $6,138,600 or 32.1% compared to $8,529,700 or 30.4% for the comparable period. The gross profit erosion from the volume shortfall was offset by improved efficiencies resulting from initiatives begun in the fourth quarter of fiscal 1997 to strengthen business processes, reduce costs, and improve quality. SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative costs decreased by $2,324,600 for the quarter ended March 31, 1998 versus the comparable quarter of fiscal 1997. Selling, general and administrative expenses for the six months ended March 31, 1998 were $2,524,200 lower than the comparable period in fiscal 1997. Included in these costs are severance charges of $239,000 related to the reduction of the Company's salaried personnel in January 1998. SG&A was higher as a percent of sales due to depressed volume in the first six months of 1998. The Company's cost reduction measures initiated in 1997 should continue to reduce selling, general and administrative costs in 1998. These include implementation of a cash basis policy for North American distributors effective January 1, 1998. While this policy has depressed sales temporarily, over time it should improve the Company's liquidity and strengthen the fiscal health of its distribution network. The reduction in the provision of credit resulting from this policy has and should continue to significantly reduce bad debt expense in 1998. INTEREST EXPENSE - Interest expense for the quarter ended March 31, 1998 was $256,000 higher than the comparable quarter due to higher outstanding balances on the revolving credit line and points for additional borrowings. The revolving credit line was retired from the proceeds of the Bliss sale (See Debt Footnote). Interest expenses for the six months ended March 31, 1998 was $1,287,700 compared to $1,044,032 for the six months ended March 31, 1998. DISCONTINUED OPERATIONS. The Company recorded pre-tax combined losses from Tube-Fab Ltd., and Health-Mor Personal Care Corp. of $2,700 for the quarter ended March 31, 1998 and a pre-tax combined income of $336,100 for the six months ended March 31, 1998 For the quarter ended March 31, 1998, the Company recorded a pre-tax loss from Bliss Manufacturing of $400,100 and pre-tax income for the six months ended March 31, 1998 of $361,400. The Company's steam cleaning business, Household Rental Systems, recorded a pre-tax loss of $252,000 in the quarter ended March 31, 1998 and pre-tax income of $10,200 for the six months ended March 31, 1998. Sales applicable to the discontinued operations for the quarters ended March 31, 1998 and March 31, 1997 were $16,665,100 and $18,453,400, respectively. For the six months ended March 31, 1998 and March 31, 1997 sales were $34,174,600 and $35,945,700, respectively. 8 10 YEAR 2000 - Customary computer programming changes, developed prior to the upcoming change in the century becoming a concern, have used two digits rather than four to identify the year in a date field. If not corrected, many computer applications may fail to treat year 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 failure 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. The Company has performed a detailed review and assessment of the impact of the Year 2000 issue on its continuing operations. In connection with this review, the Company has determined that the remaining costs to be incurred to address the Year 2000 issue subsequent to March 31, 1998 will not have a material impact on the Company's future operating results, financial condition, or cash flows. During fiscal 1997 and 1996, the Company implemented new information systems throughout its continuing operations which are Year 2000 compliant. The Company's remaining Year 2000 issue activities consist of replacing a minimal amount of older personal computer equipment and investigating the status of Year 2000 compliance for its major suppliers. While the Company is beginning to consider that inquiries might be appropriate to make of such other parties (principally of its suppliers and other providers) in these regards, there can be no assurance that the Year 2000 issues confronting such other parties and any failure on their part to timely address them will not have a material adverse effect on the Company. LIQUIDITY AND CAPITAL RESOURCES The working capital balance at March 31, 1998 was $6,133,100, an increase of $3,297,700 from the September 30, 1997 balance of $2,835,400. The Company's cash increased $666,200 during the six months ended March 31, 1998 from September 30, 1997. The decrease in receivables of $685,800 was due primarily to lower sales and tighter credit terms. Inventories increased by $1,739,400 due primarily to higher inventory levels at Bliss Manufacturing required to support higher sales levels in the second fiscal quarter. Accounts payable decreased by $1,162,300 primarily at Bliss Manufacturing due to an improving liquidity position. Accrued liabilities decreased $1,241,000 due primarily to a decrease in accrued commissions, group insurance, audit fees and other operating accruals. The aforementioned variances relate to information in the Consolidated Condensed Statement of Cash Flow in which items relating to discontinued operations have not been disaggregated as they have in the Consolidated Condensed Balance Sheet. On March 27, 1998, the Company completed the sale of 100% of Bliss Manufacturing Company to an investor group led by Mervin Dunn and Rhone Capital, LLC. Proceeds from the sale were applied to the retirement of substantially all of the Company's debt (see Debt Footnote), certain vendor obligations, transaction costs and related expenses, certain employee benefit payments, and funding for Bliss profit sharing. 9 11 The Company also expects to receive proceeds of $1,050,000 in connection with the sale of the Household Rental Systems business in the third quarter of fiscal 1998 and additional proceeds in connection with the sale of Bliss in either the third or fourth quarter of fiscal 1998, pending the finalization of a closing balance sheet audit. Effective April 1998, the Company entered into a $5,000,000 credit facility with Heller Financial, Inc. The new credit agreement expires in April 2001 and requires an unused facility fee, computed at .375% per annum on the unused revolving credit facility. The secured facility consists of a $4.25 million revolving credit line and a $.75 million term loan. Interest rates accrue at prime plus 1.25% on the revolving credit facility and at prime plus 1.50% for the term loan. No amounts are outstanding against this credit facility. The Company's principal sources of liquidity are expected to be funded with cash generated from operations and additional borrowings under the Company's credit facility referred to above. CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES REFORM ACT OF 1995 This report, including Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance as opposed to historical items and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature, including the statements made in "Net Product Sales" regarding the future fiscal health of the distribution network, "Selling, General and Administrative" pertaining to the cost reduction measures, fiscal health of the distribution network, and future reduction of bad debt expense and "Liquidity and Capital Resources" concerning proceeds that the Company expects to receive from the sale of its Household Rental Systems business and the finalization of the Bliss closing balance sheet. Such forward-looking statements are subject to certain uncertainties including the determination of the final purchase price from the sale of Bliss Manufacturing, and retention and rebuilding of the Consumer Products Division distribution network. Such uncertainties are difficult to predict and could cause actual results of the Company to differ materially from those matters expressed or implied by such forward-looking statements. 10 12 PART II - OTHER INFORMATION Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a.) INDEX TO EXHIBITS 10.00 Material Contracts Health-Mor Personal Care Corporation Purchase Agreement, attached 10.01 Material Contracts Loan and Security Agreement with Heller Financial, attached 10.02 Material Contracts Restricted Stock Agreements, attached 27.00 Financial Data Schedule (b.) REPORTS ON FORM 8-K On April 8, 1998, the Company filed a Form 8-K with the Commission, announcing the March 27, 1998 sale of its subsidiary Bliss Manufacturing to Rhone Capital, LLC. Pro-forma financial information was incorporated by reference to Schedule 14A filed with the SEC on March 12, 1998. 11 13 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: April 14, 1998 \s\ Michael Harper -------------- -------------------------- Vice President, Chief Financial Officer 12 EX-10 2 EXHIBIT 10 1 HMI INDUSTRIES INC. EXHIBIT 10.00 MATERIAL CONTRACTS HEALTH-MOR PERSONAL CARE CORP. PURCHASE AGREEMENT 2 Eidolon Corporation 6 Honeywell Place Toronto, Ontario M2L 1Y3 TO: Health-Mor Personal Care Corporation 185 East North Street, Bradley, Illinois U.S.A. 60915 1. Eidolon Corporation (the "Purchaser") hereby offers to purchase from you ("the Vendor"), on the terms, for the consideration and subject to the conditions hereinafter set forth, all of the undertaking, property and assets of the Vendor as at the time of the sale herein provided for (the "Purchased Assets"), save and except for those assets specifically excluded hereafter (the "Excluded Assets"), used in connection with the manufacture, assembly and sale of a needle-free injection system and parts and replacement parts therefore (the "Business") as a going concern, including without limiting the generality of the foregoing: (a) The goodwill of the Business carried on by the Vendor with the exclusive right to the Purchaser, or the assignee of the Purchaser, to represent itself as carrying on the same in continuation of and in succession to the Vendor and the right to Use any words indicating that the Business is so carried on together with the right to use the names and words "Activa", "AdvantaJet", "AdvantaJet ES" and "Gentlejet" or any variation thereof as part of the name of or in connection with the Business to be carried on by the Purchaser or such assignee; (b) All trade marks (together with the goodwill of the Business carried on in association with the wares for which such marks have been registered), trade names, copyrights, trade designs, inventions, patents and licenses (the Intellectual Property") connected with the Business of and belonging to the Vendor, all of such Intellectual Property to be listed on and described in Schedule "A" to be delivered by the Vendor as provided herein; (c) All dies, molds, machinery and equipment owned by the Vendor and used in connection with the Business (the "Equipment"), all of which will be listed on and be described in Schedule "B" (together with the location of such equipment) to be delivered by the Vendor as provided herein and the Vendor represents and warrants to the Purchaser that such Equipment is all that is necessary to carry on the Business; (d) All computers and computer programs, discs and related data used in connection with the Business which will be listed on and be described in Schedule "B" (together with the location of such equipment) to be delivered by the Vendor as provided herein; 3 2 (e) The benefit of all advertising and public relations developed by the Vendor or others for the Business, including, without limitation, the "1-800" number, the WebSite, brochures, manuals, industry contacts and associations, lead lists, sales information, warranty information and testimonials, market research and product data, product research and information concerning the competition; (f) All manuals or other materials concerning the assembly and packaging of the products; (g) All inventories of the Business, provided that such inventories are current and saleable; (h) All filing cabinets, Computer desks and stations, and all specialized equipment which will be listed on and be described in Schedule "B" (together with the location of such equipment) to be delivered by the Vendor as provided herein; (i) The full benefit of all existing warranty claims, if any, assignable contracts, commitments and engagements to which the Vendor may be entitled and the full benefit of all forward commitments assignable by the Vendor for supplies or materials whether or not there are any contracts with respect to the same, and (j) All other assets, including books, records and documentation of the Vendor used in connection with the Business save and except for the Excluded Assets. 2. The following assets are specifically excluded from the purchase and sale of the Business and as such are "Excluded Assets": (a) All real property, wherever situate, including the Vendor's premises at 185 East North Street, Bradley, Illinois, and all buildings, leasehold improvements or fixtures at the Vendor's premises; (b) All cash on hand or in the bank; (c) All shares, bonds, securities and obligations owned by the Vendor; and (d) All of the book and other debts due or accruing due to the Vendor, including receivables of the Vendor and the full benefit of all securities for such debts. 3. The consideration for the Purchased Assets (the "Purchase Price") shall be the aggregate of the following: (a) As to the inventories referred to in sub-paragraph 1(d) above, an amount equal to the book value of such assets as shown on the books of the Vendor as at the time of the completion of the sale herein provided for or such other amount as may be 4 3 mutually agreed upon by the Vendor and the Purchaser at or prior to the said time of completion; and (b) As to all of the rest of the Purchased Assets, the sum of $50,000.00. 4. In addition to the Purchase Price referred to above, the Vendor shall be entitled to receive up to an additional $3,000,000.00 during the five years following the date of closing, payable as follows: (a) Within thirty (30) days following each of the five (5) anniversaries following closing, the Purchaser shall provide the Vendor with a certificate, duly notarized or otherwise authenticated, confirming the total sales, for the twelve (12) month period ending on such anniversary, of the needle-free injection Systems (the "Systems") and the vial holders, not including those packaged with the Systems, (the "Vial Holders"), and the Vendor shall be entitled to receive the following: Number of Systems Sold Payment per System ---------------------- ------------------ First 2,500 $7.50 per System Next 1,000 $10.00 per System Next 1,500 $15.00 per System The balance $20.00 per System Plus, $0.05 for each Vial Holder sold. For the purposes of this sub-paragraph, a sale shall be deemed to have occurred on the sale, lease or other disposition for consideration of a System, other than for the purposes of demonstration. (b) The Purchaser shall calculate the aggregate owed to the Vendor from the sale of the Systems for such twelve (12) month period (the "Earn Out Amount"), and forward to the Vendor a check in an amount equal to the Earn Out Amount at the same time that the said certificate is sent to the Vendor. (c) The Vendor and/or its nominee may request access to the Purchaser's sales records to conduct a sales audit verification. Such request may be made once per year and shall provide the Purchaser with thirty (30) days notice of the date on which access is requested. Representatives of the Vendor and/or its nominee shall carry out their audit during normal business hours at the Purchaser's premises. (d) Provided that the obligation of the Purchaser to make such payments shall cease on the earlier of: 1) The date upon which the Vendor has received, in the aggregate, $3,000,000 in Earn Out Amount payments, and 2) The date the Vendor receives the certificate and payment referred to above for the five year following closing. 5 4 5. The Purchaser shall not assume any liabilities of the Vendor, including without limitation, any liability to any employees of the Vendor whatsoever and the Vendor shall hold the Purchaser harmless from and against all obligations, commitments or liabilities of or claims against the Vendor whether arising out of or in any way connected to the Business or otherwise except, where consented to in writing by the Purchaser prior to the Time of closing, the liability to pay for merchandise, materials and/or supplies contracted for by the Vendor in the ordinary course of business but neither delivered nor paid for prior to the time of closing under contracts or purchase orders to be listed on Schedule "C" hereto and delivered by the Vendor as provided herein. The Vendor shall also indemnify the Purchaser and save it harmless from and against any liabilities or claims to which the Purchaser may become subject as a result of non-compliance with "Bulk Sales" or similar legislation in Canada or the United States of America. The Purchaser undertakes, after closing, to use all reasonable efforts to provide service to persons who purchased a System from the Vendor; in the event, within two (2) years following closing, such persons who purchased a System assert a warranty claim in connection with a System or a Vial Holder, the Purchaser shall service such claim and thereafter be entitled to set off the cost of servicing claim against monies owing to the Vendor pursuant to Paragraph 4 above. 6. The Purchase Price payable hereunder shall be satisfied by delivery to the Vendor at the time of closing of a certified check in an amount equal to the Purchase Price. 7. Subject to the terms and conditions hereof, the sale and purchase herein provided for shall be closed at the offices of the Purchaser or the Purchaser's Counsel on the 15th day of April 15, 1998, or such earlier or later date as may be mutually agreed upon by the Purchaser and the Vendor, the actual date and time when the sale and purchase is closed being herein referred to as the "date of closing" or the "time of closing" respectively. 8. This offer and the agreement resulting from the acceptance of this offer are subject to the following conditions, and the Vendor, by its acceptance of this offer, agrees that it will perform and comply with or will cause to be performed and complied with such of the said conditions as relate to matters within its control: a) The Business shall be carried on in the ordinary course from the date hereof up to and until the time of closing; b) At the time of closing such officers and directors of the Vendor as the Purchaser may specify shall execute releases of all claims or demands against the Vendor; c) No substantial damage to the Purchased Assets will have occurred prior to the time of closing which in the opinion of the Purchaser would adversely affect the operations or earnings of the Business; 6 5 d) The Purchaser shall have entered into arrangements, satisfactory to it in its sole discretion, with Tube Fab Limited for the manufacture and assembly of the System; e) The sale of the Purchased Assets to the Purchaser on the terms, for the consideration and subject to the conditions set forth in this offer (subject to such amendments and/or additions and/or changes, if any, as may be approved by the Purchaser) shall have been duly and legally authorized by the Vendor; f) At the time of closing there shall be no actions, suits or proceedings (whether or not purportedly on behalf of the Vendor) pending or to the knowledge of the Vendor threatened against or affecting the Vendor at law or in equity or before any federal, state, municipal or other governmental, commission, board, bureau, agency or instrumentality, domestic or foreign; g) The Vendor is now and at the time of closing will be in good standing under all contracts and commitments in connection with the Business to which it is a party and entitled to all benefits thereunder; h) The Purchaser shall receive from its Counsel at or prior to the time of closing a favorable report with respect to all legal matters pertaining to the Vendor, the Business and the Purchased Assets and which in the opinion of such Counsel are material in connection with the sale and purchase herein provided for (including titles and the form and sufficiency of all documents, which contain the customary covenants, to be delivered to the Purchaser or its nominee at the time of closing pursuant to paragraph 12 hereof) and all relevant records and information shall be supplied to said Counsel for such purposes; and i) At the time of closing the Purchaser shall be furnished with such opinions of its Counsel and with such certificates, affidavits or declarations of officers of the Vendor as the Purchaser or Purchaser's Counsel may reasonably think necessary establishing that the above mentioned conditions have been satisfied and complied with. The foregoing conditions, (a) to (i) inclusive, are inserted for the sole and exclusive benefit of the Purchaser and may be waived in whole or in part by it at any time. In case any of the said conditions shall not be complied with in whole or in part before the time of closing the Purchaser may rescind the agreement resulting from the acceptance of this offer by notice to the Vendor and in such event the Purchaser shall be released from all obligations hereunder and under such agreement. 9. Up to the time of closing, the Vendor shall maintain fire, boiler, plate glass, public liability, property damage and any other customary forms of insurance covering the Purchased Assets which insurance in respect of loss or damage to property shall be for at least the value of such Purchased Assets. By its acceptance of this offer, the Vendor agrees that it will make the requisite arrangements with its insurers so that the 7 6 Purchaser shall be held covered in respect of loss in the same manner and to the same extent as the Vendor is covered. In the event of any loss, damage or claim in respect of any risk for which insurance is to be carried as aforesaid arising before the time of closing, the Purchaser, as a condition of closing, shall be entitled to be satisfied that the insurers recognize the claim of the Purchaser for payment in accordance with the terms of the policies. In addition, the Vendor will continue to maintain adequate product liability insurance, both until the time of closing, and thereafter for a period of two (2) years for all products manufactured or supplied by the Vendor prior to the date of closing. 10. Forthwith upon acceptance of this offer the Vendor shall make available to the Purchaser all abstracts of title, deeds, leases, certificates of registration of trade marks, designs, copyrights, patents and other title documentation its possession or under its control. Within seven (7) days after acceptance of this offer, the Vendor shall provide the Purchaser with Schedules "A" "B" and "C" referred to above. 11. At the time of closing, all lists of customers and prospective customers, all lists of suppliers and all other books, documents and data relating to the Business shall be delivered to the Purchaser. 12. The Vendor shall take and procure to be taken all proper steps, actions and corporate proceedings on its part to enable it at the time of closing to vest a good and marketable in the Purchaser to the Purchased Assets free of all liens and encumbrances and at the time of closing shall deliver to the Purchaser or its nominee such deeds of conveyance, assurances, transfers, bills of sale, assignments and consents and other documents as Counsel for the Purchaser may reasonably require. 13. Forthwith upon acceptance of this offer, the Vendor shall extend and furnish the necessary facilities, information and data to enable the Purchaser, at the expense of the Purchaser, to have the titles to the property of the Vendor examined. In addition, the Vendor shall permit the Purchaser and its representatives full and complete access to the Vendor's premises and all personnel, records and data in connection with the Business. 14. Within seven (7) days after acceptance of this offer, the Vendor shall furnish the Purchaser with a list of all contracts, commitments and engagements and shall thereafter forthwith make such contracts, commitments and engagements available for inspection by the Purchaser and its representatives. 15. The Vendor shall forthwith after the closing of the sale and purchase herein provided cease to carry on the Business. 16. All notices required or permitted to be given by the Purchaser or the Vendor to the other under the terms of this offer shall he deemed to be sufficiently given if: a) Delivered personally, in which case such notice shall be deemed received on the date of delivery, or 8 7 b) Mailed, registered pre-paid, in which case such notice shall be deemed received on the date of delivery, or c) Telefaxed, with the hard copy to follow by regular mail, in which case such notice shall be deemed delivered on the date of the telefax. 17. Time shall be of the essence of this offer and the agreement resulting from its acceptance. 18. This offer is open for acceptance by the Vendor in the manner indicated below only up to 12:00 o'clock noon, Eastern Standard Time, on the 12th day of March, 1998, and if not accepted at or prior to such time shall be null and void. 19. The Purchaser is making this offer as agent for a group of investors who intend to incorporate a company to take an assignment of this offer. On the incorporation of such a company and on the assignment of the agreement resulting from the acceptance of this offer, the word "Purchaser" as used herein shall be deemed to mean and include the said company so incorporated which shall be entitled to all the benefits of and shall be subject to the terms of this offer and the said agreement; and provided that such assignment is conditioned upon the assignee agreeing to comply with the provisions of sub-paragraph 4(a) hereof, Eidolon Corporation shall have no liability or obligations under this offer or the resulting agreement. 20. The Agreement resulting from the acceptance of this offer shall be governed by the laws of the State of Ohio. Any litigation arising from or related to this Agreement shall he brought and heard in a court of competent jurisdiction whose clerk of courts is located in Cuyahoga County, Ohio. If you wish to accept this offer please so indicate by signing and delivering the accompanying duplicate of this offer to the purchaser at the address noted above. Dated this 9th day of March, 1998 Eidolon Corporation, /s/ Clayton A. Hudson - ------------------------------- Clayton A. Hudson, President Health-Mor Personal Care Corporation hereby accepts the foregoing offer and covenants, promises and agrees to and with the above named Purchaser to Duly carry out the same on the terms and conditions therein mentioned. Dated this day of March, 1998 1 9 8 Health-Mor Personal Care Corporation /s/ Gary W. Moore - ------------------------- President /s/ Carl H. Young - -------------------------- Secretary In consideration of the sum of one ($1.00) Dollar now paid to the undersigned by the Purchaser, the receipt and sufficiency of which is hereby acknowledged; and in consideration of the Vendor being the wholly-owned subsidiary of the undersigned, the undersigned hereby guarantees to and unto the Purchaser that all of the debts and obligations of the Vendor which are outstanding at the time of closing will he discharged in a timely fashion following closing and the undersigned hereby indemnifies and saves harmless the Purchaser from and against its failure so to do. Dated 11th day of March, 1998 HMI Inc. /s/ Michael Harper - ---------------------- Vice President /s/ Carl H. Young - ----------------------- Asst. Secretary EX-10.01 3 EXHIBIT 10.01 1 HMI INDUSTRIES INC. EXHIBIT 10.01 MATERIAL CONTRACTS LOAN AND SECURITY AGREEMENT WITH HELLER FINANCIAL 2 LOAN AND SECURITY AGREEMENT This LOAN AND SECURITY AGREEMENT is dated as of April 23, 1998 and entered into among HMI INDUSTRIES, INC., a Delaware corporation with its principal place of business at 3631 Perkins Avenue, Cleveland, Ohio 44114 ("Borrower") and HELLER FINANCIAL, INC. a Delaware corporation, with offices at 500 West Monroe Street, Chicago, Illinois 60661 ("Lender"). The parties agree as follows: SECTION 1. DEFINITIONS 1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings: "ACCEPTABLE ACCOUNTS REPORTING DATE" means the date by which the Borrower has implemented acceptable reporting for Accounts in form and substance satisfactory to Lender and confirmed by an audit of the Accounts performed by Lender or its designee. "ACCOUNTS" means all "accounts" (as defined in the UCC), accounts receivable, contract rights and general intangibles relating thereto, notes, drafts and other forms of obligations owed to or owned by Borrower arising or resulting from the sale of goods or the rendering of services, whether or not earned by performance. "AFFILIATE" means any Person directly or indirectly controlling, controlled by, or under common control with Borrower or which has an officer who is also an officer of Borrower. "AGREEMENT" means this Loan and Security Agreement as it may be amended, restated, supplemented or otherwise modified from time to time. "AUSTRALIAN LINE OF CREDIT" means that certain line of credit with First National Bank of Chicago/First Chicago Australia LTD in an approximate amount of $200,000. "BASE RATE" means a variable rate of interest per annum equal to the higher of (a) the rate of interest from time to time published by the Board of Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal Reserve Statistical Release H. 15(519) entitled "Selected Interest Rates" or any successor publication of the Federal Reserve System reporting the Bank Prime Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. In the event the Board of Governors of the Federal Reserve System ceases to publish a Bank Prime Loan rate or its equivalent, the term "Base Rate" shall mean a variable rate of interest per annum equal to the highest of the "prime rate", "reference rate", "base rate", or other similar rate announced from time to time by any of the three largest banks located in New York City, New York (with the understanding that any such rate may merely be a reference rate and may not necessarily represent the lowest or best rate actually charged to any customer by any such bank). "BLISS" means Bliss Manufacturing Company, an Ohio corporation. "BLISS ACQUISITION" means the sale by Borrower of all of the stock of Bliss to an investor group for not less than $31,500,000. "BORROWER'S ACCOUNTANTS" means the independent certified public accountants selected by Borrower and reasonably acceptable to Lender. which selection shall not be modified during the term of this Agreement without Lender's prior written consent. "BUSINESS DAY" means any day excluding Saturday. Sunday and any day which is a legal holiday under the laws of the States of Ohio, Illinois or Pennsylvania, or is a day on which banking institutions located in any such state are closed. 3 "DEFAULT" means a condition, act or event that, after notice or lapse of time or both, would constitute an Event of Default if that condition, act or event were not cured or removed within any applicable grace or cure period. "DOMESTIC ACCOUNTS" means Accounts due from an account debtor whose principal place of business is located in the United States of America or Canada and owing in U.S. dollars. "EMPLOYEE BENEFIT PLAN" means any employee benefit plan within the meaning of SECTION 3(3) of ERISA which (a) is maintained for employees of any Loan Party or any ERISA Affiliate or (b) has at any time within the preceding six (6) years been maintained for the employees of any Loan Party or any current or former ERISA Affiliate. "ENVIRONMENTAL CLAIMS" means claims, liabilities, investigations, litigation, administrative proceedings, judgments or orders relating to Hazardous Materials. "ENVIRONMENTAL LAWS" means any present or future federal, state or local law, rule, regulation or order relating to pollution, waste, disposal or the protection of human health or safety, plant life or animal life, natural resources or the environment. "EQUIPMENT" means all "equipment" (as defmed in the UCC), including, without limitation, all furniture, furnishings, fixtures, machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts thereof and all additions and accessions thereto and replacements therefor. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA AFFILIATE", as applied to any Loan Party, means any Person who is a member of a group which is under common control with any Loan Party, who together with any Loan Party is treated as a single employer within the meaning of SECTION 414(b) and (c) of the IRC. "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the immediately following Business Day by the Board of Governors of the Federal Reserve System as the Federal Funds Rate in Federal Reserve Statistical Release H. 15(519) entitled "Selected Interest Rates" or any successor publication of the Federal Reserve System reporting the Federal Funds Effective Rate or its equivalent or, if such rate is not published for any Business Day, the average of the quotations for the day of the requested Loan received by Lender from three Federal funds brokers of recognized standing selected by Lender. "FOREIGN ACCOUNTS" means Accounts due from an account debtor whose principal place of business is located outside the United States of America and Canada (a) owing in U.S. dollars, and (b)(i) supported by an irrevocable letter of credit satisfactory to Lender (as to form, substance, and issuer) that has been delivered to Lender and is directly drawable by Lender, or (ii) covered bv credit insurance in form and amount and by an issuer, satisfactory, to Lender. "HAZARDOUS MATERIAL" means all or any of the following: (a) substances that are defined or listed in, or otherwise classified pursuant to, any Environmental Laws or regulations as "hazardous substances", "hazardous materials", "hazardous wastes", "toxic substances" or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, or toxicity; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or synthetic gas and drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (c) any flammable substances or explosives or any radioactive materials; and (d) asbestos in any form or electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls. 2 4 "HMAC" means Health Mor Acceptance Corp., a Delaware corporation. "HMAC Reserve" means, at any time, the aggregate amount determined by Lender to be owed by Borrower to Travelers in connection with Travelers' purchase of the HMAC financing portfolio. "HMPC" means Health-Mor Personal Care Corporation, a Delaware corporation. "HRS" means Household Rental Systems, a Canada corporation. "INTELLECTUAL PROPERTY" means all present and future designs, patents, patent rights and applications therefor, trademarks and registrations or applications therefor, trade names, inventions, copyrights and all applications and registrations therefor, software or computer programs, license rights, trade secrets, methods, processes, know-how, drawings, specifications, descriptions, and all memoranda, notes and records with respect to any research and development, whether now owned or hereafter acquired, all goodwill associated with any of the foregoing, and proceeds of all of the foregoing, including, without limitation, proceeds of insurance policies thereon. "INVENTORY" means all "inventory" (as defined in the UCC), "including, without limitation, finished goods, raw materials, work in process and other materials and supplies used or consumed in a Person's business, and goods which are returned or repossessed. "IRC" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "LOAN" or "Loans" means an advance or advances under the Revolving Loan or under any Note. "LOAN DOCUMENTS" means this Agreement, all Notes, all guaranties, the Mortgage and all other mortgages and deeds of trust, all subordination agreements or intercreditor agreements, and all other instruments, documents, notes and agreements executed by or on behalf of Borrower or any guarantor and delivered concurrently herewith or at any time hereafter to or for Lender in connection with the Loans and other transactions contemplated by this Agreement, all as amended, restated, supplemented or modified from time to time. "LOAN PARTY" means Borrower and any other Person (other than Lender) which is or becomes a Party to any Loan Document. "LOAN YEAR" means each period of twelve (12) consecutive months commencing on the closing date and on each anniversary thereof. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the business, operations, prospects, properties, assets or condition (financial or otherwise) of any Loan Party or (b) the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party or of Lender to enforce its security interests or collect any of the Obligations. "MORTGAGE" means that certain Mortgage, Security Agreement, Assignment of Rents and Financing Statement dated as of the date hereof by and between Borrower and Lender, as amended, restated, supplemented or otherwise modified from time to time. "NETHERLANDS LINE OF CREDIT" means that certain line of credit with Hollandsche Bank-Unie N.V. in an approximate amount of $400,000. "NOTES" mean all Promissory Notes made by Borrower to the order of Lender concurrently herewith or at any time hereafter. 3 5 "OBLIGATIONS" means all obligations, liabilities and indebtedness of every nature of Borrower from time to time owed to Lender whether under the Loan Documents or otherwise, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable including, without limitation, all interest, fees, cost and expenses accrued or incurred after the filing of any petition under any bankruptcy or insolvency law. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "PROCESSOR" means an independent third party that receives from Borrower Inventory from time to time, for value-added processing, which can be accomplished through their specialized capabilities or at a lower cost than Borrower. "REVOLVING LOAN" means the outstanding balance of all Revolving Advances and any amounts added to the principal balance of the Revolving Loan pursuant to this Agreement. "STAR BANK" means Star Bank, N.A. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "TRAVELERS" means Travelers Investment Corporation, a California corporation. "UCC" means the Uniform Commercial Code as in effect on the date hereof in the State of Illinois, as amended from time to time, and any successor statute. "UPS Shipped COD Accounts" means those Accounts owed by UPS and generated upon the delivery by UPS of Inventory, with cash on delivery terms ("COD"), to Borrower's customers and UPS's receipt of the COD funds. 1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with generally accepted accounting principles ("GAAP"). When used herein, the term "financial statements" shall include the notes and schedules thereto. Financial statements furnished to Lender shall be prepared in accordance with GAAP (as in effect at the time of such preparation) on a consistent basis. SECTION 2. REVOLVING LOAN AND COLLATERAL 2.1 REVOLVING LOAN. Upon Borrower's request made at any time during the term of this Agreement, Lender may, in its sole and absolute discretion, make advances to Borrower ("Revolving Advances") in an aggregate amount up to the lesser of (A)(i) after the Acceptable Accounts Reporting Date (x) 80% of the aggregate outstanding amount of Eligible Accounts, MINUS, (y) the HMAC Reserve. plus (ii) the lesser of (x) 50% of the aggregate value of Borrower's Eligible Inventory or (y) $2,500,000.00, or (B) $4,250,000.00 (the "Maximum Revolving Loan Amount"). 4 6 (A) ELIGIBLE COLLATERAL. "Eligible Accounts" means, as at any date of determination, the aggregate of all Accounts that Lender, in its sole judgment, deems to be eligible for borrowing purposes. Without limiting the generality of the foregoing, unless otherwise agreed by Lender, the following Accounts are not Eligible Accounts: (1) Accounts which, at the date of issuance, were payable more than 60 days after the date of issuance; (2) Accounts which remain unpaid for more than (a) 60 days for Domestic Accounts after the due date specified in the original invoice or for more than 90 days after invoice date if no due date was specified; (b) 120 days after due date or invoice date if no due date was specified for Foreign Accounts; and (c) 14 days for UPS Shipped COD Accounts; (3) Accounts due from any account debtor if more than 50% of the aggregate amount of Accounts of such account debtor have at the time remained unpaid for more than (a) 60 days after due date or 90 days after invoice date if no due date was specified for Domestic Accounts; and (b) 120 days after due date or invoice date if no due date was specified for Foreign Accounts; (4) Accounts with respect to which Borrower is or may become liable to the account debtor for goods sold or services rendered by the account debtor to Borrower and Accounts which are otherwise eligible with respect to which the account debtor is owed a credit by Borrower, but only to the extent of such credit; (5) Accounts due from an account debtor whose principal place of business is located outside the United States of America, unless such Account is a Foreign Account; (6) Accounts due from an account debtor which Lender has determined does not have a satisfactory credit standing; (7) Accounts with respect to which the account debtor is the United States of America, unless Borrower has, with respect to such accounts, complied with the Federal Assignment of Claims Act of 1940 as amended (31 U.S.C. Section 3727 et seq.), any state or any municipality, or any department, agency or instrumentality thereof; (8) Accounts with respect to which the account debtor is an Affiliate of Borrower or a director, officer, agent, stockholder or employee of Borrower or any of its affiliates; (9) Accounts with respect to which there is any unresolved dispute with the respective account debtor; (10) Accounts with respect to which Lender does not have a valid first priority and fully perfected security interest or Accounts that are subject to any claim, lien, security interest or encumbrance, except those in favor of Lender; (11) Accounts with respect to which the account debtor is the subject of any bankruptcy or other insolvency proceeding; (12) Accounts due from an account debtor to the extent that such Accounts exceed in the aggregate an amount equal to 15% of the aggregate of all Accounts at said date; (13) Accounts with respect to which the account debtor's obligation to pay is conditional or subject to a repurchase obligation or right to return or with respect to which the goods or services giving rise to such Account have not been delivered (or performed, as applicable) and accepted by such account 5 7 debtor, including progress billings, bill and hold sales, guarantied sales, sale or return transactions, sales on approval or consignment sales; and (14) Accounts with respect to which the account debtor is located in New Jersey or Minnesota, or any other state denying creditor& access to its courts in the absence of a Notice of Business Activities Report or other similar filing, unless Borrower has either qualified as a foreign corporation authorized to transact business in such state or has filed a Notice of Business Activities Report or similar filing with the applicable state agency for the then current year. "Eligible Inventory" means, as at any date of determination, the value (determined at the lower of cost or market) of all Inventory owned by and in the possession of Borrower and located in the United States of America that Lender, in its sole credit judgment, deems to be eligible for borrowing purposes. Without limiting the generality of the foregoing, unless otherwise agreed by Lender, the following is not Eligible Inventory: (a) work-in-process, components which are not part of finished goods, spare parts, packaging and shipping materials, literature, boxes, supplies and material used or consumed in Borrower's business; (b) reporting discrepancies for raw materials on the perpetual inventory system; (c) finished goods which do not meet the specifications of the purchase order for such goods; (d) Inventory which Lender determines, is unacceptable for borrowing purposes due to age, quality, type, category and/or quantity; (e) Inventory which Lender determines is obsolete or slow-moving; (f) Inventory with respect to which Lender does not have a valid, first priority and fully perfected security interest, bill-and-hold Inventory, and Inventory subject to any claim, lien, security interest or encumbrance except for those in favor of Lender; (g) Inventory produced in violation of the Fair Labor Standards Act and subject to the so-called "hot goods" provisions contained in Title 29 U.S.C. 215 (a)(i); (h) Inventory returned to, repossessed by, or stopped in transit by Borrower; and (i) Inventory located (1) at any location other than those identified pursuant to subsection 4.4, (2) outside the United States of America, or (3) on property not owned by Borrower in which a bailee, landlord or processor's waiver in form and substance satisfactory to Lender has not been obtained, for a list of approved processors see Schedule 2.1(A) attached hereto. (B) BORROWING MECHANICS. On any day when Borrower desires a Revolving Advance, Borrower shall give Lender telephonic notice of the proposed borrowing by 11:00 a.m. Central time. Any such telephonic notice shall be confirmed in writing on the same day. Lender shall not incur any liability to Borrower for acting upon any telephonic notice Lender believes in good faith to have been given by a duly authorized officer or other person authorized to borrow on behalf of Borrower or for otherwise acting in good faith. Lender will not make any Revolving Advance pursuant to any telephonic notice unless Lender has also received the most recent Borrowing Base Certificate and all other documents required pursuant to the Reporting Addendum by 11:00 a.m. Central time. Each Revolving Advance shall be deposited by wire transfer in immediately available funds in such account as Borrower may from time to time designate to Lender in writing. (C) NOTE[S]. Borrower shall execute and deliver to Lender such Notes as Lender may request in its sole discretion to evidence the Obligations. 2.2 INTEREST. (A) RATE OF INTEREST. Except where specified to the contrary in any Note or in any other Loan Document, the Loans and all other Obligations shall bear interest from the date such Loans are made or such other Obligations become due to the date paid at a rate per annum equal to the Base Rate plus 1.25% (the "INTEREST RATE"). After the occurrence and during the continuance of an Event of Default, the Loans and all other Obligations shall, at the option of Lender, bear interest at a rate per annum equal to 3.0%. plus the Interest Rate (the "DEFAULT RATE"). (B) COMPUTATION AND PAYMENT OF INTEREST. Interest on the Loans and all other Obligations shall be computed on the daily principal balance on the basis of a 360 day year for the actual number of days elapsed in the period during which it accrues and shall be payable to Lender monthly in arrears on the first day of each month. on the date of any prepayment of Loans, and at maturity, whether by acceleration or otherwise. 6 8 (C) INTEREST LAWS. Notwithstanding any provision to the contrary contained in this Agreement or any other Loan Document, Borrower shall not be required to pay, and Lender shall not be permitted to collect, any amount of interest in excess of the maximum amount of interest permitted by applicable law ("EXCESS INTEREST"). If any Excess Interest is provided for or determined by a court of competent jurisdiction to have been provided for in this Agreement or in any other Loan Document, then in such event: (1) the provisions of this subsection shall govern and control; (2) neither Borrower nor any other Loan Party shall be obligated to pay any Excess Interest; (3) any Excess Interest that Lender may have received hereunder shall be, at Lender's option, (a) applied as a credit against the outstanding principal balance of the Obligations or accrued and unpaid interest (not to exceed the maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any combination of the foregoing; (4) the interest rate(s) provided for herein shall be automatically reduced to the maximum lawful rate allowed from time to time under applicable law (the "MAXIMUM RATE"), and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed and modified to reflect such reduction; and (5) neither Borrower nor any Loan Party shall have any action against Lender for any damages arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any Obligations is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on such Obligations shall remain at the Maximum Rate until Lender shall have received the amount of interest which Lender would have received during such period on such Obligations had the rate of interest not been limited to the Maximum Rate during such period. 2.3 FEES. (A) CLOSING FEE. Borrower shall pay to Lender on the closing date, a closing fee in the amount of $25,000 which fee shall be fully earned, due and payable upon the execution and delivery of this Agreement. (B) COMMITMENT FEE. Borrower shall have paid and Lender shall have earned a non-refundable Commitment Fee of $50,000. On or after the closing date, the Commitment Fee shall be applied to the Closing Fee, and the excess credited to the opening outstanding balance under the Revolving Loan. (C) UNUSED LINE FEE. Borrower shall pay to Lender, a fee in an amount equal to 0.375% per annum on the average daily balance of the unused portion of the Revolving Loan during the preceding month, such fee to be calculated on the basis of a 360 day year for the actual number of days elapsed and to be payable monthly in arrears on the first day of each month following the closing date during the term of this Agreement, including all Renewal Terms. (D) EXAMINATION FEE. Borrower shall pay to Lender an examination fee for each examination equal to $750.00 per examiner per day or any portion thereof together with out-of-pocket expenses. Exams will be conducted on a quarterly basis. (E) LATE REPORTING FEE. Borrower shall pay to Lender a late reporting fee in an amount equal to $50.00 per document per day for each Business Day, any report, financial statement, schedule or other document required by this Agreement, to be delivered to Lender, as more fully set forth on the Reporting Addendum, is past due. The collection of such late reporting fee shall not constitute a waiver by Lender of any Default or Event of Default resulting from Borrower's failure to deliver such items on a timely basis, or in any way affect or impair Lender's right to impose the Default Rate as a result thereof. (F) OTHER FEES AND EXPENSES. Borrower shall pay to Lender, all charges for returned items and all other bank charges incurred by Lender, as well as Lender's standard wire transfer charges for each wire transfer made under this Agreement. 7 9 2.4 PAYMENTS AND PREPAYMENTS. (A) MANNER AND TIME OF PAYMENT. Borrower hereby authorizes Lender, in its sole discretion, to charge interest and other amounts payable hereunder to the Revolving Loan, all as set forth on Lender's books and records. If Lender elects to bill Borrower for any amount due hereunder, such amount shall be immediately due and payable with interest thereon as provided herein. All payments made by Borrower with respect to the Obligations shall be made without deduction, defense, setoff or counterclaim. All payments to Lender hereunder shall, unless otherwise directed by Lender, be made by wire transfer to Lender's account, ABA No.0710-0001-3, Account No. 5590116 at The First National Bank of Chicago, One First National Plaza, Chicago, IL 60670, Reference: Heller Commercial Funding for the benefit of HMI Industries, Inc.. Proceeds remitted to Lender shall be credited to the Obligations on the same Business Day such proceeds were received; PROVIDED HOWEVER, for the purpose of calculating interest on the Obligations, such funds shall be deemed received on the second Business Day thereafter. (B) MANDATORY PREPAYMENTS. At any time that the Revolving Loan exceeds the Maximum Revolving Loan Amount, Borrower shall, immediately repay the Revolving Loan to the extent necessary to reduce the principal balance to an amount equal to or less than the Maximum Revolving Loan Amount. (C) VOLUNTARY PREPAYMENTS AND REPAYMENTS. The Obligations may only be prepaid or repaid in full and not in part (other than prepayments of the Revolving Loan which do not terminate this Agreement or prepayments permitted under any Note). Borrower may, at any time upon not less than three Business Days' prior notice to Lender, prepay the Obligations and terminate this Agreement. If Borrower voluntarily prepays the Obligations in full (other than prepayments of the Revolving Loan which do not terminate this Agreement), Borrower, at the time of prepayment, shall pay to Lender, as compensation for the costs of being prepared to make funds available to Borrower under this Agreement, and not as a penalty, an amount determined by multiplying the applicable percentage set forth below by $4,250,000.00, 3.0% upon a prepayment during the first Loan Year; 2.0% upon a prepayment during the second Loan Year; and 1.0% upon a prepayment during the third Loan Year, and during any Renewal Term (as defmed below). (D) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest or fees due hereunder. 2.5 TERM OF THIS AGREEMENT. This Agreement shall be effective until April ___,2001 (the "ORIGINAL TERM") and shall automatically renew from year to year thereafter (each such year a "RENEWAL TERM") unless terminated by Borrower giving to Lender or Lender giving to Borrower not less than 60 days prior written notice of its intention to terminate at the end of the Original Term or at the end of any Renewal Term (the "TERMINATION DATE"). Upon termination (whether on the Termination Date or otherwise) all Obligations shall become immediately due and payable without notice or demand. Notwithstanding any termination, until all Obligations have been fully paid and satisfied, Lender shall be entitled to retain security interests in and liens upon all Collateral, and even after payment of all Obligations hereunder, certain of Lender's and Borrower's agreements and obligations shall survive such terminations as set forth in SUBSECTION 8.6. 2.6 STATEMENTS. Lender shall render a monthly statement of account to Borrower within twenty' (20) days after the end of each month. Such statement of account shall constitute an account stated and Borrower shall have fully and irrevocably waived all objections to such statements and the contents thereof unless Borrower makes written objection thereto within thirty (30) days from the date such statement is mailed to Borrower. 2.7 GRANT OF SECURITY INTEREST. To secure the payment and performance of the Obligations, Borrower hereby grants to Lender a continuing security' interest. lien and mortgage in and to all right. title and interest of Borrower in all personal and real property' of Borrower whether now owned or existing or hereafter acquired or arising and regardless of where located (all being collectively referred to as the "Collateral") including, without limitation: (A) Accounts. and all guaranties and security therefor, and all goods and rights represented thereby or arising therefrom including the rights of stoppage in transit. replevin and reclamation; (B) Inventory; (C) 8 10 general intangibles (as defined in the UCC); (D) documents (as defined in the UCC) or other receipts covering, evidencing or representing goods; (E) instruments (as defined in the UCC); (F) chattel paper (as defined in the UCC); (G) Equipment; (H) investment property (as defined in the UCC) including, without limitation, all securities (certificated and uncertificated), security accounts, securities entitlements, commodity contracts and commodity accounts; (I) Intellectual Property; (J) all deposit accounts of Borrower maintained with any bank or financial institution; (K) all cash and other monies and property of Borrower in the possession or under the control of Lender or any lender participant in any of the Loans; (L) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the property described above or are otherwise necessary or helpful in the collection thereof or realization thereon; and (M) proceeds of all or any of the property described above, including, without limitation, the proceeds of any insurance policies covering any of the above described property. SECTION 3. CONDITIONS TO LOANS The making of Loans by Lender on the closing date and on each funding date of a Revolving Advance are each subject to satisfaction of all of the conditions, agreements and covenants set forth in this Agreement and all of the conditions set forth in the Conditions Rider, attached hereto. SECTION 4. BORROWER'S REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS To induce Lender to enter into the Loan Documents, and to make and to continue to make Loans and/or provide other financial accommodations to or on behalf of Borrower, Borrower represents, warrants and covenants (as applicable) to Lender that the following statements are and will be true, correct and complete and shall remain so for so long as this Agreement shall be in effect and until payment in full of all Obligations. 4.1 DUE INCORPORATION, QUALIFICATION AND AUTHORIZATION. Borrower is duly organized and existing and in good standing under the laws of the State of Delaware and qualified and licensed to conduct business in all States where such qualifications or licensing is required; the execution, delivery and performance of this Agreement and the Loan Documents have been duly authorized and are not in contravention of any applicable law, Borrower's corporate charter or by-laws or any other formation document or any agreement or order by which Borrower is bound: Borrower is not, to the best of Borrower's knowledge, in violation of any law, ordinance, rule, regulation, order or other requirement of any government or any instrumentality or agency thereof. 4.2 DUE FINANCIAL CONDITION. All financial statements concerning Borrower and its Subsidiaries which have been or may hereafter be furnished by Borrower and its Subsidiaries to Lender have been or will be prepared in accordance with GAAP consistently applied throughout the periods involved and do or will present fairly Borrower's financial condition as at the dates thereof and the results of its operations for the periods then ended. 4.3 ACCOUNT WARRANTIES AND COVENANTS. As to each Account that, at the time of its creation, the Account is a valid, bona fide account, representing an undisputed indebtedness incurred by the named account debtor for goods actually sold and delivered or for services completely rendered: there are no rights of cancellation. setoffs, offsets or counterclaims, genuine or otherwise, against the Account: the Account does not represent a sale to an Affiliate or a consignment, sale or return or a bill and hold transaction; no agreement exists permitting any return, deduction or discount (other than the discount stated on the invoice); Borrower is the lawful owner of the Account and has the right to assign the same to Lender; the Account is free of all security interests. liens, claims and encumbrances other than those in favor of Lender, and the Account is due and payable in accordance with its terms. Borrower shall, at its own expense: (a) cause all invoices evidencing Accounts and all copies thereof to bear a notice that such invoices are payable to the lockboxes established in accordance with subsection 4.4 and (b) use its best efforts to assure prompt payment of all amounts due or to become due under the Accounts. No credits or allowances will be issued, granted or allowed by Borrower to account debtors and no returns will be accepted without Lender's prior written consent: PROVIDED HOWEVER, until the earlier of (i) the occurrence of a Default or Event of Default or (ii) such time as Lender notifies Borrower to the contrary. Borrower may presume consent. Borrower will immediately 9 11 notify Lender in the event that an account debtor alleges any dispute or claim in excess of $5,000 or in the aggregate amount in excess of $25,000 with respect to an Account except for Accounts with balances over 90 days as of March 31, 1998, or of any other circumstances known to Borrower that may impair the validity or collectibility of an Account. Lender shall have the right, at any time or times hereafter, to verify the validity, amount or any other matter relating to an Account, by mail, telephone or in person. After the occurrence of a Default or an Event of Default, Borrower shall not, without the prior consent of Lender, adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. 4.4 COLLECTION OF ACCOUNTS AND PAYMENTS. Borrower and Lender shall establish lockboxes and depository accounts ("LENDER'S DEPOSITORY ACCOUNTS") with such banks as are acceptable to Lender to which all account debtors shall directly remit all payments on Accounts and in which Borrower will immediately deposit all payments made for Inventory or other payments constituting proceeds of Collateral in the identical form in which such payment was made, whether by cash or check. Borrower hereby agrees that all payments received by Lender, whether by cash, check, wire transfer or any other instrument, made to such Lender Depository Accounts or otherwise received by Lender and whether on the Accounts or as proceeds of other Collateral or otherwise will be the sole and exclusive property of Lender. Borrower, and any of its Affiliates, employees, agents, or other Persons acting for or in concert with Borrower shall, acting as trustee for Lender, receive, as the sole and exclusive property of Lender, any monies, checks, notes, drafts or any other payments relating to and/or proceeds of Accounts or other Collateral which come into the possession or under the control of Borrower or any of Borrower's Affiliates, employees, agents or other Persons acting for or in concert with Borrower, and immediately upon receipt thereof, Borrower or such Persons shall remit the same or cause the same to be remitted, in kind, to the Lender Depository Account or to Lender at its address set forth in subsection 8.5 below. 4.5 NAMES AND LOCATIONS. Borrower currently conducts business or during the past five years conducted business under the following names, trade names, fictitious names and business names. The location of Borrower's principal place of business, the location of Borrower's books and records, the location of all other offices of Borrower and all collateral locations are as set forth below: LOCATIONS Principal Place of Business: 3631 Perkins Avenue, Cleveland, Ohio 44114 Books and Records: Same as principal place of business. Other: See Schedule 4.5 attached hereto. FORMER NAMES ------------ Health-Mor, Inc. TRADENAMES ---------- Home Impressions Such locations are Borrower's sole locations for its business and the Collateral. Borrower and each of its Subsidiaries will give Lender at least 30 days advance written notice of: (a) any change of name or of any new trade name or fictitious business name, (b) any change of principal place of business. (c) any change in the location of such party s books and records or the Collateral. or (d) any new location for such Person's books and records or the Collateral. 10 12 4.6 TITLE; LIENS; OPERATION OF BUSINESS. Borrower has and will continue to have good, marketable and legal title to the Collateral, free and clear of all liens, claims, security interests or encumbrances, except for the security interests granted to Lender by Borrower, those disclosed in writing by Borrower to Lender as of the closing date and any security interest which Bortower has disclosed in writing to Lender and to which Lender has given its written consent prior to being granted by Borrower. Borrower maintains and shall continue to maintain complete and accurate records with respect to all of its assets. Borrower maintains and shall continue to maintain all licenses, permits, franchises, approvals and consents as are required in the conduct of its business and the ownership and operation of its properties. 4.7 LITIGATION; ADVERSE FACTS. There are no judgments outstanding against or affecting Borrower, its officers, directors or affiliates or any of Borrower's property and there are no actions, charges, claims, demands, suits, proceedings, or governmental investigations now pending or threatened against Borrower or any of Borrower's property, except as set forth in Schedule 4.7 attached hereto. 4.8 PAYMENT OF TAXES. All material tax returns and reports of Borrower and each of its Subsidiaries required to be filed by any of them have been timely filed and are complete and accurate in all material respects. All taxes, assessments, fees and other governmental charges which are due and payable by Borrower and each of its Subsidiaries have been paid when due. Borrower will make timely payment or deposit of all F.I.C.A. payments and withholding taxes and will, upon request, furnish Lender with proof satisfactory to Lender that Borrower has made such required payments or deposits. As of the closing date, none of the income tax returns of Borrower or any of its Subsidiaries are under audit. No tax liens have been filed against Borrower or any of its Subsidiaries, except as set forth in Schedule 4.8 attached hereto. The charges, accruals and reserves on the books of Borrower and each of its Subsidiaries in respect of any taxes or other governmental charges are in accordance with GAAP. Borrower's federal tax identification number is 36-1202810. 4.9 EMPLOYEE BENEFIT PLANS. Borrower, each of its Subsidiaries and each ERISA Affiliate is in compliance, and will continue to remain in compliance, in all material respects with all applicable provisions of ERISA, the IRC and all other applicable laws and the regulations and interpretations thereof with respect to all Employee Benefit Plans. No material liability has been incurred by Borrower, any Subsidiaries or any ERISA Affiliate which remains unsatisfied for any funding obligation, taxes or penalties with respect to any Employee Benefit Plan. Neither Borrower nor any of its Subsidiaries shall establish any new Employee Benefit Plan or amend any existing Employee Benefit Plan if the liability or increased liability resulting from such establishment or amendment shall have a Material Adverse Effect. 4.10 ENVIRONMENTAL COMPLIANCE. Each Loan Party has been, is currently, and will continue to remain in compliance with all applicable Environmental Laws. There are no claims, liabilities, liens, investigations, litigation, administrative proceedings, whether pending or threatened, or judgments or orders relating to any Hazardous Materials asserted or threatened against any Loan Parry or relating to any real property currently or formerly owned, leased or operated by any Loan Party. 4.11 ABILITY TO PAY DEBTS. Borrower is now and shall be at all times hereafter able to pay its debts as they become due and shall have sufficient capital to enable it to operate its businesses. 4.12 DISCLOSURE. There is no event that has occurred nor any fact known by Borrower but not furnished to Lender, which will have or reasonably be expected to have a Material Adverse Effect. 4.13 INSURANCE. Borrower maintains, and will continue to maintain adequate insurance policies for public liability, property damage for its business and properties, product liability, including, without limitation, special product liability coverage for HMPC's needle-free injection products, and business interruption with respect to its business and properties against loss or damage of the kinds customarily carried or maintained by corporations of established reputation engaged in similar businesses and in amounts acceptable to Lender. Borrower shall cause Lender to be named as loss payee on all insurance policies relating to any Collateral and shall cause Lender to be ATL 11 13 named as additional insured under all liability policies, in each case pursuant to appropriate endorsements in form and substance satisfactory to Lender and shall collaterally assign to Lender as security for the payment of the Obligations all business interruption insurance of Borrower. No notice of cancellation has been received with respect to such policies and Borrower is in compliance with all conditions contained in such policies. Borrower shall apply any proceeds received from any policies of insurance relating to any Collateral to the Obligations. In the event Borrower fails to provide Lender with evidence of the insurance coverage required by or this Agreement, Lender may, but is not required to, purchase insurance at Borrower's expense to protect Lender's interests in the Collateral. This insurance may, but need not, protect Borrower's interests. The coverage purchased by Lender may not pay any claim made by Borrower or any claim that is made against Borrower in connection with the Collateral. Borrower may later cancel any insurance purchased by Lender, but only after providing Lender with evidence that Borrower has obtained insurance as required by this Agreement. If Lender purchases insurance for the Collateral, Borrower will be responsible for the costs of that insurance, including interest and other charges imposed by Lender in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the Obligations. The costs of the insurance may be more than the cost of insurance Borrower is able to obtain on its own. 4.14 ACCOUNTING METHODS; ACCESS TO ACCOUNTANTS. Borrower shall maintain its current method of accounting, as of the closing date, without modification. Borrower authorizes Lender to discuss the financial condition and financial statements of Borrower with Borrower's Accountants, and authorizes Borrower's Accountants to respond to all of Lender's inquiries and Borrower hereby waives the right to assert a confidential relationship, if any, it may have with Borrower's Accountants in connection with any information requested by Lender pursuant to or in accordance with this Agreement. 4.15 INSPECTION. Lender shall have the right at any time during normal business hours to visit and inspect any of the properties of Borrower or any of its Subsidiaries, and, in conjunction with such inspection, to make copies and take extracts from any of their books and records therefrom. 4.16 COLLECTION OF ACCOUNTS. Upon the occurrence of a Default or an Event of Default, Lender may, at any time, with or without notice to Borrower, notify all account debtors of Borrower that the Accounts have been assigned to Lender, and that Lender has a security interest in same; collect the Accounts directly, and add the collection costs and expenses to Borrower's loan account. 4.17 SUBSIDIARIES. As of the closing date, all Subsidiaries of Borrower are listed on Schedule 4.17 attached hereto. None of Borrower's Subsidiaries have assets in a greater amount than listed on Schedule 4.17. Borrower shall not transfer or advance any funds or property to, or make contributions to the capital of any of its Subsidiaries, or create any new Subsidiary. 4.18 YEAR 2000 COMPLIANCE. The Borrower has implemented a comprehensive program to address the "year 2000 problem" (that is. the risk that computer applications may not be able to properly perform datesensitive functions after December 31, 1999) and expect to resolve on a timely basis and, in any event, no later than January 31, 1999, any material "year 2000 problem". SECTION 5. REPORTING AND OTHER AFFIRMATIVE COVENANTS Borrower covenants and agrees that, during the term of this Agreement and until payment in full of all Obligations, Borrower shall perform all of the following: 5.1 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower will deliver to Lender the financial statements and other reports listed on the Reporting Addendum attached hereto on the dates and in the manner set forth in such Reporting Addendum. 5.2 APPRAISALS. From time to time. upon the request of Lender. Borrower will obtain and deliver to Lender. at Borrower's expense. appraisal reports in form and substance and from appraisers satisfactory to Lender, 12 14 stating the then current fair market and forced liquidation values of all or any portion of the Collateral; PROVIDED HOWEVER, so long as no Default or Event of Default is continuing, Lender shall not request an appraisal as to any particular category of Collateral to be performed more than once every Loan Year at Borrower's expense, except as required in paragraph (J)(3) of the Conditions Rider. 5.3 GOVERNMENT NOTICES. Borrower will deliver to Lender promptly after receipt copies of all notices, requests, subpoenas, inquiries or other writings received from any governmental agency concerning any Employee Benefit Plan, the violation or alleged violation of any Environmental Laws, the storage, use or disposal of any Hazardous Material, the violation or alleged violation of the Fair Labor Standards Act or Borrower's payment or non-payment of any taxes including any tax audit. 5.4 MAINTENANCE OF PROPERTIES. Borrower will maintain or cause to be maintained in good repair, working order and condition all material properties used in the business of Borrower and its Subsidiaries and will make or cause to be made all appropriate repairs, renewals and replacements thereof. 5.5 COMPLIANCE WITH LAWS. Borrower will, and will cause each of its Subsidiaries to, comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority as now in effect and which may be imposed in the future in all jurisdictions in which Borrower or any of its Subsidiaries is now doing business or may hereafter be doing business. 5.6 FURTHER ASSURANCES. Borrower shall, and shall cause each of its Subsidiaries to, from time to time, execute such guaranties, financing or continuation statements, documents, security agreements, reports and other documents or deliver to Lender such instruments, certificates of title, mortgages, deeds of trust, or other documents as Lender at any time may reasonably request to evidence, perfect or otherwise implement the guaranties and security for repayment of the Obligations provided for in the Loan Documents. 5.7 USE OF PROCEEDS AND MARGIN SECURITY. Borrower shall use the proceeds of all Loans for proper business purposes consistent with all applicable laws, statutes, rules and regulations. No portion of the proceeds of any Loan, except for an aggregate amount not to exceed $25,000 during the term of this Agreement, shall be used by Borrower or any of its Subsidiaries for the purpose of purchasing or carrying margin stock within the meaning of Regulation G or Regulation U, or in any manner that might cause the borrowing or the application of such proceeds to violate Regulation T or Regulation X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act. SECTION 6. NEGATIVE COVENANTS Borrower covenants and agrees that, during the term of this Agreement and until payment in full of all Obligations, Borrower shall not: 6.1 BOOK NET WORTH. Permit Borrower's book net worth, at any time, to be less than $17,500,000.00. 6.2 CAPITAL EXPENDITURE LIMITS. Make or incur any plant or fixed capital expenditure, or any commitment therefor, or purchase or lease any real or personal property or replacement equipment in excess of $750,000.00 in the aggregate for any fiscal year. 6.3 COMPENSATION. Pay total compensation, including salaries, withdrawals, fees, bonuses, commissions, drawing accounts, management fees or other payments, whether directly or indirectly, in money or otherwise, during any fiscal year to all of Borrower's executives, officers. shareholders, affiliates. and directors (or any relatives of each of the foregoing) in an aggregate amount in excess of 120% of those paid in the prior fiscal year, except for bonuses gene rated by the Bliss Acquisition and previously approved by the Borrower's Board of Directors in fiscal year end 1997. 13 15 6.4 INDEBTEDNESS AND LIABILITIES. Directly or indirectly create, incur, assume, guaranty, or otherwise become or remain directly or indirectly liable, on a fixed or contingent basis, with respect to any indebtedness outside of the ordinary course of Borrower's business as presently conducted, except for renewals or extension of existing indebtedness (previously disclosed to Lender); PROVIDED HOWEVER, in no event shall Borrower prepay any indebtedness owing to any third party, other than the Obligations pursuant to SUBSECTION 2.4(C). 6.5 TRANSFERS, NEGATIVE PLEDGES AND RELATED MATTERS. (A) TRANSFERS. Sell, lease, consign, assign or otherwise dispose of, or grant any option with respect to any of the assets of Borrower, except that Borrower may sell (i) inventory in the ordinary course of business as presently conducted, and (ii) assets, as set forth in Schedule 6.5 (A) attached hereto, associated with discontinued operations as of May I, 1998. (B) NO-NEGATIVE PLEDGES. Enter into or assume any agreement (other than the Loan Documents) prohibiting the creation or assumption of any lien, claim, security interest or encumbrance upon its properties or assets, whether now owned or hereafter acquired. 6.6 INVESTMENTS AND LOANS. Make or permit to exist investments in or loans to any other Person, except loans to employees for moving, entertainment, travel and other similar expenses in the ordinary course of business in an aggregate outstanding amount not in excess of $ 50,000 at any time. 6.7 DISTRIBUTIONS. Make any distribution or declare or pay any dividends (in cash or in stock) on, or purchase, acquire, redeem or retire any of Borrower's capital stock, of any class, whether now or hereafter outstanding. 6.8 RESTRICTION ON FUNDAMENTAL CHANGES. (a) Enter into any transaction of merger or consolidation; (b) liquidate, wind-up, dissolve itself, or cease or suspend its business; (c) make any change in Borrower's financial structure or in any of its business operations; (d) acquire by purchase or otherwise all or any substantial part of the business or assets of, or stock or other beneficial ownership of, any Person; (e) establish, create or acquire any new Subsidiary; or (f) change its fiscal year or change its tax entity designation under the IRC. 6.9 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale or exchange of property or the rendering of any service) with any Affiliate or with any officer, director or employee of any Loan Party, except for (a) transactions in the ordinary course of Borrower's business, as presently conducted, upon fair and reasonable terms which are fully disclosed to Lender, and which are no less favorable to Borrower than it would obtain in a comparable arm's length transaction with an unaffiliated Person, and (b) those agreements as set forth in Schedule 6.9 attached hereto. 6.10 BANK ACCOUNTS. Establish any new bank accounts, or amend or terminate any blocked account or lockbox agreement without Lender's prior written consent. SECTION 7. DEFAULT, RIGHTS AND REMEDIES 7.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more of the following events (each, an "Event of Default"): (A) PAYMENT. Failure to make payment of any of the Obligations when due or declared due; or (B) FAILURE TO PERFORM. Failure of Borrower or any Loan Party to perform or comply with any term, condition, provision, covenant or agreement contained in the Loan Documents; or 14 16 (C) DEFAULT IN OTHER AGREEMENTS. The existence of a default in any material agreement to which Borrower is a party or by which Borrower or Borrower's property or assets are bound; or (D) BREACH OF WARRANTY. Any representation, warranty, certification, report or other statement made by any Loan Party in any Loan Document or in any statement, certificate or report at any time given by such Person in writing pursuant or in connection with any Loan Document is false in any material respect on the date made; or (E) CHANGE IN CONTROL. Any change, direct or indirect in Borrower's capital ownership in excess of 15%; or (F) MATERIAL ADVERSE EFFECT Any event which creates a Material Adverse Effect; or (G) INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER. ETC. (I) A court enters a decree or order for relief with respect to any guarantor of the Obligations, Borrower or any of its Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (2) a receiver, liquidator, sequestrator, trustee, custodian or other fiduciary having similar powers over any guarantor of the Obligations, Borrower or any of its Subsidiaries, or over all or a substantial part of their respective property, is appointed; or (H) VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. Borrower or any of its Subsidiaries, or any guarantor of the Obligations, commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or makes any assignment for the benefit of creditors; or (I) LEVY. Any lien, levy or assessment is filed or recorded with respect to or otherwise imposed upon all or any part of Borrower's assets by the United States or any department or instrumentality thereof or by any state, county, municipality or other governmental agency; or (J) JUDGMENT AND ATTACHMENTS. Any money judgment, writ or warrant of attachment, levy, or similar process is entered or filed against Borrower or any of its assets in an amount in any individual case in excess of$10,000 or an amount in the aggregate at any time in excess of $50,000; or (K) DISSOLUTION; INJUNCTION. Any order, judgment or decree is entered against Borrower decreeing the dissolution or split up of Borrower, or enjoining, restraining or in any way preventing Borrower from conducting all or any material part of its business; or (L) LOSS OF GUARANTOR. Any guarantor of the Obligations dies or terminates its guaranty or gives notice of termination of its guaranty; or (M) FAILURE OF SECURITY. Lender does not have or ceases to have a valid and perfected first priority security interest in the Collateral. or any of the Loan Documents ceases to be in full force and effect or is declared to be null and void; or (N) SUBORDINATED DEBT PAYMENTS. Borrower makes any payment on account of indebtedness which has been subordinated to the Obligations, except to the extent such payment is allowed under any subordination agreement entered into with Lender. Notwithstanding anything contained in this SECTION 7 to the contrary. Lender shall refrain from exercising its rights and remedies and an Event of Default shall not be deemed to have occurred by reason of the occurrence of any of the events set forth in SUBSECTIONS 7.1(G), 7.1(I), AND 7.1(J) of this Agreement if, within 10 days from the date thereof, the same is released, discharged, dismissed, bonded against or satisfied. 15 17 7.2 SUSPENSION OF LOANS. Upon the occurrence of any Default or Event of Default. notwithstanding any grace period or right to cure, Lender without notice or demand, may immediately cease making additional Loans or advances under this Agreement or any other agreement between Borrower and Lender. The foregoing shall in no way affect, limit, or waive Lender's sole and absolute discretion to make advances under this Agreement. 7.3 ACCELERATION. Upon the occurrence of any Event of Default described in the foregoing SUBSECTIONS 7.1(G) OR 7.1(H), all Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Borrower, and this Agreement shall thereupon terminate; PROVIDED HOWEVER, such termination shall not affect Lender's rights and security interest in the Collateral or the Obligations. Upon the occurrence and during the continuance of any other Event of Default, Lender may, by written notice to Borrower, declare all or any portion of the Obligations to be, and the same shall forthwith become, immediately due and payable and Lender may terminate this Agreement; PROVIDED HOWEVER, such termination shall not affect Lender's rights and security interest in the Collateral or the Obligations. 7.4 REMEDIES. Upon the occurrence of an Event of Default, in addition to and not in limitation of any other rights or remedies available to Lender at law or in equity, Lender may exercise in respect of the Collateral, all the rights and remedies of a secured party on default under the UCC and may also (a) require Borrower to, and Borrower hereby agrees that it will, at its expense and upon request of Lender forthwith, assemble all or part of the Collateral as directed by Lender and make it available to Lender at a place to be designated by Lender; (b) require Borrower to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other Inventory of Borrower or in Borrower's possession and conspicuously label said returned Inventory as Lender's property; (c) withdraw all cash in any blocked account and apply such monies in payment of the Obligations; and (d) without notice or demand or legal process, enter upon any premises of Borrower and take possession of the Collateral. Borrower agrees that, to the extent notice of sale of the Collateral or any part thereof shall be required by law, ten days notice to Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Collateral (whether public or private), if permitted by law, Lender may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Collateral or any portion thereof for the account of Lender. Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Borrower shall remain liable for any deficiency. Lender may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by law, Borrower hereby specifically waives all rights of redemption, stay or appraisal which it has or may have under any law now existing or hereafter enacted. Lender shall not be required to proceed against any Collateral but may proceed against Borrower directly. 7.5 APPOINTMENT OF ATTORNEY-IN-FACT. Borrower hereby constitutes and appoints Lender as Borrower's attorney-in-fact with full authority, in the place and stead of Borrower and in the name of Borrower, Lender or otherwise, from time to time in Lender's discretion to take any action and to execute any instrument that Lender may deem necessary or advisable to accomplish the purposes of this Agreement, including: (a) to ask, demand, collect, sue for, recover, compound. receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) upon the occurrence of a Default or an Event of Default, to adjust, settle or compromise the amount or payment of any Account. or release wholly or partly any account debtor or obligor thereunder or allow any credit or discount thereon; (c) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper. in connection with clause (a) above: (d) to file any claims or take any action or institute any proceedings that Lender may deem necessary or desirable for the collection of or to preserve the value of any of the Collateral or otherwise to enforce the rights of Lender with respect to any of the Collateral; (e) to sign and endorse any invoices, freight or express bills, bills of lading. storage or warehouse receipts, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; (f) to notify the postal authorities to change the address for delivery' of Borrower's mail to an address designated by Lender to receive and open all mail addressed to Borrower and to retain all mail relating to the Collateral and forward all other mail to Borrower; (g) to make, settle and adjust all claims and make all 16 18 determinations and decisions with respect to Borrower's insurance policies. The appointment of Lender as Borrowers attorney-in-fact and Lender's rights and powers are coupled with an interest and are irrevocable until indefeasible payment in full and complete performance of all of the Obligations. 7.6 LIMITATION ON DUTY OF LENDER WITH RESPECT TO COLLATERAL. Beyond the safe custody thereof, Lender shall have no duty with respect to any Collateral in its possession or control (or in the possession or control of any agent or bailee) or with respect to any income thereon or the preservation of rights against prior parties or any other rights pertaining thereto. Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which Lender accords its own property. Lender shall not be liable or responsible for any loss or damage to any of the Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehouseman, carrier, forwarding agency, consignee, broker or other agent or bailee selected by Borrower or selected by Lender in good faith. 7.7 LICENSE OF INTELLECTUAL PROPERTY. Borrower hereby assigns, transfers and conveys to Lender, effective upon the occurrence of any Event of Default hereunder, the non-exclusive right and license to use all Intellectual Property owned or used by Borrower together with any goodwill associated therewith, all to the extent necessary to enable Lender to realize on the Collateral and any successor or assign to enjoy the benefits of the Collateral. This right and license shall inure to the benefit of all successors, assigns and transferees of Lender and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license is granted free of charge, without requirement that any monetary payment whatsoever be made to Borrower by Lender. 7.8 WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part of Lender to exercise, and no delay in exercising and no course of dealing with respect to, any right under this Agreement or the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise by Lender of any right under this Agreement or any other Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights in this Agreement and the other Loan Documents are cumulative and shall in no way limit any other remedies provided by law. 7.9 DEMAND; PROTEST. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, and notice of nonpayment at maturity, and agrees that Lender may compromise, settle or release without notice to Borrower any accounts, documents, instruments, chattel paper and/or guaranties at any time held by Lender on which Borrower may in any way be liable. Borrower agrees to any extensions of time of payment or partial payment at, before or after termination of this Agreement. 7.10 MARSHALING; PAYMENTS SET ASIDE. Lender shall not be under any obligation to marshal any assets in favor of any Loan Party or any other party or against or in payment of any or all of the Obligations. To the extent that any Loan Party makes a payment or payments to Lender or Lender enforces its security interests or exercise its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any' other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied, and all liens, security interests, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 8 MISCELLANEOUS 8.1 SET OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default. Lender, each assignee of Lender's interest. and each participant is hereby authorized by Borrower at any time or from time to time, without notice to Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any 17 19 and all balances held by it at any of its offices for the account of Borrower or any of its Subsidiaries (regardless of whether such balances are then due to Borrower or its Subsidiaries) and any other property at any time held or owing by that Lender or assignee to or for the credit or for the account of Borrower against and on account of any of the Obligations then outstanding; PROVIDED HOWEVER, no participant shall exercise such right without the prior written consent of Lender. 8.2 EXPENSES AND ATTORNEYS' FEES. Borrower shall promptly pay all fees, costs and expenses incurred by Lender in connection with any matters contemplated by or arising out of this Agreement or the other Loan Documents including the following, and all such fees, costs and expenses shall be part of the Obligations, payable on demand and secured by the Collateral: (a) fees, costs and expenses (including attorneys' fees, allocated costs of internal counsel and fees of environmental consultants, accountants and other professionals retained by Lender) incurred in connection with (i) the examination, review, due diligence investigation, documentation and closing of the financing arrangements evidenced by the Loan Documents, and (ii) the review, negotiation, preparation, documentation, execution and administration of the Loan Documents, the Loans, and any amendments, waivers, consents, forbearances and other modifications relating thereto or any subordination or intercreditor agreements; (b) fees, costs and expenses incurred in creating, perfecting and maintaining perfection of Lender's rights in and to the Collateral; (c) fees, costs and expenses incurred in connection with forwarding to Borrower the proceeds of Loans including Lender's standard wire transfer fee; (d) fees, costs, expenses and bank charges, including bank charges for returned checks, incurred by Lender in establishing, maintaining and handling lock box accounts, blocked accounts or other accounts for collection of the Collateral; (e) fees, costs, expenses (including attorneys' fees and allocated costs of internal counsel) and costs of settlement incurred in collecting upon or enforcing rights against the Collateral or incurred in any action to enforce this Agreement or the other Loan Documents or to collect any payments due from Borrower or any other Loan Party under this Agreement or any other Loan Document or incurred in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement, whether in the nature of a "workout" or in connection with any insolvency or bankruptcy proceedings or otherwise. 8.3 INDEMNITY. In addition to the payment of expenses pursuant to SUBSECTION 8.2, Borrower shall indemnify, pay and hold Lender and the officers, directors, employees, agents, consultants, auditors, persons engaged by Lender to evaluate or monitor the Collateral, affiliates and attorneys of Lender and such holders (collectively called the "Indemnitees") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may be imposed on, incurred by, or asserted against that Indemnitee, in any manner relating to or arising out of this Agreement or the other Loan Documents, the consummation of the transactions contemplated by this Agreement, the statements contained in the commitment letters, if any, delivered by Lender, Lender's agreement to make the Loans hereunder, the use or intended use of the proceeds of any of the Loans or the exercise of any right or remedy hereunder or under the other Loan Documents (the "Indemnified Liabilities"); PROVIDED HOWEVER, Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of that Indemnitee as determined by a court of competent jurisdiction. 8.4 AMENDMENTS AND WAIVERS. No amendment, modification, termination or waiver of any provision of this Agreement or of the other Loan Documents. or consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender. Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. 8.5 NOTICES. Unless otherwise specifically provided herein. all notices shall be in writing addressed to the respective party as set forth below and may be personally served, telecopied or sent by overnight courier service or United States mail and shall be deemed to have been given: (a) if delivered in person. when delivered: (b) if delivered by telecopy, on the date of transmission if transmitted on a Business Day before 4:00 p.m. Central time or, if not, on the next succeeding Business Day; (c) if delivered by overnight courier, two (2) days after delivery to such 18 20 courier properly addressed; or (d) if by U.S. Mail, four (4) Business Days after depositing in the United States mail, with postage prepaid and properly addressed. If to Borrower: HMI INDUSTRIES, INC. 3631 Perkins Avenue Cleveland, Ohio 44114 Telephone No.: (216)432-1990 Telecopy No.: (216) 432-0329 If to Lender: HELLER FINANCIAL, INC. Attn: Portfolio Manager, Heller Commercial Funding 500 West Monroe Street Chicago, Illinois 60661 Telephone No.: (312) 928-8750 Telecopy No.: (312)928-8761 or to such other address as the party addressed shall have previously designated by written notice to the serving party, given in accordance with this SUBSECTION 8.5. 8.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND CERTAIN AGREEMENTS. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Borrower and Lender set forth in SUBSECTIONS 8.2, 8.3, 8.11, 8.14 and 8.15 (including, without limitation, Borrower's agreement to pay fees, agreement to indemnify Lender, agreement as to choice of law and jurisdiction and Borrower's and Lender's waiver of a jury trial) shall survive the payment of the Loans and the termination of this Agreement. 8.7 INDULGENCE NOT WAIVER. No failure or delay on the part of Lender in the exercise of any power, right or privilege shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. 8.8 ENTIRE AGREEMENT. This Agreement and the other Loan Documents embody the entire agreement among the parties hereto and supersede all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof, and may not be contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or discussions of the parties hereto. 8.9 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 8.10 HEADINGS. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 8.11 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 8.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign its rights or obligations hereunder without the prior written consent of Lender. Lender may assign its rights and delegate its obligations under this Agreement and further may assign, or sell participations in, all or any part of the Loans, or any 19 21 other interest herein to an affiliate or to another Person. Lender shall be relieved of its obligations hereunder with respect to the assigned portion thereof. Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to the assignee and that the assignee shall be considered to be a "Lender". Lender may furnish any information concerning Borrower and its Subsidiaries in its possession from time to time to assignees and participants (including prospective assignees and participants). 8.13 NO FIDUCIARY RELATIONSHIP; LIMITATION OF LIABILITIES. (A) No provision in this Agreement or in any of the other Loan Documents and no course of dealing between the parties shall be deemed to create any fiduciary duty by Lender to Borrower. (B) Neither Lender, nor any affiliate, officer, director, shareholder, employee, attorney, or agent of Lender shall have any liability with respect to, and Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Borrower in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents. Borrower hereby waives, releases, and agrees not to sue Lender or any of Lender's affiliates, officers, directors, employees, attorneys, or agent for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the transactions contemplated hereby. 8.14 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. BORROWER HEREBY WAIVERS PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. 8.15 WAIVER OF JURY TRIAL. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS. 8.16 CONSTRUCTION. Borrower and Lender each acknowledge that it has had the benefit of legal counsel of it own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with it legal counsel and that this Agreement and the other Loan Document shall be construed as if jointly drafted by Borrower and Lender. 8.17 COUNTERPARTS; EFFECTIVENESS. This Agreement and any amendments. waivers, consents, or supplements may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Delivery of an executed counterpart of a signature page to this 20 22 Agreement, any amendments, waivers, consents or supplements, or to any other Loan Document by telecopier shall be as effective as delivery of a manually executed counterpart thereof 8.18 CONFIDENTIALITY. Lender shall hold all nonpublic information obtained pursuant to the requirements hereof and identified as such by Borrower in accordance with such its customary procedures for handling confidential information of this nature and in accordance with safe and sound business practices and in any event may make disclosure to such of its respective affiliates, officers, directors, employees, agents and representatives as need to know such information in connection with the Loans. if Lender or any of its affiliates is otherwise a creditor of Borrower; Lender or such affiliate may use the information in connection with its other credits. Lender may also make disclosure reasonably required by a bona fide offeree or assignee (or participation), or as required or requested by any Governmental Authority or representative thereof, or pursuant to legal process, or to its accountants, lawyers and other advisors, and shall require any such offeree or assignee (or participant) to agree (and require any of its offerees, assignees or participants to agree) to comply with this subsection 8.18. In no event shall Lender be obligated or required to return any materials furnished by Borrower. Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. HELLER FINANCIAL, INC. HMI INDUSTRIES, INC. By: /s/ Steven A. Narsutis By: /s/ Mark A. Kirk ------------------------------- --------------------------- Name: Steven A. Narsutis Name: Mark A. Kirk ---------------------------- ------------------------- Title: Vice President Title: Vice President --------------------------- ------------------------ 21 23 CONDITIONS RIDER This Conditions Rider is attached to and made a part of that certain Loan and Security Agreement dated as of April 23, 1998 and entered into among HMI Industries, Inc. and Heller Financial, Inc. (A) CLOSING DELIVERIES. Lender shall have received on or before the closing date, in form and substance satisfactory to Lender, all documents, instruments and information and all other agreements, notes, certificates, orders, authorizations, financing statements, mortgages and other documents which Lender may at any time request, including, without limitation, the following: (1) this duly executed Agreement (including Conditions Rider, Reporting Addendum and all Schedules); (2) duly executed UCC-l Financing Statements listing Borrower as debtor and Lender as secured party to be filed in all appropriate jurisdictions; (3) receipt of clear UCC, tax lien and pending suit and judgment searches in all requisite jurisdictions for Borrower (under both its current name of HMI Industries, Inc. and its former name of Health-Mor, Inc.) or appropriate termination statements and/or releases for Borrower and all Subsidiaries; (4) evidence of Borrower's property/liability insurance and Lender's loss payable endorsements; (5) a duly executed Mortgage; (6) a duly executed Lockbox/Blocked Account Agreement with Star Bank; (7) evidence that the Borrower is a corporation in good standing with the State of Delaware; (8) evidence that, on or before the closing date, (a) Borrower has consummated all the transactions contemplated by the Bliss Acquisition; (b) the Bliss Acquisition net proceeds of at least $30 million have been advanced to Borrower; and (c) all indebtedness and obligations of Borrower to Star Bank, under the Australian Line of Credit, under the Netherlands Line of Credit and under the 7 year private placement term notes, shall have been paid in full with the proceeds of the Bliss Acquisition and all liens associated therewith terminated; (9) receipt of a business plan, including, without limitation, financial projections and a takeover audit acceptable to Lender; (10) duly executed Assignment for Security of Patent, Trademark and Copyrights; (11) Opinion of Borrower's outside Counsel; (12) Opinion of Borrower's General Counsel; (13) duly executed Side Letter; and (14) duly executed Borrower's Officers Affirmation Letter. (B) SECURITY INTERESTS. Lender shall have received satisfactory evidence that all security interests and liens granted to Lender pursuant to this Agreement or the other Loan Documents have been duly perfected and constitute first priority liens on the Collateral. 22 24 (C) CLOSING DATE AVAILABILITY. After giving effect to the consummation of the transactions contemplated hereunder on the closing date and the payment by Borrower of all costs, fees and expenses relating thereto, the Maximum Revolving Loan Amount on the closing date shall exceed the requests for Revolving Advances on such date by at least $2,000,000.00 including cash on hand, after giving effect to the payment of all fees, costs, and expenses associated with the closing of this transaction and the sale of Bliss and HRS. (D) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in this Conditions Rider and in the Loan Documents shall be true, correct and complete in all material respects on and as of each funding date of the Loans to the same extent as though made on and as of that date, except for any representation or warranty limited by its terms to a specific date and taking into account any disclosures made by Borrower to Lender after the closing date and approved by Lender. (E) FEES. On the closing date or any funding date of a Revolving Advance, Borrower shall have paid to Lender all fees due on or prior to such dates. (F) NO DEFAULT. No event shall have occurred and be continuing or would result from the consummation of the requested borrowing that would constitute an Event of Default or a Default. (G) PERFORMANCE OF AGREEMENTS. Each Loan Parry shall have performed in all material respects all agreements and satisfied all conditions which any Loan Document provides shall be performed by it on or before that funding date of any Loan. (H) NO PROHIBITION. No order, judgment or decree of any court, arbitrator or governmental authority shall purport to enjoin or restrain Lender from making any Loans. (I) NO LITIGATION. There shall not be pending or, to the knowledge of Borrower, threatened, any action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration by, against or affecting any Loan Party or any of its Subsidiaries or any property of any Loan Party or any of its Subsidiaries that has not been disclosed to Lender by Borrower in writing, and there shall have occurred no development in any such action, charge, claim, demand, suit, proceeding, petition, governmental investigation or arbitration that, in the opinion of Lender, would reasonably be expected to have a Material Adverse Effect. (J) POST-CLOSING CONDITIONS. Borrower covenants and agrees to satisfy the following post-closing conditions within the time periods specified: (1) PERPETUAL INVENTORY SYSTEM. Within 90 days after the closing date, Borrower will update and reorganize its perpetual Inventory reporting system in a manner acceptable to Lender, which shall be verified by an acceptable Inventory test count conducted by Lender. (2) FULL ON-SITE AUDIT. Within 6 months, if not sooner, after the closing date, prior to advancing on Accounts, Borrower will allow Lender to conduct a full, on-site audit to confirm that the Borrower's books and records are accurate and reliable. (3) REAL ESTATE AND MACHINERY AND EQUIPMENT APPRAISALS. Within 180 days after the closing date, Borrower shall provide Lender with real estate and machinery and equipment appraisals in form and substance acceptable to Lender. (4) EPA PHASE I REPORT. Within 180 days after the closing date, Borrower shall provide Lender with an EPA Phase I Report from a nationally-recognized environmental engineering firm in form and substance acceptable to Lender. (5) TITLE INSURANCE COMMITMENT POLICY. Within 180 days after the closing date, Borrower shall provide Lender with an ALTA Loan Policy Commitment in form and substance satisfactory to Lender. 23 25 (6) SURVEY. Within 180 days after the closing date, Borrower shall provide Lender with a survey of the real property from an acceptable surveyor in form and substance acceptable to Lender. (7) SALE OF SUBSIDIARIES. Evidence that by May 15, 1998, Borrower has sold the assets of or dissolved HRS and HMPC, with any proceeds being applied for the working capital needs of the Borrower. (8) PROCESSOR AGREEMENTS. Within 30 days after the closing date, Borrower shall provide Lender with duly executed Processor Agreements from Design Molded Plastics, Inc., MJM Industries, Inc., Spenco Manufacturing, Inc., Bebco, and Harry Krantz Company, Inc. (9) PROCESSOR UCCS. Within 30 days after the closing date, Borrower shall provide Lender with duly executed UCC-1 Financing Statements for all Processors listing Borrower as secured party and Lender as assignee to be filed in all appropriate jurisdictions. 24 26 REPORTING ADDENDUM This Reporting Addendum is attached and made a part of that certain Loan and Security Agreement, dated as of April 23, 1998 and entered into among HMI Industries, Inc. and Heller Financial, Inc. (A) COLLATERAL REPORTS. Borrower shall execute and deliver to Lender, no later than the 15th day of each month, or more frequently if requested by Lender, a detailed aging of the Accounts, a reconciliation statement, and a summary aging by vendor, of all accounts payable and any book overdraft. Borrower shall deliver to Lender not less than twice per week, or more frequently if requested by Lender, collection reports, sales journals and invoices. Borrower shall also deliver to Lender at Lender's request, original delivery receipts, account debtors' purchase orders, shipping instructions, bills of lading and other documentation respecting shipment arrangements. Absent such a request by Lender, copies of all such documentation shall be held by Borrower as custodian for Lender. (B) RETURNS. Returns and allowances, if any, as between Borrower and its account debtors, shall be permitted by Borrower on the same basis and in accordance with the usual customary practices of Borrower as they exist at the time of the execution and delivery of this Agreement. If at any time prior to the occurrence of an Event of Default any account debtor returns any inventory to Borrower, Borrower shall promptly determine the reason for such return and, if Borrower accepts such return, issue a credit memorandum (with a copy to be sent to Lender) in the appropriate amount to such account debtor. Borrower shall promptly notify Lender of all returns and recoveries and of all disputes and claims in excess of $5,000 or in an aggregate amount in excess of $25,000 for all Accounts except for those Accounts which had balances over 90 days as of March 31, 1998. (C) DESIGNATION OF INVENTORY. Borrower shall now and from time to time hereafter, but not less frequently than weekly, execute and deliver to Lender a designation of Inventory specifying Borrower's cost and the wholesale market value of Borrower's raw materials, work in process, finished goods, supplies, outside contractors, obsolete and after the sale items and further specifying such other information as Lender may reasonably request. (D) FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to deliver to Lender: (a) as soon as available, but in any event within 45 days after the end of each month during each of Borrower's fiscal years, a company prepared balance sheet and profit and loss statement covering Borrower's operations during such period; and (b) as soon as available, but in any event within 90 days after the end of each of Borrower's fiscal years, financial statements of Borrower for each such fiscal period, certified by independent certified public accountants acceptable to Lender. Such financial statements shall include a balance sheet and profit and loss statement and the accountants' letter to management. Together with the above, Borrower shall also deliver Borrower's Form 10-Qs, 10-Ks or 8-Ks, if any, as soon as the same become available, and any other report reasonably requested by Lender relating to the Collateral and the financial condition of Borrower and a certificate signed by the chief financial officer of Borrower to the effect that all reports, statements or computer prepared information of any kind or nature delivered or caused to be delivered to Lender fairly present the financial condition of Borrower and that there exists on the date of delivery of such certificate to Lender no condition or event which constitutes an Event of Default. (E) TAX RETURNS, RECEIPTS. Borrower agrees to deliver to Lender copies of each of Borrower's future federal income tax returns, and any amendments thereto, within 30 days of the filing thereof with the Internal Revenue Service. Borrower further agrees to promptly deliver to Lender, upon request, satisfactory evidence of Borrower's payment of all federal withholding taxes required to be paid by Borrower. (F) TITLE TO EQUIPMENT. Upon Lender's request, Borrower shall immediately deliver to Lender, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment. (G) BORROWING BASE CERTIFICATES, REGISTERS AND JOURNALS. On each Business Day upon which Borrower requests a Revolving Advance, but in no event less than twice during any week, Borrower shall 25 27 deliver to Lender for such Business Day: (1) a Borrowing Base Certificate in the form prescribed by Lender; (2) an invoice register or sales journal describing all sales of Borrower, in form and substance satisfactory to Lender, and, if Lender so requests, copies of invoices evidencing such sales and proofs of delivery relating thereto; (3) a cash receipts journal; (4) a credit memo journal; and (5) an adjustment journal, setting forth all adjustments to Borrower's accounts receivable. (H) APPRAISALS. Borrower agrees to deliver to Lender appraisals as set forth in subsection 5.2. (I) PROJECTIONS. As soon as available and in any event no later than 30 days prior to the end of each fiscal year of Borrower, Borrower will deliver consolidated and consolidating projections of Borrower and its Subsidiaries for the forthcoming three fiscal years, year by year. (J) ACCOUNTS DESIGNATION. All Accounts reports should be broken down into the following categories: UPS Shipped COD Accounts, Domestic Accounts, and Foreign Accounts. (K) OTHER INFORMATION. With reasonable promptness, Borrower will deliver such other information and data as Lender may reasonably request from time to time. 26 EX-10.02 4 EXHIBIT 10.02 1 HMI INDUSTRIES INC. EXHIBIT 10.02 MATERIAL CONTRACTS - RESTRICTED STOCK AGREEMENT Effective Date of Value of Participant Date Bonus Bonus James R. Malone 7/2/97 4/1/98 12,500 7/1/98 12,500 10/1198 12,500 4/1/98 12,500 1/2/99 12,500 7/1/99 12,500 10/1/98 10,200 Carl H. Young III 7/2/97 4/1/98 12,500 7/1/98 12,500 10/1/98 12,500 4/1/98 12,500 1/2/99 12,500 7/1/99 12,500 10/1/98 10,200 Mark A. Kirk 7/2/97 4/1/98 12,500 7/1/98 12,500 10/1/98 12,500 4/1/98 12,500 1/2/99 12,500 7/1/99 12,500 10/1/98 10,200 see filed exhibit for Mark A. Kirk 2 RESTRICTED STOCK AGREEMENT THIS RESTRICTED STOCK AGREEMENT is entered into as of this 25th day of March, 1998, by and between HMI Industries Inc., a Delaware corporation with its principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the "Company") and MARK A. KIRK (the "Employee"). WHEREAS, the Employee is employed as a senior executive of the Company; and, WHEREAS, pursuant to the Company's 1992 Omnibus Long-Term Compensation Plan (the "Plan") the Board of Directors of the Company has approved a grant to the Employee of 85,200 shares of Common Stock of the Company, par value $1.00 per share, subject to certain restrictions; and, WHEREAS, the Employee has agreed to accept the shares subject to the restrictions placed on his ownership of the shares. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and the Employee agree as follows: 1. GRANT OF SHARES. The Company grants to the Employee 85,200 shares of Common Stock of the Company subject to the restrictions in section 2 (the "Shares"), and the Employee accepts the Shares subject to the restrictions. 2. VESTING. The Shares shall vest on the following dates in the amount indicated: April 1, 1998 12,500 shares July 1, 1998 12,500 shares October 1, 1998 12,500 shares January 2, 1999 12,500 shares April 1, 1999 12,500 shares July 1, 1999 12,500 shares October 1, 1999 10,200 shares Prior to the vesting of the Shares, if the Employee terminates his employment with the Company or if the Company shall terminate his employment with Cause (as defined below), the Shares shall be forfeited as provided in Section 4. In the event of the following occurrences, all unvested Shares shall vest immediately and shall not be subject to forfeiture: (a) Termination of the Employee's employment without cause; (b) Death of the Employee; (c) Change in Control of the Company as defined in the Plan; (d) Termination of the Company's Common Stock from trading on a national securities exchange. 1 3 3 DEFINITION OF CAUSE. Termination of Employee's employment for any of the following reasons will constitute cause: (a) conviction of a felony or a crime involving dishonesty or moral turpitude; (b) material breach of; or neglect of the Employee's duties and responsibilities that is willful and deliberate and that is likely to result in material economic injury to the Company. 4. FORFEITURE. In the event that the Shares do not vest, the Shares shall be surrendered and canceled and returned to the Company's treasury, and the Employee shall receive no payment in consideration of such forfeited Shares. 5. COMPLIANCE WITH SECURITIES LAWS. No Shares will be issued in the absence of an effective registration statement under the Securities Act of 1933, unless the Company has received evidence of exemption therefrom which is satisfactory to counsel for the Company. Employee agrees to be bound by such provisions as the Company may require to insure that the issuance by the Company or the sale by the Employee of any of the Shares shall be in compliance with applicable securities laws. These restrictions may include but shall not be not limited to a) placing a restricted legend on the certificates evidencing the shares; b) issuance of a stop transfer order by the transfer agent; and c) providing to the Company an investment intent letter in which the Employee agrees that the shares are being held for investment only and not for resale or distribution. 6. SAFEGUARDING OF SHARES. Employee agrees that the Company will retain the Shares until they vest or are forfeited. Employee further agrees to execute an assignment separate from certificate with a medallion signature guarantee transferring the Shares to the Company in the event of forfeiture. 7. RECEIPT OF PLAN. Employee acknowledges receipt of a copy of the Plan, and agrees that this grant of Shares shall be subject to all the terms and provisions of the Plan, including any future amendments. 8. TAXES. Employee acknowledges that any federal, state or local income taxes that may be due as a result of this grant are solely the responsibility of the Employee, and agrees to pay any such taxes when due. If, as a result of this grant, the Company is required to withhold any amount from the Employee for federal, state or city income tax, FICA or Medicare tax or other similar taxes or fees for which withholding is required by an employer for compensation paid to an employee, the Employee authorizes the Company to withhold from other cash sources due to the Employee from the Company, sufficient amounts to pay any withholding which may be required as a result of the grant of Shares. 9. TERMINATION OF DEFERRED BONUS AGREEMENT. Employee acknowledges that the Deferred Bonus Agreement entered into with the Company as of July 2, 1997 is terminated as a result of this grant of restricted stock, and the Employee is not entitled to any benefits provided for in that Deferred Bonus Agreement after the date of this Restricted Stock Agreement. 2 4 10. NO CONTRACT OF EMPLOYMENT. This agreement does not constitute a contract of employment, and nothing herein shall be construed as creating a contract of employment between Employee and the Company. 11. CONSIDERATION. It is understood that the consideration for the Shares shall be past services through the date of issuance having a value not less than the par value of the shares. 12. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under the Employee. IN WITNESS WHEREOF, the Company and the Employee have executed this Restricted Stock Agreement as of the date indicated above. HMI INDUSTRIES INC. By /s/ J. Moffat Dunlap ---------------------------------- Moffat Dunlap, Chairman Compensation Committee /s/ Mark A. Kirk ------------------------------------- Mark A. Kirk 3 EX-27 5 EXHIBIT 27
5 YEAR SEP-30-1998 OCT-01-1997 MAR-31-1997 905,972 0 14,060,768 4,819,349 4,893,375 19,639,374 11,115,952 5,683,138 32,954,571 13,506,250 0 0 0 5,295,556 12,313,571 32,954,571 19,106,779 19,293,419 12,968,225 24,316,235 0 0 1,287,684 (6,310,500) (1,838,613) (4,471,887) 6,477,259 0 0 2,005,372 0.40 0.40
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