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FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
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 No. 0-7770
MCCLAIN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
STATE OF MICHIGAN 38-1867649
State of Incorporation I.R.S. Employer I.D. No.
6200 ELMRIDGE ROAD
STERLING HEIGHTS, MICHIGAN 48310
(810) 264-3611
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
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, as amended, during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ X ]
As of December 5, 1996, the aggregate market value of the Registrant's
voting stock held by nonaffiliates of the Registrant was $9,564,350 determined
in accordance with the highest price at which the stock was sold on such date
as reported by the Nasdaq National Market.
As of December 5, 1996, there were 4,693,916 shares of the Registrant's
common stock issued and outstanding.
Exhibit Index is on Page 53
Page 1 of 208 Pages
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PART I
ITEM 1. BUSINESS
GENERAL
McClain Industries, Inc., a Michigan corporation ("McClain-Michigan"),
together with its subsidiaries (the "Company"), is one of the nation's leading
manufacturers of a diversified line of dump truck bodies and solid waste
handling equipment. Dump truck bodies are assemblies attached to truck frames
and used to carry and dump solid materials such as dirt or gravel. Solid waste
handling equipment is used for the temporary storage, transportation and
compaction of residential, commercial and industrial waste and recycling
materials. In addition, the Company operates a steel tube mill to manufacture
some of its steel tubing needs. The Company also provides coiled steel cutting
and warehousing services for its own manufacturing operations and, on a limited
basis, for sale to third-party customers.
BACKGROUND
McClain-Michigan was incorporated in 1968 and became a publicly-traded
company in 1973. It currently has: (i) seven wholly-owned operating
subsidiaries: McClain of Alabama, Inc. ("McClain-Alabama"); McClain of Georgia,
Inc. ("McClain-Georgia"); McClain of Ohio, Inc. ("McClain-Ohio"); McClain of
Oklahoma, Inc. ("Oklahoma"); McClain EPCO, Inc. ("EPCO"); Shelby Steel
Processing Co. ("Shelby Steel"); and McClain Tube Company (d/b/a Quality
Tubing) ("Tube"); (ii) one wholly-owned lease financing subsidiary: McClain
Group Leasing, Inc. ("Leasing"); (iii) one wholly-owned holding company
subsidiary: Galion Holding Company ("Galion Holding"); and (iv) an
international sales corporation, McClain International FSC, Inc. ("FSC").
Galion Holding is the sole shareholder of two additional operating
subsidiaries, McClain E-Z Pack, Inc. ("E-Z Pack") and Galion Dump Bodies, Inc.
("Galion Dump Bodies"). McClain-Michigan, E-Z Pack and Galion Dump Bodies
collectively own all of the issued and outstanding stock of McClain Group
Sales, Inc. ("Sales"), which is the exclusive sales representative of
McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio,
McClain-Oklahoma, E-Z Pack and Galion Dump Bodies. Sales owns all of the
issued and outstanding stock of McClain Group Sales of Florida, Inc., a
distributor of the Company's products in Florida. All of these companies are
Michigan corporations, except for McClain-Georgia, which is a Georgia
corporation, EPCO, which is a New York corporation, and FSC, which is a Virgin
Islands corporation.
McClain-Alabama was formed during the past year to acquire, on August 29,
1996, the Demopolis, Alabama roll off container manufacturing facility and
related equipment of Waste Management of Alabama, Inc. See Note 2 of the Notes
to Consolidated Financial Statements.
McClain-Michigan, McClain-Alabama, McClain-Georgia, McClain-Ohio,
McClain-Oklahoma and EPCO are sometimes collectively referred to as "McClain";
Galion Holding, E-Z Pack and Galion Dump Bodies are sometimes collectively
referred to as "Galion"; and, unless the context otherwise requires, all
references to the Company
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mean McClain-Michigan and all of the entities owned or controlled by
McClain-Michigan.
The Company's executive offices are located at 6200 Elmridge Road,
Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611.
PRODUCTS
The Company manufactures and markets dump truck bodies and four solid
waste handling equipment product lines: (1) containers; (2) compactors and
baling equipment; (3) garbage and recycling truck bodies; and (4) transfer
trailers. Sales of dump truck bodies accounted for approximately 23%, and
sales of solid waste handling equipment accounted for approximately 75%, of the
Company's consolidated net sales for the fiscal year ended September 30, 1996.
Dump Truck Bodies and Hoists
Galion Dump Bodies manufactures steel dump truck bodies varying in
capacity from two to twenty-five cubic yards at its Winesburg, Ohio facility.
McClain-Georgia and McClain-Oklahoma, under license from Galion Dump Bodies,
also manufacture dump truck bodies at their Macon, Georgia and Oklahoma City,
Oklahoma facilities, respectively. Dump truck bodies are assemblies which are
attached to a truck's frame or chassis, to allow the truck to carry and dump
solid materials such as dirt, gravel or waste materials. Hoists are the
hydraulic lift mechanisms used to tilt the dump body. Trucks with a dump body
and hoist are commonly seen in use as "dump trucks". The products manufactured
by Galion Dump Bodies are sold under the registered trademark "Galion". The
trademark registration, if not renewed, will expire in the year 2001.
Containers
Detachable Roll-Off Containers and Roll-Off Hoists. McClain-Michigan,
McClain-Alabama, McClain-Georgia, McClain-Ohio and McClain-Oklahoma manufacture
several types of detachable roll-off containers and roll-off hoists at the
Company's facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis,
Alabama, Oklahoma City, Oklahoma, and Galion, Ohio. Detachable roll-off
containers vary in capacity from ten to forty-five cubic yards and are
transported with their contents to recycling centers, incinerators or landfill
sites. Roll-off hoists consist of frames mounted on truck chassis which are
hydraulically operated to load, transport and dump roll-off containers.
Roll-off hoists are advertised and sold under the trade name "MAGNA-HOIST."
Intermodal, Water-Tight and Sludge Containers. The Company manufactures
various types of intermodal, water-tight and sludge containers at the Company's
facilities in Sterling Heights, Michigan, Macon, Georgia, Demopolis, Alabama,
Oklahoma City, Oklahoma, and Galion, Ohio. Intermodal containers vary in
capacity from nineteen cubic yards to thirty-five cubic yards and are designed
for highway, railroad and marine movement of waste products. Water-tight
containers vary in capacity from ten to forty cubic yards and are designed for
highway movement of wet
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waste. Sludge containers vary in capacity from ten to thirty-five cubic yards
and are designed for highway movement of slurry type waste products.
Compactors and Baling Equipment
The Company manufactures compactors at its Sterling Heights, Michigan
facility. Compactors consist of a compaction unit and separate power source.
Compaction units force deposited refuse through an opening at one end of the
unit into a roll-off body coupled to the compaction unit. When the roll-off
body is filled, the compactor is detached and the roll-off body is removed for
dumping. The Company also manufactures unitized compaction systems consisting
of a compactor and roll-off container manufactured as a single unit.
Compactors are sold under the trade name "MAGNUM" and unitized compactor
systems are sold under the trade name "OCTAMAG". EPCO manufactures at its
Buffalo, New York facility 24 models of balers which compact plastic and paper
products, primarily cardboard. Balers are either vertical downstroke or closed
door horizontal balers.
Garbage and Recycling Truck Bodies
E-Z Pack manufactures at its Galion, Ohio facility traditional garbage
truck bodies comprised of front, rear and side loading truck bodies and a
recycling truck body used in solid waste handling and disposal. The front
loading truck bodies vary in capacity from thirty-two cubic yards to
forty-three cubic yards, the rear loading truck bodies vary in capacity from
eighteen cubic yards to thirty-one cubic yards, and the side loading truck
bodies vary in capacity from twenty-nine cubic yards to thirty-nine cubic
yards. The recycling truck bodies vary in capacity from thirty cubic yards to
forty cubic yards. The products manufactured by E-Z Pack are sold under the
registered trademark "E-Z Pack". Within this line, E-Z Pack sells its rear
loading truck bodies under the trademarks "Goliath", "Goliath II", and
"Apollo", and its front loading truck bodies under the trademark "Hercules".
The side loading truck bodies and the recycling truck bodies are principally
identified by the E-Z Pack name only. These trademarks will expire in the year
2001, unless renewed. The Company has several patents covering its recycling
truck.
Transfer Trailers
McClain-Ohio manufactures at its Galion, Ohio facility, various types of
steel and aluminum transfer trailers, including open-top walking floor
trailers, closed-top walking floor trailers, ejection trailers and open-top
tipper trailers, varying in capacity from thirty cubic yards to 124 cubic
yards. Transfer trailers are used to transport compacted solid waste from
transfer stations to landfills or incinerators.
CUSTOMERS AND DISTRIBUTION
For the fiscal year ended September 30, 1996, the Company's consolidated
net sales were divided approximately 47% to distributors, 48% to solid waste
handling companies, 3% to end users and 2% to governmental agencies.
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The Company traditionally has not depended on product sales to any one
customer and no single customer accounted for more than 10% of the Company's
net sales for the fiscal years ended September 30, 1996, 1995 or 1994. The
Company has no contracts with any of its customers and, accordingly, sells its
products pursuant to purchase orders placed from time to time in the ordinary
course of business. The Company delivers its products to its customers through
the use of its own trucks or common carriers.
The Company obtains its municipal as well as certain private contracts
through the process of competitive bidding. There can be no assurance that
municipalities or others will continue to solicit bids, or if they do, that the
Company will continue to be successful in having its bids accepted.
Additionally, inherent in the competitive bidding process is the risk that if a
bid is submitted and a contract is subsequently awarded, actual performance
costs may exceed the projected costs upon which the submitted bid or contract
price was based.
Although historically foreign sales have not accounted for a significant
portion of the Company's revenues, the Company anticipates that a greater
portion of its future net sales will be derived from sales of its products in
foreign markets.
SALES AND MARKETING
Historically, the Company's products have been marketed by the Company's
executive officers and sales personnel who have worked closely with customers
to solicit orders and to render technical assistance and advice. The Company's
executive officers will continue to devote a significant amount of time to
developing and maintaining continuing relations with the Company's customers.
The Company operates Sales, a separate wholly-owned corporation, to act as the
Company's exclusive sales representative for its solid waste handling equipment
product lines.
The Company also engages independent distributors and dealers in various
regions throughout the United States and certain foreign countries, for
marketing its products to customers. The Company's dealers are generally
responsible in their respective geographic markets for identifying customers
and soliciting customer orders. As of December 1, 1996, there were
approximately 285 authorized Company dealers located in numerous states and 15
authorized Company dealers, licensees and commissioned district managers in 9
foreign countries, each of which is independently owned. The Company is
dependent on such dealers for a significant portion of its revenues. These
dealers typically specialize in specific products and areas and, accordingly,
have specific knowledge of and contacts in particular markets. The Company
believes that its dealers have enhanced and will continue to enhance the scope
of the Company's marketing and sales efforts and have, to a certain extent,
also enabled the Company to avoid certain significant costs associated with
creating a more extensive direct sales network.
The Company advertises its products under trade names and under its name
in trade journals and brochures. Other marketing efforts include articles in
trade publications, attendance at trade shows and presentations by the
Company's personnel at industry trade conferences.
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The Company, through Leasing, also provides both sales-type financing and
operating leases. At September 30, 1996, Leasing held net lease receivables of
approximately $5.6 million.
RAW MATERIALS
The Company is dependent on third-party suppliers and manufacturers for
the raw materials and a significant portion of the parts it uses in the
manufacture of its products. The major raw materials used by the Company are
steel in sheet, plate, structural and tubular form and aluminum in sheet and
extruded form. The Company purchases its steel, principally in coils, and its
sheet and extruded aluminum from domestic mills and warehouses. Coiled steel
is received by the Company at various manufacturing facilities where it is then
cut, bent, sheared and formed for assembly by welding. Electric and hydraulic
components incorporated into the power units of compactors, balers and hoists
used with dump bodies manufactured by the Company are brand name items
purchased from various sources and assembled by the Company or to their
specifications by outside sources. The assembled products are then painted to
customers' specifications.
While the Company attempts to maintain alternative sources for the
Company's raw materials and believes that multiple sources are currently
available for all of the raw materials (other than aluminum extrusions) that it
uses, the Company's business is generally subject to periodic shortages of raw
materials which could have an adverse effect on the Company. The Company
currently purchases all of its extruded aluminum from one source. The Company
is unaware of other potential providers of extruded aluminum which meets the
Company's requirements and, therefore, the failure of the Company's extruded
aluminum supplier to continue to supply the Company could have a material
adverse effect on the Company. Although to date the Company has been able to
obtain sufficient quantities of extruded aluminum to satisfy its manufacturing
needs, a prolonged shortage of such raw material could adversely affect the
Company. In addition, the Company currently purchases all of its hydraulic
cylinders from only a few major suppliers. The failure by any of such
suppliers to continue to supply the Company with cylinders on commercially
reasonable terms, or at all, could also have a material adverse effect on the
Company.
The Company generally has no supply agreements with any of its suppliers
and, accordingly, generally purchases raw materials pursuant to purchase orders
placed from time to time in the ordinary course of business. Failure or delay
by suppliers in supplying necessary raw materials to the Company could
adversely affect the Company's ability to obtain and deliver its products on a
timely and competitive basis. In addition, the Company has experienced price
fluctuations for the raw materials that it purchases, particularly with respect
to steel and aluminum. Any significant price fluctuations in the future could
also have an adverse effect on the Company.
The Company uses a forecasting and purchasing system to monitor the
quantity and cost of necessary raw materials. Such cost controls allow the
Company to minimize its operating costs by purchasing from the lowest priced
suppliers the appropriate amount of raw materials in light of the Company's
needs. The Company
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often orders raw materials in amounts in excess of its anticipated short-term
needs in order to take advantage of price discounts available on large volume
purchases of raw materials.
To reduce its cost of raw materials, the Company has been processing
coiled steel and manufacturing some of its own tubing, rather than purchasing
tubing and processed sheet steel from third parties. The Company believes that
it is the only manufacturer of dump truck bodies and solid waste handling
equipment to process coiled steel and to operate a steel tube mill.
Steel Processing
Shelby Steel, a wholly-owned subsidiary of the Company, receives coiled
steel and either warehouses or cuts and processes the steel at its River Rouge,
Michigan facility to prescribed specifications. In addition to processing
coiled steel for use by the Company, Shelby Steel also offers steel processing
and warehousing services to third parties. Shelby Steel's ability to warehouse
customers' steel attracts customers such as steel brokers who do not maintain
facilities of their own to warehouse steel. Its steel processing and
warehousing sales are generally limited to customers in the Detroit
metropolitan area. Sales to third parties represented 89%, 78.6%, and 86.7% of
Shelby Steel's business and 1.9%, 1.2%, and 2.0% of the Company's consolidated
net sales for the fiscal years ended September 30, 1996, 1995 and 1994,
respectively.
Tube Manufacturing
Tube, a wholly-owned subsidiary of the Company, began operating its tube
manufacturing line in the Company's Kalamazoo facility in mid-1994. The
facility receives coiled steel, slits the coil to proper width and forms it
into square and rectangular tubing. The tubing produced by this facility
provides the Company with approximately 90% of its steel tubing requirements.
COMPETITION
The Company faces intense competition in the solid waste handling
equipment and dump truck bodies industries. Certain of the Company's
competitors offer as wide a range of products, have greater market share and
financial, marketing, manufacturing and other resources than the Company. At
present, the Company's order backlogs are approximately two to four weeks. In
addition, the Company believes that several of its competitors have added or
are in the process of adding additional manufacturing capacity, which could
reduce order backlogs and price levels, and consequently adversely affect the
Company. Moreover, the absence of highly sophisticated technology results in a
number of small regional companies entering the container product business
periodically and competing with the Company.
Shortly after the Company acquired the E-Z Pack business in July of 1992,
management began a project to redesign and restructure the E-Z Pack product
line in order to make it competitive in the garbage truck body market. Since
that date the Company has expended on this project approximately $2.5 million.
This program is
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now essentially complete and management believes the E-Z Pack line is firmly
positioned in the market.
Although the Company believes that its products are superior to those of
most of its competitors because of the quality and amount of steel used in its
products, consumers generally find the products relatively interchangeable.
Consequently, price, product availability and delivery, design and
manufacturing quality and service are the principal means of competition. The
Company believes that it can continue to compete and further strengthen its
competitive position through proper pricing, marketing and cost-effective
distribution of the Company's products.
The steel processing industry is also highly competitive, with quality,
price and delivery the principal means of competition. The Company believes
that it will generally continue to maintain its competitive position in the
marketplace with respect to steel processing. Shelby Steel's ability to
warehouse customers' steel attracts customers such as steel brokers who do not
maintain facilities of their own to warehouse steel.
BACKLOG AND INVENTORY
The Company generally produces solid waste handling equipment and dump
truck bodies pursuant to customer purchase orders. The Company includes in its
backlog only firm product orders, which are subject to termination at will and
rescheduling, without penalty. The Company's backlog was approximately $11.5
million and $8.6 million at September 30, 1996 and 1995, respectively.
Substantially all of the Company's backlog is delivered within four weeks of
the Company's receipt of purchase orders. Due to numerous factors, including
termination of orders, rescheduling, possible change orders and delays, which
affect production and delivery of the Company's products, there can be no
assurance as to if or when cash receipts will be recognized from the Company's
backlog. In addition, year to year comparisons of backlog are not necessarily
indicative of future operating results. Although most of the Company's sales
are based on orders for goods to be manufactured, the Company nevertheless
carries certain amounts of finished goods inventory in order to meet customer
delivery dates. In addition, from time to time, the Company manufactures units
in excess of ordered units to "round out" production runs or to maintain base
stock levels. At September 30, 1996, 1995 and 1994, the Company had inventory
of $25.6 million, $31.2 million, and $23.3 million, respectively.
EMPLOYEES
The Company had approximately 700 employees as of December 1, 1996. Sixty
of the Company's hourly employees are represented by the McClain Hourly
Employees' Union pursuant to a collective bargaining agreement which expires
September 16, 1999. The 130 hourly employees of E-Z Pack are represented by
the International Association of Machinists and Aerospace Workers Union
pursuant to a collective bargaining agreement which expires June 12, 1997. The
46 hourly employees of McClain-Ohio are represented by the International
Association of Machinists and Aerospace Workers Union pursuant to a collective
bargaining agreement which expires November 1, 1999. On February 23, 1995 the
National Labor Relations Board (the "NLRB") conducted an election in response
to a petition filed by the Shopmen's Local
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Union No. 616 of the International Association of Bridge, Structural and
Ornamental Iron Workers (AFL-CIO) (the "Union") to represent the hourly
employees at the McClain-Georgia facility in Macon, Georgia. The ballots of 11
employees were challenged as ineligible. The Union filed charges against the
Company asserting that it committed various unfair labor practices which
affected the election results and that the challenged ballots should be
counted. On October 17, 1996, the NLRB issued a Decision, Order and Direction
upholding the unfair labor practice charges, and on November 5, 1996, the NLRB
determined that the results of the election were in favor of the Union. The
Company continues to vigorously defend against the unfair labor practice
allegations. The Company does not believe a final decision upholding the Union
certification or the unfair labor practice charges would have a material
adverse affect on the Company. The Company believes that relations with the
hourly employees at McClain of Georgia are generally satisfactory. There have
been no work stoppages due to labor difficulties.
ENVIRONMENTAL
The Company's operations are subject to extensive federal, state and local
regulation under environmental laws and regulations concerning, among other
things, emissions into the air, discharges into the waters and the generation,
handling, storage, transportation, treatment and disposal of waste and other
materials. Inherent in manufacturing operations and in owning real estate is
the risk of environmental liabilities as a result of both current and past
operations, which cannot be predicted with certainty. The Company has incurred
and will continue to incur costs, on an ongoing basis, associated with
environmental regulatory compliance in its business.
State and local agencies have become increasingly active in the
environmental area. The increased regulation by multiple agencies can be
expected to increase the Company's future environmental costs. In particular,
properties under federal and state scrutiny frequently result in significant
clean-up costs and litigation expenses related to a party's clean-up
obligation. However, the Company believes that the ever-increasing waste
stream and the continuing initiatives of government authorities relating to
environmental and waste disposal problems, including restrictions on landfill
locations and operations and extensive regulation relating to the disposal of
waste, create significant opportunities for companies in the solid waste
handling equipment industry.
ITEM 2. PROPERTIES
In the aggregate, the Company owns or leases approximately 968,500 square
feet of real property located in Michigan, Ohio, Georgia, Oklahoma, Alabama and
New York. The Company owns three facilities in Michigan, three facilities in
Ohio, one facility in Georgia, one facility in Oklahoma and one facility in
Alabama. The properties that the Company owns or leases consist of the
following:
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<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FOOTAGE
------------------------ --------- -------
<S> <C> <C>
Sterling Heights, Michigan Owned 37,000
Sterling Heights, Michigan Leased 18,000
Kalamazoo, Michigan Owned 55,000
River Rouge, Michigan Owned 50,000
Galion, Ohio Owned 365,000
Winesburg, Ohio Owned 67,500
Winesburg, Ohio Owned 16,000
Winesburg, Ohio Owned 15,200
Macon, Georgia Owned 114,500
Oklahoma City, Oklahoma Owned 100,000
Demopolis, Alabama Owned 102,000
Buffalo, New York Leased 28,300
</TABLE>
The Company's main office and manufacturing facilities are located in a
37,000 square foot facility situated on 8 2/3 acres in Sterling Heights,
Michigan owned by McClain-Michigan. This facility is used to manufacture
roll-off containers, roll-off hoists and compactors. McClain-Michigan also
owns a 55,000 square foot facility located in Kalamazoo, Michigan which is home
to the Company's tube mill. Shelby Steel owns a 50,000 square foot steel
processing facility on six acres of land in River Rouge, Michigan, where all of
its operations are conducted. McClain-Michigan leases, under a verbal
month-to-month lease, an 18,000 square foot manufacturing facility also located
in Sterling Heights, Michigan from the mother of Messrs. Kenneth and Robert
McClain. This facility is used by the Company as a fabrication facility. The
monthly rental for this facility is $3,500, with the lessor responsible for the
payment of real estate taxes, assessments, insurance premiums and replacement
in case of damage by fire, and the Company responsible for maintenance of the
building. The Company believes that the terms and conditions of this lease are
comparable to the terms and conditions which would be available from an
unrelated party with respect to similar facilities, although other similarly
situated unrelated parties would, in all likelihood, require a long-term
written lease.
E-Z Pack owns three buildings comprising approximately 365,000 square feet
situated on approximately 38 acres of land in Galion, Ohio. This
three-building facility is the sole location for its manufacturing operations.
This facility manufactures front, side and rear loading garbage truck bodies
and recycling trucks. Sales's executive offices are located in one of the
Galion, Ohio buildings under a lease arrangement and McClain-Ohio leases one of
the other buildings at this location. Galion Dump Bodies owns three
manufacturing facilities (67,500, 15,200 and 16,000 square feet) situated on 20
acres of land in Winesburg, Ohio where it manufactures dump bodies and hoists.
The Company's Georgia facility is an approximately 114,500 square foot
manufacturing facility on 13.2 acres in Macon, Georgia. McClain-Georgia
manufactures roll-off containers and fabricates and processes steel for its own
use in the manufacturing process at this facility. This facility is being
reorganized to manufacture dump bodies, rear loaders and roll-off hoists to
sell principally in the Southeast.
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The Company's Oklahoma facility consists of three buildings in Oklahoma
City, aggregating 100,000 square feet. This facility is used to fabricate and
process steel for its own use and to manufacture roll-off containers.
McClain-Alabama owns an approximately 102,000 square foot manufacturing
facility in Demopolis, Alabama on approximately 84 acres of land. This
facility is used to fabricate and process steel for its own use and to
manufacture roll-off containers.
EPCO leases an approximately 28,300 square foot facility outside Buffalo,
New York, where it manufacturers balers.
McClain-Michigan's Sterling Heights, Michigan facility and McClain-Ohio's
Ohio facility are currently operating at approximately 80% of capacity. The
Oklahoma facility is currently operating at 65% of capacity. The Georgia
facility is currently operating at 60% of capacity. The Alabama facility is
currently operating at 80% capacity. The E-Z Pack portion of the Galion, Ohio
facility is currently operating at 75% of capacity. The Winesburg, Ohio
facility is currently operating at 90% of capacity. The Kalamazoo, Michigan
facility is currently operating at 60% of capacity. The EPCO facility is
currently operating at 80% capacity. The determination of the productive
capacity on each facility actually used by the Company is a function of the mix
of products being produced at such facility and the pricing of such products.
The production capacity figures set forth in this paragraph reflect the mix of
products presently produced by each facility and the present pricing of such
products. The Company enjoys expandable capacity at most of these facilities
depending on double-shifting and other performance enhancing activities.
The facilities owned and leased by the Company are well maintained and in
good operating condition. Its plants and equipment are subject to various
liens and encumbrances which collateralize certain obligations. See Notes 7
and 8 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time subject to various claims from existing
or former employees alleging gender, age or racial discrimination and
anti-union activity, none of which are expected to have a material adverse
affect on the Company. See ITEM 1. BUSINESS. Employees. In addition, as a
manufacturer of industrial products, the Company is, from time to time,
subjected to various product liability claims. Such claims typically involve
personal injury or wrongful death associated with the use or misuse of the
Company's products. While such claims have not been material to the Company in
any year and the Company believes that it maintains adequate product liability
insurance, there can be no assurance that such insurance will continue to be
available on terms acceptable to the Company. Any product liability claim not
fully covered by insurance, as well as any adverse publicity from a product
liability claim, could have a material adverse effect on the Company. The
Company is currently defending a few legal proceedings involving product
liability claims relating to McClain, Galion Dump Bodies and E-Z Pack brand
products. Galion Holding purchased the business now conducted by Galion Dump
Bodies and E-Z Pack from the Peabody Galion Division of Peabody International
Corporation ("Peabody"). Pursuant to an
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indemnification Galion Holding provided Peabody in connection with the
acquisition, it is currently defending a number of legal proceedings involving
product liability claims arising out of products manufactured by Peabody prior
to the date of the acquisition. These claims are also covered by insurance.
Although the Company has already settled many of these cases and the Company
believes that it can continue to successfully resolve these product liability
claims, there can be no assurance that the Company can continue to do so. The
Company is not presently a party to any material legal proceedings except as
described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded and quoted on the Nasdaq National
Market ("Nasdaq/NMS") under the trading symbol "MCCL." The following table
sets forth, for the periods indicated, the high and low sales prices for the
Common Stock as reported by Nasdaq/NMS. These per share quotations represent
inter-dealer prices on the Nasdaq/NMS, and do not include retail mark-ups or
commissions.
<TABLE>
<CAPTION>
SALES PRICE
OF
COMMON STOCK
--------------
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter(1)................ 9.1825 6.750
Second Quarter(1)............... 8.625 4.969
Third Quarter................... 8.75 7.125
Fourth Quarter.................. 7.88 6.38
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter................... 7.00 3.375
Second Quarter.................. 5.00 3.50
Third Quarter................... 6.125 3.875
Fourth Quarter.................. 6.50 4.875
</TABLE>
(1) Adjusted to reflect a 4-for-3 stock split
effective February 28, 1995
On December 5, 1996, the last reported sales price for the Common Stock as
reported by Nasdaq/NMS was $5.25. As of such date there were approximately 247
12
<PAGE> 13
holders of record of the Common Stock. The Company believes there are a
substantial number of beneficial owners of the Company's Common Stock whose
shares are held in street name. The Company has never paid any cash dividends.
The payment of dividends by the Company is within the discretion of the Board
of Directors and will depend on the Company's earnings, its capital
requirements and financial condition, as well as other relevant factors. The
Board of Directors does not intend to declare any dividends in the foreseeable
future, but instead intends to retain earnings for use in the Company's
operations.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's last five fiscal years
ended September 30 are as follows:
<TABLE>
<CAPTION>
=========================================================================================================
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $84,680,797 $82,263,202 $79,166,990 $61,794,822 $31,895,313
Net Income $ 2,384,957 $ 2,462,755 $ 3,250,996 $ 2,110,838 $ 1,190,385
Net Earnings Per
Common and Common
Equivalent Share (1)(2) $ .50 $ .53 $ .71 $ .51 $ .30
<CAPTION>
AS OF SEPTEMBER 30,
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working Capital $32,371,639 $33,868,556 $21,997,601 $10,664,115 $12,577,620
Total Assets $79,425,255 $73,899,197 $58,189,747 $49,562,268 $36,014,382
Long-Term Debt $34,217,149 $31,170,287 $18,039,869 $ 7,022,215 $ 4,814,324
Stockholders'
Investment $25,457,255 $22,841,274 $19,359,709 $15,794,210 $11,707,722
Weighted Average
Number of Common
Equivalent Shares
Outstanding (1)(2) 4,752,050 4,657,476 4,608,137 4,104,076 3,921,769
Current Ratio 3.18:1 3.37:1 2.49:1 1.55:1 2.20:1
Long Term Debt to
Equity 1.34:1 1.36:1 0.93:1 0.44:1 0.41:1
=========================================================================================================
</TABLE>
(1) Average number of shares outstanding includes, as appropriate,
adjustments for the effect of common stock equivalents.
(2) Adjusted to reflect a 4-for-3 stock split effective February 28, 1995.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
consolidated financial statements, including the notes to them, appearing
elsewhere in this report.
The following table presents, as a percentage of net sales, certain
selected financial data for the Company for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Sales 79.07 77.68 78.12 78.13 75.23
-------- ------- ------- ------- -------
Gross Profit 20.93 22.32 21.88 21.87 24.77
Selling, General & Administrative
Expenses 13.31 14.19 13.48 15.00 15.74
-------- ------- ------- ------- -------
Operating Profit 7.62 8.13 8.40 6.87 9.03
Other Expense 3.35 3.59 2.19 2.18 3.01
-------- ------- ------- ------- -------
Income Before Income Taxes 4.27 4.54 6.21 4.69 6.02
Income Taxes 1.45 1.55 2.09 1.27 2.29
-------- ------- ------- ------- -------
Net Income 2.82% 2.99% 4.12% 3.42% 3.73%
======== ======= ======= ======= =======
</TABLE>
The Company manufactures dump truck bodies and a variety of solid waste
handling products including: (i) detachable roll-off waste containers
("roll-off containers") and hydraulically operated roll-off hoist tilt truck
frames used to load, transport and dump roll-off containers ("roll-off
hoists"); (ii) intermodal waste containers designed for interchangeable use on
trucks, trains and ships ("intermodals"); (iii) water-tight and sludge
detachable roll-off waste containers designed to handle wet waste and slurry
type waste, respectively; (iv) compactors, unitized compactor/roll-off
container systems ("unitized compaction systems"), and balers; (v) an
assortment of front, rear and side loading garbage truck bodies; (vi) recycling
truck bodies; and (vii) transfer trailers used to transport compacted solid
waste from transfer stations to landfills or incinerators.
RESULTS OF OPERATIONS
Comparison of year ended September 30, 1996 to year ended September 30, 1995
Net sales for the fiscal year ended September 30, 1996 amounted to $84.7
million compared to sales of $82.3 million for the fiscal year ended September
30, 1995, an increase of 2.93%. This increase in Fiscal 1996 sales was due
primarily to an increase of $4.0 million in baler sales resulting from the EPCO
acquisition in late Fiscal
14
<PAGE> 15
1995. Sales of the Company's other products remained essentially stable
during Fiscal 1996.
Gross profit as a percentage of sales declined to 20.93% for Fiscal 1996
from 22.32% for Fiscal 1995. This decline was due largely to the Company's
inventory reduction program, increased price competition in the solid waste
industry, and certain manufacturing inefficiencies at the Georgia and the
McClain-Ohio facilities. The union organizing efforts in the Georgia facility
(see ITEM 3. LEGAL PROCEEDINGS) caused significant manufacturing inefficiencies
during the past year at that plant, while the manufacturing inefficiencies at
the McClain-Ohio facility resulted from a failure to rapidly adjust its work
force during the first half of the year to compensate for the oversupply of
trailers which began during Fiscal 1995. Management expects that the
reorganization of the Georgia plant will result in an acceptable efficiency
level. The inventory reduction program, begun during March 1996, resulted in a
$5.65 million reduction in inventory levels at September 30, 1996. Management
believes that this program will have a positive effect on both interest expense
and the normal carrying costs associated with inventory during Fiscal 1997.
Selling, general and administrative expenses declined to 13.31% as a
percentage of net sales during Fiscal 1996 compared to 14.19% for Fiscal 1995.
Interest expense increased to 3.59% of net sales during Fiscal 1996 compared to
3.01% during Fiscal 1995. The increase in interest expense resulted from
greater borrowing to fund the Company's increased leasing activities and the
cost of carrying the inventory built up during Fiscal 1995.
Comparison of year ended September 30, 1995 to year ended September 30, 1994
Net sales for the fiscal year ended September 30, 1995 reached $82.3
million reflecting a 3.91% increase over sales for Fiscal 1994 of $79.2
million. This increase in sales for Fiscal 1995 was attributable to container
sales, exclusive of intermodal and sludge containers, increasing by $2.8
million for the period and garbage and recycling truck bodies sales increasing
by $3.6 million for the period. Sales of other product lines remained static
or declined in comparison to Fiscal 1994; most notably trailer sales which
declined $2.3 million and intermodal and sludge containers sales which declined
$1.8 million. The decline in trailer sales is attributable to a temporary over
supply of trailers by end users and a restructuring of the Company's sales
force. Management expects the restructuring of the trailer sales force to have
a positive effect on sales commencing in the second quarter of Fiscal 1996.
The decline in intermodal and sludge containers sales is primarily due to an
over supply of intermodal and sludge containers in rental fleet markets.
Gross profit as a percentage of net sales was 22.32% for Fiscal 1995
compared to 21.88% for 1994. The gross profit margins for Fiscal 1995 are
lower than originally forecasted as a result of increased costs incurred for
raw materials, principally steel and aluminum which were not fully recoverable
due to intense pricing competition within the Solid Waste Industry, and
start-up expenses incurred in transferring production of one of the product
lines from one manufacturing facility to another facility. Steel prices
declined in the latter part of the fourth quarter of Fiscal 1995 and this
decline is
15
<PAGE> 16
expected to have a positive effect on gross profit margins in the
latter part of the first quarter of Fiscal 1996.
Selling, general and administrative expenses as a percentage of net sales
increased modestly to 14.19% for Fiscal 1995 compared to 13.48% for Fiscal
1994. Interest expense as a percentage of net sales increased to 3.01% of net
sales for Fiscal 1995 compared to 1.67% of net sales in Fiscal 1994 as a result
of increased long-term debt. The increase in long-term debt resulted from
acquiring approximately $4 million of fixed assets and supporting higher
inventory. Machinery and equipment was acquired to replace existing equipment
to enhance productivity levels. Higher inventories of raw materials and
supplies were maintained in order to be more responsive to customer needs and
to reduce delivery time of finished goods. Net income as a percentage of net
sales was 2.99% for Fiscal 1995 compared to 4.12% for Fiscal 1994. The decline
in net income is attributable to increased interest expense and increased
prices of raw materials which were not recoverable through higher selling
prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company's required level of working capital during Fiscal 1996 was
consistent with that of Fiscal 1995, while long-term debt continued to increase
due primarily to the Company's increased leasing activity and its on-going
commitment to increased production efficiency by properly maintaining and
upgrading its production facilities and machinery and equipment.
The Company had working capital of approximately $32.4 million at
September 30, 1996, compared to $33.9 million at September 30, 1995. The ratio
of the Company's current assets to its current liabilities was 3.18:1 at
September 30, 1996 compared to 3.37:1 at September 30, 1995. The Company's
cash and short term investments totaled $1.1 million at September 30, 1996.
Cash flows provided by operating activities were $6.0 million during Fiscal
1996 due primarily to the success of the Company's inventory reduction program.
The Company also invested approximately $2.0 million in new machinery and
equipment during Fiscal 1996. The Company's leasing subsidiary financed
approximately $3 million of new leases in Fiscal 1996.
The Company has several Revolving Credit Facilities with Standard Federal
Bank, a federal savings bank ("Standard"), which provide maximum availability
of $21 million for working capital needs and $1.5 million to fund demonstration
equipment. At September 30, 1996, the Company had borrowed approximately $15.9
million under the working capital line and $1.1 million under the demonstrator
line. Borrowings under the working capital line are limited to 80% of eligible
accounts receivable and 50% of qualified inventory while the demonstrator line
is limited to 85% of related equipment.
The Company also has a Revolving Credit Facility with Standard used to
finance certain of its lease receivables. The agreement calls for a maximum
availability of $7.5 million with borrowings limited to 80% of eligible lease
receivables. At September 30, 1996 approximately $5.1 million had been drawn
on this facility.
16
<PAGE> 17
All borrowings with Standard are secured by substantially all of the
assets of the Company. In addition, the loans contain various covenants
including those requiring the Company to maintain certain current ratios, levels
of tangible net worth and debt ratios, and restricting the amount of capital
expenditures the Company may make each year. The revolving credit
agreements bear interest at prime and expire in March 1998, at which time the
Company expects to obtain renewals on the same or similar terms.
The Company has agreements with two financial institutions to provide
financing for its TRAC (Terminal Rental Adjustment Clause) Leasing Agreements.
The agreements call for maximum availability of $8 million in lease
commitments. Under these facilities, the Company may finance 100% of eligible
lease receivables over the term of the related lease at a fixed interest rate
determined at the time of the lease closing. The notes are secured by the
related lease receivable. At September 30, 1996, approximately $2.5 million
had been drawn on this facility.
The Company believes that the available credit under its debt facilities,
together with cash generated from the Company's operations, will be adequate to
meet the Company's working capital requirements for the next 12 months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are filed herewith under Item
14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no changes in the Company's independent public accountants
during the past two fiscal years and the Company does not disagree with such
accountants on any matter of accounting principles, practices or financial
statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
DATE
SERVICE
NAME AGE OFFICE BEGAN
---- --- ------ -----------
<S> <C> <C> <C>
Kenneth D. McClain(1) 55 Chairman of the Board, Chief
Executive Officer and President 3/68
Robert W. McClain(1) 60 Senior Vice President, Assistant
Secretary and Director 3/68
Raymond Elliott 62 Director 8/90
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
Walter J. Kirchberger 61 Director 11/95
Carl Jaworski 53 Secretary and Treasurer 10/72
</TABLE>
(1) Kenneth D. McClain and Robert W. McClain are brothers.
KENNETH D. MCCLAIN is Chairman of the Board and President of the Company.
He has been a director and officer of the Company since its inception in March
1968. He also serves as Vice President and a director of Shelby Steel and
President and a director of McClain-Georgia. Mr. McClain is also a director
and the Chairman of the Board of Galion Holding, E-Z Pack, Galion Dump Bodies
and Sales
ROBERT W. MCCLAIN is Senior Vice President and Assistant Secretary of the
Company. He has been a director and officer of the Company since its inception
in March 1968. He also serves as President of Shelby Steel and Vice President
of McClain-Georgia.
RAYMOND ELLIOTT has been a director of the Company since August 1990. He
has been President and a director of Elliott & Sons Insurance Agency, Inc. and
Michigan Benefit Plans Insurance Agency, Inc. since 1967. Mr. Elliott also
serves as a director of the Boys and Girls Club of Troy, a charitable
organization located in Troy, Michigan.
WALTER J. KIRCHBERGER was elected to fill a vacancy in the Board of
Directors resulting from the return of Peter Sugar to his former law firm which
serves as general counsel to the Company. Mr. Kirchberger is First Vice
President - Research of PaineWebber Incorporated, and has served in such
capacity for more than 25 years. He also serves as a director of Simpson
Industries, Inc.
CARL JAWORSKI is Secretary and Treasurer of the Company. He has served as
Secretary since October 1972. He was elected Treasurer of the Company
effective March 31, 1996, the date on which the Company's previous treasurer
resigned. Mr. Jaworski was also a director and the Treasurer of the Company
from October 1972 until April 1992. Mr. Jaworski also serves as Treasurer,
Secretary and a director of Shelby Steel and Treasurer and Secretary of
McClain-Georgia. Mr. Jaworski is the Secretary of E-Z Pack, the Treasurer of
Galion Dump Bodies and a Vice President and Secretary of Sales.
The Company is required to identify each person who was an officer,
director or beneficial owner of more than 10% of the Company's registered
equity securities during the Company's most recent fiscal year and who failed
to file on a timely basis reports required by Section 16(a) of the Securities
Exchange Act of 1934. Based solely upon its review of copies of such reports
received by it during or with respect to the fiscal year ended September 30,
1996, the Company believes that all officers, directors and beneficial owners
of more than 10% of the Company's registered equity securities timely filed all
required reports.
18
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following tables set forth all cash compensation paid to the Chief
Executive Officer of the Company and the only other executive officer whose
total annual salary and bonus from the Company exceeded $100,000 during the
fiscal year ended September 30, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Annual Compensation Long Term
Compensation
- ------------------------------------------------------------------------------------
Name and Fiscal Salary Options/
Principal Position Year Amount($) SARs(#)
- ------------------------------------ ------- --------- ----------
<S> <C> <C> <C>
Kenneth D. McClain, President/ CEO 1996 $275,000 ---
1995 219,675 13,333
1994 194,250 26,666
Robert W. McClain, Senior Vice
President 1996 $246,832 ---
1995 216,582 6,666
1994 191,250 22,666
===== ======== ========
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUES TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Shares
Acquired No. of Unexercised Value of Unexercised
on Exercise Value Options/SARs at In-The-Money Options/SARs at
in 1996 Realized Fiscal Year-End Fiscal Year-End(2)
------------------------------------------------------------
Not Not
Exercisable Exercisable(1) Exercisable Exercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. McClain 4,135 -0- 18,086 17,778 $ -0- $ -0-
Robert W. McClain 2,064 -0- 15,268 12,000 $ -0- $ -0-
</TABLE>
19
<PAGE> 20
(1) Stock options granted April 18, 1994 pursuant to the Company's
1989 Incentive Stock Plan (the "Incentive Plan"). Options must be
exercised by April 17, 1999. Exercise price is $6.56 per share.
(2) Value based on the average of the September 30, 1996 closing
bid high and low price which was $5.75 per share.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive compensation
for serving on the Board or on the Board's committees. Directors who are not
employees of the Company are entitled to a quarterly retainer fee of $3,250, a
$1,000 fee for each regular or special meeting of the Board and a $1,000 fee
for each committee meeting attended on a day other than a regular or special
Board meeting date (collectively, the "Fees"). A Director may elect to
receive payment of the Fees in shares of Common Stock pursuant to the
Company's 1989 Retainer Stock Plan for Non-Employee Directors (the "Retainer
Plan"). To participate in the Retainer Plan, an eligible director must elect
prior to December 31 of each year the percentage, if any, of Fees he desires
to receive in the form of shares of Common Stock. The Common Stock is issued
quarterly during the following calendar year. The number of shares of Common
Stock to be issued to an eligible director is determined by dividing the
dollar amount of the percentage of fees such director elects to receive in
Common Stock by the "fair market value" of Common Stock on the day prior to
the date of issuance of the Common Stock to such director. The term "fair
market value" means the average of the highest and lowest selling price for
the Common Stock as quoted on Nasdaq/NMS for the day prior to the date of
issuance or for the first date prior to the date of issuance for which shares
of Common Stock are quoted, if not quoted on the day prior to the date of
issuance. Any fractional share of Common Stock derived from such calculation
is paid in cash.
The aggregate fair market value of the shares of Common Stock issued to
any eligible director in a given year cannot exceed 100% of such eligible
director's fees. Fees may not be increased more often than annually.
For the fiscal year ended September 30, 1996, 3,303 shares of Common Stock
were issued under the Retainer Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 5,1996, certain information
regarding the beneficial ownership of Common Stock, of: (i) each person known
to the Company to be the beneficial owner of more than five (5%) percent of the
Common Stock; (ii) each director of the Company; (iii) each executive officer
listed in the Summary Compensation Table; and (iv) all executive officers and
directors of the Company as a group, based upon information available to the
Company.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2)
- ------------------- ------------ -----------
<S> <C> <C>
Kenneth D. McClain
6200 Elmridge Road
Sterling Heights, MI 48310 1,511,481(3) 32.20%
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OUTSTANDING
OF BENEFICIAL OWNER OWNERSHIP(1) SHARES(2)
- ------------------- ------------ -----------
<S> <C> <C>
Robert W. McClain
6200 Elmridge Road
Sterling Heights, MI 48310 1,126,788(4) 24.00%
June McClain
68333 DeQuindre
Oakland, MI 48368 337,178 7.18%
Lisa McClain Pfeil(5)
67667 Sisson
Romeo, MI 48065 310,474 6.61%
Raymond Elliott
290 Town Center
P.O. Box 890
Troy, Michigan 48084 9,879 0.21%
Walter Kirchberger
2301 West Big Beaver Rd., Suite 800
Troy, Michigan 48084 1,407 0.03%
All current executive officers and
directors as a group (5 persons) 2,764,048(6) 58.89%
</TABLE>
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares that such person has a right to acquire within 60
days.
(2) Based on 4,693,916 shares of Common Stock issued and outstanding as of
December 5, 1996. In addition, for purposes of computing the percentage
of outstanding shares held by each person or group of persons named above,
any security that such person or persons has or have the right to acquire
within 60 days is also deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Includes 2,430 shares of Common Stock owned by Kenneth D. McClain's wife.
Mr. McClain disclaims beneficial ownership of these shares.
(4) Includes 337,178 shares of Common Stock owned by Robert W. McClain's
wife. Mr. McClain disclaims beneficial ownership of these shares.
(5) Of the shares beneficially owned by Mrs. Pfeil, 305,098 are held of
record by an irrevocable trust for her benefit. Mrs. Pfeil is the
daughter of Kenneth D. McClain.
(6) Includes 60,686 shares which executive officers and directors have the
right to acquire pursuant to stock options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 2, 1993, the Company consummated the purchase of three
facilities which it had been leasing from three different entities controlled
by certain officers and directors of the Company, including its main Sterling
Heights, Michigan facility, its Kalamazoo, Michigan facility and its Macon,
Georgia facility. In each instance, the Company paid the purchase price by
issuing shares of Common Stock and assuming existing mortgages on the
facilities. The purchase prices were determined by the
21
<PAGE> 22
Company's Board of Directors on the basis of independent appraisals of the
facilities. The stock issued was valued at $5.40 per share, based on the market
price for shares of Common Stock as of March 29, 1993, the date that definitive
purchase agreements for the facilities were executed. These shares are
restricted within the meaning of Rule 144 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), meaning that it cannot be resold
unless registered under the Securities Act, or in a transaction which is exempt
from such registration. The seller of each facility owned the facility for more
than two years before the sale.
In November 1994, in connection with a contemplated public offering of its
Common Stock, the Company agreed to value the shares issued in exchange for
these facilities at a price based on the market value of shares of Common Stock
as of August 2, 1993, the date these transactions were consummated. This
revision gave effect to the fact that the shares had increased in value by
$504,000 from March 29, 1993. Messrs. Kenneth and Robert McClain have agreed
to pay this amount to the Company, with interest at Standard's prime rate, in
five equal principal installments with accrued interest, commencing September
30, 1995.
The Company leases one of its facilities from the mother of Messrs.
Kenneth and Robert McClain. See "Properties." The Company believes that the
terms and conditions of this lease are comparable to those available from an
unrelated party with respect to similar facilities. See also Note 13 of Notes
to Consolidated Financial Statements.
The Company had sales of approximately $660,000 in Fiscal 1996 to McClain
Leasing Corporation, an entity controlled by certain officers and directors of
the Company.
Elliott & Sons Insurance Agency, Inc. and Michigan Benefit Plans, Inc.,
entities controlled by Raymond Elliott, a director of the Company, provided
insurance to the Company during Fiscal 1996. Sales from these entities to the
Company aggregated approximately $1.2 million during Fiscal 1996, for which
these entities received fees and commissions in the approximate amount of
$120,000.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form 10-K:
(1) A list of the financial statements required to be filed as a
part of this Form 10-K is shown in the "Index to the Consolidated
Financial Statements and Schedules" filed herewith.
22
<PAGE> 23
(2) A list of financial statement schedules required to be filed
as a part of this Form 10-K is shown in the "Index to the
Consolidated Financial Statements and Schedules" filed herewith.
(3) A list of the exhibits required by Item 601 of Regulation S-K
to be filed as a part of this Form 10-K is shown on the "Index to
Exhibits" filed herewith.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K during September 1996 regarding
its acquisition of the Demopolis, Alabama facility.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: December 13, 1996 McCLAIN INDUSTRIES, INC.
By:/s/ Kenneth D. McClain
-------------------------------------
Kenneth D. McClain , President
(Principal Executive Officer)
And By:/s/ Carl Jaworski
-------------------------------------
Carl Jaworski, Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: December 13, 1996 /s/ Kenneth D. McClain
-------------------------------
Kenneth D. McClain, Director
Dated: December 13, 1996 /s/ Robert W. McClain
-------------------------------
Robert W. McClain, Director
Dated: December 13, 1996 /s/ Raymond Elliott
--------------------------------
Raymond Elliott, Director
Dated: December 13, 1996 /s/ Walter J. Kirchberger
--------------------------------
Walter J. Kirchberger, Director
24
<PAGE> 25
SECURITIES AND EXCHANGE COMMISSION
- -----------------------------------------------------------------------------
Washington, D. C.
Form 10-K
----
For Corporations
ANNUAL REPORT
-------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 and 1994
-----------------------------------------------------
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
-----------------------------------------
(NAME OF REGISTRANT)
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
AND
---
INDEPENDENT AUDITORS' REPORT
----------------------------
-25-
<PAGE> 26
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - September 30, 1996 and September 30, 1995
Consolidated Statements of Income for the years ended September 30, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Investment for the years ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended September 30, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULES
The information required to be submitted in Schedule II is included in the
consolidated financial statements and notes thereto.
The following schedules are omitted as not required or not applicable:
I, III, IV and V.
-26-
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
McClain Industries, Inc. and Subsidiaries
Sterling Heights, Michigan
We have audited the accompanying consolidated balance sheets of McClain
Industries, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of income, stockholders' investment, and cash
flows for each of the three years in the period ended September 30, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of McClain Industries,
Inc. and Subsidiaries as of September 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
REHMANN ROBSON
Farmington Hills, Michigan
December 20, 1996
-27-
<PAGE> 28
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,065,039 $ 1,173,370
Accounts receivable, net of allowance for doubtful accounts
of $600,000 in 1996 and 1995 (Notes 4, 7 and 8) 18,502,950 14,284,478
Inventory (Notes 5, 7 and 8) 25,577,000 31,229,399
Net investment in sales-type leases, current portion 1,910,000 1,305,800
Prepaid expenses 191,645 176,075
----------- -----------
TOTAL CURRENT ASSETS 47,246,634 48,169,122
----------- -----------
PLANT AND EQUIPMENT (NOTES 7 AND 8)
Land 2,233,906 1,895,367
Buildings 11,271,975 9,701,280
Storage areas 1,601,190 1,518,928
Machinery and equipment 18,835,127 16,448,110
Furniture and fixtures 2,254,177 1,644,569
Transportation equipment 1,376,963 1,407,063
Leasehold improvements 574,184 462,818
----------- -----------
Total 38,147,522 33,078,135
Less accumulated depreciation and amortization 13,899,589 11,894,922
----------- -----------
NET PLANT AND EQUIPMENT 24,247,933 21,183,213
----------- -----------
OTHER ASSETS
Net investment in sales-type leases, net of
current portion (Notes 6 and 7) 3,706,350 2,255,164
Goodwill, net of amortization (Note 1) 3,453,772 1,737,921
Other 390,141 553,777
Equipment under construction (Note 15) 380,425 -
----------- -----------
TOTAL OTHER ASSETS 7,930,688 4,546,862
----------- -----------
TOTAL ASSETS $79,425,255 $73,899,197
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $10,547,642 $ 9,190,309
Current portion of long-term debt 2,132,201 2,179,449
Accrued expenses (Note 9) 2,165,869 2,331,809
Federal and state income taxes 29,283 598,999
----------- -----------
TOTAL CURRENT LIABILITIES 14,874,995 14,300,566
Long-term debt, net of current portion (Note 8) 34,217,149 31,170,287
Product liability (Note 15) 2,775,856 4,147,070
Deferred income taxes (Note 10) 2,100,000 1,440,000
----------- -----------
TOTAL LIABILITIES 53,968,000 51,057,923
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' INVESTMENT
Common stock, no par value, authorized 10,000,000 shares;
issued and outstanding, 4,693,916 shares
(4,587,744 shares in 1995) 5,803,870 5,572,846
Retained earnings 20,157,385 17,772,428
Less amount due from officers (Note 13) (504,000) (504,000)
----------- -----------
TOTAL STOCKHOLDERS' INVESTMENT 25,457,255 22,841,274
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $79,425,255 $73,899,197
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-28-
<PAGE> 29
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
----------- ------------ -----------
<S> <C> <C> <C>
Net sales $84,680,797 $82,263,202 $79,166,990
Cost of sales 66,959,726 63,901,196 61,843,845
----------- ------------ ------------
GROSS PROFIT 17,721,071 18,362,006 17,323,145
Selling, general and administrative expenses 11,273,491 11,673,686 10,674,043
----------- ------------ ------------
OPERATING PROFIT 6,447,580 6,688,320 6,649,102
----------- ------------ ------------
OTHER INCOME (EXPENSE)
Interest (3,044,398) (2,478,350) (1,321,533)
Other, net (Note 12) 211,775 (473,215) (412,873)
----------- ------------ ------------
OTHER EXPENSE, NET (2,832,623) (2,951,565) (1,734,406)
----------- ------------ ------------
INCOME BEFORE INCOME TAXES 3,614,957 3,736,755 4,914,696
Income taxes (Note 10) 1,230,000 1,274,000 1,663,700
----------- ------------ ------------
NET INCOME $ 2,384,957 $ 2,462,755 $ 3,250,996
=========== =========== ===========
Net income per common and
common equivalent shares $0.50 $0.53 $0.71
===== ===== =====
Weighted average number of common
and common equivalent shares outstanding
(Note 1) 4,752,050 4,657,476 4,608,137
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE> 30
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK AMOUNT
------------------------ RETAINED DUE FROM
SHARES AMOUNT EARNINGS OFFICERS TOTALS
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1993 4,320,967 $4,239,533 $12,058,677 $(504,000) $15,794,210
Proceeds from common
stock issued (Note 14) 124,000 296,450 - - 296,450
Common stock issued in
lieu of cash (Note 14) 2,193 18,053 - - 18,053
Net income - - 3,250,996 - 3,250,996
--------- ---------- ----------- ---------- -----------
Balance at September 30,
1994 4,447,160 4,554,036 15,309,673 (504,000) 19,359,709
Proceeds from common
stock issued (Note 14) 3,416 8,389 - - 8,389
Common stock issued in
lieu of cash (Note 14) 1,565 11,510 - - 11,510
Redemption of fractional
shares (98) (1,089) - - (1,089)
Common stock issued in
connection with EPCO
acquisition (Notes 2 and 3) 135,701 1,000,000 - - 1,000,000
Net income - - 2,462,755 - 2,462,755
--------- ---------- ----------- ---------- -----------
Balance at September 30,
1995 4,587,744 5,572,846 17,772,428 (504,000) 22,841,274
Proceeds from common
stock issued (Note 14) 134,244 359,411 - - 359,411
Common stock issued in
lieu of cash (Note 14) 3,555 18,613 - - 18,613
Redemptions of common
stock (Note 15) (31,627) (147,000) - - (147,000)
Net income - - 2,384,957 - 2,384,957
--------- ---------- ----------- ---------- -----------
Balance at September 30,
1996 4,693,916 $5,803,870 $20,157,385 $(504,000) $25,457,255
========= ========== =========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
-30-
<PAGE> 31
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,384,957 $2,462,755 $3,250,996
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 2,550,935 2,179,992 1,936,191
Deferred income taxes 660,000 375,000 709,700
Provision for doubtful accounts 49,400 205,000 276,610
Loss on sale of plant and equipment 3,981 22,067 24,672
Common stock issued for services 18,613 11,510 18,053
Net changes in operating assets and liabilities
which provided (used) cash, net of effects in
1996 and 1995 of business acquisitions:
Accounts receivable (3,987,569) (3,067,591) (1,217,437)
Inventories 6,072,095 (7,721,234) (4,895,119)
Net investment in sales-type leases (2,055,386) (1,684,275) (345,126)
Prepaid expenses and other assets (300,974) (195,718) (234,104)
Accounts payable 1,357,333 (1,909,327) 2,202,094
Accrued expenses (735,656) 277,852 (784,335)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,017,729 (9,043,969) 942,195
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (1,991,316) (3,995,109) (3,079,553)
Payments on liabilities assumed upon the
Galion acquisition (1,371,214) (809,902) (1,092,532)
Proceeds from sale of plant and equipment 22,331 30,112 33,869
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,340,199) (4,774,899) (4,138,216)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 2,139,126 22,927,180 6,354,350
Repayments of long-term borrowings (5,137,398) (9,639,955) (2,223,270)
Sale of common stock under stock option plan 359,411 8,389 296,450
Redemption of common stock (147,000) (1,089) -
---------- ---------- ----------
Net cash (used in) provided by financing activities (2,785,861) 13,294,525 4,427,530
---------- ---------- ----------
Net (decrease) increase in cash and
cash equivalents (108,331) (524,343) 1,231,509
Cash and cash equivalents, beginning of year 1,173,370 1,697,713 466,204
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,065,039 $1,173,370 $1,697,713
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-31-
<PAGE> 32
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
McClain Industries, Inc. and its wholly-owned subsidiaries (the
"Company") manufacture and sell a diversified line of dump truck
bodies (assemblies attached to truck frames which are used to carry
and dump solid materials such as dirt, gravel or waste materials) and
solid waste handling equipment (including containers, compactors and
baling equipment, garbage and recycling truck bodies, and transfer
trailers) used for the temporary storage, transportation and
compaction of residential, commercial and industrial waste and
recycling materials. The Company sells its dump truck bodies
primarily to truck equipment dealers and its solid waste handling
equipment primarily to distributors, solid waste handling companies,
government agencies, shopping centers and other large retail outlets
principally within the United States. In addition, the Company
provides coiled steel cutting and warehousing services for its own
manufacturing operations in order to reduce its processed steel
expense (one of its major cost components) and, on a limited basis,
for sale to third-party customers.
Concentration Risks
The Company grants trade credit to its customers in the normal course
of business. No collateral is required. Concentrations of credit
risk with respect to trade receivables are limited due to the
relatively large number of customers comprising the Company's customer
base and its geographic dispersion. The Company maintains reserves
for potential credit losses and such losses have historically been
insignificant and generally within management's expectations.
The Company currently procures all of its extruded aluminum, which is
used in the manufacture of transfer trailers, from one source. The
Company is unaware of other potential providers of extruded aluminum
which meet the Company's production requirements. The loss of this
supplier could adversely affect the Company's short-term operating
results.
Principles of Consolidation
The consolidated financial statements include the accounts of McClain
Industries, Inc., and its wholly-owned subsidiaries (Galion Holding
Company, Shelby Steel Processing Co., McClain of Georgia, Inc.,
McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain of Alabama,
Inc., McClain EPCO, Inc., McClain Group Leasing, Inc., McClain Tube
Company, McClain International FSC, Inc., an international sales
corporation, and McClain Group Sales, Inc., a corporation owned
jointly by McClain Industries, Inc. and the two operating subsidiaries
of Galion Holding Company). All significant intercompany accounts and
transactions have been eliminated.
In August 1996, McClain of Alabama, Inc. was formed and acquired a
roll-off container manufacturing facility (Note 2).
In July 1995, the Company acquired and began operating a wholly-owned
subsidiary, McClain EPCO, Inc., a business incorporated in the State
of New York (Note 2).
-32-
<PAGE> 33
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates include but are not limited to product
liability, goodwill amortization and the allowance for doubtful
receivables.
Inventories
Inventories are stated at the lower of cost or market. The LIFO
(last-in, first-out) method is utilized for certain inventories, while
the FIFO (first-in, first-out) method is utilized for the remaining
inventories.
Plant and Equipment
Plant and equipment are recorded in the accounts at cost which does
not purport to represent replacement cost or realizable value.
Depreciation is provided at annual rates sufficient to allocate the
cost of the assets over their estimated useful lives.
The principal estimated useful lives are summarized as follows:
<TABLE>
<S> <C>
Buildings 20-30 years
Storage areas 5-10 years
Machinery and equipment 4-30 years
Furniture and fixtures 5-10 years
Transportation equipment 3-10 years
Leaseholds 5-20 years
</TABLE>
Depreciation and amortization are computed primarily using the
straight-line method for financial reporting purposes and accelerated
methods for federal income tax purposes.
The cost of properties retired or otherwise disposed of and the
accumulated depreciation and amortization thereon are eliminated from
the accounts at the time of retirement, and the resulting gain or loss
is taken into income. Maintenance and repairs are charged against
income as incurred, and renewals and betterments are capitalized.
-33-
<PAGE> 34
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in
the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the year plus or minus
the change during the year in deferred tax assets and liabilities.
Deferred income taxes arise from temporary basis differences
principally related to inventory, product liability, and plant and
equipment.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits in banks. The
Company maintains certain bank accounts which hold balances in excess
of the Federal Deposit Insurance Corporation insured limit of
$100,000.
Sales-Type Leases
The Company, through McClain Group Leasing, Inc., offers lease
financing to certain purchasers of the Company's products. These
leases meet the criteria for classification as capitalized leases and
are accounted for as sales-type leases. Accordingly, an investment is
reflected on the accompanying balance sheets in an amount equal to the
gross minimum lease payments receivable less unearned finance income.
Unearned finance income is amortized in such a manner as to produce a
constant periodic rate of return on the net investment in the lease.
Goodwill
Goodwill representing the purchase price in excess of the fair values
of net assets acquired is amortized by direct charges to its carrying
value. The amortization period is estimated based upon management's
judgements and generally ranges from 5 to 40 years. Accumulated
amortization as of September 30, 1996 and 1995 was $174,053 and
$116,155, respectively.
A significant portion of goodwill attributable to certain business
combinations has arisen in recent years. While management believes
that these costs will be recovered from the profitable operating of
these businesses in the future, a change in the estimates of the
applicable recovery periods or the development of unfavorable business
conditions pertinent to these operations could adversely affect the
Company's operating results.
-34-
<PAGE> 35
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Common Stock Issued for Services
Common stock is issued from time to time in lieu of cash for services
provided to the Company and is recorded as compensation expense at
generally the fair value on the date of issuance.
Earnings Per Common and Common Equivalent Shares
Earnings per common and common equivalent shares were calculated using
the weighted average number of common shares and common stock
equivalents outstanding during the year. The number of common shares
was increased by the number of shares issuable on the exercise of
stock options when the market price of the common stock exceeds the
option price granted. This increase in the number of common shares
was reduced by the number of common shares that were assumed to have
been purchased with the proceeds from the exercise of the stock
options; those purchases were assumed to have been made at the average
price of the common stock during the year.
Fair Values of Financial Instruments
The carrying amount of cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their fair values due to the
short-term maturity of these financial instruments. The carrying
amounts of long-term debt approximate their fair values because the
interest rates are representative of, or change with, market rates.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No 121, "Accounting
for the Impairment of Long-Term Assets and for Long-Lived Assets to be
Disposed Of". The Statement requires that long- lived assets and
certain intangibles to be held and used by the Company be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. The Company
will adopt this pronouncement during the quarter beginning October 1,
1996. Such adoption is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which encourages, but does not require, a
change in the way compensation cost arising from stock options granted
is measured. The Company plans to continue to apply the existing
accounting policy contained in Accounting Principles Board Opinion No.
25, which requires no recognition of compensation expense for stock
option grants where the exercise price is not less than the market
price on the date of grant. The Company intends to adopt the
disclosure aspects of SFAS No. 123 during the year ending September
30, 1997, if material.
-35-
<PAGE> 36
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain amounts reported in 1995 and 1994 have been reclassified to
conform to the 1996 presentation.
2. BUSINESS ACQUISITIONS
Container Manufacturing Facility
On August 29, 1996, the Company acquired the Demopolis, Alabama
roll-off container manufacturing facility and related equipment and
properties operated by Waste Management of Alabama, Inc., in a
business combination accounted for as a purchase. The Company paid
approximately $5,700,000 in cash at the closing, which was allocated
to the assets received as follows:
<TABLE>
<S> <C>
Plant, including land $1,615,000
Machinery and equipment 1,911,250
Inventories 400,000
Goodwill 1,773,750
----------
$5,700,000
==========
</TABLE>
Goodwill resulting from this acquisition is expected to be amortized
ratably over the next five years.
In connection with this transaction, the seller has agreed to use
reasonable commercial efforts to purchase annually from the Company,
containers and related other manufactured products in an amount that
is not less than $25,000,000 in sales per year during the five- year
period following the closing. In this event, the Company has agreed
to pay to the seller up to $1,200,000 during each year. If the seller
purchases less than $25,000,000 annually, the $1,200,000 amount is to
be reduced in accordance with the terms of the acquisition agreement.
The Company intends to account for such payments, if any, as sales
discounts when and as earned by the seller.
-36-
<PAGE> 37
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
2. BUSINESS ACQUISITIONS (CONTINUED)
The accompanying 1996 statement of income includes the results of
operations of the roll-off container manufacturing business for the
one month period since the date of acquisition by the Company.
Unaudited proforma results of operations as if the acquisition had
taken place effective October 1, 1994 are summarized as follows:
<TABLE>
<CAPTION>
(000's omitted)
Year Ended September 30,
-------------------------
1 9 9 6 1 9 9 5
------- -------
<S> <C> <C>
Net sales $98,276 $94,839
Net income $ 2,619 $ 2,555
Earnings per share $ 0.55 $ 0.55
</TABLE>
These proforma results are not indicative of either future financial
performance or actual results which would have occurred had the
acquisition taken place at the beginning of the previous year.
EPCO
On July 17, 1995, the Company acquired all of the issued and
outstanding common stock of EPCO Manufacturing Corporation, Inc.
("EPCO") in a business combination accounted for as a purchase. EPCO
is a manufacturer of vertical downstroke and closed door horizontal
baling equipment used for processing of cardboard, paper, plastic and
non-ferrous metals in the recycling industry. Concurrent with the
acquisition, EPCO's name was changed to McClain EPCO, Inc., an
enterprise which operates as a wholly-owned subsidiary of McClain
Industries, Inc.
The purchase price of EPCO was $1,000,000 which was paid at closing by
the issuance of 135,701 shares of unregistered common stock valued at
the market price of approximately $7.37, determined for a period
immediately preceding the acquisition date. The purchase price was
significantly in excess of the fair values of the net assets acquired
and such excess was substantially allocated to goodwill, which is
being amortized over fifteen years. Additional consideration not to
exceed $500,000 is payable in additional shares of the Company's
common stock contingent upon EPCO sales exceeding specified amounts
during the three-year period ending on September 30, 1998.
Results of operations of EPCO have been included in the Company's
consolidated financial statements since the date of acquisition. EPCO
sales during the year ended September 30, 1996 were approximately
$4,729,000.
-37-
<PAGE> 38
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
3. SUPPLEMENTAL CASH FLOWS INFORMATION
Non-cash Investing and Financing Activities
During the years ended September 30, 1996, 1995 and 1994, common stock
valued at $18,613, $11,510 and $18,053, respectively, was issued to
non-employee directors in exchange for services rendered.
During the year ended September 30, 1996, the Company financed
$5,700,000 of the Alabama acquisition by taking out a $5,300,000 term
loan and borrowing $400,000 pursuant to the revolving credit
facilities provided by its principal lender (Note 8).
Non-cash investing and financing transactions during the year ended
September 30, 1995 consisted of the EPCO acquisition and placing into
service certain equipment valued at approximately $426,000, which had
previously been included in other assets.
The Company issued common stock valued at $1,000,000 in connection
with the EPCO acquisition, which is summarized as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $ 876,000
Goodwill assigned 1,203,000
Liabilities assumed (1,079,000)
-----------
Total consideration exchanged $ 1,000,000
===========
</TABLE>
Non-cash financing and investing transactions during the year ended
September 30, 1994 consisted of placing into service a tube mill
valued at $1,735,000, which had previously been included in other
assets, and settling $7,623,414 of short-term notes payable for which
a like amount of long-term debt was incurred as a result of debt
refinancing.
Other Cash Flows Information
Cash paid for interest amounted to $3,044,398 for 1996, $2,482,481 for
1995, and $1,321,533 for 1994. Cash paid for federal income taxes
amounted to $1,198,137 for 1996, $945,314 for 1995, and $835,000 for
1994.
-38-
<PAGE> 39
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following is a summary of changes in the allowance for doubtful
accounts for each of the three years in the period ended September 30,
1996:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year $600,000 $425,800 $194,733
Add provision charged
against income 49,400 205,000 276,610
Less uncollectible accounts
written off, net of recoveries (49,400) (30,800) (45,543)
-------- -------- --------
Balance, end of year $600,000 $600,000 $425,800
======== ======== ========
</TABLE>
5. INVENTORIES
The major components of inventories at September 30, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Materials and supplies $11,677,000 $17,400,070
Work-in-process 6,776,000 6,255,749
Finished goods 7,124,000 7,573,580
----------- -----------
$25,577,000 $31,229,399
=========== ===========
</TABLE>
-39-
<PAGE> 40
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
6. LEASING OPERATIONS
Sales-Type Leases
The Company provides financing contracts for the sales of various
manufactured products to certain of its customers. Such financing is
principally structured in the form of finance leases, typically for a
five-year term, which are accounted for as sales-type leases. The net
investment in these sales-type leases is comprised of the following
amounts at September 30:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------- ----------
<S> <C> <C>
Gross minimum lease payments collectible
in monthly installments $7,575,657 $4,727,944
Less advance lease payments and
deposits received 210,705 178,780
---------- ----------
Subtotal 7,364,952 4,549,164
Less unearned finance income 1,748,602 988,200
---------- ----------
Total net investment in sales-type leases 5,616,350 3,560,964
Current portion 1,910,000 1,305,800
---------- ----------
Noncurrent portion $3,706,350 $2,255,164
========== ==========
</TABLE>
Gross minimum lease payments are collectible in the following
scheduled annual amounts for the years succeeding September 30, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30 AMOUNT
------------ ----------
<S> <C>
1997 $2,504,084
1998 2,135,836
1999 1,399,340
2000 810,145
2001 515,547
----------
GROSS MINIMUM AMOUNT COLLECTIBLE $7,364,952
==========
</TABLE>
-40-
<PAGE> 41
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
6. LEASING OPERATIONS (CONTINUED)
Sale-Leaseback Transactions
The Company, through McClain Group Leasing, Inc., has TRAC (Terminal
Rental Adjustment Clause) leasing programs in place with two financial
institutions in order to assist customers in obtaining financing for
certain products delivered by guaranteeing a portion of the residual
values of such products. Distribution of the Company's products in
this manner has been accomplished by (i) selling the products to the
independent financial institution leasing company, (ii) leasing the
products back and providing a specified minimum guaranteed residual
value to the leasing company, and (iii) subleasing the product to the
user customer.
The gross profit from the sale of these products is deferred and
recognized to income in proportion to the related gross rental charged
to expense over the term of the lease arrangement. Rental expense
for the leaseback of the products was $316,486 during the year ended
September 30, 1996. As of that date, minimum scheduled rental payments
under these operating lease arrangements in future years are summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30 AMOUNT
------------ ----------
<S> <C>
1997 $555,000
1998 555,000
1999 555,000
2000 555,000
2001 548,981
----------
GROSS MINIMUM RENTAL PAYMENTS $2,768,981
==========
</TABLE>
Total residual values guaranteed by the Company under these leasing
arrangements approximates $380,000 as of September 30, 1996.
-41-
<PAGE> 42
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
7. LINES OF CREDIT
The Company and certain of its subsidiaries are party to the following
line of credit agreements with financial institutions as of September
30, 1996 and 1995:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Revolving lines of credit providing for maximum
availability of up to $21,000,000. Borrowings
are limited to 80% of the eligible accounts
receivable and 50% of qualified inventory and
are subject to interest at the bank's prime
rate (8.25% at September 30, 1996). $15,887,347 $20,093,093
Revolving line of credit providing for maximum
availability of up to $1,500,000. Borrowings
are limited to 85% of the cost of demonstrator
units and are subject to interest at the bank's
prime rate. 1,053,000 -
The above agreements are collateralized by
substantially all the assets of the Company and
contain various covenants requiring the Company
to maintain certain financial ratios. The
agreements also prohibit the Company from
incurring additional indebtedness other than
subordinated indebtedness and limit plant and
equipment acquisitions to $4.5 million per
fiscal year. These agreements expire in March
1998, at which time the Company expects to
obtain renewals upon the same or similar terms.
Line of credit providing for maximum
availability of up to $7,500,000. Borrowings
are limited to 80% of eligible lease
receivables and are subject to interest at the
bank's prime rate. The agreement is
collateralized by certain equipment leases held
by the Company's leasing subsidiary. This
agreement expires in March 1998, at which time
the Company expects to obtain a renewal upon
the same or similar terms. 5,149,620 2,908,785
----------- -----------
Total lines of credit borrowings $22,089,967 $23,001,878
=========== ===========
</TABLE>
-42-
<PAGE> 43
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
7. LINES OF CREDIT (CONTINUED)
Information as to borrowings and related interest rates pursuant to
these credit facilities are summarized as follows during the years
ended September 30:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
----------- ----------- -----------
<S> <C> <C> <C>
Average aggregate borrowings
outstanding during the year $19,607,621 $15,069,445 $ 9,027,614
Maximum amount of borrowings
outstanding during the year $21,573,937 $20,093,093 $10,058,476
Average interest rates on borrowings
outstanding at the end of the year 8.25% 9.00% 8.00%
Average interest rates on borrowings
outstanding during the year, based on
monthly averages 8.36% 8.93% 6.85%
</TABLE>
8. LONG-TERM DEBT
Long-term debt as of September 30, 1996 and 1995 consisted of the
following obligations:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
----------- -----------
<S> <C> <C>
Promissory notes to a bank, collateralized
by certain assets as disclosed in Note 7.
The notes are payable in monthly
installments of $160,000 plus interest at
rates ranging from prime to prime plus
1/2% as published in the Wall Street
Journal (effective rates of 8.25% to 8.75%
at September 30, 1996), maturing at
various dates through July 2002. $11,425,953 $ 6,820,396
Promissory notes to banks, collateralized
by commercial mortgages on certain real
estate, payable in monthly installments of
$27,578 plus interest ranging from the
bank prime rate to prime plus 1/4%
(effective rates of 8.25% to 8.50% at
September 30, 1996), maturing at various
dates through January 2000. 2,833,430 3,527,462
Lines of credit borrowings (Note 7) 22,089,967 23,001,878
----------- -----------
Total debt 36,349,350 33,349,736
Less current portion 2,132,201 2,179,449
----------- -----------
Long-term portion $34,217,149 $31,170,287
=========== ===========
</TABLE>
-43-
<PAGE> 44
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
8. LONG-TERM DEBT (CONTINUED)
Scheduled aggregate principal maturities of long-term debt for years
succeeding September 30, 1996 are presented below:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30 AMOUNT
------------ -----------
<S> <C>
1997 $ 2,132,201
1998 23,811,886
1999 2,940,233
2000 2,887,141
2001 1,464,065
Thereafter 3,113,824
-----------
TOTAL $36,349,350
===========
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses included on the accompanying consolidated balance
sheets consist of the following amounts at September 30:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------- ----------
<S> <C> <C>
Compensation $ 374,385 $ 442,158
Vacation and holiday pay 495,097 513,988
Taxes 221,902 374,558
Insurance 307,822 321,713
Other 766,663 679,392
---------- ----------
TOTAL $2,165,869 $2,331,809
========== ==========
</TABLE>
10. INCOME TAXES
The provision for income taxes for each of the three years in the
period ended September 30, 1996 consists of the following components:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
<S> <C> <C> <C>
Current federal provision $ 570,000 $ 899,000 $ 954,000
Deferred provision 660,000 375,000 709,700
---------- ---------- ----------
TOTAL INCOME TAXES $1,230,000 $1,274,000 $1,663,700
========== ========== ==========
</TABLE>
-44-
<PAGE> 45
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
10. INCOME TAXES (CONTINUED)
The effective income tax rate on consolidated pre-tax income differs
from the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
----------------- ------------------ -----------------
Amount % Amount % Amount %
---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Provision computed at
statutory rate $1,229,000 34 $1,270,000 34 $1,671,000 34
Nondeductible expenses 31,000 1 26,000 1 14,000 -
Alternative minimum tax
credit - - - - (293,000) (6)
Other (30,000) (1) (22,000) (1) 271,700 6
---------- --- ---------- --- ---------- ---
$1,230,000 34 $1,274,000 34 $1,663,700 34
========== === ========== === ========== ===
</TABLE>
The components of the deferred income tax provision are as follows:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5 1 9 9 4
------- ------- -------
<S> <C> <C> <C>
Temporary differences resulting
primarily from differences in
depreciation, inventory, product
liability, bad debts and accrued
liabilities $626,000 $403,000 $399,000
Alternative minimum tax - - 293,000
Other, net 34,000 (28,000) 17,700
-------- -------- --------
$660,000 $375,000 $709,700
======== ======== ========
</TABLE>
During the year ended September 30, 1994, the Company utilized its
remaining available alternative minimum tax (AMT) credits to reduce
its current tax liability (such credits arose because of tax
preference items related to the Galion acquisition in 1992).
-45-
<PAGE> 46
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
10. INCOME TAXES (CONTINUED)
The balance of the net deferred income tax liability as of September
30, 1996 and 1995 consists of temporary basis differences related to
the following assets and liabilities:
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
---------- ----------
<S> <C> <C>
Taxable differences:
Property and equipment $2,081,000 $2,138,000
Inventory 1,562,000 1,478,000
---------- ----------
Gross deferred tax liabilities 3,643,000 3,616,000
---------- ----------
Deductible differences:
Product liability 944,000 1,410,000
Accounts receivable 204,000 405,000
Accrued expenses 389,000 351,000
Other 6,000 10,000
---------- ----------
Gross deferred tax assets 1,543,000 2,176,000
---------- ----------
NET DEFERRED INCOME TAX LIABILITY $2,100,000 $1,440,000
========== ==========
</TABLE>
The components which comprise gross deferred taxes are predominantly
noncurrent; as such, the entire related net liability is classified as
noncurrent.
11. EMPLOYEE PENSION AND PROFIT SHARING PLANS
The Company and certain subsidiaries have qualified pension and profit
sharing plans covering substantially all union employees.
Contributions to the plans were calculated at an hourly rate as
defined in the various union contracts. The Company also maintains a
defined contribution pension plan qualified pursuant to Section 401(k)
of the Internal Revenue Code for certain union employees and all
eligible non-union employees. The Company makes matching
contributions of specified percentages of participants' compensation.
The cost of all of these plans was $334,924 in 1996, $346,368 in 1995
and $314,249 in 1994.
The Company has an employee stock bonus plan for full time, salaried
and non-union employees. Company contributions are discretionary each
year and are generally limited to 15% of participants' compensation.
No contributions were made for the years ended September 30, 1996,
1995 and 1994.
-46-
<PAGE> 47
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
12. SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
---------- ---------- ----------
<S> <C> <C> <C>
Components of Other, net:
Interest income $ 795,519 $ 410,221 $ 254,553
TRAC leasing operations, net 161,311 - -
Sales discounts (458,987) (603,775) (626,756)
Single business and state income taxes (176,975) (180,893) (96,198)
Amortization of goodwill and
organizational costs (126,514) (80,880) (80,880)
Loss on sale of equipment (3,981) (22,067) (24,672)
Other income, net 21,402 4,179 161,080
---------- ---------- ----------
$ 211,775 $ (473,215) $ (412,873)
========== ========== ==========
Charged to Operating Costs and Expenses:
Depreciation $2,424,421 $2,099,192 $1,855,311
Maintenance and repairs 874,331 1,153,509 728,850
Taxes, other than payroll and 368,186 396,276 388,348
income taxes
Advertising 394,616 212,007 194,133
</TABLE>
13. RELATED PARTY TRANSACTIONS
Leases
The Company leases an operating facility from the mother of the
President of McClain Industries, Inc. on a month-to-month basis with
annual rentals totaling $42,000 in each of the years ended September
30, 1996, 1995 and 1994.
Waste Stream Programs
In connection with its acquisition of EPCO in July 1995, the Company
entered into a consulting and commission agreement with Waste Stream
Associates ("Waste Stream"), a partnership consisting of certain
stockholders of the Company, to compensate Waste Stream in an amount
equal to 50% of the pre-tax profit derived by EPCO from Waste Stream
Programs, as defined. Such compensation was not significant for the
years ended September 30, 1996 and 1995.
-47-
<PAGE> 48
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
13. RELATED PARTY TRANSACTIONS (CONTINUED)
Note Receivable
The Company's office and operating facility, the Georgia facility and
the Kalamazoo facility were leased from related party partnerships
comprised of officers, directors and employees of McClain Industries,
Inc. On August 2, 1993, the Company acquired these facilities in
exchange for 360,000 shares of common stock. In November 1994, in
connection with an aborted securities offering, the Company agreed to
value these shares at a price based on the market value of such shares
as of August 2, 1993, the date the transactions were consummated.
This revision gives effect to the fact that the shares increased in
value by $504,000 from March 29, 1993, the date the definitive
agreements for the transactions were executed by the parties, to
August 2, 1993. The Company's principal shareholders have agreed to
reimburse that amount to the Company. A letter agreement has been
executed calling for equal annual principal payments to be received by
the Company over a five-year period beginning on September 30, 1995,
plus interest at the Company's cost of funds, which approximates the
prime rate.
Other
Elliott & Sons Insurance Agency, Inc. and Michigan Defined Plans,
Inc., entities controlled by Raymond Elliott, a director of the
Company, provided insurance at a cost of approximately $1,200,000,
$1,300,000, and $1,400,000, to the Company during the years ended
September 30, 1996, 1995 and 1994, respectively. These entities
received fees and commissions in connection with these transactions of
approximately $120,000, $129,000, and $118,000, respectively.
Product Sales
The Company had product sales of approximately $660,000, $239,000, and
$232,000 during the years ended September 30, 1996, 1995 and 1994,
respectively, to a business controlled by the President of McClain
Industries, Inc.
-48-
<PAGE> 49
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
14. INCENTIVE STOCK OPTION PLANS
The Company maintains the 1989 Retainer Stock Plan for Non-employee
Directors and the McClain 1989 Incentive Stock Plan.
Retainer Stock Plan
The Retainer Stock Plan as adopted calls for reserving 100,000 shares
of the Company's no par common stock and allows non-employee directors
the option to receive payment of all or a portion of their directors
fees in the form of shares of common stock at the fair market value of
such shares on the date of issuance. For the years ended September
30, 1996, 1995 and 1994 the Company issued 3,555, 1,565, and 2,193
shares, respectively, of its common stock to such directors in
exchange for services rendered.
Incentive Stock Plan
The Incentive Stock Plan as adopted calls for reserving 1,000,000
shares of the Company's no par common stock for the granting of stock
awards to officers and key management personnel. The awards consist
of incentive stock option (ISO) or non-qualified options, stock
appreciation rights (SARs) and restricted share rights, and may be
granted at the following prices at the date of grant: incentive stock
options must be equal to or greater than the fair market value of
common stock; stock appreciation rights and restricted share rights
may be issued at a price which may not be less than 50% of the price
of the common stock.
In connection with the EPCO acquisition on July 17, 1995, the Board of
Directors granted to two EPCO employees options to purchase 20,000
shares of the Company's common stock at an exercise price of $7.37 per
share, which was the fair market value of the shares on the date of
grant. The employees may exercise one-third of the options at any
time after July 1996, one-third of the options at any time after July
1997 and one-third of the options at any time after July 1998, but no
options may be exercised after July 2000.
On January 16, 1995, the Board of Directors granted to the Company's
President and other key employees options to purchase 30,667 shares of
the Company's common stock at an exercise price of $7.31 per share,
which was the fair market value for the shares on the date of grant.
The employees may exercise one-third of the options at any time after
January 1996, one-third of the options at any time after January 1997,
and one-third of the options at any time after January 1998, but no
options may be exercised after January 2000.
On September 12, 1994, the Board of Directors granted to key employees
options to purchase 13,333 shares of the Company's common stock at an
exercise price of $8.81 per share, which was the fair market value for
the shares on the date of the grant. The employees may exercise
one-third of the options at any time after September 1995, one-third
of the options at any time after September 1996, and one- third of the
options at any time after September 1997, but no options may be
exercised after September 1999.
-49-
<PAGE> 50
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
14. INCENTIVE STOCK OPTION PLANS (CONTINUED)
On April 4, 1994, the Board of Directors granted to the Company's
President and other key employees options to purchase 52,667 shares of
the Company's common stock at an exercise price of $6.56 per share,
which was the fair market value for the shares on the date of the
grant. The employees may exercise one-third of the options at any
time after April 1995, one-third of the options at any time after
April 1996, and one-third of the options at any time after April 1997,
but no options may be exercised after April 1999.
The following table presents a summary of stock option activity for
each of the years in the three year period ended September 30, 1996:
<TABLE>
<CAPTION>
Shares Under Option
------------------------------------------
1 9 9 6 1 9 9 5 1 9 9 4
-------- ------- --------
<S> <C> <C> <C>
Outstanding, beginning of year 373,251 326,000 384,000
Granted during the year - 50,667 66,000
Canceled during the year (11,111) - -
Exercised during the year (134,244) (3,416) (124,000)
-------- ------- --------
Outstanding, end of year (at
exercise prices ranging from $2.63
to $8.81 per share) 227,896 373,251 326,000
======== ======= ========
Eligible, end of year for exercise
currently (at prices ranging from
$2.63 to $8.81 per share) 172,117 252,166 208,888
======== ======= ========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
Product Liability
As a manufacturer of industrial products, the Company is occasionally
subjected to various product liability claims. Such claims typically
involve personal injury or wrongful death associated with the use or
misuse of the Company's products. The Company is currently defending
certain legal proceedings involving allegations of product liability
relating to products manufactured and sold by the Company.
Historically, such claims have not resulted in material losses to the
Company in any one year, and the Company maintains product liability
insurance in amounts believed by management to be adequate.
-50-
<PAGE> 51
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Galion Holding Company (GHC), pursuant to an indemnification it
provided to the seller in connection with GHC's July 1992 acquisition
of the Galion operations, is currently defending a number of legal
proceedings involving product liability claims arising out of products
manufactured and sold prior to the acquisition. These claims are
covered by insurance and many of these cases have been settled.
A liability to provide for these product claims was established at the
acquisition date. Since many of the cases have been settled and
insurance coverage exists, management believes that the ongoing costs
to defend these claims will not exceed the amount accrued on the
accompanying consolidated balance sheet at September 30, 1996.
Environmental Matters
The Company's operations are subject to extensive federal, state and
local regulation under environmental laws and regulations concerning,
among other things, emissions into the air, discharges into the waters
and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. Inherent in manufacturing
operations and in owning real estate is the risk of environmental
liabilities as a result of both current and past operations, which
cannot be predicted with certainty. The Company has incurred and will
continue to incur costs, on an ongoing basis, associated with
environmental regulatory compliance in its business.
Labor Union Matters
Certain of the Company's hourly employees are represented by various
labor unions pursuant to collective bargaining agreements which expire
between June 1997 and November 1999.
On February 23, 1995, the National Labor Relations Board (NLRB)
conducted an election in response to a petition filed by a local union
(Union) to represent the hourly employees at the Company's Macon,
Georgia plant. The ballots of certain employees were challenged as
ineligible. The Union filed charges asserting that the Company
committed various unfair labor practices which affected the election
results and that the challenged ballots should be counted. On October
17, 1996 the NLRB upheld the unfair labor practice charges and on
November 5, 1996 the NLRB determined that the results of the election
were in favor of the Union. Management, based upon the opinion of
counsel, does not believe a final decision upholding the Union
certification or the unfair labor practice charges would have a
material adverse effect on the Company.
Other Legal Matters
The Company is also involved in routine litigation incidental to its
business. Management believes that the resolution of these matters
will not materially affect the consolidated financial statements.
-51-
<PAGE> 52
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Agreement
In connection with the EPCO acquisition on July 17, 1995, the Company
entered into a three-year employment agreement with the president of
EPCO, which provides for a base salary of $100,000 annually. As an
inducement for the Company to enter into the employment agreement, the
officer agreed to not compete with the Company's business for a period
of three years after employment is terminated, or five years from the
date of the agreement, whichever is longer.
Operating Lease
In connection with the EPCO acquisition in July 1995, the Company
assumed a contractual commitment to lease for a five-year period
ending on April 1, 2000 the New York facilities used in its baler
manufacturing operation. The Company is responsible for insurance,
utilities, maintenance including a percentage of common area charges,
and a portion of the property taxes. Minimum rental payments required
pursuant to this noncancellable lease agreement for the years
succeeding September 30, 1996 amount to approximately $223,000.
The Company has an option to extend the term of the lease for an
additional five-year period at a minimum fixed aggregate rental of
approximately $347,000.
Common Stock Repurchase
In December 1995, the Board of Directors authorized the Company to
repurchase from time to time on the open market up to 100,000 shares
of the Company's common stock. During the year ended September 30,
1996, the Company redeemed 31,627 shares at prices ranging from $4.25
to $4.75 per share.
Equipment Acquisition
In May 1996, the Company entered into a $1,220,000 commitment to
increase the capacity of an existing cut-to-length steel processing
equipment line in its Shelby Steel plant. Payments made by the
Company towards the completion of this contract were approximately
$366,000 as of September 30, 1996.
16. FOURTH QUARTER ADJUSTMENTS
During the quarter ended September 30, 1995, the Company recorded
various adjustments of approximately $1,100,000 principally related to
the valuation of inventories and carrying values of certain
liabilities. The aggregate effect of such adjustments was to decrease
net income for the fourth quarter by approximately $720,000 ($.15 per
share).
* * * * * *
-52-
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
----------- ------------ ----
<S> <C> <C>
3.1 Articles of Incorporation of McClain Industries, Inc. (7)
3.2 Bylaws of McClain Industries, Inc. (1)
10.1 McClain Industries, Inc. 1989 Incentive Stock Plan (2)
10.2 McClain Industries, Inc. 1989 Retainer Stock Plan for
Non-Employee Directors (2)
10.3 Land Contract dated November 12, 1991 between Robert and Helen
J. Warzyniak and Violet and Walter H. Urban, as Seller, and the
Company, as Purchaser (3)
10.4 Agreement of Purchase and Sale dated July 20, 1992 by and
between Peabody International Corporation, as Seller, and Galion
Holding Company, as Buyer (4)
10.5 Manufacture and License Agreement dated as of November 2, 1992,
between Galion Dump Bodies, as Licensor, and the Company, as
Licensee (6)
10.6 Loan documents dated as of March 1, 1993, between the Company
and Galion Dump Bodies and E-Z Pack (6)
10.7 Guaranty Fee Agreement dated as of March 2, 1993, between
Galion Holding and the Company (6)
10.8 Loan documents dated June 29, 1993, between Standard Federal
Bank and Galion Holding, E-Z Pack and Galion Dump Bodies (6)
10.9 Term Note dated January 18, 1994 between Trust Company Bank of
Middle Georgia, N.A. and the Company (7)
10.10 Loan Agreement, dated September 15, 1994, between Standard
Federal Bank and the Company, McClain-Georgia, Shelby Steel,
Quality Tube and McClain-Ohio (7)
10.11 Loan Agreement, dated September 15, 1994, between Standard
Federal Bank and Galion Holding, E-Z Pack and Galion Dump Bodies (7)
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C> <C>
10.12 Promissory Note (Term Loan), dated September 15, 1994, between
Standard Federal Bank, Galion Holding, E-Z Pack and Galion Dump
Bodies (7)
10.13 Promissory Note (Line of Credit), dated September 15, 1994,
between Standard Federal Bank, Galion Holding, E-Z Pack and
Galion Dump Bodies (7)
10.14 Purchase Agreement, dated as of March 30, 1993, between the
Company and Group Properties III (7)
10.15 Purchase Agreement, dated as of March 30, 1993, between the
Company and Group Properties (7)
10.16 Purchase Agreement, dated as of March 30, 1993, between the
Company and Group Properties of Georgia (7)
10.17 Letter Agreement, dated November 17, 1994, among the Company,
Kenneth D. McClain and Robert W. McClain (7)
10.18 Commercial Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement Dated February 6, 1995,
between Standard Federal Bank and the Company (8)
10.19 Commercial Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement Dated February 6, 1995,
between Standard Federal Bank and the Company (8)
10.20 Loan Agreement Between Standard Federal Bank and the Company,
McClain-Georgia, Shelby Steel, Quality Tubing and McClain-Ohio
dated February 6, 1995 (8)
10.21 Loan Agreement between Standard Federal Bank and Galion
Holding, E-Z Pack and Galion Dump Bodies dated February 6, 1995 (8)
10.22 Promissory Note (Line of Credit with Term Provisions) (First
Line of Credit) dated February 6, 1995 between Standard Federal
Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8)
10.23 Promissory Note (Line of Credit with Term Provisions) (Second
Line of Credit) dated February 6, 1995, between Standard Federal
Bank, Galion Holding, E-Z Pack and Galion Dump Bodies (8)
10.24 Second Amendment to Open-End Commercial Mortgage and
Assignment of Lease and Rentals (Secures Future Advances)
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C> <C>
dated February 6, 1995, between Standard Federal Bank and E-Z Pack (8)
10.25 Second Amendment to Open-End Commercial Mortgage and
Assignment of Lease and Rentals (Secures Future Advances) dated
February 6, 1995, between Standard Federal Bank and Galion Dump Bodies (8)
10.26 First Amendment to Loan Agreement Between Standard Federal
Bank, the Company, McClain-Georgia, Shelby Steel, Quality Tubing
and McClain-Ohio Dated February 16, 1995 (8)
10.27 Amended and Restated Promissory Note (Line of Credit) dated
February 16, 1995, between Standard Federal Bank, Galion
Holding, E-Z Pack and Galion Dump Bodies (8)
10.28 First Amendment to Loan Agreement between Standard Federal
Bank, Galion Holding, E-Z Pack and Galion Dump Bodies dated
February 16, 1995. (8)
10.29 Amended and Restated Promissory Note (Line of Credit) dated
May 5, 1995, between Standard Federal Bank, Galion Holding, E-Z
Pack and Galion Dump Bodies (8)
10.30 Second Amendment to Loan Agreement between Standard Federal
Bank, Galion Holding, E-Z Pack and Galion Dump Bodies dated May
5, 1995 (8)
10.31 Second Amendment to Loan Agreement between Standard Federal
Bank, the Company, McClain-Georgia, Shelby Steel, Quality
Tubing, McClain-Ohio and EPCO dated June 22, 1995 (8)
10.32 Fifth Amendment to Open-End Commercial Mortgage and Assignment
of Lease and Rentals (Secures Future Advances) between Standard
Federal Bank and Galion Dump Bodies dated June 22, 1995. (8)
10.33 Third Amendment to Loan Agreement between Standard Federal
Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain
Group Sales of Florida dated June 22, 1995. (8)
10.34 Third Amended and Restated Promissory Note (Line of Credit)
dated June 22, 1995, between Standard Federal Bank, Galion
Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of Florida (8)
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C> <C>
10.35 Security Agreement dated June 22, 1995, between Standard
Federal Bank and McClain Group Sales of Florida (8)
10.36 Fifth Amendment to Open-End Commercial Mortgage and Assignment
of Lease and Rentals (Secures Future Advances) dated June 22,
1995, between Standard Federal Bank and E-Z Pack (8)
10.37 Certification of Resolution of Corporation Authority to Borrow
and Pledge Collateral dated June 22, 1995, between Standard
Federal Bank and McClain Group Sales of Florida (8)
10.39 Certification of Resolution of Corporation Authority to Borrow
and Pledge Collateral dated July 18, 1995, between Standard
Federal Bank and EPCO (8)
10.40 Security Agreement dated July 18, 1995, between Standard
Federal Bank and EPCO (8)
10.41 Amendment Agreement Promissory Note (Line of Credit) dated
September 25, 1995, between Standard Federal Bank, Galion
Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of
Florida (8)
10.42 Second Amendment Agreement Promissory Note (Line of Credit
with Term Provisions) (First Line of Credit) dated September 25,
1995, between Standard Federal Bank, Galion Holding, E-Z Pack,
and Galion Dump Bodies (8)
10.43 Third Amendment Agreement Promissory Note (Line of Credit with
Term Provisions) (Second Line of Credit) dated September 25,
1995, between Standard Federal Bank, Galion Holding, E-Z Pack,
and Galion Dump Bodies (8)
10.44 Amendment Agreement Promissory Note (Term Loan) dated
September 25, 1995, between Standard Federal Bank, Galion
Holding, E-Z Pack, Galion Dump Bodies and McClain Group Sales of
Florida (8)
10.45 First Amended and Restated Loan Agreement Between Standard
Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and
McClain Group Sales of Florida dated October 2, 1995 (8)
10.46 Amended and Restated Loan Agreement dated July 17, 1996,
between Standard Federal Bank and the Company, McClain-Georgia,
Shelby Steel, Tube, McClain-Ohio and EPCO. 59
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C> <C>
10.47 Promissory Note (Line of Credit) dated July 17, 1996, between
Standard Federal Bank and the Company, McClain-Georgia, Shelby
Steel, Tubing, McClain-Ohio and EPCO. 83
10.48 Promissory Note (Term Loan) dated July 17, 1996, between
Standard Federal Bank and the Company, McClain-Georgia, Shelby
Steel, Tubing, McClain-Ohio and EPCO. 88
10.49 Promissory Note (Line of Credit with Term Provisions) dated
July 17, 1996, between Standard Federal Bank and the Company,
McClain-Georgia, Shelby Steel, Tubing, McClain-Ohio and EPCO. 93
10.50 Third Amended and Restated Promissory Note (Line of Credit(
between Standard Federal Bank, Galion Holding, E-Z Pack, Galion
Dump Bodies and McClain Group Sales of Florida. 98
10.51 Promissory Note (Line of Credit) between Standard Federal
Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and McClain
Group Sales of Florida. 104
10.52 Loan Agreement dated July 17, 1996, between Standard Federal
Bank and Leasing 110
10.53 Promissory Note (Line of Credit) dated July 17, 1996, between
Standard Federal Bank and Leasing 126
10.54 Loan Agreement dated August 29, 1996, between Standard Federal
Bank and the Company, McClain-Georgia, Shelby Steel, Tubing,
McClain-Ohio, EPCO and McClain-Alabama. . 130
10.55 Promissory Note (Term Loan) dated July 17, 1996, between
Standard Federal Bank and the Company, McClain-Georgia, Shelby
Steel, Tubing, McClain-Ohio and EPCO. 151
10.56 Commercial Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement dated August 29, 1996, between
Standard Federal Bank and McClain-Alabama. 157
10.57 Security Agreement dated August 29, 1996, between Standard
Federal Bank and McClain-Alabama. 182
10.58 Master Lease Agreement dated July 15, 1995 between Fifth Third
Leasing Company and Leasing 194
10.59 Master Lease Agreement dated May 17, 1996 between NBD Bank and
Leasing 202
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C> <C>
21 List of Subsidiaries 208
EXHIBIT 27 Financial Data Schedule
</TABLE>
- -----------------
(1) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/89
(2) Incorporated by reference to the Company's Registration Statement
(33-29613)
(3) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/91
(4) Incorporated by reference to the Company's Form 8-K dated 7/27/92
(5) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/92
(6) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/93
(7) Incorporated by reference to the Company's Registration Statement on
Form S-2 (33-84562)
(8) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/95
58
<PAGE> 1
EXHIBIT 10.46
SF100000.MCC
AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN
STANDARD FEDERAL BANK
AND
MCCLAIN INDUSTRIES, INC., MCCLAIN OF GEORGIA, INC.,
SHELBY STEEL PROCESSING COMPANY,
MCCLAIN TUBE COMPANY D/B/A QUALITY TUBE,
MCCLAIN INDUSTRIES OF OHIO, INC. AND
MCCLAIN EPCO, INC.
THIS AMENDED AND RESTATED LOAN AGREEMENT is made and delivered this
17th day of July, 1996, by and between McClain Industries, Inc., a Michigan
corporation, McClain of Georgia, Inc., a Georgia corporation, Shelby Steel
Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality
Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan
corporation, and McClain Epco, Inc., a New York corporation (collectively,
"Borrower"), whose address/principal office is 6200 Elmridge, Sterling Heights,
Michigan 48310, and Standard Federal Bank, a federal savings bank ("Standard
Federal"), whose address is 2600 West Big Beaver Road, Troy, Michigan 48084.
RECITALS:
A. On September 15, 1994, the Borrower and Standard Federal
entered into a Loan Agreement, as amended by a First Amendment to Loan
Agreement, dated February 16, 1995, and a Second Amendment to Loan Agreement,
dated June 22, 1995 (the "1994 Loan Agreement"), pursuant to which the Borrower
opened a revolving line of credit facility with Standard Federal, Loan No.
0250006199, with a credit limit of up to $11,000,000.00 (the "Line of Credit"),
as evidenced by a Second Amended and Restated Promissory Note (Line of Credit),
dated June 22, 1995, in the principal amount of $11,000,000.00, and Standard
Federal made to the Borrower a term loan, Loan No. 02500016768, as evidenced by
a Promissory Note (Term Loan), dated September 15, 1994, in the principal
amount of $3,148,575.60 ("Term Loan No. 16768"); a term loan, Loan No.
025000193855, as evidenced by a Promissory Note (Term Loan), dated July 18,
1995, in the principal amount of $240,000.00 ("Term Loan No. 193855"); a line
of credit with term provisions, Loan No. 025000193863, as evidenced by a
Promissory Note (Line of Credit with Term Provisions) (First Line of Credit),
dated July 18, 1995, in the principal amount of $426,000.00 ("Term Loan No.
193863"), and a line of credit with term provisions, Loan No. 0250193871, as
evidenced by a Promissory Note (Line of Credit with Term Provisions) (Second
Line of Credit), dated July 18, 1995, in the principal amount of $426,000.00
("Term Loan No. 193871").
<PAGE> 2
B. On February 6, 1994, the Borrower and Standard Federal entered into a
Loan Agreement, pursuant to which Standard Federal made to the Borrower a term
loan, Loan No. 0250017724, as evidenced by a Promissory Note (Term Loan), dated
February 6, 1995, in the principal amount of $2,000,000.00 ("Term Loan No.
17724"); a line of credit with term provisions, Loan No. 02500017740, as
evidenced by a Promissory Note (Line of Credit with Term Provisions) (First
Line of Credit), dated February 6, 1995, in the principal amount of $950,000.00
("Term Loan No. 17740"); and a line of credit with term provisions, Loan No.
0250017675, as evidenced by a Promissory Note (Line of Credit with Term
Provisions) (Second Line of Credit), dated February 6, in the principal amount
of $950,000.00 ("Term Loan No. 17675").
C. The loans described in paragraphs A and B above are secured by a
Security Agreement dated September 15, 1994 (the "Security Agreement").
D. The Borrower has requested a renewal of the Line of Credit, a new
term loan in the principal amount of $3,465,888.23, the proceeds of which will
be used to refinance Term Loan No. 17740, Term Loan No. 17675, Term Loan
No. 16768, Term Loan No. 193855, Term Loan No. 193863, and Term Loan No.
193871, and a new equipment line of credit in the principal amount of
$1,000,000.00, and Standard Federal is willing to supply such financing subject
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in reliance upon the representations herein provided and
in consideration of the premises and the mutual promises herein contained, the
Borrower and Standard Federal hereby agree as follows:
SECTION 1. LINE OF CREDIT
1.1 Standard Federal hereby renews the Line of Credit to the Borrower,
which shall not exceed at any one time outstanding the Credit Limit as
hereafter defined. The term "Credit Limit" shall mean the lesser of: (a)
Eleven Million and 00/100 Dollars ($11,000,000.00), or (b) an amount equal to
the sum of: (i) an amount equal to 80% of Eligible Accounts Receivable, plus
(ii) an amount equal to the lesser of: (1) Seven Million Five Hundred Thousand
and 00/100 Dollars ($7,500,000.00), or (2) an amount equal to 50% of Qualified
Inventory. As used herein, the term "Eligible Accounts Receivable" shall mean
accounts receivable of the Borrower less than 90 days old, not doubtful as to
collectibility or disputed as to existence or amount or subject to offset,
contra-indebtedness or return and not intra-company or owing from any
affiliated or related company or other entity, exclusive of any account
receivable arising under a government contract, the assignment of which is
subject to the Assignment of Claims Act of 1940, as amended, or any other
similar federal or state statute or regulation governing the assignment of
contracts with a
2
<PAGE> 3
governmental agency. The term "Qualified Inventory" shall mean the inventory
of Borrower in which Standard Federal holds a perfected first security interest
exclusive of any returned or damaged items and work-in-process.
1.2 The Line of Credit herein extended shall be subject to the terms and
conditions of a renewal Promissory Note (Line of Credit) of even date herewith
and all renewals and amendments thereof (the "Line of Credit Note"). The Line
of Credit shall be payable and shall bear interest as set forth in the Line of
Credit Note. This Loan Agreement and the Line of Credit Note are of equal
materiality and shall each be construed in such manner as to give full force
and effect to all provisions of both documents.
1.3 Standard Federal shall, from time to time during the term hereof,
make advances to Borrower under the Line of Credit upon request therefor by
Borrower, provided that upon giving effect to such advance no Event of Default
(as defined in the Line of Credit Note or this Agreement) and no event which
with notice and/or the passage of time would become an Event of Default shall
exist at the time the advance is to be made; and provided further that upon
giving effect to such advance and at the time the advance is to be made all of
the representations and warranties of Borrower contained in this Agreement and
all other documents executed in connection with the Line of Credit are true and
correct in all material respects; and provided further that at the time the
advance is to be made Standard Federal shall not have previously or
concurrently declared all amounts owing under the Line of Credit Note to be
immediately due and payable; and provided further the amount requested shall
not cause the total amount outstanding under the Line of Credit to exceed the
Credit Limit.
1.4 If at any time the amount outstanding under the Line of Credit shall
exceed the Credit Limit, Borrower shall, on demand, forthwith pay to Standard
Federal such sums as are necessary to reduce the amount outstanding to an
amount not greater than the Credit Limit.
1.5 Borrower shall pay to Standard Federal, on the first day of each
month, commencing on the first payment date after the date hereof, and
continuing on the same day of each consecutive month thereafter until the
termination of the Line of Credit and all sums owing for principal and interest
with respect to the Line of Credit are paid in full, an Unused Line Fee in the
amount of 0.25% per annum of the amount available for draw but not advanced
from time to time on the Line of Credit ("Unused Line"). The amount of the
Unused Line Fee payable on the first day of each month will be determined by
multiplying the average daily balance of the Unused Line for the calendar month
which ends one month prior to the due date of such Unused Line Fee by .020833%.
3
<PAGE> 4
1.6 In all events, unless earlier terminated, the Line of Credit shall
terminate March 1, 1998. Upon termination, Borrower shall forthwith pay to
Standard Federal all sums owing for principal and interest with respect to the
Line of Credit.
SECTION 1A. TERM LOAN
1A.1 Standard Federal hereby extends to the Borrower a term loan (the
"Term Loan") in the principal amount of Three Million Four Hundred Sixty Five
Thousand Eight Hundred Eighty Eight and 00/100 Dollars ($3,465,888.23).
1A.2 The Term Loan herein extended shall be subject to the terms and
conditions of a Promissory Note (Term Loan) of even date herewith and all
renewals and amendments thereof (the "Term Note"). The Term Loan shall be
payable and shall bear interest as set forth in the Term Note. This Loan
Agreement and the Term Note are of equal materiality and shall each be
construed in such manner as to give full force and effect to all provisions of
both documents.
SECTION 1B. EQUIPMENT PURCHASE LINE OF CREDIT
1B.1 Standard Federal hereby extends to the Borrower a revolving line of
credit (the "Equipment Line of Credit") which shall not exceed at any one time
outstanding the principal amount of One Million and 00/100 Dollars
($1,000,000.00) (the "Equipment Credit Limit").
1B.2 The Equipment Line of Credit herein extended shall be subject to the
terms and conditions of a Promissory Note (Line of Credit with Term Provisions)
(Equipment Line of Credit), in the principal amount of One Million and 00/100
Dollars ($1,000,000.00), of even date herewith and all renewals and amendments
thereof (the "Equipment Line of Credit Note"). The Equipment Line of Credit
shall be payable and shall bear interest as set forth in the Equipment Line of
Credit Note. This Loan Agreement and the Equipment Line of Credit Note are of
equal materiality and shall each be construed in such manner as to give full
force and effect to all provisions of both documents.
1B.3 If at any time the amount outstanding under the Equipment Line of
Credit shall exceed the Equipment Credit Limit, Borrower shall, on demand,
forthwith pay to Standard Federal such sums as are necessary to reduce the
amount outstanding to an amount not greater than the Equipment Credit Limit.
1B.4 Each advance under the Equipment Line of Credit shall be used solely
for the purchase of equipment. Each advance shall be in an amount not in
excess of Eighty Five percent (85.0%) of the cost to the Borrower of the
equipment to be purchased with such advance. Standard Federal shall make
advances under the Equipment Line of Credit only upon receipt by it in a form
satisfactory to it
4
<PAGE> 5
of a true and authentic copy of the dealer invoice for the equipment purchased
or to be purchased with the advance.
SECTION 1C. CONDITIONS TO MAKING LOANS
1C.1 The following are conditions precedent to the obligation of
Standard to make the Line of Credit, the Term Loan and the Equipment Line of
Credit and hereunder:
1C.1(a) The Borrower shall have delivered or shall have had delivered to
Standard Federal, in form and substance satisfactory to Standard Federal and
its counsel, each of the following:
a. A duly executed copy of this Loan Agreement;
b. A duly executed copy of the Line of Credit Note, the Term
Note, the Equipment Line of Credit Note and such other loan
documents as Standard Federal shall require to evidence and
document the Line of Credit, the Term Loan and the Equipment
Line of Credit (the "Loan Documents");
c. Such credit applications, financial statements,
authorizations, and such information concerning the Borrower
and its business, operations, and condition (financial and
otherwise) as Standard Federal may reasonably request;
d. Certified copies of resolutions of the Boards of Directors of
the Borrower approving the execution and delivery of the Loan
Documents required hereunder;
e. A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names and true signatures of the
officers of the Borrower authorized to sign the Loan Documents
required hereunder;
f. Copies of each of the Articles of Incorporation of the
Borrower, certified by the Secretary of State of Michigan as
of a recent date;
g. Copies of each of the Articles of Incorporation and Bylaws of
the Borrower, certified by the Secretary or an Assistant
Secretary of the Borrower as of the date of this Agreement as
being accurate and complete;
h. Certificate of good standing of the Borrower from the
Secretary of State of Michigan as of a recent date;
i. Certificates of authority and good standing of the Borrower
for each state in which the Borrower is qualified to do
business;
j. A certificate of compliance of the chief financial officer or
treasurer of the Borrower in form satisfactory to Standard
Federal dated as of the date of this Agreement;
k. Such certificates, binders or other evidence of all insurance
required of the Borrower under this Loan Agreement as Standard
Federal may reasonably require; and
l. Acknowledgement copies of all UCC-1 financing statements filed
with respect to the Collateral accompanied by a
5
<PAGE> 6
search report showing such financing statements as duly filed
and evidencing that the security interest of Standard Federal
in the Collateral is prior to all other security interests of
record.
1C.1(b) All acts and conditions (including, without limitation, the obtaining
of any necessary regulatory approvals and the making of any required filings,
recordings, or registrations) required to be done and performed and to have
happened precedent to the execution, delivery, and performance of the Loan
Documents required hereunder and to constitute the same legal, valid, and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
1C.1(c) All documentation, including, without limitation, documentation for
corporate and legal proceedings in connection with the transactions
contemplated by the Loan Documents shall be satisfactory in form and substance
to Standard Federal and its counsel and all fees and charges, including
recording and filing fees, shall have been paid as required hereunder.
1C.2 As conditions precedent to Standard Federal's obligation to make the
Term Loan and to fund any request for an advance under the Line of Credit or
the Equipment Line of Credit, at and as of the date of the funding thereof;
a. The representations and warranties of the Borrower contained
in the Loan Documents shall be accurate and complete in all
respects as if made on and as of such date;
b. The Borrower shall have paid all fees and expenses, including
any recording fees and charges, required hereunder;
c. There shall not have occurred an Event of Default or any event
which with the passage of time of the giving of notice or both
would constitute an Event of Default; and
d. Following the making of such loan or advance, the aggregate
principal amount outstanding will not exceed the limitations
described in Sections 1 and 1A.
SECTION 2. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Standard Federal that as of
the date of acceptance of this Agreement, as of the time any advance is to be
made hereunder and, unless expressly provided otherwise herein or agreed to by
a writing signed by Standard Federal, at all times any amounts are outstanding
hereunder:
2.1 The Borrower and each of its subsidiaries, if any, are corporations
duly organized, validly existing and in good standing under the laws of the
state of their incorporation; the Borrower
6
<PAGE> 7
and each of its subsidiaries (if any) have the legal power and authority to own
their properties and assets and to carry out their business as now being
conducted and each is qualified to do business in the state of its
incorporation and in every jurisdiction where the nature of its business or the
property owned or operated by it makes such qualification necessary and is
otherwise in compliance with all applicable laws, statutes, regulations, rules
and requirements of any federal, state, judicial, regulatory or administrative
body having jurisdiction of the Borrower or any of its assets; the Borrower has
the legal power and authority to execute and perform this Agreement, to borrow
money in accordance with its terms, to execute and deliver the Line of Credit
Note, the Term Note, the Equipment Line of Credit Note and other documents
contemplated hereby, to grant to Standard Federal mortgages and security
interests in the Collateral, as hereby contemplated, and to do any and all
other things required of it hereunder; and this Agreement, the Line of Credit
Note, the Term Note, the Equipment Line of Credit Note and all other documents
contemplated hereby, when executed by the Borrower's duly authorized officers
will constitute its valid and binding legal obligations enforceable in
accordance with their terms.
2.2 The execution, delivery and performance of this Agreement, the
borrowings hereunder and the execution and delivery of the Line of Credit Note,
the Term Note, the Equipment Line of Credit Note and other documents
contemplated hereby (a) have been duly authorized by all requisite corporate
action, (b) do not require governmental approval or the approval of any person
not a party to this Agreement, (c) will not result (with or without notice
and/or the passage of time) in any conflict with or breach or violation of or
default under, any provision of law, the Articles of Incorporation or Bylaws of
the Borrower or any indenture, agreement or other instrument to which the
Borrower is a party, or by which it or any of its properties or assets are
bound, and (d) will not result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the properties or
assets of the Borrower other than in favor of Standard Federal and as
contemplated hereby.
2.3 There is not pending or, to the best of the knowledge of the
Borrower, threatened, any litigation, proceeding or governmental investigation
which could materially and adversely affect the business of the Borrower or its
subsidiaries, if any, or its ability to perform its covenants hereunder.
2.4 Borrower has good and marketable title to its properties given as
security as herein described, and, except for liens in favor of Standard
Federal, liens for taxes not delinquent or being contested in good faith and
liens created in connection with worker's compensation, unemployment insurance
and social security, or to secure the performance of bids, tenders or contracts
(other than for the repayment of borrowed money), leases, statutory
7
<PAGE> 8
obligations, surety and appeal bonds, and other obligations of like nature made
in the ordinary course of business, none of the Borrower's or any of its
subsidiaries' (if any) assets are subject to any mortgage, pledge, lien,
security interest, or other encumbrance of any kind or character except as have
been disclosed to Standard Federal in writing. The Borrower owns all material
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, free from any material restrictions, that are necessary for the
operation of its business as presently conducted.
2.5 All financial data which has been or shall hereafter be furnished to
Standard Federal for the purposes of, or in connection with, this Agreement,
including particularly, but without limitation, the audited consolidated
financial statements of McClain Industries, Inc. and the Form 10-Q's filed
with the Securities and Exchange Commission by McClain Industries, Inc.
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, and the
transactions contemplated hereby has been and/or shall be prepared in
accordance with generally accepted accounting principles consistently applied,
and does or will fairly present the financial condition of the Borrower as of
the dates, and the results of its operations for the periods, for which the
same is furnished to Standard Federal.
2.6 There has been no material adverse change in the business, properties
or condition (financial or otherwise) of the Borrower or its subsidiaries (if
any) since the date of the latest financial statements provided to Standard
Federal and there are no material debts, liabilities or obligations (absolute
or contingent) of the Borrower except as reflected in such financial statements
(or in the notes thereto).
2.7 The Borrower is not in default in the repayment of any indebtedness
for money borrowed by it nor has there occurred any event which, with or
without notice or the passage of time or both, would constitute a default by
the Borrower under any agreement or instrument pertaining to any indebtedness
for money borrowed by it.
2.8 Borrower has filed all reports and tax returns required by
governmental authority to be filed by it prior to the date hereof and Borrower
has received no notice that such reports or returns have been rejected,
declared insufficient, or otherwise challenged by such governmental authority.
2.9 The principal officers of the Borrower ("Principal Officers") are as
follows:
8
<PAGE> 9
McClain Industries, Inc.:
Chairman of the Board Kenneth D. McClain
------------------
Senior Vice President Robert W. McClain
------------------
Secretary Carl L. Jaworski
------------------
McClain of Georgia, Inc.:
President Kenneth D. McClain
------------------
Senior Vice President Robert W. McClain
------------------
Secretary Carl L. Jaworski
------------------
Shelby Steel Processing Company:
President Robert W. McClain
------------------
Vice President Kenneth D. McClain
------------------
Secretary Carl L. Jaworski
------------------
McClain Tube Company d/b/a Quality Tube:
President Kenneth D. McClain
------------------
Secretary Carl L. Jaworski
------------------
McClain Industries of Ohio, Inc.:
President Kenneth D. McClain
------------------
Vice President Robert W. McClain
------------------
Secretary Margaret Bruce
------------------
McClain Epco, Inc.:
President Kenneth D. McClain
------------------
Vice President Robert W. McClain
------------------
Secretary Margaret Bruce
------------------
2.10 McClain of Georgia, Inc., a Georgia corporation, Shelby Steel
Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality
Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan
corporation, McClain Epco, Inc., a New York corporation, and Southfield Quality
Leasing Company, a Michigan corporation, are each wholly-owned subsidiaries of
McClain Industries, Inc., a Michigan corporation, and have no subsidiaries.
McClain Group Leasing Corporation, a Michigan corporation, and Galion Holding
Company, a Michigan corporation, are also wholly-owned subsidiaries
9
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of McClain Industries, Inc. McClain Industries, Inc. also holds one-third of
the outstanding capital stock of M.E.G. Equipment Sales, Inc., Michigan
corporation, of which M.E.G. Equipment Sales of Florida, Inc., a Florida
corporation, is a wholly-owned subsidiary. McClain Industries, Inc., as of the
date of this Loan Agreement, owns no other subsidiaries.
2.11 None of the proceeds of the Line of Credit, the Term Loan or the
Equipment Line of Credit will be used for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U or G of the Board of Governors of
the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation U or G.
Borrower is not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stocks. Neither Borrower nor any person acting
on behalf of Borrower has taken or will take any action which might cause the
Line of Credit Note, the Term Note, the Equipment Line of Credit Note or any
of the other documents executed in conjunction therewith, including this
Agreement, to violate Regulations U or G or any other regulations of the Board
of Governors of the Federal Reserve System or to violate Section 7 of the
Securities Exchange Act of 1934 or any rule or regulation thereunder, in each
case as now in effect or as the same may hereinafter be in effect. Borrower
and its subsidiaries, if any, own no "margin stock" except for that described
in the financial statements provided to Standard Federal and, as of the date
hereof, the aggregate value of all "margin stock" owned by Borrower and its
subsidiaries, if any, does not exceed 25% of all of the value of all of
Borrower's and its subsidiaries', if any, assets.
2.12 Except as disclosed in the environmental reports listed in attached
Schedule 2.12, copies of which the Borrower has furnished to Standard Federal,
neither the Borrower nor, to the best of Borrower's knowledge after due
inquiry, any other person or entity, has caused or permitted any waste, oil,
pesticides, or any substance or material of any kind which is currently known
or suspected to be toxic or hazardous, including but not limited to any
substance defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of
Federal Regulations, (hereinafter referred to as "Hazardous Material") to be
discharged, dispersed, released, disposed of, or allowed to escape on, under or
at any property owned, occupied or operated by any Borrower in violation of any
Hazardous Materials Laws (as hereinafter defined), nor has any property owned,
occupied or operated by any Borrower, or any part thereof, ever been used by
the Borrower or, to the best of Bor-
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rower's knowledge after due inquiry, any prior owner or any other person, as a
dump, storage or disposal site for any Hazardous Material, nor has there
occurred any other violation of the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., or any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability or
standards of conduct concerning, any Hazardous Material ("Hazardous Materials
Laws") with respect to any property owned, occupied or operated by any
Borrower. No asbestos or asbestos-containing materials have been installed,
used, incorporated into, or disposed of on any property owned, occupied or
operated by any Borrower. No polychlorinated biphenyls ("PCBs") are located on
or in any property owned, occupied or operated by any Borrower, in the form of
electrical transformers, fluorescent light fixtures with ballasts, cooling
oils, or any other device or form. All underground storage tanks located on
any property owned, occupied or operated by any Borrower have been installed
and are being operated in full compliance with all applicable Hazardous
Materials Laws. The Borrower: (a) has not received any notice of any release,
threatened release, escape, seepage, leakage, spillage, discharge or emission
of any Hazardous Materials in, under or upon any property owned, occupied or
operated by any Borrower or of any violation of any Hazardous Materials Law,
and (b) does not know of any basis for any such notice or violation.
2.13 No "reportable event," as defined in the Employee Retirement Income
Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is
continuing with respect to any employee pension and/or profit sharing benefit
plan maintained by or on behalf of the Borrower for the benefit of any of its
employees. The Pension Benefit Guaranty Corporation ("PBGC") has not
instituted proceedings to terminate any such employee pension and/or profit
sharing plan or to appoint a trustee to administer such plan. The Borrower
has maintained and funded and caused each of its subsidiaries, if any, to
maintain and fund all employee pension and/or profit sharing plans in
accordance with their terms and with all applicable provisions of ERISA.
Neither the Borrower nor any duly appointed administrator of any employee
pension and/or profit sharing plan: (a) has incurred any liability to PBGC with
respect to any such plan other than for premiums not yet due or payable, (b)
has instituted or intends to institute proceedings to terminate any such plan
under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA).
2.14 There is no material fact that the Borrower has not disclosed
to Standard Federal which could have a material adverse effect on the
properties, business, prospects or condition (financial or otherwise) of the
Borrower or any of its subsidiaries. For purposes of this Section 2.14, a
"material adverse effect" means any circumstance or event which (a) could
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have any adverse effect whatsoever upon the validity, performance or
enforceability of any material provision of the Loan Documents, (b) is or might
be material and adverse to the financial condition or business operations of
the Borrower or any subsidiary, (c) could impair the ability of the Borrower to
fulfill its obligations under the Loan Documents, or (d) causes an Event of
Default or any event which, with notice or lapse of time or both, could become
an Event of Default. Neither the financial statements referred to in Section
2.5 hereof, nor any certificate or statement delivered herewith or heretofore
by Borrower in connection with the negotiations of this Loan Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary to keep the statements contained herein or therein, under the
circumstances in which they were made, from being misleading.
2.15 Each request for an advance under the Line of Credit shall
constitute, without the necessity of specifically containing a written
statement, a representation and warranty by Borrower that no Event of Default
exists and that all representations and warranties contained in this Section 2
or in any mortgage, guaranty, security agreement or other document given to
secure or relating to the Line of Credit Note, the Term Note, the Equipment
Line of Credit Note or this Agreement are true and correct at and as of the
time the advance is to be made.
SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER
3.1 Prior to Standard Federal's disbursement of any advances under the
Line of Credit or the Equipment Line of Credit, or closing of the Term Loan,
the Borrower shall; (a) furnish to Standard Federal, if Standard Federal so
requires, certified copies of its Articles of Incorporation, Bylaws and
Certificate of Good Standing, which Articles of Incorporation and Good Standing
Certificate are to be certified by the appropriate official of the Borrower's
state of incorporation; (b) furnish to Standard Federal if Standard Federal so
requires a statement of the Borrower and the chief financial officer of
Borrower certifying that they are unaware of the occurrence of an Event of
Default or of any event which with notice and/or the passage of time could
become an Event of Default; and (c) furnish Standard Federal such other
instruments, documents, opinions or certificates as Standard Federal or its
counsel shall reasonably require. All actions, proceedings, instruments and
documents required or requested hereunder shall be satisfactory to and approved
by Standard Federal and/or its counsel prior to the disbursement of advances
under the Line of Credit or the Equipment Line of Credit or closing of the Term
Loan.
3.2 From the date hereof until all amounts owing under the Line of
Credit, the Term Loan and the Equipment Line of Credit are paid in full and all
obligations under the Line of Credit Note, the Term Note, the Equipment Line of
Credit Note, this Agreement and
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all other documents executed in connection with the Line of Credit, the Term
Loan and the Equipment Line of Credit are fully paid, performed and satisfied
and so long as Standard Federal has any commitment to make advances hereunder,
the Borrower covenants and agrees it will:
3.2(a) Furnish to Standard Federal as soon as available and, in any event,
within 120 days after the close of each fiscal year of the Borrower, or, in the
event the Borrower obtains an extension of the filing date from the Securities
Exchange Commission, by such extended date, detailed financial statements of
the Borrower as of the close of such fiscal year, containing a consolidated
balance sheet of the Borrower and its subsidiaries, if any, and statements of
income and cash flows of the Borrower and its subsidiaries, if any, for such
fiscal year prepared in accordance with generally accepted accounting
principles and in a manner consistent with prior such statements containing an
analysis of sources and uses of funds and such other comments and financial
details as are usually included in similar reports. Such statements shall be
accompanied by an opinion thereon (which shall not be qualified by reason of
any limitation imposed by Borrower) of independent certified public accountants
selected by Borrower and acceptable to Standard Federal as to the fairness of
the statements included in the report and to the effect that the examination of
such accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances.
3.2(b) Furnish to Standard Federal as soon as available and, in any event,
within 90 days after the close of each quarter of each fiscal year, or, in the
event the Borrower obtains an extension of the filing date from the Securities
Exchange Commission, by such extended date, detailed financial statements of
the Borrower as of the close of such fiscal period containing a consolidated
balance sheet of the Borrower and its subsidiaries, if any, and statements of
income and cash flows of the Borrower and its subsidiaries, if any, for such
fiscal period and for the portion of the fiscal year ending with such period in
reasonable detail and form acceptable to Standard Federal and certified by the
chief financial officer of the Borrower as being true and correct and as having
been prepared in accordance with generally accepted accounting principles
consistently applied, subject to year-end adjustments, if any.
3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed 20
days after the end of each calendar month, a statement of accounts receivable,
in a form acceptable to Standard Federal, certified as correct by Borrower or a
principal officer of Borrower showing the agings thereof and the payment,
write-off or other disposition of former accounts receivable the disposition of
which has not previously been reported to Standard Federal, and such other
information and data as Standard Federal may reasonably
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require. Borrower will further specifically disclose any facts known to
Borrower which facts would tend to render doubtful the collectibility of any
account receivable disclosed in such statements or which would indicate that
the existence or amount of such account is disputed by the debtor thereon.
3.2(d) Furnish to Standard Federal, within a reasonable time not to exceed 20
days after the end of each calendar month, a statement of accounts payable, in
a form acceptable to Standard Federal, certified as correct by Borrower or a
principal officer of Borrower, showing the agings thereof and such other
information and data as Standard Federal may reasonably require.
3.2(e) Furnish to Standard Federal, within a reasonable time not to exceed 20
days after the end of each calendar month, a statement of inventory of the
Borrower, in a form acceptable to Standard Federal, certified as correct by
Borrower or a principal officer of Borrower showing the method of reporting and
all additions to and dispositions of inventory since the previous inventory
report and such other information and data as Standard Federal may reasonably
require.
3.2(f) Furnish to Standard Federal, promptly after sending, filing or
publishing the same, copies of all proxy statements, financial statements and
reports that the Borrower sends to its public shareholders and copies of all
regular, periodic and special reports and all registration statements and
amendments thereto that the Borrower files with the Securities and Exchange
Commission or any other governmental authority and any Exchange, and copies of
all press releases issued by Borrower.
3.2(g) Promptly inform Standard Federal of the occurrence of any Event of
Default or of any event (including without limitation any pending or threatened
litigation or other proceedings before any governmental body or agency) which
could have a materially adverse effect upon the Borrower's business,
properties, financial condition or ability to comply with its obligations
hereunder or under the Line of Credit Note, the Term Note or the Equipment Line
of Credit Note.
3.2(h) Furnish such other information as Standard Federal may reasonably
request and permit Standard Federal and its agents, attorneys and employees to
inspect all of the books, records and properties of the Borrower at any
reasonable time.
3.2(i) Maintain adequate insurance with responsible companies in such amounts
and against such risks and hazards as are normally insured against by similar
businesses, and provide Standard Federal evidence of such insurance upon
request; policies of casualty insurance shall contain a customary mortgagee
clause requiring payment of proceeds to Borrower and to Standard Federal as
their interests may appear and all other insurance shall contain a
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<PAGE> 15
customary loss payable clause requiring payment of proceeds to Borrower and to
Standard Federal as their interests may appear and all insurance policies shall
provide that no cancellation, reduction in amount, change in coverage or
expiration thereof shall be effective until at least 30 days prior written
notice has been given by the insurer to Standard Federal; and pay when due all
taxes, assessments, fees and similar charges of every kind and nature lawfully
assessed upon the Borrower and/or its property, except to the extent being
contested in good faith; and in the event the Borrower fails to maintain such
insurance or to pay promptly any taxes or charges when due, then and in such
event Standard Federal, in its sole discretion, may, but shall not be required
to, pay the same and any amounts expended by Standard Federal for such purpose
shall become a part of the Line of Credit and shall bear interest at the rate
applicable to the outstanding principal balance owing under the Line of Credit
Note.
3.2(j) Preserve and keep in full force and effect its own and its material,
operating subsidiaries' (if any) corporate existence in good standing and
maintain voting control in its present controlling shareholder(s); keep current
all filings of assumed name certificates for each name under which and each
county in which the Borrower does business and promptly inform Standard Federal
of any assumed names under which it does business which were not used by the
Borrower on the date of this Agreement; continue to conduct and operate its
business substantially as presently conducted and operated in accordance with
all applicable laws and regulations; maintain and protect all franchises and
trade names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair and condition; pay
its indebtedness and obligations when due under normal terms and maintain
proper books of record and account, and; otherwise remain in compliance with
all applicable laws, statutes, regulations, rules and requirements of any
federal, state, judicial, regulatory or administrative body having jurisdiction
of the Borrower or any of its assets, except to the extent noncompliance is
immaterial and would not have a material adverse effect on Borrower.
3.2(k) Maintain on a consolidated statement basis "Tangible Net Worth" of not
less than the amounts specified below as of the end of each fiscal quarter
during the fiscal years ending on the dates specified below:
Minimum
"Tangible
Fiscal Year-End Net Worth"
--------------- -----------
09/30/96 $21,000,000
09/30/97 $23,000,000
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"Tangible Net Worth" shall mean total assets less trademarks, franchises,
copyrights, licenses, goodwill, similar intangible assets and all liabilities
(excluding debt subordinated to Standard Federal upon terms and conditions
acceptable to Standard Federal) of the Borrower.
3.2(l) Maintain on a consolidated statement basis the ratio of "Current
Assets" to "Current Liabilities" of not less than the ratios specified below as
of the end of each fiscal quarter during the fiscal years ending on the dates
specified below:
Fiscal Year-End Minimum Current Ratio
--------------- ---------------------
09/30/96 2.35 to 1.00
09/30/97 2.40 to 1.00
"Current Assets" shall include all assets considered current in
accordance with generally accepted accounting principles as in effect as of the
date of this Agreement, consistently applied, less all amounts due Borrower
from any of its directors, officers, employees, its shareholders, or any
company controlled by any of its shareholders. "Current Liabilities" shall
include all liabilities considered current in accordance with generally
accepted accounting principles as in effect as of the date of this Agreement,
consistently applied.
3.2(m) On a consolidated statement basis maintain the ratio of "Liabilities"
to "Tangible Net Worth" of not more than the ratios specified below as of the
end of each fiscal quarter during the fiscal years ending on the dates
specified below:
Fiscal Year-End Maximum Liabilities-to-Worth Ratio
--------------- ----------------------------------
09/30/96 2.55 to 1.00
09/30/97 2.45 to 1.00
"Liabilities" shall mean all liabilities of the Borrower and its
consolidated subsidiaries, if any, as defined in accordance with generally
accepted accounting principles as in effect as of the date of this Agreement,
consistently applied.
"Tangible Net Worth" shall mean total assets less trademarks,
franchises, copyrights, licenses, goodwill, similar intangible assets and all
liabilities (excluding debt subordinated to Standard Federal upon terms and
conditions acceptable to Standard Federal) of the Borrower.
3.2(n) On a consolidated statement basis, maintain an Interest Coverage Ratio
of not less than 2.00 to 1.00 as of the end of each quarter of each fiscal
year. The "Interest Coverage Ratio" shall be
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defined as the ratio of the Borrower's net income, plus interest charges,
income and other taxes and amortization and depreciation for the period of four
consecutive quarters ending with the quarter at the end of which the Interest
Coverage Ratio is being measured to all interest expense of the Borrower for
such period, as determined in accordance with generally accepted accounting
principles.
3.2(o) On a consolidated statement basis, maintain a Fixed Charge Coverage
Ratio of not less than 1.75 to 1.00 as of the end of each quarter of each
fiscal year. The "Fixed Charge Coverage Ratio" shall be defined as the ratio
of the Borrower's net income, plus amortization and depreciation for the period
of four consecutive quarters ending with the quarter at the end of which the
Fixed Charge Coverage Ratio is being measured to current maturities of long
term debt, as determined in accordance with generally accepted accounting
principles.
3.2(p) At all times meet and cause each of its subsidiaries, if any, to meet
the minimum funding requirements of ERISA with respect to all employee pension
and/or profit sharing plans subject to ERISA and, with respect to any such
employee benefit plan, promptly notify Standard Federal in writing of any
reportable event, as defined in ERISA, or any proposed termination (voluntary
or otherwise) which could give rise to material termination liability within
the meaning of ERISA Section 4062.
3.3 The Borrower will not make any change in its accounting policies or
financial reporting practices and procedures, except changes in accounting
policies which are required or permitted by generally accepted accounting
principles and changes in financial reporting practices and procedures which
are required or permitted by generally accepted accounting principles.
3.4 The Borrower shall use the monies loaned hereunder only for the
purpose(s) set forth in the preamble hereto.
3.5 The Borrower shall allow Standard Federal's participant in the Line
of Credit, the Term Loan and the Equipment Line of Credit and staff or
independent accountants or auditors selected by Standard Federal's participant
to conduct a full audit of the Borrower's financial statements and its books
and records twice during the first year of the term of the Line of Credit, the
Term Loan and the Equipment Line of Credit and once in each of the second and
third years of the term of the Line of Credit, the Term Loan and the Equipment
Line of Credit. Standard Federal's participant shall schedule such audits
during normal business hours of the Borrower and shall provide Borrower not
less than two (2) business days notice of the commencement of each audit. The
Borrower shall make adequate facilities available on its premises at Borrower's
expense to enable Standard Federal's participant to conduct the audits herein
described and shall make available all of
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its books, records and other documents and information as may be reasonably
requested to facilitate the audits. The Borrower agrees to pay to Standard
Federal's participant an audit fee of $3,000.00 plus travel expenses for each
audit so conducted by the participant.
SECTION 4. NEGATIVE COVENANTS
4.1 From the date hereof until all amounts owing under the Line of
Credit, the Term Loan and the Equipment Line of Credit are paid in full and all
obligations under the Line of Credit Note, the Term Note and the Equipment Line
of Credit Note, this Agreement and all other documents executed in connection
with the Line of Credit, the Term Loan and the Equipment Line of Credit are
fully paid, performed and satisfied and so long as Standard Federal has any
commitment to make advances hereunder, the Borrower covenants and agrees that
it will not do and will not permit any subsidiary, if any, to do any of the
following without the prior written approval of Standard Federal:
4.1(a) Create, incur, assume or permit to exist (a) any mortgage, pledge,
security interest, lien or charge of any kind upon any of its property or
assets whether now owned or hereafter acquired other than in favor of Standard
Federal, except as required or permitted by Standard Federal, or (b) any
indebtedness or liability for borrowed money, except indebtedness to Standard
Federal or indebtedness subordinated to the prior payment in full of the
Borrower's indebtedness to Standard Federal which is approved in writing by
Standard Federal, except as otherwise required or permitted in writing by
Standard Federal.
4.1(b) Make loans, advances or extensions of credit to any Entity (which in
this Agreement means any individual, partnership, corporation or other legal
entity), other than a parent or subsidiary of the Borrower, in excess of
$100,000.00 in principal amount, except for sales on open account and in
ordinary course of business; or guarantee or in any way become responsible for
obligations of any other Entity except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business; or subordinate
any indebtedness due it from an Entity to indebtedness of any other creditor of
such Entity.
4.1(c) Sell, lease or transfer, during any fiscal year, except inventory in
the ordinary course of business, any substantial portion of its assets; or
consolidate with or merge into any other Entity, or permit another to merge
into it; or acquire by lease or purchase all or substantially all the business
or assets of any Entity; or enter into any lease-back arrangement with any
Entity.
4.1(d) Acquire or expend for, by lease, purchase or otherwise, during any
fiscal year, fixed assets in excess of $4,500,000.
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SECTION 5. SECURITY
5.1 In order to secure: (1) the full and timely performance of the
Borrower's covenants set forth herein and in the Line of Credit Note, the Term
Note and the Equipment Line of Credit Note, (2) the repayment of any and all
indebtedness of the Borrower to Standard Federal arising pursuant to the Line
of Credit Note, the Term Note, the Equipment Line of Credit Note (including any
renewals or substitutions thereof), this Agreement and any mortgage, guaranty,
security agreement or other document given to secure or relating to the Line of
Credit Note, the Term Note, the Equipment Line of Credit Note or this
Agreement, and (3) all other indebtedness and liabilities of the Borrower to
Standard Federal arising under this Agreement, the Line of Credit Note, the
Term Note or the Equipment Line of Credit Note, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising:
5.1(a) The Borrower hereby grants unto Standard Federal a security interest
in the following property and the proceeds thereof: (i) any and all securities
or other property received by the Borrower with respect to, on account of or in
exchange for any item of Collateral; (ii) all stock and/or liquidating
dividends (whether the same be in the form of cash or other property) paid
upon, on account of or with respect to any item of Collateral; and (iii) all
bank deposits, instruments, negotiable documents, chattel paper and any and all
other property of the Borrower of any kind whatsoever which shall at any time
be in the possession or under the control of Standard Federal; and
5.1(b) The Borrower has granted to Standard Federal a security interest of
first priority in all personal property of the Borrower as provided in a
certain Security Agreement dated September 15, 1994 from the Borrower to
Standard Federal, the provisions of which are hereby incorporated herein by
reference; and
5.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard
Federal as collateral security a life insurance policy on the life of Kenneth
D. McClain in the face amount of $2,000,000.00 (herein, together with the
property described in Sections 5.1(a) (i), (ii) and (iii) and 5.1(b) above,
referred to as the "Collateral" or "item(s) of Collateral").
5.2 The Borrower shall execute and deliver to Standard Federal any
and all documents (including financing statements) as Standard Federal may
require to insure the perfection and priority of its liens and security
interests in the Collateral and furnish, if Standard Federal so requires, proof
of hazard insurance policies, in accordance with Section 3.2(g) above, relating
to the Collateral.
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SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the events enumerated in Sections 6.1 to
6.11 below shall constitute an Event of Default for purposes of this
Agreement:
6.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to
Standard Federal on the Line of Credit, the Term Loan and the Equipment Line of
Credit is not paid when due, regardless of whether such indebtedness has arisen
pursuant to the terms of the Line of Credit Note, the Term Note, the Equipment
Line of Credit Note, this Agreement or any mortgage, security agreement,
guaranty, instrument or other agreement executed in conjunction herewith.
6.2 MISREPRESENTATION. If any warranty or representation made by or for
the Borrower and/or any endorser or guarantor of the Line of Credit Note, the
Term Note or the Equipment Line of Credit Note in connection with the loan(s)
evidenced thereby, or if any financial data or any other information now or
hereafter furnished to Standard Federal by or on behalf of the Borrower and/or
any endorser or guarantor of the Line of Credit Note, the Term Note or the
Equipment Line of Credit Note shall prove to be false, inaccurate or misleading
in any material respect.
6.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If
the Borrower shall fail to perform any of its obligations and covenants under
Section 3 of this Agreement, or shall fail to comply with any of the other
provisions of this Agreement, other than under Section 4 hereof, or the Line of
Credit Note, the Term Note, the Equipment Line of Credit Note, or any other
agreement with Standard Federal to which it may be a party, other than the
payment of principal and interest.
6.4 NONCOMPLIANCE WITH NEGATIVE COVENANTS. If the Borrower shall fail to
perform any of its obligations and covenants described in Section 4 of this
Agreement.
6.5 BUSINESS SUSPENSION. If the Borrower and/or any endorser or
guarantor of the Line of Credit Note, the Term Note or the Equipment Line of
Credit Note shall voluntarily suspend transaction of its business.
6.6 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of
the Line of Credit Note, the Term Note or the Equipment Line of Credit Note:
(a) makes a general assignment for the benefit of creditors; (b) shall file a
voluntary petition in bankruptcy or for a reorganization to effect a plan or
other arrangement with creditors; or shall file an answer to a creditor's
petition or other petition against Borrower and/or any endorser or guarantor of
the Line of Credit Note, the Term Note or the Equipment Line of Credit Note for
relief in bankruptcy or for a
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reorganization which answer admits the material allegations thereof; or if any
order for relief shall be entered by any court of bankruptcy jurisdiction with
respect to the Borrower and/or any endorser or guarantor of the Line of Credit
Note, the Term Note or the Equipment Line of Credit Note, or if bankruptcy,
reorganization or liquidation proceedings are instituted against Borrower
and/or any endorser or guarantor of the Line of Credit Note, the Term Note or
the Equipment Line of Credit Note and remain undismissed for 60 days; (c) has
entered against it any order by any court approving a plan for the
reorganization of the Borrower or any endorser or guarantor of the Line of
Credit Note, the Term Note or the Equipment Line of Credit Note or any other
plan or arrangement with creditors of the Borrower or any endorser or guarantor
of the Line of Credit Note, the Term Note or the Equipment Line of Credit Note;
(d) shall apply for or permit the appointment of a receiver, trustee or
custodian for any substantial portion of the Borrower's and/or any endorser's
or guarantor's properties or assets; or (e) becomes unable to meet its debts as
they mature or becomes insolvent.
6.7 JUDGMENTS AND WRITS. If there shall be entered against the Borrower
and/or any endorser or guarantor of the Line of Credit Note, the Term Note or
the Equipment Line of Credit Note one or more judgments or decrees which are
not insured against or satisfied or appealed from and bonded within the time
or times limited by applicable rules of procedure for appeal as of right or if
a writ of attachment or garnishment against the Borrower and/or any endorser or
guarantor of the Line of Credit Note, the Term Note or the Equipment Line of
Credit Note shall be issued and levied in an action claiming $100,000.00 or
more and not released, bonded or appealed from within 30 days after the levy
thereof.
6.8 MERGER. If the Borrower shall merge or consolidate with another
entity.
6.9 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling
portion of its voting stock or a substantial portion of its assets comes under
the practical, beneficial or effective control of any person or persons other
than those having such control as of the date of execution of the Line of
Credit Note, the Term Note and the Equipment Line of Credit Note, whether by
reason of merger, consolidation, sale or purchase of stock or assets or
otherwise, if any such change of control, in the sole and absolute discretion
of Standard Federal, adversely impacts upon the ability of the Borrower to
carry on its business as theretofore conducted.
6.10 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of
the Line of Credit Note, the Term Note or the Equipment Line of Credit Note
shall default in the due payment of any material indebtedness to whomsoever
owed, or shall default in the observance or performance of any material term,
covenant or condition in any mortgage, security agreement, guaranty,
21
<PAGE> 22
instrument, lease or agreement to which the Borrower and/or any endorser or
guarantor of the Line of Credit Note, the Term Note or the Equipment Line of
Credit Note is a party.
6.11 REPORTABLE EVENT. If there shall occur any "reportable event", as
defined in the Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute grounds for termination
by the Pension Benefit Guaranty Corporation of any employee pension benefit
plan maintained by or on behalf of the Borrower for the benefit of any of its
employees or for the appointment by the appropriate United States District
Court of a trustee to administer such plan and such reportable event is not
corrected and such determination is not revoked within 30 days after notice
thereof has been given to the plan administrator or the Borrower; or the
institution of proceedings by the Pension Benefit Guaranty Corporation to
terminate any such employee benefit pension plan or to appoint a trustee to
administer such plan; or the appointment of a trustee by the appropriate United
States District Court to administer any such employee benefit pension plan.
SECTION 7. REMEDIES UPON EVENT OF DEFAULT
7.1 Upon the occurrence of any Event of Default described in Sections
6.2, 6.3 or 6.10 hereof which is not cured or waived in writing by Standard
Federal within 15 days after written notice to the Borrower of such default; or
upon the occurrence of any Event of Default described in Section 6.1 which
continues unremedied for 10 days, or upon the occurrence of any Event of
Default described in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.11, Standard
Federal's commitment to lend hereunder, if any, shall terminate and Standard
Federal may, without notice, declare the entire unpaid and outstanding
principal balance of the Line of Credit, the Term Loan and the Equipment Line
of Credit and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind, all of which are hereby
expressly waived by Borrower, and thereupon Standard Federal shall have and may
exercise any one or more of the rights and remedies provided herein or in the
Line of Credit Note, the Term Note or the Equipment Line of Credit Note or in
any mortgage, guaranty, security agreement or other document relating hereto or
granted secured parties under the Michigan Uniform Commercial Code, including
the right to take possession of and dispose of the Collateral, or otherwise
provided by applicable law, and to offset against the Line of Credit, the Term
Loan and the Equipment Line of Credit any amount owing by Standard Federal to
the Borrower.
SECTION 8. MISCELLANEOUS.
8.1 No default shall be waived by Standard Federal except in writing and
a waiver of any default shall not be a waiver of any other default or of the
same default on a future occasion. No
22
<PAGE> 23
single or partial exercise of any right, power or privilege hereunder, or any
delay in the exercise hereof, shall preclude other or further exercise of the
rights of the parties to this Agreement.
8.2 No forbearance on the part of Standard Federal in enforcing any of
its rights under this Agreement, nor any renewal, extension or rearrangement of
any payment or covenant to be made or performed by the Borrower hereunder
shall constitute a waiver of any of the terms of this Agreement or of any such
right.
8.3 This Agreement shall be construed in accordance with the law of the
State of Michigan.
8.4 All covenants, agreements, representations and warranties made in
connection with this Agreement and any document contemplated hereby shall
survive the borrowing hereunder and shall be deemed to have been relied upon by
Standard Federal. All statements contained in any certificate or other
document delivered to Standard Federal at any time by or on behalf of the
Borrower pursuant hereto shall constitute representations and warranties by the
Borrower.
8.5 The Borrower agrees that it will pay all costs and expenses incurred
by Standard Federal in enforcing Standard Federal's rights under this Agreement
and the documents contemplated hereby, including without limitation any and all
reasonable fees and disbursements of legal counsel to Standard Federal.
8.6 This Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns; provided, however, that the Borrower shall not assign
or transfer its rights or obligations hereunder without the prior written
consent of Standard Federal.
8.7 If any provision of this Agreement shall be held or deemed to be or
shall, in fact, be inoperative or unenforceable as applied in any particular
case in any or all jurisdictions, or in all cases because it conflicts with any
other provision or provisions hereof or any constitution or statute or rule of
public policy, or for any other reason, such circumstances shall not have the
effect of rendering the provision in question inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative, or unenforceable to any
extent whatever. The invalidity of any one or more phrases, sentences, clauses
or sections contained in this Agreement, shall not affect the remaining
portions of this Agreement, or any part thereof.
23
<PAGE> 24
SECTION 9. ADDITIONAL PROVISIONS
9.1 In addition to the terms, covenants and conditions set forth above,
the parties hereto hereby agree as follows:
9.1(a) Borrower shall cause Galion Holding Company, a Michigan corporation,
to execute and deliver to Standard Federal an unlimited payment guaranty of the
obligations of Borrower under the Line of Credit, the Term Loan and the
Equipment Line of Credit in form and substance acceptable to Standard Federal.
IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this
Loan Agreement to be executed as of the day and year first written above.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
By: Carl L. Jaworski
- ------------------------- ---------------------------
Carl L. Jaworski
Its: Secretary
--------------------
38-1867649
------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
By: Carl L. Jaworski
- ------------------------- ---------------------------
Carl L. Jaworski
Its: Secretary
--------------------
58-1738825
------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
By: Carl L. Jaworski
- ------------------------- ---------------------------
Carl L. Jaworski
Its: Secretary
--------------------
38-2205216
------------------------------
Taxpayer Identification Number
24
<PAGE> 25
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
By: Carl L. Jaworski
- ------------------------- ---------------------------
Carl L. Jaworski
Its: Secretary
--------------------
------------------------------
Taxpayer Identification Number
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
By: Carl L. Jaworski
- ------------------------- --------------------------
Carl L. Jaworski
Its: Treasurer
--------------------
------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
By: Carl L. Jaworski
- ------------------------- ---------------------------
Carl L. Jaworski
Its: Treasurer
--------------------
38-
------------------------------
Taxpayer Identification Number
STANDARD FEDERAL BANK, a
federal savings bank
By: David J. Bartlett
---------------------------
David J. Bartlett
Its: Vice President
--------------------
25
<PAGE> 1
EXHIBIT 10.47
Note No. 0250006199
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit) [X] Renewal
$11,000,000.00 Troy , Michigan
- ------------------------------------------------ ----------------
Due Date: March 1, 1998 Dated: July 17, 1996
- ------------------------------------------------ ----------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned, jointly and severally (collectively, "Borrower"),
promise to pay to the order of Standard Federal Bank, a federal savings bank
("Standard Federal"), at its office set forth below, or at such other place as
Standard Federal may designate in writing, the principal sum of Eleven Million
and 00/100 Dollars ($11,000,000.00) or such lesser amount as may from time to
time be outstanding by reason of having been advanced hereunder, plus interest
as hereinafter provided on all amounts from time to time outstanding hereunder,
all in lawful money of the United States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for all
purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street Journal Prime Rate" and
not by reference to the actual rate of interest charged by any particular bank
to any particular borrower
<PAGE> 2
or borrowers and shall automatically increase or decrease when and to
the extent that the Wall Street Journal Prime Rate shall have been increased or
decreased.
Accrued interest shall be payable on the first day of each month beginning
on August 1, 1996.
This Note is given as evidence of any and all indebtedness of the Borrower
to Standard Federal arising as a result of advances or other credit which may
be made under this Note from time to time in accordance with the provisions of
an Amended and Restated Loan Agreement of even date herewith, by and between
Standard Federal and the Borrower (the "Loan Agreement"). Any and all
indebtedness may be repaid by the Borrower in whole or in part from time to
time prior to the Due Date. Standard Federal shall, from time to time prior to
the Due Date, make advances to Borrower hereunder upon request therefor by
Borrower, provided that, upon giving effect to such advance: (a) no Event of
Default (as hereinafter defined) and no event which with notice and/or the
passage of time would become an Event of Default shall exist at the time the
advance is to be made; (b) all representations and warranties of Borrower
theretofore made are true and correct; (c) Standard Federal shall not have
previously or concurrently declared all amounts owing hereunder to be
immediately due and payable; (d) the amount requested shall not cause the total
amount outstanding hereunder to exceed the Credit Limit, as defined in the Loan
Agreement; and (e) all other requirements for the making of advances provided
for in the Loan Agreement have been satisfied. The principal amount of
indebtedness owing pursuant to this Note shall change from time to time,
decreasing in an amount equal to any and all payments of principal made by the
Borrower and increasing by an amount equal to any and all advances made by
Standard Federal to the Borrower pursuant to the terms hereof, and the books
and records of Standard Federal shall be conclusive evidence of the amount of
principal and interest owing hereunder at any time. All payments made
hereunder shall be applied first against costs and expenses required to be paid
hereunder, then against accrued interest to the extent thereof and the balance
shall be applied against the outstanding principal amount hereof.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid
or payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
-2-
<PAGE> 3
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that may be deemed interest)
stipulated under this Note is, or may be, usurious or otherwise limited by law,
the unpaid balance of this Note, with accrued interest at the highest rate
permitted to be charged by stipulation in writing between Standard Federal and
Borrower, at the option of Standard Federal, shall immediately become due and
payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other
-3-
<PAGE> 4
liabilities of Borrower to Standard Federal and enforcement of rights
hereunder, including reasonable attorney fees and legal expenses
including participation in Bankruptcy proceedings. During any period(s) this
Note is in default, or after the Due Date, or after acceleration of maturity,
the outstanding principal amount hereof shall bear interest at a rate equal to
two percent (2.0%) per annum greater than the interest rate otherwise charged
hereunder. If any required payment is not made within ten (10) days after the
date it is due, then, at the option of Standard Federal, a late charge of not
more than four cents ($.04) for each dollar of the payment so overdue may be
charged. In addition to any other security interests granted to Standard
Federal, Borrower hereby grants Standard Federal a security interest in all of
Borrower's bank deposits, instruments, negotiable documents, and chattel paper
which at any time are in the possession or control of Standard Federal. After
the occurrence of an Event of Default hereunder, Standard Federal may hold and
apply at any time its own indebtedness or liability to Borrower in payment of
any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to
payment or any other provisions of this Note, and to the release of any
collateral or any part thereof, with or without substitution. The liability of
the Borrower shall be absolute and unconditional, without regard to the
liability of any other party hereto.
This Note is executed pursuant to the Loan Agreement and is secured by a
Security Agreement, dated September 15, 1994, and by a Security Agreement,
dated July 19, 1995, and by an Assignment of Policy as Collateral Security, of
even date herewith. Reference is hereby made to such documents for additional
terms relating to the transaction giving rise to this Note, the security given
for this
-4-
<PAGE> 5
Note and additional terms and conditions under which this Note matures, may be
accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
David J. Bartlett By: Carl L. Jaworski
------------------------------ ----------------------------------
Carl L. Jaworski
Its: Secretary
----------------------------
38-1867649
-------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ----------------------------------
Carl L. Jaworski
Its: Secretary
----------------------------
58-1738825
-------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
David J. Bartlett
----------------------------- By: Carl L. Jaworski
----------------------------------
Carl L. Jaworski
Its: Secretary
----------------------------
38-2205216
-------------------------------------
Taxpayer Identification Number
-5-
<PAGE> 6
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Secretary
-----------------------------
--------------------------------------
Taxpayer Identification Number
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
-----------------------------
--------------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
--------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
-6-
<PAGE> 1
EXHIBIT 10.48
Note No. 0250024109
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Term Loan)
$3,465,888.23 Troy , Michigan
------------------------------- ---------------------------
Due Date: October 1, 2001 Dated: July 17, 1996
------------------------------- ---------------------------
FOR VALUE RECEIVED, the undersigned, jointly and severally (collectively,
"Borrower"), promise to pay to the order of Standard Federal Bank, a federal
savings bank ("Standard Federal"), at its office set forth below, or at such
other place as Standard Federal may designate in writing, the principal sum of
Three Million Four Hundred Sixty Five Thousand Eight Hundred Eighty Eight and
00/100 Dollars ($3,465,888.23), plus interest on all amounts from time to time
outstanding hereunder, as hereinafter provided, all in lawful money of the
United States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for all
purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street Journal Prime Rate" and
not by reference to the actual rate of interest charged by any particular bank
to any particular borrower or borrowers and shall automatically increase or
decrease when and to the extent that the Wall Street Journal Prime Rate shall
have been increased or decreased.
<PAGE> 2
Principal and interest shall be paid in consecutive monthly payments of
principal in the amount of $56,481.00 each, plus interest accrued to the due
date of each payment, commencing on August 1, 1996, and continuing on the same
day of each consecutive month thereafter and a final payment on the Due Date in
an amount equal to the then unpaid principal and accrued interest.
All payments required to be paid hereunder shall first be applied to costs
and expenses required to be paid hereunder, then to accrued interest hereunder
and the balance shall be applied against the principal. This Note may be
prepaid, in full or in part, at any time, without the payment of any prepayment
fee or penalty. All partial prepayments shall be applied against the last
accruing installment or amount due under this Note; and no prepayments shall
affect the obligation of the undersigned to continue the regular installments
hereinbefore mentioned, until the entire unpaid principal and accrued interest
has been paid in full. Borrower understands that the installment payments of
principal provided for herein are not sufficient to fully amortize the
outstanding principal balance of this Note by the Due Date and that the final
payment due on the Due Date will be a balloon payment of all then outstanding
principal and accrued interest.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that may be deemed interest)
stipulated under this Note is, or may be, usurious or otherwise limited by law,
the unpaid balance of this Note, with accrued interest at the highest rate
permitted to be charged by stipulation in writing between Standard Federal and
Borrower, at the option of Standard Federal, shall immediately become due and
payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof
-2-
<PAGE> 3
and there has been no material adverse change in the condition (financial or
otherwise) of the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other liabilities of Borrower to Standard Federal and enforcement
of rights hereunder, including reasonable attorney fees and legal expenses
including participation in Bankruptcy proceedings.
During any period(s) this Note is in default, or after the Due Date, or after
acceleration of maturity, the outstanding principal amount hereof shall bear
interest at a rate equal to two percent (2.0%) per annum greater than the
interest rate otherwise charged hereunder. If any required payment is not made
within ten (10) days after the date it is due, then, at the option of Standard
Federal, a late charge of not more than four cents ($.04) for each dollar of
the payment so overdue may be charged. In addition to any other security
interests granted to Standard Federal, Borrower hereby grants Standard Federal
a security interest in all of Borrower's bank deposits, instruments, negotiable
documents, and chattel paper which at any time are in the possession or control
of Standard Federal. After the occurrence of an Event of Default
-3-
<PAGE> 4
hereunder, Standard Federal may hold and apply at any time its own indebtedness
or liability to Borrower in payment of any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to an Amended and Restated Loan Agreement
of even date herewith (the "Loan Agreement"), and is secured by a Security
Agreement, dated September 15, 1994, and by a Security Agreement, dated July
19, 1995, and by an Assignment of Policy as Collateral Security, of even date
herewith. Reference is hereby made to such documents for additional terms
relating to the transaction giving rise to this Note, the security given for
this Note and additional terms and conditions under which this Note matures,
may be accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
-4-
<PAGE> 5
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------
38-1867649
---------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------
58-1738825
---------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------
38-2205216
---------------------------------------
Taxpayer Identification Number
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------
---------------------------------------
Taxpayer Identification Number
-5-
<PAGE> 6
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
-----------------------------
--------------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
-----------------------------
--------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
-6-
<PAGE> 1
EXHIBIT 10.49
Note No. 0250024076
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit with Term Provisions) [X] New
[ ] Renewal
$1,000,000.00 Troy , Michigan
- ----------------------------- ----------------
Due Date: July 1, 2001 Dated: July 17, 1996
----------------------------- ----------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned, jointly and severally (collectively, "Borrower"),
promise to pay to the order of Standard Federal Bank, a federal savings bank
("Standard Federal"), at its office set forth below, or at such other place as
Standard Federal may designate in writing, the principal sum of One Million and
00/100 Dollars ($1,000,000.00) or such lesser amount as may from time to time
be outstanding by reason of having been advanced hereunder in accordance with
the provisions of an Amended and Restated Loan Agreement of even date herewith
(the "Loan Agreement"), plus interest as hereinafter provided on all amounts
from time to time outstanding hereunder, all in lawful money of the United
States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for
all purposes of this Note.
<PAGE> 2
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street Journal Prime Rate" and
not by reference to the actual rate of interest charged by any particular bank
to any particular borrower or borrowers and shall automatically increase or
decrease when and to the extent that the Wall Street Journal Prime Rate shall
have been increased or decreased.
This Note is given as evidence of any and all indebtedness of the Borrower
to Standard Federal arising as a result of advances or other credit which may
be made under this Note from time to time to and until July 1, 1997 (the "Term
Date"). Any and all indebtedness may be repaid by the Borrower in whole or in
part from time to time prior to the Term Date. Standard Federal shall, from
time to time prior to the Term Date, make advances to Borrower hereunder upon
request therefor by Borrower, made in accordance with the requirements of the
Loan Agreement, provided that upon giving effect to such advance no Event of
Default (as hereinafter defined) and no event which with notice and/or the
passage of time would become an Event of Default shall exist at the time the
advance is to be made and that all representations and warranties of Borrower
theretofore made are true and correct and that Standard Federal shall not have
previously or concurrently declared all amounts owing hereunder to be
immediately due and payable and that the amount requested shall not cause the
total amount outstanding hereunder to exceed the Equipment Credit Limit as
defined in the Loan Agreement. The principal amount of indebtedness owing
pursuant to this Note shall change from time to time, decreasing in an amount
equal to any and all payments of principal made by the Borrower prior to the
Due Date and increasing by an amount equal to any and all advances made by
Standard Federal to the Borrower pursuant to the terms hereof, and the books
and records of Standard Federal shall be conclusive evidence of the amount of
principal and interest owing hereunder at any time. All payments made
hereunder shall be applied first against costs and expenses required to be paid
hereunder, then against accrued interest to the extent thereof and the balance
shall be applied against the outstanding principal amount hereof.
Accrued interest shall be payable on the 1st day of each month beginning
on August 1, 1996 through and including the Term Date. From and after the Term
Date, Standard Federal shall make no further advances hereunder and the
outstanding principal balance hereunder as of the Term Date, with interest,
shall be repaid in consecutive monthly payments of principal, each in the
amount determined by dividing the outstanding principal balance hereunder as of
the Term Date by 48, plus interest accrued to the due date of each such
payment, commencing on August 1, 1997 and continuing on the same day of each
consecutive month thereafter and a final payment on the Due Date in an amount
equal to the then unpaid principal and accrued interest.
-2-
<PAGE> 3
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that may be deemed interest)
stipulated under this Note is, or may be, usurious or otherwise limited by law,
the unpaid balance of this Note, with accrued interest at the highest rate
permitted to be charged by stipulation in writing between Standard Federal and
Borrower, at the option of Standard Federal, shall immediately become due and
payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
-3-
<PAGE> 4
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other liabilities of Borrower to Standard Federal and enforcement
of rights hereunder, including reasonable attorney fees and legal expenses
including participation in Bankruptcy proceedings. During any period(s) this
Note is in default, or after the Due Date, or after acceleration of maturity,
the outstanding principal amount hereof shall bear interest at a rate equal to
two percent (2.0%) per annum greater than the interest rate otherwise charged
hereunder. If any required payment is not made within ten (10) days after the
date it is due, then, at the option of Standard Federal, a late charge of not
more than four cents ($.04) for each dollar of the payment so overdue may be
charged. In addition to any other security interests granted to Standard
Federal, Borrower hereby grants Standard Federal a security interest in all of
Borrower's bank deposits, instruments, negotiable documents, and chattel paper
which at any time are in the possession or control of Standard Federal. After
the occurrence of an Event of Default hereunder, Standard Federal may hold and
apply at any time its own indebtedness or liability to Borrower in payment of
any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of
the Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or
-4-
<PAGE> 5
any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to the Loan Agreement and is secured by a
Security Agreement, dated September 15, 1994, and by a Security Agreement,
dated July 19, 1995, and by an Assignment of Policy as Collateral Security, of
even date herewith. Reference is hereby made to such documents for additional
terms relating to the transaction giving rise to this Note, the security given
for this Note and additional terms and conditions under which this Note
matures, may be accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
-----------------------------
38-1867649
---------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- ------------------------------------
Carl L. Jaworski
Its: Secretary
-----------------------------
58-1738825
---------------------------------------
Taxpayer Identification Number
-5-
<PAGE> 6
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
David J. Bartlett By: Carl L. Jaworski
---------------------------- ---------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------------
38-2205216
------------------------------------
Taxpayer Identification Number
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
David J. Bartlett By: Carl L. Jaworski
---------------------------- ---------------------------------
Carl L. Jaworski
Its: Secretary
--------------------------
------------------------------------
Taxpayer Identification Number
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
-------------------------------
--------------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
David J. Bartlett By: Carl L. Jaworski
----------------------------- -----------------------------------
Carl L. Jaworski
Its: Treasurer
-------------------------------
--------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
-6-
<PAGE> 1
EXHIBIT 10.50
Note No. 0250012691
--------------
STANDARD FEDERAL BANK
THIRD AMENDED AND RESTATED
PROMISSORY NOTE
(Line of Credit) [X] Renewal
$10,000,000.00 Troy, Michigan
- ------------------------------------------- ----------------
Due Date: March 1, 1998 Dated: July 17, 1996
- ------------------------------------------- ----------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned, jointly and severally (collectively, "Borrower"),
promise to pay to the order of Standard Federal Bank, a federal savings bank
("Standard Federal"), at its office set forth below, or at such other place as
Standard Federal may designate in writing, the principal sum of Ten Million and
00/100 Dollars ($10,000,000.00) or such lesser amount as may from time to time
be outstanding by reason of having been advanced hereunder, plus interest as
hereinafter provided on all amounts from time to time outstanding hereunder,
all in lawful money of the United States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for all
purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street
<PAGE> 2
Journal Prime Rate" and not by reference to the actual rate of interest charged
by any particular bank to any particular borrower or borrowers and shall
automatically increase or decrease when and to the extent that the Wall Street
Journal Prime Rate shall have been increased or decreased.
Accrued interest shall be payable on the first day of each month beginning
on August 1, 1996.
This Note is given as evidence of any and all indebtedness of the Borrower
to Standard Federal arising as a result of advances or other credit which may
be made under this Note from time to time in accordance with the provisions of
a First Amended and Restated Loan Agreement, dated October 2, 1995, by and
between Standard Federal and the Borrower (the "Loan Agreement"). Any and all
indebtedness may be repaid by the Borrower in whole or in part from time to
time prior to the Due Date. Standard Federal shall, from time to time prior to
the Due Date, make advances to Borrower hereunder upon request therefor by
Borrower, provided that, upon giving effect to such advance: (a) no Event of
Default (as hereinafter defined) and no event which with notice and/or the
passage of time would become an Event of Default shall exist at the time the
advance is to be made; (b) all representations and warranties of Borrower
theretofore made are true and correct; (c) Standard Federal shall not have
previously or concurrently declared all amounts owing hereunder to be
immediately due and payable; (d) the amount requested shall not cause the total
amount outstanding hereunder to exceed the Credit Limit, as defined in the Loan
Agreement; and (e) all other requirements for the making of advances provided
for in the Loan Agreement have been satisfied. The principal amount of
indebtedness owing pursuant to this Note shall change from time to time,
decreasing in an amount equal to any and all payments of principal made by the
Borrower and increasing by an amount equal to any and all advances made by
Standard Federal to the Borrower pursuant to the terms hereof, and the books
and records of Standard Federal shall be conclusive evidence of the amount of
principal and interest owing hereunder at any time. All payments made
hereunder shall be applied first against costs and expenses required to be paid
hereunder, then against accrued interest to the extent thereof and the balance
shall be applied against the outstanding principal amount hereof.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any
-2-
<PAGE> 3
and all such excess paid shall be automatically credited against and in
reduction of the principal due under this Note. If Standard Federal shall
reasonably determine that the Effective Interest Rate (together with all other
charges or payments related hereto that may be deemed interest) stipulated
under this Note is, or may be, usurious or otherwise limited by law, the unpaid
balance of this Note, with accrued interest at the highest rate permitted to be
charged by stipulation in writing between Standard Federal and Borrower, at the
option of Standard Federal, shall immediately become due and payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other
-3-
<PAGE> 4
agreement executed in connection herewith, to pay all costs of Standard Federal
for collection of the Note and all other liabilities of Borrower to Standard
Federal and enforcement of rights hereunder, including reasonable attorney fees
and legal expenses including participation in Bankruptcy proceedings. During
any period(s) this Note is in default, or after the Due Date, or after
acceleration of maturity, the outstanding principal amount hereof shall bear
interest at a rate equal to two percent (2.0%) per annum greater than the
interest rate otherwise charged hereunder. If any required payment is not made
within ten (10) days after the date it is due, then, at the option of Standard
Federal, a late charge of not more than four cents ($.04) for each dollar of
the payment so overdue may be charged. In addition to any other security
interests granted to Standard Federal, Borrower hereby grants Standard Federal
a security interest in all of Borrower's bank deposits, instruments, negotiable
documents, and chattel paper which at any time are in the possession or control
of Standard Federal. After the occurrence of an Event of Default hereunder,
Standard Federal may hold and apply at any time its own indebtedness or
liability to Borrower in payment of any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to the Loan Agreement, is secured by a
Security Agreement, dated September 15, 1994, by a Security Agreement, dated
June 22, 1995, and by two Open-End Commercial Mortgages and Assignments of
Lease and Rentals, dated June 29, 1993, as amended September 15, 1994, February
6, 1995,
-4-
<PAGE> 5
February 16, 1995, May 5, 1995 and June 22, 1995, and is supported by a
Guaranty executed by McClain Industries, Inc., a Michigan corporation, dated
May 5, 1995, and secured by an Assignment of Policy as Collateral Security, of
even date herewith. Reference is hereby made to such documents for additional
terms relating to the transaction giving rise to this Note, the security given
for this Note and additional terms and conditions under which this Note
matures, may be accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
WAIVER OF JURY TRIAL. THE BORROWER AND STANDARD FEDERAL, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY RELATED INSTRUMENT
OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF
CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF
THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT STANDARD FEDERAL'S ABILITY TO
PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED HEREIN OR IN ANY RELATED INSTRUMENT OR AGREEMENT. NEITHER THE
BORROWER NOR STANDARD FEDERAL SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE
PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY EITHER THE BORROWER OR STANDARD FEDERAL EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY BOTH OF THEM.
Confession of Judgment: The Borrower irrevocably authorizes any
attorney-at-law to appear for the Borrower in any court of record in Crawford
County, Ohio (which the Borrower acknowledges to be the place where this note
was made), or any other state or jurisdiction wherein the Borrower may then
reside, to (i) waive the issuing and service of process, (ii) confess judgment
against the Borrower in favor of the holder of this Note for the amount then
due, together with costs of suit, (iii) release all errors, and (iv) waive all
rights of appeal. The Borrower consents to the jurisdiction and venue of that
court.
The undersigned has executed this Note in Galion, Ohio, as of the date and
year first above written. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY
-5-
<PAGE> 6
GOODS, FAILURE ON THE CREDITOR'S PART TO COMPLY WITH ANY AGREEMENT WITH
THE BORROWER, OR ANY OTHER CAUSE.
Each of the undersigned Borrowers acknowledge, represent and agree that
they will all be using the funds representing the proceeds of the loan
evidenced hereby and that they will all be receiving a substantial portion of
such funds. At the request of the undersigned Borrowers, Standard Federal has
structured the credit facility evidenced by this Note in order to allow all of
the undersigned Borrowers access to the facility, and each will derive a
substantial benefit therefrom. The Borrowers hereby appoint Galion Holding
Company as the disbursing agent for all of them to make requests for
disbursements hereunder, to receive the proceeds of all advances hereunder and
to disburse those proceeds to each of the undersigned as the undersigned may
deem necessary or convenient.
Witnesses: BORROWER:
GALION HOLDING COMPANY, a Michigan
corporation
David J. Bartlett By: /s/ Carl Jaworski
- ----------------- -----------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
38-3060196
MCCLAIN E-Z PACK, INC., formerly known as
Galion Solid Waste Equipment, Inc., a
Michigan corporation
David J. Bartlett By: /s/ Carl Jaworski
- ------------------- -----------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
---------------------------------
GALION DUMP BODIES, INC., a Michigan
corporation
David J. Bartlett By: /s/ Carl Jaworski
- ------------------- -----------------------------
Carl Jaworski
Treasurer
-6-
<PAGE> 7
Taxpayer Identification Number:
---------------------------------
MCCLAIN GROUP SALES OF FLORIDA, INC.,
formerly known as M.E.G. Equipment Sales of
Florida, Inc., a Florida corporation
David J. Bartlett By: /s/ Carl Jaworski
- ----------------------- ------------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
59-3241829
Address: 6200 Elmridge
Sterling Heights, MI 48318
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
-7-
<PAGE> 1
EXHIBIT 10.51
Note No. 0250194514
------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit) [X] Renewal
$1,500,000.00 Troy, Michigan
- ------------------------ ----------------
Due Date: March 1, 1998 Dated:
- ------------------------ ----------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned, jointly and severally (collectively, "Borrower"),
promise to pay to the order of Standard Federal Bank, a federal savings bank
("Standard Federal"), at its office set forth below, or at such other place as
Standard Federal may designate in writing, the principal sum of One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) or such lesser amount
as may from time to time be outstanding by reason of having been advanced
hereunder, plus interest as hereinafter provided on all amounts from time to
time outstanding hereunder, all in lawful money of the United States of
America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for all
purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street Journal Prime Rate" and
not by reference to the actual rate of interest charged by any particular bank
to any particular borrower
<PAGE> 2
or borrowers and shall automatically increase or decrease when and to the
extent that the Wall Street Journal Prime Rate shall have been increased or
decreased.
Accrued interest shall be payable on the first day of each month beginning
on August 1, 1996.
This Note is given as evidence of any and all indebtedness of the Borrower
to Standard Federal arising as a result of advances or other credit which may
be made under this Note from time to time in accordance with the provisions of
a First Amended and Restated Loan Agreement, dated October 2, 1995, by and
between Standard Federal and the Borrower (the "Loan Agreement"). Any and all
indebtedness may be repaid by the Borrower in whole or in part from time to
time prior to the Due Date. Standard Federal shall, from time to time prior to
the Due Date, make advances to Borrower hereunder upon request therefor by
Borrower, provided that, upon giving effect to such advance: (a) no Event of
Default (as hereinafter defined) and no event which with notice and/or the
passage of time would become an Event of Default shall exist at the time the
advance is to be made; (b) all representations and warranties of Borrower
theretofore made are true and correct; (c) Standard Federal shall not have
previously or concurrently declared all amounts owing hereunder to be
immediately due and payable; (d) the amount requested shall not cause the total
amount outstanding hereunder to exceed the Demonstrator Credit Limit, as
defined in the Loan Agreement; and (e) all other requirements for the making of
advances provided for in the Loan Agreement have been satisfied. The principal
amount of indebtedness owing pursuant to this Note shall change from time to
time, decreasing in an amount equal to any and all payments of principal made
by the Borrower and increasing by an amount equal to any and all advances made
by Standard Federal to the Borrower pursuant to the terms hereof, and the books
and records of Standard Federal shall be conclusive evidence of the amount of
principal and interest owing hereunder at any time. All payments made
hereunder shall be applied first against costs and expenses required to be paid
hereunder, then against accrued interest to the extent thereof and the balance
shall be applied against the outstanding principal amount hereof.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
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<PAGE> 3
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that may be deemed interest)
stipulated under this Note is, or may be, usurious or otherwise limited by law,
the unpaid balance of this Note, with accrued interest at the highest rate
permitted to be charged by stipulation in writing between Standard Federal and
Borrower, at the option of Standard Federal, shall immediately become due and
payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other
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<PAGE> 4
liabilities of Borrower to Standard Federal and enforcement of rights
hereunder, including reasonable attorney fees and legal expenses including
participation in Bankruptcy proceedings. During any period(s) this Note is in
default, or after the Due Date, or after acceleration of maturity, the
outstanding principal amount hereof shall bear interest at a rate equal to two
percent (2.0%) per annum greater than the interest rate otherwise charged
hereunder. If any required payment is not made within ten (10) days after the
date it is due, then, at the option of Standard Federal, a late charge of not
more than four cents ($.04) for each dollar of the payment so overdue may be
charged. In addition to any other security interests granted to Standard
Federal, Borrower hereby grants Standard Federal a security interest in all of
Borrower's bank deposits, instruments, negotiable documents, and chattel paper
which at any time are in the possession or control of Standard Federal. After
the occurrence of an Event of Default hereunder, Standard Federal may hold and
apply at any time its own indebtedness or liability to Borrower in payment of
any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to the Loan Agreement, is secured by a
Security Agreement, dated September 15, 1994, and by a Security Agreement,
dated June 22, 1995, and is supported by a Guaranty executed by McClain
Industries, Inc., a Michigan corporation, dated May 5, 1995, and secured by an
Assignment of Policy as Collateral Security, of even date herewith. Reference
is hereby made to such documents for additional terms relating to
the
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<PAGE> 5
transaction giving rise to this Note, the security given for this Note and
additional terms and conditions under which this Note matures, may be
accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
WAIVER OF JURY TRIAL. THE BORROWER AND STANDARD FEDERAL, AFTER CONSULTING
OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL BY JURY IN
ANY LITIGATION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY RELATED INSTRUMENT
OR AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF
CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF EITHER OF
THEM. THIS WAIVER SHALL NOT IN ANY WAY AFFECT STANDARD FEDERAL'S ABILITY TO
PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION
CONTAINED HEREIN OR IN ANY RELATED INSTRUMENT OR AGREEMENT. NEITHER THE
BORROWER NOR STANDARD FEDERAL SHALL SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR
OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THESE
PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR
RELINQUISHED BY EITHER THE BORROWER OR STANDARD FEDERAL EXCEPT BY A WRITTEN
INSTRUMENT EXECUTED BY BOTH OF THEM.
Confession of Judgment: The Borrower irrevocably authorizes any
attorney-at-law to appear for the Borrower in any court of record in Crawford
County, Ohio (which the Borrower acknowledges to be the place where this note
was made), or any other state or jurisdiction wherein the Borrower may then
reside, to (i) waive the issuing and service of process, (ii) confess judgment
against the Borrower in favor of the holder of this Note for the amount then
due, together with costs of suit, (iii) release all errors, and (iv) waive all
rights of appeal. The Borrower consents to the jurisdiction and venue of that
court.
The undersigned has executed this Note in Galion, Ohio, as of the date and
year first above written. This Note shall be governed by and construed in
accordance with the law of the State of Ohio.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON THE CREDITOR'S PART TO COMPLY WITH ANY
AGREEMENT WITH THE BORROWER, OR ANY OTHER CAUSE.
Each of the undersigned Borrowers acknowledge, represent and agree that
they will all be using the funds representing the
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<PAGE> 6
proceeds of the loan evidenced hereby and that they will all be receiving a
substantial portion of such funds. At the request of the undersigned
Borrowers, Standard Federal has structured the credit facility evidenced by
this Note in order to allow all of the undersigned Borrowers access to the
facility, and each will derive a substantial benefit therefrom. The Borrowers
hereby appoint Galion Holding Company as the disbursing agent for all of them
to make requests for disbursements hereunder, to receive the proceeds of all
advances hereunder and to disburse those proceeds to each of the undersigned as
the undersigned may deem necessary or convenient.
Witnesses: BORROWER:
GALION HOLDING COMPANY, a Michigan
corporation
David J. Bartlett By: /s/ Carl Jaworski
- ---------------------- -----------------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
38-3060196
MCCLAIN E-Z PACK, INC., formerly known as
Galion Solid Waste Equipment, Inc., a
Michigan corporation
David J. Bartlett By: /s/ Carl Jaworski
- ---------------------- ----------------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
-------------------------------------
GALION DUMP BODIES, INC., a Michigan
corporation
David J. Bartlett By:/s/ Carl Jaworski
- ---------------------- ----------------------------------
Carl Jaworski
Treasurer
Taxpayer Identification Number:
-------------------------------------
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<PAGE> 7
MCCLAIN GROUP SALES OF FLORIDA, INC.,
formerly known as M.E.G. Equipment Sales of
Florida, Inc., a Florida corporation
David J. Bartlett By: /s/ Carl Jaworski
- ---------------------- ----------------------------------
Carl Jaworski
Secretary
Taxpayer Identification Number:
59-3241829
Address: 6200 Elmridge
Sterling Heights, MI 48318
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
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<PAGE> 1
EXHIBIT 10.52
LOAN AGREEMENT
BETWEEN
STANDARD FEDERAL BANK
AND
MCCLAIN GROUP LEASING, INC.
THIS LOAN AGREEMENT is made and delivered this 17th day of, July 1996, by
and between McClain Group Leasing, Inc., a Michigan corporation ("Borrower"),
whose address/principal office is 6200 Elmridge, Sterling Heights, Michigan
48310, and Standard Federal Bank, a federal savings bank ("Standard Federal"),
whose address is 2600 West Big Beaver Road, Troy, Michigan 48084.
RECITALS:
A. The Borrower has requested a revolving line of credit loan in the
principal amount of $7,500,000.00 for the purpose of financing equipment leases
on the terms and conditions herein provided.
B. Standard Federal is willing to supply such financing subject to the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in reliance upon the representations herein provided and
in consideration of the premises and the mutual promises herein contained, the
Borrower and Standard Federal hereby agree as follows:
SECTION 1. EQUIPMENT LEASE LINE OF CREDIT
1.1 Standard Federal hereby extends to the Borrower a revolving line of credit
loan (the "Line of Credit"), which shall not exceed at any one time outstanding
the Credit Limit as hereafter defined. The term "Credit Limit" shall mean the
lesser of: (a) Seven Million Five Hundred Thousand and 00/100 Dollars
($7,500,000.00), or (b) an amount equal to 80% of Eligible Lease Receivables.
The term "Eligible Lease Receivables" shall mean lease receivables which are
less than 90 days old and are not doubtful as to collectibility or disputed as
to existence or amount or subject to offset, contra-indebtedness or return,
exclusive of discounts and rebates, and are otherwise acceptable to Standard
Federal in its sole discretion, and may include up to $690,000.00 in lease
receivables from Galion Holding Company but shall not otherwise be
intra-company or owing from any affiliated or related company or other entity,
as such lease receivables are disclosed in the statements timely furnished to
Standard Federal pursuant to Section 3 below.
<PAGE> 2
1.2 The Borrower shall be obligated to repay all advances made hereunder with
respect to any lease which becomes 90 days or more delinquent and such
repayment shall be due and payable 15 days after the lease receivable statement
which discloses such delinquency is timely furnished to Standard Federal
pursuant to Section 3 below.
1.3 The Line of Credit herein extended shall be subject to the terms and
conditions of a Promissory Note (Line of Credit) of even date herewith and all
renewals and amendments thereof (the "Line of Credit Note"). The Line of
Credit shall be payable and shall bear interest as set forth in the Line of
Credit Note. This Loan Agreement and the Line of Credit Note are of equal
materiality and shall each be construed in such manner as to give full force
and effect to all provisions of both documents.
1.4 Standard Federal shall, from time to time during the term hereof, make
advances to Borrower under the Line of Credit upon request therefor by
Borrower, provided that upon giving effect to such advance no Event of Default
(as defined in the Line of Credit Note or this Agreement) and no event which
with notice and/or the passage of time would become an Event of Default shall
exist at the time the advance is to be made; and provided further that upon
giving effect to such advance and at the time the advance is to be made all of
the representations and warranties of Borrower contained in this Agreement and
all other documents executed in connection with the Line of Credit are true and
correct in all material respects; and provided further that at the time the
advance is to be made Standard Federal shall not have previously or
concurrently declared all amounts owing under the Line of Credit Note to be
immediately due and payable; and provided further the amount requested shall
not cause the total amount outstanding under the Line of Credit to exceed the
Credit Limit.
1.5 If at any time the amount outstanding under the Line of Credit shall
exceed the Credit Limit, Borrower shall, on demand, forthwith pay to Standard
Federal such sums as are necessary to reduce the amount outstanding to an amount
not greater than the Credit Limit.
1.6 Borrower shall pay to Standard Federal, on the first day of each month,
commencing on the first payment date after the date hereof, and continuing on
the same day of each consecutive month thereafter until the termination of the
Line of Credit and all sums owing for principal and interest with respect to
the Line of Credit are paid in full, an Unused Line Fee in the amount of 0.25%
per annum of the amount available for draw but not advanced from time to time
on the Line of Credit ("Unused Line"). The amount of the Unused Line Fee
payable on the first day of each month will be determined by multiplying the
average daily balance of the Unused Line for the calendar month which ends one
month prior to the due date of such Unused Line Fee by .020833%.
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<PAGE> 3
1.7 In all events, unless earlier terminated, the Line of Credit shall
terminate March 31, 1998. Upon termination, Borrower shall forthwith pay to
Standard Federal all sums owing for principal and interest with respect to the
Line of Credit.
SECTION 1A. CONDITIONS TO OPENING LINE OF CREDIT
1A.1 The following are conditions precedent to the obligation of Standard
to opening the Line of Credit hereunder:
1A.1(a) The Borrower shall have delivered or shall have had delivered to
Standard Federal, in form and substance satisfactory to Standard Federal and its
counsel, each of the following:
a. A duly executed copy of this Loan Agreement;
b. A duly executed copy of the Line of Credit Note and such
other loan documents as Standard Federal shall require to evidence
and document the Line of Credit (the "Loan Documents");
c. Such credit applications, financial statements,
authorizations, and such information concerning the Borrower and its
business, operations, and condition (financial and otherwise) as
Standard Federal may reasonably request;
d. Certified copies of resolutions of the Board of Directors of
the Borrower approving the execution and delivery of the Loan
Documents required hereunder;
e. A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names and true signatures of the
officers of the Borrower authorized to sign the Loan Documents
required hereunder;
f. Copies of the Articles of Incorporation of the Borrower,
certified by the Secretary of State of Michigan as of a recent date;
g. Copies of the Articles of Incorporation and Bylaws of the
Borrower, certified by the Secretary or an Assistant Secretary of
the Borrower as of the date of this Agreement as being accurate and
complete;
h. Certificate of good standing of the Borrower from the
Secretary of State of Michigan as of a recent date;
i. Certificates of authority and good standing of the Borrower
for each state in which the Borrower is qualified to do business;
j. A certificate of compliance of the chief financial officer or
treasurer of the Borrower in form satisfactory to Standard Federal
dated as of the date of this Agreement;
k. Such certificates, binders or other evidence of all insurance
required of the Borrower under this Loan Agreement as Standard
Federal may reasonably require; and
l. Acknowledgement copies of all UCC-1 financing statements
filed with respect to the Collateral accompanied by a
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<PAGE> 4
search report showing such financing statements as duly filed and
evidencing that the security interest of Standard Federal in the
Collateral is prior to all other security interests of record.
1A.1(b) All acts and conditions (including, without limitation, the obtaining
of any necessary regulatory approvals and the making of any required filings,
recordings, or registrations) required to be done and performed and to have
happened precedent to the execution, delivery, and performance of the Loan
Documents required hereunder and to constitute the same legal, valid, and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
1A.1(c) All documentation, including, without limitation, documentation for
corporate and legal proceedings in connection with the transactions
contemplated by the Loan Documents shall be satisfactory in form and substance
to Standard Federal and its counsel and all fees and charges, including
recording and filing fees, shall have been paid as required hereunder.
1A.2 As conditions precedent to Standard Federal's obligation to fund any
request for an advance under the Line of Credit, at and as of the date of the
funding thereof;
a. The representations and warranties of the Borrower contained
in the Loan Documents shall be accurate and complete in all respects
as if made on and as of such date;
b. The Borrower shall have paid all fees and expenses, including
any recording fees and charges, required hereunder;
c. There shall not have occurred an Event of Default or any
event which with the passage of time of the giving of notice or both
would constitute an Event of Default; and
d. Following the making of such loan or advance, the aggregate
principal amount outstanding will not exceed the limitations
described in Section 1.
SECTION 2. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Standard Federal that as of
the date of acceptance of this Agreement, as of the time any advance is to be
made hereunder and, unless expressly provided otherwise herein or agreed to by a
writing signed by Standard Federal, at all times any amounts are outstanding
hereunder:
2.1 The Borrower and each of its subsidiaries, if any, are corporations
duly organized, validly existing and in good standing under the laws of the
state of their incorporation; the Borrower and each of its subsidiaries (if any)
have the legal power and
4
<PAGE> 5
authority to own their properties and assets and to carry out their business as
now being conducted and each is qualified to do business in the state of its
incorporation and in every jurisdiction where the nature of its business or the
property owned or operated by it makes such qualification necessary and is
otherwise in compliance with all applicable laws, statutes, regulations, rules
and requirements of any federal, state, judicial, regulatory or administrative
body having jurisdiction of the Borrower or any of its assets; the Borrower has
the legal power and authority to execute and perform this Agreement, to borrow
money in accordance with its terms, to execute and deliver the Line of Credit
Note and other documents contemplated hereby, to grant to Standard Federal
security interests in the Collateral, as hereby contemplated, and to do any and
all other things required of it hereunder; and this Agreement, the Line of
Credit Note and all other documents contemplated hereby, when executed by the
Borrower's duly authorized officers will constitute its valid and binding legal
obligations enforceable in accordance with their terms.
2.2 The execution, delivery and performance of this Agreement, the
borrowings hereunder and the execution and delivery of the Line of Credit Note
and other documents contemplated hereby (a) have been duly authorized by all
requisite corporate action, (b) do not require governmental approval or the
approval of any person not a party to this Agreement, (c) will not result (with
or without notice and/or the passage of time) in any conflict with or breach or
violation of or default under, any provision of law, the Articles of
Incorporation or Bylaws of the Borrower or any indenture, agreement or other
instrument to which the Borrower is a party, or by which it or any of its
properties or assets are bound, and (d) will not result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Borrower other than in favor of Standard
Federal and as contemplated hereby.
2.3 There is not pending or, to the best of the knowledge of the Borrower,
threatened, any litigation, proceeding or governmental investigation which could
materially and adversely affect the business of the Borrower or its
subsidiaries, if any, or its ability to perform its covenants hereunder.
2.4 Borrower has good and marketable title to its properties given as
security as herein described, and, except for liens in favor of Standard
Federal, liens for taxes not delinquent or being contested in good faith and
liens created in connection with worker's compensation, unemployment insurance
and social security, or to secure the performance of bids, tenders or contracts
(other than for the repayment of borrowed money), leases, statutory obligations,
surety and appeal bonds, and other obligations of like nature made in the
ordinary course of business, none of the Borrower's or any of its subsidiaries'
(if any) assets are subject to any mortgage, pledge, lien, security interest, or
other
5
<PAGE> 6
encumbrance of any kind or character except as have been disclosed to Standard
Federal in writing. The Borrower owns all material patents, trademarks,
service marks, trade names, copyrights, licenses and other rights, free from
any material restrictions, that are necessary for the operation of its business
as presently conducted.
2.5 All financial data which has been or shall hereafter be furnished to
Standard Federal for the purposes of, or in connection with, this Agreement,
including particularly, but without limitation, the audited consolidated
financial statements of McClain Industries, Inc. and the Form 10-Q's filed with
the Securities and Exchange Commission by McClain Industries, Inc. pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, and the transactions
contemplated hereby has been and/or shall be prepared in accordance with
generally accepted accounting principles consistently applied, and does or will
fairly present the financial condition of the Borrower as of the dates, and the
results of its operations for the periods, for which the same is furnished to
Standard Federal.
2.6 There has been no material adverse change in the business, properties
or condition (financial or otherwise) of the Borrower or its subsidiaries (if
any) since the date of the latest financial statements provided to Standard
Federal and there are no material debts, liabilities or obligations (absolute or
contingent) of the Borrower except as reflected in such financial statements (or
in the notes thereto).
2.7 The Borrower is not in default in the repayment of any indebtedness
for money borrowed by it nor has there occurred any event which, with or without
notice or the passage of time or both, would constitute a default by the
Borrower under any agreement or instrument pertaining to any indebtedness for
money borrowed by it.
2.8 Borrower has filed all reports and tax returns required by
governmental authority to be filed by it prior to the date hereof and Borrower
has received no notice that such reports or returns have been rejected, declared
insufficient, or otherwise challenged by such governmental authority.
2.9 The principal officers of the Borrower ("Principal Officers") are as
follows:
Chairman of the Board Kenneth D. McClain
------------------
President Peter Beale
------------------
Secretary Carl L. Jaworski
------------------
6
<PAGE> 7
2.10 The Borrower is a wholly-owned subsidiaries of McClain Industries,
Inc., a Michigan corporation, and has no subsidiaries.
2.11 None of the proceeds of the Line of Credit will be used for the
purpose of purchasing or carrying any "margin stock" as defined in Regulation U
or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221
and 207), or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry a margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
such Regulation U or G. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stocks. Neither Borrower
nor any person acting on behalf of Borrower has taken or will take any action
which might cause the Line of Credit Note or any of the other documents executed
in conjunction therewith, including this Agreement, to violate Regulations U or
G or any other regulations of the Board of Governors of the Federal Reserve
System or to violate Section 7 of the Securities Exchange Act of 1934 or any
rule or regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin
stock" except for that described in the financial statements provided to
Standard Federal and, as of the date hereof, the aggregate value of all "margin
stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of
all of the value of all of Borrower's and its subsidiaries', if any, assets.
2.12 Neither the Borrower nor, to the best of Borrower's knowledge after
due inquiry, any other person or entity, has caused or permitted any waste, oil,
pesticides, or any substance or material of any kind which is currently known or
suspected to be toxic or hazardous, including but not limited to any substance
defined as a "Hazardous Waste" in Title 40, Part 261 of the Code of Federal
Regulations, (hereinafter referred to as "Hazardous Material") to be discharged,
dispersed, released, disposed of, or allowed to escape on, under or at any
property owned, occupied or operated by any Borrower in violation of any
Hazardous Materials Laws (as hereinafter defined), nor has any property owned,
occupied or operated by any Borrower, or any part thereof, ever been used by the
Borrower or, to the best of Borrower's knowledge after due inquiry, any prior
owner or any other person, as a dump, storage or disposal site for any Hazardous
Material, nor has there occurred any other violation of the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601 et seq., or any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning, any Hazardous Material
("Hazardous Materials Laws") with respect to any property owned, occupied or
operated by any Borrower. No asbestos or asbestos-containing materials have
been installed, used, incorporated into, or disposed of on any property
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<PAGE> 8
owned, occupied or operated by any Borrower. No polychlorinated biphenyls
("PCBs") are located on or in any property owned, occupied or operated by any
Borrower, in the form of electrical transformers, fluorescent light fixtures
with ballasts, cooling oils, or any other device or form. All underground
storage tanks located on any property owned, occupied or operated by any
Borrower have been installed and are being operated in full compliance with all
applicable Hazardous Materials Laws. The Borrower: (a) has not received any
notice of any release, threatened release, escape, seepage, leakage, spillage,
discharge or emission of any Hazardous Materials in, under or upon any property
owned, occupied or operated by any Borrower or of any violation of any
Hazardous Materials Law, and (b) does not know of any basis for any such notice
or violation.
2.13 No "reportable event," as defined in the Employee Retirement Income
Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is
continuing with respect to any employee pension and/or profit sharing benefit
plan maintained by or on behalf of the Borrower for the benefit of any of its
employees. The Pension Benefit Guaranty Corporation ("PBGC") has not
instituted proceedings to terminate any such employee pension and/or profit
sharing plan or to appoint a trustee to administer such plan. The Borrower
has maintained and funded and caused each of its subsidiaries, if any, to
maintain and fund all employee pension and/or profit sharing plans in
accordance with their terms and with all applicable provisions of ERISA.
Neither the Borrower nor any duly appointed administrator of any employee
pension and/or profit sharing plan: (a) has incurred any liability to PBGC with
respect to any such plan other than for premiums not yet due or payable, (b)
has instituted or intends to institute proceedings to terminate any such plan
under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA).
2.14 There is no material fact that the Borrower has not disclosed to
Standard Federal which could have a material adverse effect on the properties,
business, prospects or condition (financial or otherwise) of the Borrower or any
of its subsidiaries. For purposes of this Section 2.14, a "material adverse
effect" means any circumstance or event which (a) could have any adverse effect
whatsoever upon the validity, performance or enforceability of any material
provision of the Loan Documents, (b) is or might be material and adverse to the
financial condition or business operations of the Borrower or any subsidiary,
(c) could impair the ability of the Borrower to fulfill its obligations under
the Loan Documents, or (d) causes an Event of Default or any event which, with
notice or lapse of time or both, could become an Event of Default. Neither the
financial statements referred to in Section 2.5 hereof, nor any certificate or
statement delivered herewith or heretofore by Borrower in connection with the
negotiations of this Loan Agreement, contains any untrue statement
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<PAGE> 9
of a material fact or omits to state any material fact necessary to keep the
statements contained herein or therein, under the circumstances in which they
were made, from being misleading.
2.15 Each request for an advance under the Line of Credit shall constitute,
without the necessity of specifically containing a written statement, a
representation and warranty by Borrower that no Event of Default exists and that
all representations and warranties contained in this Section 2 or in any
mortgage, guaranty, security agreement or other document given to secure or
relating to the Line of Credit Note or this Agreement are true and correct at
and as of the time the advance is to be made.
SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER
3.1 Prior to Standard Federal's disbursement of any advances under the Line
of Credit, the Borrower shall; (a) furnish to Standard Federal, if Standard
Federal so requires, certified copies of its Articles of Incorporation, Bylaws
and Certificate of Good Standing, which Articles of Incorporation and Good
Standing Certificate are to be certified by the appropriate official of the
Borrower's state of incorporation; (b) furnish to Standard Federal if Standard
Federal so requires a statement of the Borrower and the chief financial officer
of Borrower certifying that they are unaware of the occurrence of an Event of
Default or of any event which with notice and/or the passage of time could
become an Event of Default; and (c) furnish Standard Federal such other
instruments, documents, opinions or certificates as Standard Federal or its
counsel shall reasonably require. All actions, proceedings, instruments and
documents required or requested hereunder shall be satisfactory to and approved
by Standard Federal and/or its counsel prior to the disbursement of advances
under the Line of Credit.
3.2 From the date hereof until all amounts owing under the Line of Credit
are paid in full and all obligations under the Line of Credit Note, this
Agreement and all other documents executed in connection with the Line of Credit
are fully paid, performed and satisfied and so long as Standard Federal has any
commitment to make advances hereunder, the Borrower covenants and agrees it
will:
3.2(a) Furnish to Standard Federal as soon as available and, in any event,
within 120 days after the close of each fiscal year of McClain Industries, Inc.,
a Michigan corporation ("McClain"), or, in the event McClain obtains an
extension of the filing date from the Securities Exchange Commission, by such
extended date, detailed financial statements of McClain as of the close of such
fiscal year, containing a consolidated balance sheet of McClain and its
subsidiaries,and statements of income and cash flows of McClain and its
subsidiaries for such fiscal year prepared in accordance with generally accepted
accounting principles and in a manner consistent with prior such statements
containing an analysis of sources and
9
<PAGE> 10
uses of funds and such other comments and financial details as are usually
included in similar reports. Such statements shall be accompanied by an
opinion thereon (which shall not be qualified by reason of any limitation
imposed by McClain) of independent certified public accountants selected by
McClain and acceptable to Standard Federal as to the fairness of the statements
included in the report and to the effect that the examination of such accounts
in connection with such financial statements has been made in accordance with
generally accepted auditing standards and, accordingly, includes such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances.
3.2(b) Furnish to Standard Federal as soon as available and, in any event,
within 90 days after the close of each fiscal year, detailed financial
statements of the Borrower as of the close of such fiscal period containing a
consolidated balance sheet of the Borrower and its subsidiaries, if any, and
statements of income and cash flows of the Borrower and its subsidiaries, if
any, for such fiscal period and for the portion of the fiscal year ending with
such period in reasonable detail and form acceptable to Standard Federal and
certified by the chief financial officer of the Borrower as being true and
correct and as having been prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end adjustments, if
any.
3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed
20 days after the end of each calendar month, a statement of lease receivables,
in a form acceptable to Standard Federal, certified as correct by Borrower or a
principal officer of Borrower showing the agings thereof and the payment,
write-off or other disposition of former lease receivables the disposition of
which has not previously been reported to Standard Federal, and such other
information and data as Standard Federal may reasonably require. Borrower will
further specifically disclose any facts known to Borrower which facts would tend
to render doubtful the collectibility of any lease receivable disclosed in such
statements or which would indicate that the existence or amount of such
receivable is disputed by the lessee thereon.
3.2(d) Promptly inform Standard Federal of the occurrence of any Event of
Default or of any event (including without limitation any pending or threatened
litigation or other proceedings before any governmental body or agency) which
could have a materially adverse effect upon the Borrower's business, properties,
financial condition or ability to comply with its obligations hereunder or under
the Line of Credit Note.
3.2(e) Furnish such other information as Standard Federal may reasonably
request and permit Standard Federal and its agents, attorneys and employees to
inspect all of the books, records and properties of the Borrower at any
reasonable time.
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<PAGE> 11
3.2(f) Maintain adequate insurance with responsible companies in such
amounts and against such risks and hazards as are normally insured against by
similar businesses, and provide Standard Federal evidence of such insurance upon
request; policies of casualty insurance shall contain a customary mortgagee
clause requiring payment of proceeds to Borrower and to Standard Federal as
their interests may appear and all other insurance shall contain a customary
loss payable clause requiring payment of proceeds to Borrower and to Standard
Federal as their interests may appear and all insurance policies shall provide
that no cancellation, reduction in amount, change in coverage or expiration
thereof shall be effective until at least 30 days prior written notice has been
given by the insurer to Standard Federal; and pay when due all taxes,
assessments, fees and similar charges of every kind and nature lawfully assessed
upon the Borrower and/or its property, except to the extent being contested in
good faith; and in the event the Borrower fails to maintain such insurance or to
pay promptly any taxes or charges when due, then and in such event Standard
Federal, in its sole discretion, may, but shall not be required to, pay the same
and any amounts expended by Standard Federal for such purpose shall become a
part of the Line of Credit and shall bear interest at the rate applicable to the
outstanding principal balance owing under the Line of Credit Note.
3.2(g) Preserve and keep in full force and effect its own and its material,
operating subsidiaries' (if any) corporate existence in good standing and
maintain voting control in its present controlling shareholder(s); keep current
all filings of assumed name certificates for each name under which and each
county in which the Borrower does business and promptly inform Standard Federal
of any assumed names under which it does business which were not used by the
Borrower on the date of this Agreement; continue to conduct and operate its
business substantially as presently conducted and operated in accordance with
all applicable laws and regulations; maintain and protect all franchises and
trade names and preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair and condition; pay
its indebtedness and obligations when due under normal terms and maintain
proper books of record and account, and; otherwise remain in compliance with
all applicable laws, statutes, regulations, rules and requirements of any
federal, state, judicial, regulatory or administrative body having jurisdiction
of the Borrower or any of its assets, except to the extent noncompliance is
immaterial and would not have a material adverse effect on Borrower.
3.2(h) At all times meet and cause each of its subsidiaries, if any, to meet
the minimum funding requirements of ERISA with respect to all employee pension
and/or profit sharing plans subject to ERISA and, with respect to any such
employee benefit plan, promptly notify Standard Federal in writing of any
reportable event, as defined in ERISA, or any proposed termination (voluntary
or
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<PAGE> 12
otherwise) which could give rise to material termination liability within the
meaning of ERISA Section 4062.
3.3 The Borrower will not make any change in its accounting policies or
financial reporting practices and procedures, except changes in accounting
policies which are required or permitted by generally accepted accounting
principles and changes in financial reporting practices and procedures which
are required or permitted by generally accepted accounting principles.
3.4 The Borrower shall use the monies loaned hereunder only for the
purpose(s) set forth in the preamble hereto.
SECTION 4. SECURITY
4.1 In order to secure: (1) the full and timely performance of the
Borrower's covenants set forth herein and in the Line of Credit Note, (2) the
repayment of any and all indebtedness of the Borrower to Standard Federal
arising pursuant to the Line of Credit Note (including any renewals or
substitutions thereof), this Agreement and any mortgage, guaranty, security
agreement or other document given to secure or relating to the Line of Credit
Note or this Agreement, and (3) all other indebtedness and liabilities of the
Borrower to Standard Federal arising under this Agreement or the Line of Credit
Note, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising:
4.1(a) The Borrower hereby grants unto Standard Federal a security interest in
the following property and the proceeds thereof: (i) any and all securities or
other property received by the Borrower with respect to, on account of or in
exchange for any item of Collateral; (ii) all stock and/or liquidating dividends
(whether the same be in the form of cash or other property) paid upon, on
account of or with respect to any item of Collateral; and (iii) all bank
deposits, instruments, negotiable documents, chattel paper and any and all other
property of the Borrower of any kind whatsoever which shall at any time be in
the possession or under the control of Standard Federal;
4.1(b) The Borrower will grant to Standard Federal a security interest of first
priority in certain equipment leases and the equipment described therein as
provided in an Assignment of Equipment Leases and Security Agreement of even
date herewith from the Borrower to Standard Federal, and all schedules thereto,
the provisions of which are hereby incorporated herein by reference; and
4.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard
Federal as collateral security a life insurance policy on the life of Kenneth
D. McClain in the face amount of $2,000,000.00 (herein, together with the
property described in
12
<PAGE> 13
Sections 4.1(a) (i), (ii) and (iii) and 4.1(b) above, referred to as the
"Collateral" or "item(s) of Collateral").
4.2 The Borrower shall execute and deliver to Standard Federal any and
all documents (including financing statements) as Standard Federal may require
to insure the perfection and priority of its liens and security interests in the
Collateral and furnish, if Standard Federal so requires, proof of hazard
insurance policies, in accordance with Section 3.2(g) above, relating to the
Collateral.
SECTION 5. EVENTS OF DEFAULT
The occurrence of any of the events enumerated in Sections
5.1 to 5.10 below shall constitute an Event of Default for purposes of this
Agreement:
5.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to
Standard Federal on the Line of Credit is not paid when due, regardless of
whether such indebtedness has arisen pursuant to the terms of the Line of Credit
Note, this Agreement or any mortgage, security agreement, guaranty, instrument
or other agreement executed in conjunction herewith.
5.2 MISREPRESENTATION. If any warranty or representation made by or for
the Borrower and/or any endorser or guarantor of the Line of Credit Note in
connection with the loan(s) evidenced thereby, or if any financial data or any
other information now or hereafter furnished to Standard Federal by or on behalf
of the Borrower and/or any endorser or guarantor of the Line of Credit Note
shall prove to be false, inaccurate or misleading in any material respect.
5.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If
the Borrower shall fail to perform any of its obligations and covenants under
Section 3 of this Agreement, or shall fail to comply with any of the other
provisions of this Agreement or the Line of Credit Note or any other agreement
with Standard Federal to which it may be a party, other than the payment of
principal and interest.
5.4 BUSINESS SUSPENSION. If the Borrower and/or any endorser or
guarantor of the Line of Credit Note shall voluntarily suspend transaction of
its business.
5.5 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of
the Line of Credit Note: (a) makes a general assignment for the benefit of
creditors; (b) shall file a voluntary petition in bankruptcy or for a
reorganization to effect a plan or other arrangement with creditors; or shall
file an answer to a creditor's petition or other petition against Borrower
and/or any endorser or guarantor of the Line of Credit Note for relief in
13
<PAGE> 14
bankruptcy or for a reorganization which answer admits the material allegations
thereof; or if any order for relief shall be entered by any court of
bankruptcy jurisdiction with respect to the Borrower and/or any endorser or
guarantor of the Line of Credit Note, or if bankruptcy, reorganization or
liquidation proceedings are instituted against Borrower and/or any endorser or
guarantor of the Line of Credit Note and remain undismissed for 60 days; (c)
has entered against it any order by any court approving a plan for the
reorganization of the Borrower or any endorser or guarantor of the Line of
Credit Note or any other plan or arrangement with creditors of the Borrower or
any endorser or guarantor of the Line of Credit Note; (d) shall apply for or
permit the appointment of a receiver, trustee or custodian for any substantial
portion of the Borrower's and/or any endorser's or guarantor's properties or
assets; or (e) becomes unable to meet its debts as they mature or becomes
insolvent.
5.6 JUDGMENTS AND WRITS. If there shall be entered against the Borrower
and/or any endorser or guarantor of the Line of Credit Note one or more
judgments or decrees which are not insured against or satisfied or appealed from
and bonded within the time or times limited by applicable rules of procedure for
appeal as of right or if a writ of attachment or garnishment against the
Borrower and/or any endorser or guarantor of the Line of Credit Note shall be
issued and levied in an action claiming $100,000.00 or more and not released,
bonded or appealed from within 30 days after the levy thereof.
5.7 MERGER. If the Borrower shall merge or consolidate with another entity.
5.8 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling
portion of its voting stock or a substantial portion of its assets comes under
the practical, beneficial or effective control of any person or persons other
than those having such control as of the date of execution of the Line of Credit
Note, whether by reason of merger, consolidation, sale or purchase of stock or
assets or otherwise, if any such change of control, in the sole and absolute
discretion of Standard Federal, adversely impacts upon the ability of the
Borrower to carry on its business as theretofore conducted.
5.9 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of the
Line of Credit Note shall default in the due payment of any material
indebtedness to whomsoever owed, or shall default in the observance or
performance of any material term, covenant or condition in any mortgage,
security agreement, guaranty, instrument, lease or agreement to which the
Borrower and/or any endorser or guarantor of the Line of Credit Note is a party.
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<PAGE> 15
5.10 REPORTABLE EVENT. If there shall occur any "reportable event", as
defined in the Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute grounds for termination by
the Pension Benefit Guaranty Corporation of any employee pension benefit plan
maintained by or on behalf of the Borrower for the benefit of any of its
employees or for the appointment by the appropriate United States District Court
of a trustee to administer such plan and such reportable event is not corrected
and such determination is not revoked within 30 days after notice thereof has
been given to the plan administrator or the Borrower; or the institution of
proceedings by the Pension Benefit Guaranty Corporation to terminate any such
employee benefit pension plan or to appoint a trustee to administer such plan;
or the appointment of a trustee by the appropriate United States District Court
to administer any such employee benefit pension plan.
SECTION 6. REMEDIES UPON EVENT OF DEFAULT
6.1 Upon the occurrence of any Event of Default described in Sections 5.2,
5.3 or 5.9 hereof which is not cured or waived in writing by Standard Federal
within 15 days after written notice to the Borrower of such default; or upon the
occurrence of any Event of Default described in Section 5.1 which continues
unremedied for 10 days, or upon the occurrence of any Event of Default described
in Sections 5.4, 5.5, 5.6, 5.7, 5.8 or 5.10, Standard Federal's commitment to
lend hereunder, if any, shall terminate and Standard Federal may, without
notice, declare the entire unpaid and outstanding principal balance of the Line
of Credit and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind, all of which are hereby
expressly waived by Borrower, and thereupon Standard Federal shall have and may
exercise any one or more of the rights and remedies provided herein or in the
Line of Credit Note or in any mortgage, guaranty, security agreement or other
document relating hereto or granted secured parties under the Michigan Uniform
Commercial Code, including the right to take possession of and dispose of the
Collateral, or otherwise provided by applicable law, and to offset against the
Line of Credit any amount owing by Standard Federal to the Borrower.
SECTION 7. MISCELLANEOUS.
7.1 No default shall be waived by Standard Federal except in writing and a
waiver of any default shall not be a waiver of any other default or of the same
default on a future occasion. No single or partial exercise of any right, power
or privilege hereunder, or any delay in the exercise hereof, shall preclude
other or further exercise of the rights of the parties to this Agreement.
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<PAGE> 16
7.2 No forbearance on the part of Standard Federal in enforcing any of its
rights under this Agreement, nor any renewal, extension or rearrangement of any
payment or covenant to be made or performed by the Borrower hereunder shall
constitute a waiver of any of the terms of this Agreement or of any such right.
7.3 This Agreement shall be construed in accordance with the law of the State
of Michigan.
7.4 All covenants, agreements, representations and warranties made in
connection with this Agreement and any document contemplated hereby shall
survive the borrowing hereunder and shall be deemed to have been relied upon by
Standard Federal. All statements contained in any certificate or other
document delivered to Standard Federal at any time by or on behalf of the
Borrower pursuant hereto shall constitute representations and warranties by the
Borrower.
7.5 The Borrower agrees that it will pay all costs and expenses incurred by
Standard Federal in enforcing Standard Federal's rights under this Agreement
and the documents contemplated hereby, including without limitation any and all
reasonable fees and disbursements of legal counsel to Standard Federal.
7.6 This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective heirs, personal representatives,
successors and assigns; provided, however, that the Borrower shall not assign or
transfer its rights or obligations hereunder without the prior written consent
of Standard Federal.
7.7 If any provision of this Agreement shall be held or deemed to be or
shall, in fact, be inoperative or unenforceable as applied in any particular
case in any or all jurisdictions, or in all cases because it conflicts with any
other provision or provisions hereof or any constitution or statute or rule of
public policy, or for any other reason, such circumstances shall not have the
effect of rendering the provision in question inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative, or unenforceable to any extent
whatever. The invalidity of any one or more phrases, sentences, clauses or
sections contained in this Agreement, shall not affect the remaining portions of
this Agreement, or any part thereof.
SECTION 8. ADDITIONAL PROVISIONS
8.1 In addition to the terms, covenants and conditions set forth above, the
parties hereto hereby agree as follows:
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<PAGE> 17
8.1(a) Borrower shall cause McClain to execute and deliver to Standard Federal
an unlimited payment guaranty of the obligations of Borrower under the Line of
Credit in form and substance acceptable to Standard Federal.
IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this
Loan Agreement to be executed as of the day and year first written above.
BORROWER:
MCCLAIN GROUP LEASING, INC., a Michigan
corporation
- -------------------------- By: /s/ Peter Beale
------------------------------------
Peter Beale
Its: President
-----------------------------
38-2969462
----------------------------------------
Taxpayer Identification Number
STANDARD FEDERAL:
STANDARD FEDERAL BANK, a federal savings
bank
By: David J. Bartlett
---------------------------
Its: Vice President
---------------------------
17
<PAGE> 1
EXHIBIT 10.53
Note No. 0250024084
------------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit) [X] New
$7,500,000.00 Troy, Michigan
- ---------------------------------------- ----------------
Due Date: March 31, 1998 Dated:
---------------------------------------- ----------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned ("Borrower") promises to pay to the order of Standard
Federal Bank, a federal savings bank ("Standard Federal"), at its office set
forth below, or at such other place as Standard Federal may designate in
writing, the principal sum of Seven Million Five Hundred Thousand and 00/100
Dollars ($7,500,000.00) or such lesser amount as may from time to time be
outstanding by reason of having been advanced hereunder, plus interest as
hereinafter provided on all amounts from time to time outstanding hereunder,
all in lawful money of the United States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to the Wall Street Journal Prime Rate. As used herein the phrase "Wall
Street Journal Prime Rate" shall mean the "Prime Rate" published by the Wall
Street Journal as the base rate on corporate loans posted by at least 75% of
the nation's 30 largest banks as the same may be changed from time to time. If
more than one Prime Rate is published, the highest rate published shall be
deemed the Wall Street Journal Prime Rate. If the publishing of the Wall
Street Journal Prime Rate is discontinued during the term hereof, then the
Effective Interest Rate shall be based upon the index which is published by The
Wall Street Journal in replacement thereof based on similar base rates on
corporate loans or, if no such replacement index is published, the index which,
in Standard Federal's sole determination, most nearly corresponds to the Wall
Street Journal Prime Rate. If, in such event, Standard Federal selects an
index which, in the Borrower's opinion, does not correspond to the Wall Street
Journal Prime Rate, Borrower's sole remedy shall be to prepay this Note in full
without penalty or premium. Until such prepayment has been received by
Standard Federal, the index selected by Standard Federal shall apply for all
purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest Rate
shall be determined by reference to the "Wall Street Journal Prime Rate" and
not by reference to the actual rate of interest charged by any particular bank
to any particular borrower or borrowers and shall automatically increase or
decrease when and
<PAGE> 2
to the extent that the Wall Street Journal Prime Rate shall have been increased
or decreased.
Accrued interest shall be payable on the first day of each month beginning
on August 1, 1996.
This Note is given as evidence of any and all indebtedness of the Borrower
to Standard Federal arising as a result of advances or other credit which may
be made under this Note from time to time in accordance with the provisions of
a Loan Agreement of even date herewith, by and between Standard Federal and the
Borrower (the "Loan Agreement"). Any and all indebtedness may be repaid by the
Borrower in whole or in part from time to time prior to the Due Date. Standard
Federal shall, from time to time prior to the Due Date, make advances to
Borrower hereunder upon request therefor by Borrower, provided that, upon
giving effect to such advance: (a) no Event of Default (as hereinafter defined)
and no event which with notice and/or the passage of time would become an Event
of Default shall exist at the time the advance is to be made; (b) all
representations and warranties of Borrower theretofore made are true and
correct; (c) Standard Federal shall not have previously or concurrently
declared all amounts owing hereunder to be immediately due and payable; (d) the
amount requested shall not cause the total amount outstanding hereunder to
exceed the Credit Limit, as defined in the Loan Agreement; and (e) all other
requirements for the making of advances provided for in the Loan Agreement have
been satisfied. The principal amount of indebtedness owing pursuant to this
Note shall change from time to time, decreasing in an amount equal to any and
all payments of principal made by the Borrower and increasing by an amount
equal to any and all advances made by Standard Federal to the Borrower pursuant
to the terms hereof, and the books and records of Standard Federal shall be
conclusive evidence of the amount of principal and interest owing hereunder at
any time. All payments made hereunder shall be applied first against costs and
expenses required to be paid hereunder, then against accrued interest to the
extent thereof and the balance shall be applied against the outstanding
principal amount hereof.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that
-2-
<PAGE> 3
may be deemed interest) stipulated under this Note is, or may be, usurious or
otherwise limited by law, the unpaid balance of this Note, with accrued
interest at the highest rate permitted to be charged by stipulation in writing
between Standard Federal and Borrower, at the option of Standard Federal, shall
immediately become due and payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other liabilities of Borrower to Standard Federal and enforcement
of rights hereunder, including reasonable attorney fees and legal
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<PAGE> 4
expenses including participation in Bankruptcy proceedings. During any
period(s) this Note is in default, or after the Due Date, or after acceleration
of maturity, the outstanding principal amount hereof shall bear interest at a
rate equal to two percent (2.0%) per annum greater than the interest rate
otherwise charged hereunder. If any required payment is not made within ten
(10) days after the date it is due, then, at the option of Standard Federal, a
late charge of not more than four cents ($.04) for each dollar of the payment
so overdue may be charged. In addition to any other security interests granted
to Standard Federal, Borrower hereby grants Standard Federal a security
interest in all of Borrower's bank deposits, instruments, negotiable documents,
and chattel paper which at any time are in the possession or control of
Standard Federal. After the occurrence of an Event of Default hereunder,
Standard Federal may hold and apply at any time its own indebtedness or
liability to Borrower in payment of any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non-payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to the Loan Agreement and is secured by an
Assignment of Equipment Lease and Security Agreement, of even date herewith,
and all schedules thereto, and an Assignment of Policy as Collateral Security,
of even date herewith. Reference is hereby made to such documents for
additional terms relating to the transaction giving rise to this Note, the
security given for this Note and additional terms and conditions under which
this Note matures, may be accelerated or prepaid.
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<PAGE> 5
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
BORROWER:
MCCLAIN GROUP LEASING, INC., a Michigan
corporation
David J. Bartlett
- ------------------------ By: Peter Beale
-----------------------------------
Peter Beale
Its: President
-----------------------
38-2969462
---------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
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<PAGE> 1
EXHIBIT 10.54
LOAN AGREEMENT
BETWEEN
STANDARD FEDERAL BANK
AND
MCCLAIN INDUSTRIES, INC., MCCLAIN OF GEORGIA, INC.,
SHELBY STEEL PROCESSING COMPANY,
MCCLAIN TUBE COMPANY D/B/A QUALITY TUBE,
MCCLAIN INDUSTRIES OF OHIO, INC.,
MCCLAIN EPCO, INC. AND MCCLAIN OF ALABAMA, INC.
THIS LOAN AGREEMENT is made and delivered this 29th day of August 29,
1996, by and between McClain Industries, Inc., a Michigan corporation, McClain
of Georgia, Inc., a Georgia corporation, Shelby Steel Processing Company, a
Michigan corporation, McClain Tube Company d/b/a Quality Tube, a Michigan
corporation, McClain Industries of Ohio, Inc., a Michigan corporation, McClain
Epco, Inc., a New York corporation, and McClain of Alabama, Inc., a Michigan
corporation (collectively, "Borrower"), whose address/principal office is 6200
Elmridge, Sterling Heights, Michigan 48310, and Standard Federal Bank, a
federal savings bank ("Standard Federal"), whose address is 2600 West Big
Beaver Road, Troy, Michigan 48084.
RECITALS:
A. The Borrower has requested a term loan in the principal amount of
$5,300,000.00, and Standard Federal is willing to supply such financing subject
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in reliance upon the representations herein provided and
in consideration of the premises and the mutual promises herein contained, the
Borrower and Standard Federal hereby agree as follows:
SECTION 1. TERM LOAN
1.1 Standard Federal hereby extends to the Borrower a term loan (the "Term
Loan") in the principal amount of Five Million Three Hundred Thousand and 00/100
Dollars ($5,300,000.00).
1.2 The Term Loan herein extended shall be subject to the terms and
conditions of a Promissory Note (Term Loan) of even date herewith and all
renewals and amendments thereof (the "Note"). The Term Loan shall be payable
and shall bear interest as set forth in the Note. This Loan Agreement and the
Note are of equal materiality and shall each be construed in such manner as to
give full force and effect to all provisions of both documents.
<PAGE> 2
SECTION 1A. CONDITIONS TO MAKING LOANS
1A.1 The following are conditions precedent to the obligation of Standard
to make the Term Loan hereunder:
1A.1(a) The Borrower shall have delivered or shall have had delivered to
Standard Federal, in form and substance satisfactory to Standard Federal and its
counsel, each of the following:
a. A duly executed copy of this Loan Agreement;
b. A duly executed copy of the Note and such other loan
documents as Standard Federal shall require to evidence and document
the Term Loan (the "Loan Documents");
c. Such credit applications, financial statements,
authorizations, and such information concerning the Borrower and its
business, operations, and condition (financial and otherwise) as
Standard Federal may reasonably request;
d. Certified copies of resolutions of the Boards of Directors of
the Borrower approving the execution and delivery of the Loan
Documents required hereunder;
e. A certificate of the Secretary or an Assistant Secretary of
the Borrower certifying the names and true signatures of the
officers of the Borrower authorized to sign the Loan Documents
required hereunder;
f. Copies of each of the Articles of Incorporation of the
Borrower, certified by the Secretary of State of Michigan as of a
recent date;
g. Copies of each of the Articles of Incorporation and Bylaws of
the Borrower, certified by the Secretary or an Assistant Secretary
of the Borrower as of the date of this Agreement as being accurate
and complete;
h. Certificate of good standing of the Borrower from the
Secretary of State of Michigan as of a recent date;
i. Certificates of authority and good standing of the Borrower
for each state in which the Borrower is qualified to do business;
j. A certificate of compliance of the chief financial officer or
treasurer of the Borrower in form satisfactory to Standard Federal
dated as of the date of this Agreement;
k. Such certificates, binders or other evidence of all insurance
required of the Borrower under this Loan Agreement as Standard
Federal may reasonably require; and
l. Acknowledgement copies of all UCC-1 financing statements
filed with respect to the Collateral accompanied by a search report
showing such financing statements as duly filed and evidencing that
the security interest of Standard Federal in the Collateral is prior
to all other security interests of record.
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<PAGE> 3
1A.1(b) All acts and conditions (including, without limitation, the obtaining
of any necessary regulatory approvals and the making of any required filings,
recordings, or registrations) required to be done and performed and to have
happened precedent to the execution, delivery, and performance of the Loan
Documents required hereunder and to constitute the same legal, valid, and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws.
1A.1(c) All documentation, including, without limitation, documentation for
corporate and legal proceedings in connection with the transactions contemplated
by the Loan Documents shall be satisfactory in form and substance to Standard
Federal and its counsel and all fees and charges, including recording and filing
fees, shall have been paid as required hereunder.
1A.2 As conditions precedent to Standard Federal's obligation to make the
Term Loan:
a. The representations and warranties of the Borrower contained
in the Loan Documents shall be accurate and complete in all respects
as if made on and as of such date;
b. The Borrower shall have paid all fees and expenses, including
any recording fees and charges, required hereunder; and
c. There shall not have occurred an Event of Default or any
event which with the passage of time of the giving of notice or both
would constitute an Event of Default.
SECTION 2. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to Standard Federal that as of
the date of acceptance of this Agreement, as of the time any advance is to be
made hereunder and, unless expressly provided otherwise herein or agreed to by a
writing signed by Standard Federal, at all times any amounts are outstanding
hereunder:
2.1 The Borrower and each of its subsidiaries, if any, are corporations
duly organized, validly existing and in good standing under the laws of the
state of their incorporation; the Borrower and each of its subsidiaries (if any)
have the legal power and authority to own their properties and assets and to
carry out their business as now being conducted and each is qualified to do
business in the state of its incorporation and in every jurisdiction where the
nature of its business or the property owned or operated by it makes such
qualification necessary and is otherwise in compliance with all applicable laws,
statutes, regulations, rules and requirements of any federal, state, judicial,
regulatory or administrative body having jurisdiction of the Borrower or any of
its assets; the Borrower has the legal power and authority to
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<PAGE> 4
execute and perform this Agreement, to borrow money in accordance with its
terms, to execute and deliver the Note and other documents contemplated hereby,
to grant to Standard Federal mortgages and security interests in the
Collateral, as hereby contemplated, and to do any and all other things required
of it hereunder; and this Agreement, the Note and all other documents
contemplated hereby, when executed by the Borrower's duly authorized officers
will constitute its valid and binding legal obligations enforceable in
accordance with their terms.
2.2 The execution, delivery and performance of this Agreement, the
borrowings hereunder and the execution and delivery of the Note and other
documents contemplated hereby (a) have been duly authorized by all requisite
corporate action, (b) do not require governmental approval or the approval of
any person not a party to this Agreement, (c) will not result (with or without
notice and/or the passage of time) in any conflict with or breach or violation
of or default under, any provision of law, the Articles of Incorporation or
Bylaws of the Borrower or any indenture, agreement or other instrument to which
the Borrower is a party, or by which it or any of its properties or assets are
bound, and (d) will not result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Borrower other than in favor of Standard Federal and as contemplated hereby.
2.3 There is not pending or, to the best of the knowledge of the Borrower,
threatened, any litigation, proceeding or governmental investigation which could
materially and adversely affect the business of the Borrower or its
subsidiaries, if any, or its ability to perform its covenants hereunder.
2.4 Borrower has good and marketable title to its properties given as
security as herein described, and, except for liens in favor of Standard
Federal, liens for taxes not delinquent or being contested in good faith and
liens created in connection with worker's compensation, unemployment insurance
and social security, or to secure the performance of bids, tenders or contracts
(other than for the repayment of borrowed money), leases, statutory obligations,
surety and appeal bonds, and other obligations of like nature made in the
ordinary course of business, none of the Borrower's or any of its subsidiaries'
(if any) assets are subject to any mortgage, pledge, lien, security interest, or
other encumbrance of any kind or character except as have been disclosed to
Standard Federal in writing. The Borrower owns all material patents,
trademarks, service marks, trade names, copyrights, licenses and other rights,
free from any material restrictions, that are necessary for the operation of its
business as presently conducted.
2.5 All financial data which has been or shall hereafter be furnished to
Standard Federal for the purposes of, or in connection
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<PAGE> 5
with, this Agreement, including particularly, but without limitation, the
audited consolidated financial statements of McClain Industries, Inc. and the
Form 10-Q's filed with the Securities and Exchange Commission by McClain
Industries, Inc. pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, and the transactions contemplated hereby has been and/or shall be
prepared in accordance with generally accepted accounting principles
consistently applied, and does or will fairly present the financial condition
of the Borrower as of the dates, and the results of its operations for the
periods, for which the same is furnished to Standard Federal.
2.6 There has been no material adverse change in the business, properties or
condition (financial or otherwise) of the Borrower or its subsidiaries (if any)
since the date of the latest financial statements provided to Standard Federal
and there are no material debts, liabilities or obligations (absolute or
contingent) of the Borrower except as reflected in such financial statements
(or in the notes thereto).
2.7 The Borrower is not in default in the repayment of any indebtedness for
money borrowed by it nor has there occurred any event which, with or without
notice or the passage of time or both, would constitute a default by the
Borrower under any agreement or instrument pertaining to any indebtedness for
money borrowed by it.
2.8 Borrower has filed all reports and tax returns required by governmental
authority to be filed by it prior to the date hereof and Borrower has received
no notice that such reports or returns have been rejected, declared
insufficient, or otherwise challenged by such governmental authority.
2.9 The principal officers of the Borrower ("Principal Officers") are as
follows:
McClain Industries, Inc.:
Chairman of the Board Kenneth D. McClain
--------------------
Senior Vice President Robert W. McClain
--------------------
Secretary Carl L. Jaworski
--------------------
McClain of Georgia, Inc.:
President Kenneth D. McClain
--------------------
Senior Vice President Robert W. McClain
--------------------
Secretary Carl L. Jaworski
--------------------
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<PAGE> 6
Shelby Steel Processing Company:
President Robert W. McClain
--------------------
Vice President Kenneth D. McClain
--------------------
Secretary Carl L. Jaworski
--------------------
McClain Tube Company d/b/a Quality Tube:
President Kenneth D. McClain
--------------------
Secretary Carl L. Jaworski
--------------------
McClain Industries of Ohio, Inc.:
President Kenneth D. McClain
--------------------
Vice President Robert W. McClain
--------------------
Secretary Margaret Bruce
--------------------
McClain Epco, Inc.:
President Kenneth D. McClain
--------------------
Vice President Robert W. McClain
--------------------
Secretary Margaret Bruce
--------------------
McClain of Alabama, Inc.:
President Kenneth D. McClain
--------------------
Secretary Carl L. Jaworski
--------------------
2.10 McClain of Georgia, Inc., a Georgia corporation, Shelby Steel
Processing Company, a Michigan corporation, McClain Tube Company d/b/a Quality
Tube, a Michigan corporation, McClain Industries of Ohio, Inc., a Michigan
corporation, McClain Epco, Inc., a New York corporation, McClain of Alabama,
Inc., a Michigan corporation, and Southfield Quality Leasing Company, a Michigan
corporation, are each wholly-owned subsidiaries of McClain Industries, Inc., a
Michigan corporation, and have no subsidiaries. McClain Group Leasing
Corporation, a Michigan corporation, and Galion Holding Company, a Michigan
corporation, are also wholly-owned subsidiaries of McClain Industries, Inc.
McClain Industries, Inc. also holds one-third of the outstanding capital stock
of M.E.G. Equipment Sales, Inc., Michigan corporation, of which M.E.G. Equipment
Sales of Florida, Inc., a Florida corporation, is a wholly-owned subsidiary.
McClain Industries, Inc., as of the date of this Loan Agreement, owns no other
subsidiaries.
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<PAGE> 7
2.11 None of the proceeds of the Term Loan will be used for the purpose of
purchasing or carrying any "margin stock" as defined in Regulation U or G of the
Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207),
or for the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of such
Regulation U or G. Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stocks. Neither Borrower nor
any person acting on behalf of Borrower has taken or will take any action which
might cause the Note or any of the other documents executed in conjunction
therewith, including this Agreement, to violate Regulations U or G or any other
regulations of the Board of Governors of the Federal Reserve System or to
violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. Borrower and its subsidiaries, if any, own no "margin
stock" except for that described in the financial statements provided to
Standard Federal and, as of the date hereof, the aggregate value of all "margin
stock" owned by Borrower and its subsidiaries, if any, does not exceed 25% of
all of the value of all of Borrower's and its subsidiaries', if any, assets.
2.12 Except as disclosed in the environmental report(s), copies of which the
Borrower has furnished to Standard Federal, neither the Borrower nor, to the
best of Borrower's knowledge after due inquiry, any other person or entity, has
caused or permitted any waste, oil, pesticides, or any substance or material of
any kind which is currently known or suspected to be toxic or hazardous,
including but not limited to any substance defined as a "Hazardous Waste" in
Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to
as "Hazardous Material") to be discharged, dispersed, released, disposed of, or
allowed to escape on, under or at any property owned, occupied or operated by
any Borrower in violation of any Hazardous Materials Laws (as hereinafter
defined), nor has any property owned, occupied or operated by any Borrower, or
any part thereof, ever been used by the Borrower or, to the best of Borrower's
knowledge after due inquiry, any prior owner or any other person, as a dump,
storage or disposal site for any Hazardous Material, nor has there occurred any
other violation of the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any
other federal, state or local statute, law, ordinance, code, rule, regulation,
order or decree regulating, relating to or imposing liability or standards of
conduct concerning, any Hazardous Material ("Hazardous Materials Laws") with
respect to any property owned, occupied or operated by any Borrower. No
asbestos or asbestos-containing materials have been installed, used,
incorporated into, or disposed of on any property owned, occupied or operated by
any Borrower. No polychlorinated biphenyls ("PCBs") are located on or in any
property owned,
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<PAGE> 8
occupied or operated by any Borrower, in the form of electrical transformers,
fluorescent light fixtures with ballasts, cooling oils, or any other device or
form. All underground storage tanks located on any property owned, occupied or
operated by any Borrower have been installed and are being operated in full
compliance with all applicable Hazardous Materials Laws. The Borrower: (a) has
not received any notice of any release, threatened release, escape, seepage,
leakage, spillage, discharge or emission of any Hazardous Materials in, under
or upon any property owned, occupied or operated by any Borrower or of any
violation of any Hazardous Materials Law, and (b) does not know of any basis
for any such notice or violation.
2.13 No "reportable event," as defined in the Employee Retirement Income
Security Act of 1974 and any amendments thereto ("ERISA"), has occurred and is
continuing with respect to any employee pension and/or profit sharing benefit
plan maintained by or on behalf of the Borrower for the benefit of any of its
employees. The Pension Benefit Guaranty Corporation ("PBGC") has not
instituted proceedings to terminate any such employee pension and/or profit
sharing plan or to appoint a trustee to administer such plan. The Borrower
has maintained and funded and caused each of its subsidiaries, if any, to
maintain and fund all employee pension and/or profit sharing plans in
accordance with their terms and with all applicable provisions of ERISA.
Neither the Borrower nor any duly appointed administrator of any employee
pension and/or profit sharing plan: (a) has incurred any liability to PBGC with
respect to any such plan other than for premiums not yet due or payable, (b)
has instituted or intends to institute proceedings to terminate any such plan
under Section 4042 or 4041A of Erisa, or (c) has withdrawn from any
Multi-Employer Pension Plan (as that term is defined in Section 3(37) of
ERISA).
2.14 There is no material fact that the Borrower has not disclosed to
Standard Federal which could have a material adverse effect on the properties,
business, prospects or condition (financial or otherwise) of the Borrower or any
of its subsidiaries. For purposes of this Section 2.14, a "material adverse
effect" means any circumstance or event which (a) could have any adverse effect
whatsoever upon the validity, performance or enforceability of any material
provision of the Loan Documents, (b) is or might be material and adverse to the
financial condition or business operations of the Borrower or any subsidiary,
(c) could impair the ability of the Borrower to fulfill its obligations under
the Loan Documents, or (d) causes an Event of Default or any event which, with
notice or lapse of time or both, could become an Event of Default. Neither the
financial statements referred to in Section 2.5 hereof, nor any certificate or
statement delivered herewith or heretofore by Borrower in connection with the
negotiations of this Loan Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary to
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<PAGE> 9
keep the statements contained herein or therein, under the circumstances in
which they were made, from being misleading.
SECTION 3. AFFIRMATIVE COVENANTS OF BORROWER
3.1 Prior to closing of the Term Loan, the Borrower shall; (a) furnish to
Standard Federal, if Standard Federal so requires, certified copies of its
Articles of Incorporation, Bylaws and Certificate of Good Standing, which
Articles of Incorporation and Good Standing Certificate are to be certified by
the appropriate official of the Borrower's state of incorporation; (b) furnish
to Standard Federal if Standard Federal so requires a statement of the Borrower
and the chief financial officer of Borrower certifying that they are unaware of
the occurrence of an Event of Default or of any event which with notice and/or
the passage of time could become an Event of Default; and (c) furnish Standard
Federal such other instruments, documents, opinions or certificates as Standard
Federal or its counsel shall reasonably require. All actions, proceedings,
instruments and documents required or requested hereunder shall be satisfactory
to and approved by Standard Federal and/or its counsel prior to closing of the
Term Loan.
3.2 From the date hereof until all amounts owing under the Term Loan are
paid in full and all obligations under the Note, this Agreement and all other
documents executed in connection with the Term Loan are fully paid, performed
and satisfied and so long as Standard Federal has any commitment to make
advances hereunder, the Borrower covenants and agrees it will:
3.2(a) Furnish to Standard Federal as soon as available and, in any event,
within 120 days after the close of each fiscal year of the Borrower, or, in the
event the Borrower obtains an extension of the filing date from the Securities
Exchange Commission, by such extended date, detailed financial statements of
the Borrower as of the close of such fiscal year, containing a consolidated
balance sheet of the Borrower and its subsidiaries, if any, and statements of
income and cash flows of the Borrower and its subsidiaries, if any, for such
fiscal year prepared in accordance with generally accepted accounting
principles and in a manner consistent with prior such statements containing an
analysis of sources and uses of funds and such other comments and financial
details as are usually included in similar reports. Such statements shall be
accompanied by an opinion thereon (which shall not be qualified by reason of
any limitation imposed by Borrower) of independent certified public accountants
selected by Borrower and acceptable to Standard Federal as to the fairness of
the statements included in the report and to the effect that the examination of
such accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances.
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<PAGE> 10
3.2(b) Furnish to Standard Federal as soon as available and, in any event,
within 90 days after the close of each quarter of each fiscal year, or, in the
event the Borrower obtains an extension of the filing date from the Securities
Exchange Commission, by such extended date, detailed financial statements of
the Borrower as of the close of such fiscal period containing a consolidated
balance sheet of the Borrower and its subsidiaries, if any, and statements of
income and cash flows of the Borrower and its subsidiaries, if any, for such
fiscal period and for the portion of the fiscal year ending with such period in
reasonable detail and form acceptable to Standard Federal and certified by the
chief financial officer of the Borrower as being true and correct and as having
been prepared in accordance with generally accepted accounting principles
consistently applied, subject to year-end adjustments, if any.
3.2(c) Furnish to Standard Federal, within a reasonable time not to exceed
20 days after the end of each calendar month, a statement of accounts
receivable, in a form acceptable to Standard Federal, certified as correct by
Borrower or a principal officer of Borrower showing the agings thereof and the
payment, write-off or other disposition of former accounts receivable the
disposition of which has not previously been reported to Standard Federal, and
such other information and data as Standard Federal may reasonably require.
Borrower will further specifically disclose any facts known to Borrower which
facts would tend to render doubtful the collectibility of any account receivable
disclosed in such statements or which would indicate that the existence or
amount of such account is disputed by the debtor thereon.
3.2(d) Furnish to Standard Federal, within a reasonable time not to exceed
20 days after the end of each calendar month, a statement of accounts payable,
in a form acceptable to Standard Federal, certified as correct by Borrower or a
principal officer of Borrower, showing the agings thereof and such other
information and data as Standard Federal may reasonably require.
3.2(e) Furnish to Standard Federal, within a reasonable time not to exceed
20 days after the end of each calendar month, a statement of inventory of the
Borrower, in a form acceptable to Standard Federal, certified as correct by
Borrower or a principal officer of Borrower showing the method of reporting and
all additions to and dispositions of inventory since the previous inventory
report and such other information and data as Standard Federal may reasonably
require.
3.2(f) Furnish to Standard Federal, promptly after sending, filing or
publishing the same, copies of all proxy statements, financial statements and
reports that the Borrower sends to its public shareholders and copies of all
regular, periodic and special reports and all registration statements and
amendments thereto that the Borrower files with the Securities and Exchange
Commission or
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any other governmental authority and any Exchange, and copies of all press
releases issued by Borrower.
3.2(g) Promptly inform Standard Federal of the occurrence of any Event of
Default or of any event (including without limitation any pending or threatened
litigation or other proceedings before any governmental body or agency) which
could have a materially adverse effect upon the Borrower's business,
properties, financial condition or ability to comply with its obligations
hereunder or under the Note.
3.2(h) Furnish such other information as Standard Federal may reasonably
request and permit Standard Federal and its agents, attorneys and employees to
inspect all of the books, records and properties of the Borrower at any
reasonable time.
3.2(i) Maintain adequate insurance with responsible companies in such
amounts and against such risks and hazards as are normally insured against by
similar businesses, and provide Standard Federal evidence of such insurance upon
request, or maintain adequate self-insurance programs which are reasonably
satisfactory to Standard Federal; policies of casualty insurance shall contain a
customary mortgagee clause requiring payment of proceeds to Borrower and to
Standard Federal as their interests may appear and all other insurance shall
contain a customary loss payable clause requiring payment of proceeds to
Borrower and to Standard Federal as their interests may appear and all insurance
policies shall provide that no cancellation, reduction in amount, change in
coverage or expiration thereof shall be effective until at least 30 days prior
written notice has been given by the insurer to Standard Federal; and pay when
due all taxes, assessments, fees and similar charges of every kind and nature
lawfully assessed upon the Borrower and/or its property, except to the extent
being contested in good faith; and in the event the Borrower fails to maintain
such insurance or to pay promptly any taxes or charges when due, then and in
such event Standard Federal, in its sole discretion, may, but shall not be
required to, pay the same and any amounts expended by Standard Federal for such
purpose shall be due and payable in full immediately and shall bear interest at
the rate applicable to the outstanding principal balance owing under the Note.
3.2(j) Preserve and keep in full force and effect its own and its material,
operating subsidiaries' (if any) corporate existence in good standing and
maintain voting control in its present controlling shareholder(s); keep current
all filings of assumed name certificates for each name under which and each
county in which the Borrower does business and promptly inform Standard Federal
of any assumed names under which it does business which were not used by the
Borrower on the date of this Agreement; continue to conduct and operate its
business substantially as presently conducted and operated in accordance with
all applicable laws and regulations; maintain and protect all franchises and
trade
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<PAGE> 12
names and preserve all the remainder of its property used or useful in the
conduct of its business and keep the same in good repair and condition; pay its
indebtedness and obligations when due under normal terms and maintain proper
books of record and account, and; otherwise remain in compliance with all
applicable laws, statutes, regulations, rules and requirements of any federal,
state, judicial, regulatory or administrative body having jurisdiction of the
Borrower or any of its assets, except to the extent noncompliance is immaterial
and would not have a material adverse effect on Borrower.
3.2(k) Maintain on a consolidated statement basis "Tangible Net Worth" of
not less than the amounts specified below as of the end of each fiscal quarter
during the fiscal years ending on the dates specified below:
Minimum
"Tangible
Fiscal Year-End Net Worth"
--------------- --------------
09/30/96 $21,000,000
09/30/97 $23,000,000
"Tangible Net Worth" shall mean total assets less trademarks, franchises,
copyrights, licenses, goodwill, similar intangible assets and all liabilities
(excluding debt subordinated to Standard Federal upon terms and conditions
acceptable to Standard Federal) of the Borrower.
3.2(l) Maintain on a consolidated statement basis the ratio of "Current
Assets" to "Current Liabilities" of not less than the ratios specified below as
of the end of each fiscal quarter during the fiscal years ending on the dates
specified below:
Fiscal Year-End Minimum Current Ratio
--------------- ---------------------
09/30/96 2.35 to 1.00
09/30/97 2.40 to 1.00
"Current Assets" shall include all assets considered current in accordance
with generally accepted accounting principles as in effect as of the date of
this Agreement, consistently applied, less all amounts due Borrower from any of
its directors, officers, employees, its shareholders, or any company controlled
by any of its shareholders. "Current Liabilities" shall include all
liabilities considered current in accordance with generally accepted accounting
principles as in effect as of the date of this Agreement, consistently applied.
3.2(m) On a consolidated statement basis maintain the ratio of "Liabilities"
to "Tangible Net Worth" of not more than the ratios
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<PAGE> 13
specified below as of the end of each fiscal quarter during the fiscal years
ending on the dates specified below:
Fiscal Year-End Maximum Liabilities-to-Worth Ratio
--------------- ----------------------------------
09/30/96 2.85 to 1.00
09/30/97 2.75 to 1.00
"Liabilities" shall mean all liabilities of the Borrower and its
consolidated subsidiaries, if any, as defined in accordance with generally
accepted accounting principles as in effect as of the date of this Agreement,
consistently applied.
"Tangible Net Worth" shall mean total assets less trademarks, franchises,
copyrights, licenses, goodwill, similar intangible assets and all liabilities
(excluding debt subordinated to Standard Federal upon terms and conditions
acceptable to Standard Federal) of the Borrower.
3.2(n) On a consolidated statement basis, maintain an Interest Coverage
Ratio of not less than 2.00 to 1.00 as of the end of each quarter of each fiscal
year. The "Interest Coverage Ratio" shall be defined as the ratio of the
Borrower's net income, plus interest charges, income and other taxes and
amortization and depreciation for the period of four consecutive quarters ending
with the quarter at the end of which the Interest Coverage Ratio is being
measured to all interest expense of the Borrower for such period, as determined
in accordance with generally accepted accounting principles.
3.2(o) On a consolidated statement basis, maintain a Fixed Charge Coverage
Ratio of not less than 1.75 to 1.00 as of the end of each quarter of each
fiscal year. The "Fixed Charge Coverage Ratio" shall be defined as the ratio
of the Borrower's net income, plus amortization and depreciation for the period
of four consecutive quarters ending with the quarter at the end of which the
Fixed Charge Coverage Ratio is being measured to current maturities of long
term debt, as determined in accordance with generally accepted accounting
principles.
3.2(p) At all times meet and cause each of its subsidiaries, if any, to meet
the minimum funding requirements of ERISA with respect to all employee pension
and/or profit sharing plans subject to ERISA and, with respect to any such
employee benefit plan, promptly notify Standard Federal in writing of any
reportable event, as defined in ERISA, or any proposed termination (voluntary
or otherwise) which could give rise to material termination liability within
the meaning of ERISA Section 4062.
3.3 The Borrower will not make any change in its accounting policies or
financial reporting practices and procedures, except
13
<PAGE> 14
changes in accounting policies which are required or permitted by generally
accepted accounting principles and changes in financial reporting practices and
procedures which are required or permitted by generally accepted accounting
principles.
3.4 The Borrower shall use the monies loaned hereunder only for the
purpose(s) set forth in the preamble hereto.
3.5 The Borrower shall allow Standard Federal's participant in the Term Loan
and staff or independent accountants or auditors selected by Standard Federal's
participant to conduct a full audit of the Borrower's financial statements and
its books and records twice during the first year of the term of the Term Loan
and once in each of the second and third years of the term of the Term Loan.
Standard Federal's participant shall schedule such audits during normal business
hours of the Borrower and shall provide Borrower not less than two (2) business
days notice of the commencement of each audit. The Borrower shall make adequate
facilities available on its premises at Borrower's expense to enable Standard
Federal's participant to conduct the audits herein described and shall make
available all of its books, records and other documents and information as may
be reasonably requested to facilitate the audits. The Borrower agrees to pay to
Standard Federal's participant an audit fee of $3,000.00 plus travel expenses
for each audit so conducted by the participant.
SECTION 4. NEGATIVE COVENANTS
4.1 From the date hereof until all amounts owing under the Term Loan are
paid in full and all obligations under the Note, this Agreement and all other
documents executed in connection with the Term Loan are fully paid, performed
and satisfied and so long as Standard Federal has any commitment to make
advances hereunder, the Borrower covenants and agrees that it will not do and
will not permit any subsidiary, if any, to do any of the following without the
prior written approval of Standard Federal:
4.1(a) Create, incur, assume or permit to exist (a) any mortgage, pledge,
security interest, lien or charge of any kind upon any of its property or assets
whether now owned or hereafter acquired other than in favor of Standard Federal,
except as required or permitted by Standard Federal, or (b) any indebtedness or
liability for borrowed money, except indebtedness to Standard Federal or
indebtedness subordinated to the prior payment in full of the Borrower's
indebtedness to Standard Federal which is approved in writing by Standard
Federal, except as otherwise required or permitted in writing by Standard
Federal.
4.1(b) Make loans, advances or extensions of credit to any Entity (which in
this Agreement means any individual, partnership, corporation or other legal
entity), other than a parent or subsidiary of the Borrower, in excess of
$100,000.00 in principal
14
<PAGE> 15
amount, except for sales on open account and in ordinary course of business; or
guarantee or in any way become responsible for obligations of any other Entity
except by endorsement of negotiable instruments for deposit or collection in
the ordinary course of business; or subordinate any indebtedness due it from an
Entity to indebtedness of any other creditor of such Entity.
4.1(c) Sell, lease or transfer, during any fiscal year, except inventory in
the ordinary course of business, any substantial portion of its assets; or
consolidate with or merge into any other Entity, or permit another to merge into
it; or acquire by lease or purchase all or substantially all the business or
assets of any Entity; or enter into any lease-back arrangement with any Entity.
4.1(d) Acquire or expend for, by lease, purchase or otherwise, during any
fiscal year, fixed assets in excess of $4,500,000.
SECTION 5. SECURITY
5.1 In order to secure: (1) the full and timely performance of the
Borrower's covenants set forth herein and in the Note, (2) the repayment of any
and all indebtedness of the Borrower to Standard Federal arising pursuant to the
Note (including any renewals or substitutions thereof), this Agreement and any
mortgage, guaranty, security agreement or other document given to secure or
relating to the Note or this Agreement, and (3) all other indebtedness and
liabilities of the Borrower to Standard Federal arising under this Agreement,
the Note, whether direct or indirect, absolute or contingent, due or to become
due, now existing or hereafter arising:
5.1(a) The Borrower hereby grants unto Standard Federal a security interest in
the following property and the proceeds thereof: (i) any and all securities or
other property received by the Borrower with respect to, on account of or in
exchange for any item of Collateral; (ii) all stock and/or liquidating
dividends (whether the same be in the form of cash or other property) paid
upon, on account of or with respect to any item of Collateral; and (iii) all
bank deposits, instruments, negotiable documents, chattel paper and any and all
other property of the Borrower of any kind whatsoever which shall at any time
be in the possession or under the control of Standard Federal; and
5.1(b) The Borrower has granted to Standard Federal a security interest of
first priority in all personal property of the Borrower as provided in a
certain Security Agreement dated September 15, 1994, and a Security Agreement
dated July 19, 1995, and a mortgage of even date herewith, from the Borrower to
Standard Federal, the provisions of which are hereby incorporated herein by
reference; and
15
<PAGE> 16
5.1(c) The Borrower will cause McClain Industries, Inc. to assign to Standard
Federal as collateral security a life insurance policy on the life of Kenneth D.
McClain in the face amount of $2,000,000.00 (herein, together with the property
described in Sections 5.1(a) (i), (ii) and (iii) and 5.1(b) above, referred to
as the "Collateral" or "item(s) of Collateral").
5.2 The Borrower shall execute and deliver to Standard Federal any and all
documents (including financing statements) as Standard Federal may require to
insure the perfection and priority of its liens and security interests in the
Collateral and furnish, if Standard Federal so requires, proof of hazard
insurance policies, in accordance with Section 3.2(g) above, relating to the
Collateral.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the events enumerated in Sections 6.1 to 6.11 below
shall constitute an Event of Default for purposes of this Agreement:
6.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrower to
Standard Federal on the Term Loan is not paid when due, regardless of whether
such indebtedness has arisen pursuant to the terms of the Note, this Agreement
or any mortgage, security agreement, guaranty, instrument or other agreement
executed in conjunction herewith.
6.2 MISREPRESENTATION. If any warranty or representation made by or for
the Borrower and/or any endorser or guarantor of the Note in connection with the
loan(s) evidenced thereby, or if any financial data or any other information now
or hereafter furnished to Standard Federal by or on behalf of the Borrower
and/or any endorser or guarantor of the Note shall prove to be false, inaccurate
or misleading in any material respect.
6.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If the
Borrower shall fail to perform any of its obligations and covenants under
Section 3 of this Agreement, or shall fail to comply with any of the other
provisions of this Agreement, other than under Section 4 hereof, or the Note, or
any other agreement with Standard Federal to which it may be a party, other than
the payment of principal and interest.
6.4 NONCOMPLIANCE WITH NEGATIVE COVENANTS. If the Borrower shall fail to
perform any of its obligations and covenants described in Section 4 of this
Agreement.
6.5 BUSINESS SUSPENSION. If the Borrower and/or any endorser or guarantor
of the Note shall voluntarily suspend transaction of its business.
16
<PAGE> 17
6.6 BANKRUPTCY, ETC. If the Borrower and/or any endorser or guarantor of
the Note: (a) makes a general assignment for the benefit of creditors; (b) shall
file a voluntary petition in bankruptcy or for a reorganization to effect a plan
or other arrangement with creditors; or shall file an answer to a creditor's
petition or other petition against Borrower and/or any endorser or guarantor of
the Note for relief in bankruptcy or for a reorganization which answer admits
the material allegations thereof; or if any order for relief shall be entered by
any court of bankruptcy jurisdiction with respect to the Borrower and/or any
endorser or guarantor of the Note, or if bankruptcy, reorganization or
liquidation proceedings are instituted against Borrower and/or any endorser or
guarantor of the Note and remain undismissed for 60 days; (c) has entered
against it any order by any court approving a plan for the reorganization of the
Borrower or any endorser or guarantor of the Note or any other plan or
arrangement with creditors of the Borrower or any endorser or guarantor of the
Note; (d) shall apply for or permit the appointment of a receiver, trustee or
custodian for any substantial portion of the Borrower's and/or any endorser's or
guarantor's properties or assets; or (e) becomes unable to meet its debts as
they mature or becomes insolvent.
6.7 JUDGMENTS AND WRITS. If there shall be entered against the Borrower
and/or any endorser or guarantor of the Note one or more judgments or decrees
which are not insured against or satisfied or appealed from and bonded within
the time or times limited by applicable rules of procedure for appeal as of
right or if a writ of attachment or garnishment against the Borrower and/or any
endorser or guarantor of the Note shall be issued and levied in an action
claiming $100,000.00 or more and not released, bonded or appealed from within 30
days after the levy thereof.
6.8 MERGER. If the Borrower shall merge or consolidate with another entity.
6.9 CHANGE OF CONTROL OR MANAGEMENT. If the Borrower or a controlling
portion of its voting stock or a substantial portion of its assets comes under
the practical, beneficial or effective control of any person or persons other
than those having such control as of the date of execution of the Note, whether
by reason of merger, consolidation, sale or purchase of stock or assets or
otherwise, if any such change of control, in the sole and absolute discretion of
Standard Federal, adversely impacts upon the ability of the Borrower to carry on
its business as theretofore conducted.
6.10 OTHER DEFAULTS. If the Borrower and/or any endorser or guarantor of the
Note shall default in the due payment of any material indebtedness to whomsoever
owed, or shall default in the observance or performance of any material term,
covenant or condition in any mortgage, security agreement, guaranty,
17
<PAGE> 18
instrument, lease or agreement to which the Borrower and/or any endorser or
guarantor of the Note is a party.
6.11 REPORTABLE EVENT. If there shall occur any "reportable event", as
defined in the Employee Retirement Income Security Act of 1974 and any
amendments thereto, which is determined to constitute grounds for termination by
the Pension Benefit Guaranty Corporation of any employee pension benefit plan
maintained by or on behalf of the Borrower for the benefit of any of its
employees or for the appointment by the appropriate United States District Court
of a trustee to administer such plan and such reportable event is not corrected
and such determination is not revoked within 30 days after notice thereof has
been given to the plan administrator or the Borrower; or the institution of
proceedings by the Pension Benefit Guaranty Corporation to terminate any such
employee benefit pension plan or to appoint a trustee to administer such plan;
or the appointment of a trustee by the appropriate United States District Court
to administer any such employee benefit pension plan.
SECTION 7. REMEDIES UPON EVENT OF DEFAULT
7.1 Upon the occurrence of any Event of Default described in Sections 6.2,
6.3 or 6.10 hereof which is not cured or waived in writing by Standard Federal
within 15 days after written notice to the Borrower of such default; or upon the
occurrence of any Event of Default described in Section 6.1 which continues
unremedied for 10 days, or upon the occurrence of any Event of Default described
in Sections 6.4, 6.5, 6.6, 6.7, 6.8, 6.9 or 6.11, Standard Federal's commitment
to lend hereunder, if any, shall terminate and Standard Federal may, without
notice, declare the entire unpaid and outstanding principal balance of the Term
Loan and all accrued interest to be due and payable in full forthwith, without
presentment, demand or notice of any kind, all of which are hereby expressly
waived by Borrower, and thereupon Standard Federal shall have and may exercise
any one or more of the rights and remedies provided herein or in the Note or in
any mortgage, guaranty, security agreement or other document relating hereto or
granted secured parties under the Michigan Uniform Commercial Code, including
the right to take possession of and dispose of the Collateral, or otherwise
provided by applicable law, and to offset against the Term Loan any amount owing
by Standard Federal to the Borrower.
SECTION 8. MISCELLANEOUS.
8.1 No default shall be waived by Standard Federal except in writing and a
waiver of any default shall not be a waiver of any other default or of the same
default on a future occasion. No single or partial exercise of any right, power
or privilege hereunder, or any delay in the exercise hereof, shall preclude
18
<PAGE> 19
other or further exercise of the rights of the parties to this Agreement.
8.2 No forbearance on the part of Standard Federal in enforcing any of its
rights under this Agreement, nor any renewal, extension or rearrangement of any
payment or covenant to be made or performed by the Borrower hereunder shall
constitute a waiver of any of the terms of this Agreement or of any such right.
8.3 This Agreement shall be construed in accordance with the law of the
State of Michigan.
8.4 All covenants, agreements, representations and warranties made in
connection with this Agreement and any document contemplated hereby shall
survive the borrowing hereunder and shall be deemed to have been relied upon by
Standard Federal. All statements contained in any certificate or other document
delivered to Standard Federal at any time by or on behalf of the Borrower
pursuant hereto shall constitute representations and warranties by the Borrower.
8.5 The Borrower agrees that it will pay all costs and expenses incurred by
Standard Federal in enforcing Standard Federal's rights under this Agreement and
the documents contemplated hereby, including without limitation any and all
reasonable fees and disbursements of legal counsel to Standard Federal.
8.6 This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective heirs, personal representatives,
successors and assigns; provided, however, that the Borrower shall not assign or
transfer its rights or obligations hereunder without the prior written consent
of Standard Federal.
8.7 If any provision of this Agreement shall be held or deemed to be or
shall, in fact, be inoperative or unenforceable as applied in any particular
case in any or all jurisdictions, or in all cases because it conflicts with any
other provision or provisions hereof or any constitution or statute or rule of
public policy, or for any other reason, such circumstances shall not have the
effect of rendering the provision in question inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative, or unenforceable to any extent
whatever. The invalidity of any one or more phrases, sentences, clauses or
sections contained in this Agreement, shall not affect the remaining portions of
this Agreement, or any part thereof.
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<PAGE> 20
SECTION 9. ADDITIONAL PROVISIONS
9.1 In addition to the terms, covenants and conditions set forth above,
the parties hereto hereby agree as follows:
9.1(a) Borrower shall cause Galion Holding Company, a Michigan corporation;
McClain E-Z Pack, Inc., a Michigan corporation; Galion Dump Bodies, Inc., a
Michigan corporation; and McClain Group Sales of Florida, Inc., a Florida
corporation, to execute and deliver to Standard Federal an unlimited payment
guaranty of the obligations of Borrower under the Term Loan in form and
substance acceptable to Standard Federal.
IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this
Loan Agreement to be executed as of the day and year first written above.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
/s/ Robert J. Gordon
- ----------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon -------------------------------
Carl L. Jaworski
Its: Secretary
-----------------------
38-1867649
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
/s/ Robert J. Gordon
- ---------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon ---------------------------------
Carl L. Jaworski
Its: Secretary
----------------------------
58-1738825
-------------------------------------
Taxpayer Identification Number
20
<PAGE> 21
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
/s/ Robert J. Gordon
- --------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon ---------------------------------
Carl L. Jaworski
Its: Secretary
-------------------------
38-2205216
------------------------------------
Taxpayer Identification Number
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
/s/ Robert J. Gordon
- --------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon ---------------------------------
Carl L. Jaworski
Its: Secretary
------------------------------------
Taxpayer Identification Number
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
/s/ Robert J. Gordon
- --------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon ---------------------------------
Carl L. Jaworski
Its: Treasurer
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
/s/ Robert J. Gordon
- --------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon ---------------------------------
Carl L. Jaworski
Its: Treasurer
38-
------------------------------------
Taxpayer Identification Number
21
<PAGE> 22
MCCLAIN OF ALABAMA, INC., a
Michigan corporation
/s/ Robert J. Gordon
- -------------------------- By: /s/ Carl L. Jaworski
Robert J. Gordon -----------------------------
Carl L. Jaworski
Its: Treasurer
---------------------
63-1176560
---------------------------------
Taxpayer Identification Number
STANDARD FEDERAL BANK, a
federal savings bank
By: David J. Bartlett
-------------------------------
Its: Vice President
---------------------------
22
<PAGE> 1
EXHIBIT 10.55
SF106000.MCA
Note No. 0250024274
----------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Term Loan)
$5,300,000.00 Troy, Michigan
Due Date: March 1, 2002 Dated: August 29, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally (collectively,
"Borrower"), promise to pay to the order of Standard Federal Bank, a federal
savings bank ("Standard Federal"), at its office set forth below, or at such
other place as Standard Federal may designate in writing, the principal sum of
Five Million Three Hundred Thousand and 00/100 Dollars ($5,300,000.00), plus
interest on all amounts from time to time outstanding hereunder, as hereinafter
provided, all in lawful money of the United States of America.
The principal outstanding under this Note from time to time shall bear
interest ("Effective Interest Rate"), on a basis of a year of 360 days for the
actual number of days amounts are outstanding hereunder, at a rate per annum
equal to One-Eighth of One percent (0.125%) in excess of the Wall Street
Journal Prime Rate. As used herein the phrase "Wall Street Journal Prime Rate"
shall mean the "Prime Rate" published by the Wall Street Journal as the base
rate on corporate loans posted by at least 75% of the nation's 30 largest banks
as the same may be changed from time to time. If more than one Prime Rate is
published, the highest rate published shall be deemed the Wall Street Journal
Prime Rate. If the publishing of the Wall Street Journal Prime Rate is
discontinued during the term hereof, then the Effective Interest Rate shall be
based upon the index which is published by The Wall Street Journal in
replacement thereof based on similar base rates on corporate loans or, if no
such replacement index is published, the index which, in Standard Federal's
sole determination, most nearly corresponds to the Wall Street Journal Prime
Rate. If, in such event, Standard Federal selects an index which, in the
Borrower's opinion, does not correspond to the Wall Street Journal Prime Rate,
Borrower's sole remedy shall be to prepay this Note in full without penalty or
premium. Until such prepayment has been received by Standard Federal, the
index selected by Standard Federal shall apply for all purposes of this Note.
It is understood and agreed by Borrower that the Effective Interest
Rate shall be determined by reference to the "Wall Street Journal Prime Rate"
and not by reference to the actual rate of interest charged by any particular
bank to any particular borrower or borrowers and shall automatically increase
or decrease when and to the extent that the Wall Street Journal Prime Rate
shall have been increased or decreased.
<PAGE> 2
Accrued interest only shall be due and payable on the first day of each
month, commencing on October 1, 1996 and continuing on the same day of each
consecutive month thereafter, through and including February 1, 1997.
Commencing March 1, 1997, and continuing on the same day of each consecutive
month thereafter, monthly payments of principal in the amount of $88,333.00
each, plus interest accrued to the due date of each payment, shall be due and
payable. In addition to the monthly payments of principal and interest
provided for above, the Borrower shall be required to make additional principal
payments, which shall be due and payable on February 1, 1998 and February 1,
1999. The additional principal payment due February 1, 1998 shall be in the
amount of the lesser of: (a) Six Hundred Thousand and 00/100 Dollars
($600,000.00), or (b) Fifty percent (50.0%) of the Excess Cash Flow, as
hereinafter defined, for the Borrower's fiscal year ending September 30, 1997.
The additional principal payment due February 1, 1999 shall be in the amount of
the lesser of: (a) Six Hundred Thousand and 00/100 Dollars ($600,000.00), or
(b) Fifty percent (50.0%) of the Excess Cash Flow, as hereinafter defined, for
the Borrower's fiscal year ending September 30, 1998. The term "Excess Cash
Flow" shall mean the Borrower's net income, plus depreciation and amortization
expense, less fixed payments and unfinanced capital expenditures, all as
reflected in the Borrower's annual audited financial statement, which the
Borrower is required to furnish to Standard Federal as provided in the Loan
Agreement hereinafter described, for the applicable fiscal year. A final
payment shall be due and payable on the Due Date in an amount equal to the then
unpaid principal and accrued interest.
All payments required to be paid hereunder shall first be applied to costs
and expenses required to be paid hereunder, then to accrued interest hereunder
and the balance shall be applied against the principal. This Note may be
prepaid, in full or in part, at any time, without the payment of any
prepayment fee or penalty. All partial prepayments shall be applied against
the last accruing installment or amount due under this Note; and no prepayments
shall affect the obligation of the undersigned to continue the regular
installments hereinbefore mentioned, until the entire unpaid principal and
accrued interest has been paid in full. Borrower understands that the
installment payments of principal provided for herein are not sufficient to
fully amortize the outstanding principal balance of this Note by the Due Date
and that the final payment due on the Due Date will be a balloon payment of all
then outstanding principal and accrued interest.
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging,
-2-
<PAGE> 3
compensation, payment or earning of interest in excess of the maximum allowed
by applicable law, then any and all such excess shall be and the same is hereby
waived by Standard Federal, and any and all such excess paid shall be
automatically credited against and in reduction of the principal due under this
Note. If Standard Federal shall reasonably determine that the Effective
Interest Rate (together with all other charges or payments related hereto that
may be deemed interest) stipulated under this Note is, or may be, usurious or
otherwise limited by law, the unpaid balance of this Note, with accrued
interest at the highest rate permitted to be charged by stipulation in writing
between Standard Federal and Borrower, at the option of Standard Federal, shall
immediately become due and payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal
in connection with this Note fairly present the financial condition of the
Borrower and its subsidiaries, if any, as of the dates thereof and there has
been no material adverse change in the condition (financial or otherwise) of
the Borrower since such dates.
An Event of Default shall be deemed to have occurred hereunder if any
indebtedness of the Borrower to Standard Federal hereunder is not paid when
due, regardless of whether such indebtedness has arisen pursuant to the terms
of this Note, the Loan Agreement or any mortgage, security agreement, guaranty,
instrument or other agreement executed in conjunction herewith, or if an Event
of Default shall otherwise occur under the Loan Agreement.
Upon the occurrence of any Event of Default, after the giving of any
notice and the expiration of any grace, cure or notice period provided for in
the Loan Agreement, if any, and if no such notice or grace, cure or notice
period is so provided for in the Loan Agreement, then immediately, Standard
Federal may declare the entire unpaid and outstanding principal balance
hereunder and all accrued interest to be due and payable in full forthwith,
without presentment, demand or notice of any kind and may exercise any one or
more of the rights and remedies provided herein or in the Loan Agreement or in
any mortgage, guaranty, security agreement or other document relating hereto or
by applicable law. The remedies provided for hereunder are cumulative to the
remedies for collection of the amounts owing hereunder as provided by law or by
the Loan Agreement, or by any mortgage, guaranty, security agreement or other
document relating hereto. Nothing herein is intended, nor should it be
construed, to preclude Standard Federal from pursuing any other remedy for the
recovery of any other sum to which Standard Federal may be or become entitled
for breach of the terms of this Note or the Loan Agreement, or any mortgage,
guaranty, security agreement or other instrument relating hereto.
-3-
<PAGE> 4
Borrower agrees, in case of an Event of Default under the terms of this
Note or under any loan agreement, security or other agreement executed in
connection herewith, to pay all costs of Standard Federal for collection of the
Note and all other liabilities of Borrower to Standard Federal and enforcement
of rights hereunder, including reasonable attorney fees and legal expenses
including participation in Bankruptcy proceedings. During any period(s) this
Note is in default, or after the Due Date, or after acceleration of maturity,
the outstanding principal amount hereof shall bear interest at a rate equal to
two percent (2.0%) per annum greater than the interest rate otherwise charged
hereunder. If any required payment is not made within ten (10) days after the
date it is due, then, at the option of Standard Federal, a late charge of not
more than four cents ($.04) for each dollar of the payment so overdue may be
charged. In addition to any other security interests granted to Standard
Federal, Borrower hereby grants Standard Federal a security interest in all of
Borrower's bank deposits, instruments, negotiable documents, and chattel paper
which at any time are in the possession or control of Standard Federal. After
the occurrence of an Event of Default hereunder, Standard Federal may hold and
apply at any time its own indebtedness or liability to Borrower in payment of
any indebtedness hereunder.
Acceptance by Standard Federal of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only, and the failure
to pay the entire amount then due shall be and continue to be an Event of
Default. Upon any Event of Default, neither the failure of Standard Federal
promptly to exercise its right to declare the outstanding principal and accrued
unpaid interest hereunder to be immediately due and payable, nor the failure of
Standard Federal to demand strict performance of any other obligation of the
Borrower or any other person who may be liable hereunder shall constitute a
waiver of any such rights, nor a waiver of such rights in connection with any
future default on the part of the Borrower or any other person who may be
liable hereunder.
Borrower and all endorsers and guarantors hereof, hereby jointly and
severally waive presentment for payment, demand, notice of non- payment, notice
of protest or protest of this Note, diligence in collection or bringing suit,
and hereby consent to any and all extensions of time, renewals, waivers, or
modifications that may be granted by Standard Federal with respect to payment
or any other provisions of this Note, and to the release of any collateral or
any part thereof, with or without substitution. The liability of the Borrower
shall be absolute and unconditional, without regard to the liability of any
other party hereto.
This Note is executed pursuant to a Loan Agreement of even date
herewith (the "Loan Agreement"), and is secured by a Security Agreement, dated
September 15, 1994, and by a Security Agreement,
-4-
<PAGE> 5
dated July 19, 1995, and by an Assignment of Policy as Collateral Security,
dated August 16, 1996, and by a Security Agreement and a Commercial Mortgage,
Assignment of Leases and Rents, Security Agreement and Financing Statement, of
even date herewith. Reference is hereby made to such documents for additional
terms relating to the transaction giving rise to this Note, the security given
for this Note and additional terms and conditions under which this Note
matures, may be accelerated or prepaid.
Advances hereunder may be requested by telephone, in writing or in any
other manner acceptable to Standard Federal. Borrower understands and agrees
that any telephone conversation with Standard Federal may be recorded for
accuracy.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Secretary
--------------------
38-1867649
------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Secretary
--------------------
58-1738825
------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Secretary
--------------------
38-2205216
------------------------------
Taxpayer Identification Number
-5-
<PAGE> 6
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Secretary
--------------------
------------------------------
Taxpayer Identification Number
MCCLAIN INDUSTRIES OF OHIO, INC., a
Michigan corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Treasurer
--------------------
------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Treasurer
--------------------
------------------------------
Taxpayer Identification Number
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
Robert J. Gordon By: Carl L. Jaworski
- -------------------------- ---------------------------
Robert J. Gordon Carl L. Jaworski
Its: Treasurer
--------------------
63-1176560
------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
-6-
<PAGE> 1
EXHIBIT 10.56
COMMERCIAL MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
THIS MORTGAGE is made this 29th day of August, 1996, by MCCLAIN OF
ALABAMA, INC., a Michigan corporation ("Borrower"), whose address is 6200
Elmridge, Sterling Heights, Michigan 48310, to Standard Federal Bank, a federal
savings bank ("Standard Federal"), whose address is 2600 West Big Beaver Road,
Troy, Michigan 48084.
Borrower is justly indebted to Standard Federal in the principal
amount of Eight Million Seven Hundred Nine Thousand Four Hundred Seven Dollars
($8,709,407), together with interest thereon in accordance with a Promissory
Note (Term Loan) in the principal amount of $5,300,000 from Borrower to
Standard Federal of even date herewith, and a Promissory Note (Term Loan) in
the original principal amount of $3,578,852.00, dated July 17, 1996, on which
the current outstanding principal balance as of the date hereof is
$3,409,407,the liability under which (as well as other indebtedness) the
Borrower has assumed pursuant to a Loan Modification and Assumption Agreement
of even date herewith (the foregoing promissory notes are herein collectively
referred to as the "Note").
Notwithstanding anything to the contrary contained herein: (1) the
maximum principal amount of indebtedness secured by this Mortgage shall not
exceed $2,000,000.00 (the "Maximum Principal Amount"); (2) the Maximum
Principal Amount of indebtedness secured by this Mortgage shall be deemed to be
the first principal indebtedness to be advanced and the last principal
indebtedness to be repaid; (3) the security afforded by this Mortgage for the
indebtedness shall not be reduced by any payments or other sums applied to the
reduction of indebtedness so long as the total amount of outstanding principal
indebtedness exceeds the Maximum Principal Amount, and thereafter shall be
reduced only to the extent that any payments and other sums are actually
applied by Standard Federal to reduce the outstanding principal indebtedness to
an amount less than the Maximum Principal Amount; and (4) the limitation
contained in this paragraph shall only pertain to the principal indebtedness
secured by this Mortgage, and shall not be construed as limiting the amount of
interest, fees, expenses, indemnified amounts, or other indebtedness (except
principal indebtedness) secured hereby.
THEREFORE, in order to secure payment of the principal and interest of
such indebtedness according to the terms of the Note, and all other amounts
payable by Borrower thereunder, and any and all extensions and renewals
thereof, however evidenced, and the performance of the covenants and conditions
hereof, Borrower does hereby grant, bargain, sell, assign and convey to
Standard Federal, its successors and assigns forever, certain real property
owned by Borrower and situated in the State of Alabama, as more particularly
described in Exhibit "A" attached hereto (the "premises"), together
<PAGE> 2
with (1) all the estate, title, interest and rights of Borrower in and to the
premises and all buildings and improvements of every kind and description now
or hereafter placed upon the premises or any part thereof, (2) all heretofore
or hereafter vacated alleys and streets abutting the premises, (3) all
furniture, fixtures, equipment and appliances, regardless of their character as
personal property, including, but not limited to, all lighting, heating,
cooling, ventilating, air conditioning, plumbing, sprinkling, communicating and
electrical systems, and machinery, appliances, fixtures and equipment
pertaining thereto, awnings, stoves, refrigerators, dishwashers, disposals,
incinerators, carpeting and drapes, and all other furniture, fixtures,
equipment and appliances of every type, nature and description, owned by
Borrower and now or at any time hereafter related to, affixed to, attached to,
placed upon or used in any way in connection with the use, occupancy or
operation of the premises (except leased equipment and trade fixtures which, in
either case, are readily removable without damaging or reducing the value or
utility of the premises or the improvements thereto), all of which furniture,
fixtures, equipment and appliances shall be deemed to be a part of the premises
and covered by the lien hereof, and (4) all of the rents, profits, and leases
thereof and the tenements, hereditaments, easements, privileges and
appurtenances thereto. (Any reference herein to the "Project" shall be deemed
to apply to the above described premises and to such buildings, fixtures,
furniture, equipment and appliances, and to the rents, profits and leases
thereof, and to such tenements, hereditaments, easements, privileges and
appurtenances, unless the context shall require otherwise.)
To have and to hold the Project, with all of the tenements,
hereditaments, easements, appurtenances and other rights and privileges
thereunto belonging or in any manner now or hereafter appertaining thereto, for
the use and benefit of and unto Standard Federal its successors and assigns
upon the conditions hereinafter set forth.
Borrower does hereby covenant, promise and agree to and with Standard
Federal, which covenants, promises and agreements shall, to the extent
permitted by law, be deemed to run with the land, as follows:
1. Covenant to Pay Indebtedness. Borrower shall pay the
principal and interest of Borrower's indebtedness to Standard Federal according
to the terms of the Note and shall pay the indebtedness to Standard Federal
according to the terms of any future advances secured by this Mortgage and
shall pay all other amounts provided herein.
2. Covenant of Title. At the time of the execution and delivery
of this Mortgage, Borrower is well and truly seized of the Project in fee
simple, free of all easements, liens and encumbrances whatever (other than
those easements of record as of
-2-
<PAGE> 3
the date hereof and the rights of the public in any part of the Project used or
taken for road purposes), and will forever warrant and defend the title to the
Project unto Standard Federal, it successors and assigns, against any and all
other claims whatever, and the lien created hereby is and will be kept as a
first lien upon the Project and every part thereof, subject only to the
foregoing exceptions.
3. Taxes and Assessments. Until the debt secured hereby is fully
satisfied, Borrower will pay all taxes, assessments and all other charges and
encumbrances levied on the Project before any penalty for nonpayment attaches
thereto, and will deliver to Standard Federal, upon request, official receipts
showing such payment. Borrower also shall pay when due all taxes, assessments
and other charges and encumbrances that may be levied upon or on account of
this Mortgage or the indebtedness secured hereby or upon the interest or estate
in the Project created or represented by this Mortgage, whether levied against
Standard Federal or otherwise. In the event payment by Borrower of any tax
referred to in the foregoing sentence would result in the payment of interest
in excess of the rate permitted by law, then Borrower shall have no obligation
to pay the portion of such tax which would result in the payment of such
excess; provided, however, in such event, at any time after the enactment of a
law providing for such tax, Standard Federal, at its option, may declare the
entire principal balance of the indebtedness secured hereby, together with all
interest thereon, to be due and payable immediately, without notice.
4. Insurance. Until the debt secured hereby is fully satisfied,
Borrower will keep the Project continuously insured against loss by fire,
windstorm and other hazards, casualties and contingencies, including vandalism
and malicious mischief, in such amounts and for such periods as may be required
by Standard Federal. Borrower shall pay promptly when due all premiums for
such insurance and deliver to Standard Federal, without request, receipts
showing such payment. All insurance shall be carried in companies approved by
Standard Federal and the policies and renewals thereof shall be held by, and
pledged to, Standard Federal (unless Standard Federal shall direct or permit
otherwise) as additional security hereunder, and shall have attached thereto a
mortgagee clause acceptable to Standard Federal, making all loss or losses
under such policies payable to Standard Federal, its successors and assigns, as
its or their interest may appear. In the event of loss or damage to the
Project, Borrower shall give immediate notice in writing by mail to Standard
Federal, who may make proof of loss if not made promptly by Borrower.
In the event the amount of the loss is $ 200,000.00 or less, the
insurance proceeds shall be released to the Borrower, upon request by the
Borrower. Borrower shall be obligated to use such proceeds to restore or repair
the Project unless Standard Federal otherwise specifies in writing.
-3-
<PAGE> 4
In the event the amount of the loss is greater than $ 200,000.00, each
insurance company concerned is hereby authorized and directed upon request by
Standard Federal, to make payment for such loss, to the extent of the
indebtedness hereby secured, directly to Standard Federal instead of to
Borrower and Standard Federal jointly. Provided there has occurred no Event of
Default hereunder nor any event which with notice or the passage of time or
both would become an Event of Default hereunder and further provided that
Standard Federal shall reasonably determine that sufficient funds are available
from insurance proceeds and any funds to be provided by Borrower to repair or
restore the Project within a reasonable time and that such repair or
restoration is economically feasible, Standard Federal agrees, upon request by
the Borrower, to apply the insurance proceeds to repair or restore the Project,
after reimbursement of all costs and expenses of Standard Federal in collecting
such proceeds, subject to the following terms and conditions:
(a) Standard Federal shall retain all insurance proceeds
in an escrow account bearing interest at pass book rates to be
disbursed to pay the costs of repair or restoration in accordance with
procedures reasonably established by Standard Federal.
(b) All plans and specifications for repair or
restoration shall be approved by Standard Federal prior to the
commencement of any repair or restoration, which approval shall not be
unreasonably withheld or delayed.
(c) All repair or restoration shall be done by or under
the direction of Borrower, shall be in accordance with the approved
plans and specifications, shall be in a workmanlike manner free from
all defects, shall be in compliance with all statutes, ordinances,
rules and regulations applicable thereto and shall be completed free
of all construction liens except those being contested in good faith
by appropriate proceedings and with respect to which Borrower shall
have provided Standard Federal satisfactory security.
(d) Standard Federal shall have the right, at Borrower's
expense, to inspect all repairs and restoration and, if Standard
Federal reasonably determines that any work or materials are not in
conformity with the approved plans and specifications or other
requirements of sub-paragraph (c) above, to stop the work and order
replacement or correction thereof by Borrower.
(e) Standard Federal shall not be obligated to make
disbursements more frequently than monthly and the remaining
undisbursed proceeds shall always be sufficient to meet the total
estimated remaining costs to complete the repair or restoration plus
10% of such costs.
-4-
<PAGE> 5
(f) All insurance proceeds in excess of the amounts
necessary to repair or restore the Project may be applied, at Standard
Federal's option, to the outstanding principal balance under the Note
(without penalty for prepayment), to fulfill any other covenant herein
or any other obligation of Borrower to Standard Federal, or released
to Borrower.
In the event all of the conditions to the use of the insurance
proceeds to repair or restore the Project which are outlined above are not
satisfied, Standard Federal, at its option, may apply the insurance proceeds or
any part thereof, first, toward reimbursement of all costs and expenses of
Standard Federal in collecting such proceeds, and then, to the outstanding
principal balance under the Note (without any penalty for prepayment), to
fulfill any other covenant herein or any other obligation of Borrower to
Standard Federal, or to the restoration or repair of the Project.
Application by Standard Federal of any insurance proceeds to the
outstanding principal balance under the Note shall not excuse Borrower from
making the regularly scheduled payments due thereunder, nor shall such
application extend or reduce the amount of such payments. In the event of
foreclosure of this Mortgage or other transfer of title to the Project in
extinguishment of the indebtedness secured hereby, all right, title and
interest of Borrower in and to any insurance policies then in force shall pass
to the purchaser or grantee and Borrower hereby appoints Standard Federal its
attorney-in-fact, in Borrower's name, to assign and transfer all such policies
and proceeds to such purchaser or grantee.
5. Standard Federal's Right to Make Expenditures. Should an
Event of Default occur hereunder as a result of Borrower's failure to pay any
taxes or assessments or procure and maintain insurance or make necessary
repairs to the Project, Standard Federal may pay such taxes and assessments,
effect such insurance and make such repairs, and the monies so paid by it shall
be a further lien on the Project, payable forthwith, with interest at the
default rate set forth in the Note. Standard Federal may make advances
pursuant to this paragraph or to paragraph 7 without curing the Event of
Default and without waiving Standard Federal's right of foreclosure or any
other right or remedy of Standard Federal under this Mortgage. The exercise of
the right to make advances pursuant to this paragraph shall be optional with
Standard Federal and not obligatory and Standard Federal shall not be liable in
any case for failure to exercise such right or for failure to continue
exercising such right once having exercised it. Borrower's failure to pay
taxes and/or assessments assessed against the Project, or any installment
thereof, or any insurance premium upon policies covering the Project or any
part thereof, shall constitute waste (although the meaning of the term "waste"
shall not necessarily be limited to such nonpayment), and shall entitle
Standard Federal to all remedies provided for therein. Borrower further agrees
to and
-5-
<PAGE> 6
does hereby consent to the appointment of a receiver under such statute, should
Standard Federal elect to seek such relief thereunder.
6. Escrow for Taxes and Insurance. Standard Federal, after the
occurrence of an Event of Default, shall be entitled to require Borrower to pay
to Standard Federal monthly such amounts as Standard Federal from time to time
estimates as necessary to create and maintain a reserve fund from which to pay
before the same become due all taxes, assessments and other charges and
encumbrances levied on the Project and premiums for insurance as are herein
covenanted to be paid by Borrower and when such taxes, assessments and other
charges and encumbrances and insurance premiums become due and payable,
Standard Federal shall pay the same to the extent funds are available from the
reserve fund; provided, however, that Standard Federal shall have no liability
for any failure to so pay taxes, assessments and other charges and encumbrances
or insurance premiums for any reason whatsoever. In the event that sufficient
funds have not been deposited as aforesaid to cover the amount of such taxes,
assessments and other charges and encumbrances and insurance premiums when the
same become due and payable, Borrower shall forthwith upon request by Standard
Federal pay such balance to Standard Federal. Standard Federal shall not be
required to pay Borrower any interest or earnings whatever on the funds held by
Standard Federal for the payment of such taxes, assessments and other charges
and encumbrances or for the payment of insurance premiums, or on any other
funds deposited with Standard Federal in connection with this Mortgage. Upon
the occurrence of an Event of Default under this Mortgage, any of such monies
then remaining on deposit with Standard Federal may be applied against the
indebtedness hereby secured immediately upon or at any time after the
occurrence of an Event of Default, and without notice to Borrower. Further,
Standard Federal may make payments from any of such monies on deposit with
Standard Federal for taxes, assessments, other charges or encumbrances or
insurance premiums on or with respect to the Project notwithstanding that
subsequent owners of the Project may benefit thereby.
7. Waste and Inspection and Repair. Borrower will abstain from
and will not suffer the commission of waste on the Project and will keep the
buildings, improvements, fixtures, equipment and appliances now or hereafter
thereon in good repair and will make replacements thereto as and when the same
become necessary. Borrower will comply promptly with all laws, ordinances,
regulations and orders of all public authorities having jurisdiction over the
Project relating to the use, occupancy and maintenance thereof, and shall upon
request promptly submit to Standard Federal evidence of such compliance.
Nothing herein shall be deemed to prohibit Borrower from contesting the
enforceability or applicability of any law, ordinance, regulation or order;
provided, however, that Standard Federal, in its sole discretion, may require
-6-
<PAGE> 7
that Borrower comply with any such law, ordinance, regulation or order during
the pendency of any such contest and all appeals therefrom. In the event the
Project or any part thereof, in the sole reasonable judgment of Standard
Federal, requires inspection, repair, care or attention of any kind or nature
not theretofore provided by Borrower within 30 days after notice thereof from
Standard Federal to Borrower, or within such longer time as may be necessary if
the repair, care or attention is of a kind which cannot be completed in 30
days, provided that Borrower undertakes the repair, care or attention within 30
days after notice thereof from Standard Federal and thereafter diligently
pursues the completion of same within a reasonable time, Standard Federal may
(without being obligated to do so) enter or cause entry to be made upon the
Project and inspect, repair, and/or maintain the same as Standard Federal may
deem necessary or advisable, and may (without being obligated to do so) make
such expenditures and outlays of money as Standard Federal may deem appropriate
for the preservation of the Project. All expenditures and outlays of money
made by Standard Federal pursuant hereto shall be secured hereby, shall be
payable forthwith, and shall bear interest at the default rate provided in the
Note. Standard Federal shall have the right at any time, and from time to
time, to enter the Project for the purpose of inspecting the same. Borrower
will not permit the Project or any portion thereof to be used for any unlawful
purpose. No building or other improvement on any part of the Project shall be
removed, demolished or materially altered without the prior written consent of
Standard Federal, except that Borrower shall have the right, without such
consent, to remove and dispose of, free from the lien of this Mortgage, such
personalty and equipment as from time to time may become worn out or obsolete,
provided that (a) simultaneously with or prior to such removal, any such
equipment shall be replaced with other new equipment of like kind and quality,
free from any security interest, lien or encumbrances, and by such removal and
replacement, Borrower shall be deemed to have subjected the replacement
equipment to the lien of this Mortgage; and (b) any net cash proceeds received
from such disposition shall be promptly paid over to Standard Federal to be
applied to the outstanding principal balance under the Note, without any charge
for prepayment.
8. Events of Default. The occurrences listed below shall be
deemed Events of Default hereunder and shall entitle Standard Federal, at its
option and without notice except where required by law and as otherwise
provided herein, to exercise any one or any combination of remedies described
in paragraph 9 or otherwise available to Standard Federal:
(a) If any indebtedness of the Borrower to Standard Federal
is not paid within 10 days after the date due, regardless of whether
such indebtedness has arisen pursuant to the terms of the Note, or any
loan agreement, promissory note,
-7-
<PAGE> 8
mortgage, security agreement, guaranty, instrument or other agreement
or otherwise.
(b) If any warranty or representation made by or for the
Borrower and/or any endorser or guarantor of the Note ("Guarantor") in
connection with the loan(s) evidenced thereby, or if any financial
data or any other information now or hereafter furnished to Standard
Federal by or on behalf of the Borrower and/or any Guarantor shall
prove to be false, inaccurate or misleading in any material respect,
and such default is not cured within 15 days after written notice to
the Borrower of such default.
(c) If the Borrower and/or any Guarantor shall fail to
perform any obligation or covenant hereunder, or shall fail to comply
with any of the provisions of the Note or of any loan agreement or
other agreement with Standard Federal to which it may be a party, and
such failure is not cured within 15 days after written notice to the
Borrower of such failure.
(d) If any other Event of Default shall occur under the
Note.
(e) If foreclosure or other proceedings to enforce any
second mortgage or any junior security interest, lien or encumbrance
of any kind upon the Project or any portion thereof are instituted and
are not dismissed, or insured against or bonded over in a manner
reasonably acceptable to Standard Federal within ninety (90) days.
(f) If Borrower fails to substantially comply with all of
the material terms, covenants and provisions of any and all leases or
other agreements, documents or restrictions that now encumber, affect
or pertain to the Project or any portion thereof.
9. Remedies. Immediately upon the occurrence of an Event of
Default defined in paragraph 8, Standard Federal shall have the option, in
addition to and not in lieu of or substitution for, all other rights and
remedies provided by law, to do any or all of the following:
(a) Without notice except as expressly required by law,
to declare the principal sum secured by this Mortgage, with all
interest thereon and all other sums secured hereby, to be immediately
due and payable, and if the same is not paid on demand, at Standard
Federal's option, to bring suit therefor; to demand payment of and if
the same is not paid on demand, to bring suit for any delinquent
installment payment under the Note or otherwise; to take any and all
steps and institute any and all other proceedings that Standard
Federal deems
-8-
<PAGE> 9
necessary to enforce the indebtedness and obligations secured hereby
and to protect the lien of this Mortgage.
(b) Upon the occurrence of any Event of Default arising
out of the existence of any lien upon the Project, Standard Federal
shall have the right (without being obligated to do so or to continue
to do so), without notice to Borrower, to advance on and for the
account of Borrower such sums as Standard Federal in its sole
discretion deems necessary to cure such Event of Default or to induce
the holder of any such lien to forbear from exercising its rights
thereunder. The repayment of all such advances, with interest thereon
at the default rate set forth in the Note from the date of each such
advance, shall be secured hereby and shall be immediately due and
payable without demand.
(c) Judicial Proceedings: Right to Receiver. If an Event
of Default exists, Standard Federal, in lieu of or in addition to
exercising the power of sale hereinafter given, may proceed by suit to
foreclose its Lien on the Project, to sue the Borrower for damages on
account of said default, for specific performance of any provision
contained herein, or to enforce any other appropriate legal or
equitable right or remedy. Standard Federal shall be entitled, as a
matter of right (upon bill filed or other proper legal proceedings
being commenced for the foreclosure of this Mortgage, to the extent
required by law), to the appointment by any competent court or
tribunal, without notice to the Borrower or any other party, of a
receiver of the rents, issues, profits and revenues of the Project,
with power to lease and control the Project and with such other powers
as may be deemed necessary.
(d) Power of Sale. If an Event of Default exists, this
Mortgage shall be subject to foreclosure and may be foreclosed as now
provided by law in case of past-due mortgages, and Standard Federal
shall be authorized, at its option, whether or not possession of the
Project is taken, to sell the Project (or such part or parts thereof
as Standard Federal may from time to time elect to sell) under the
power of sale which is hereby given to Standard Federal, at public
outcry, to the highest bidder for cash, at the front or main door of
the courthouse of the county in which the premises to be sold, or a
substantial and material part thereof, is located, after first giving
notice by publication once a week for three successive weeks of the
time, place and terms of such sale, together with a description of the
Project to be sold, by publication in some newspaper published in the
county or counties in which the premises to be sold is located. If
there is premises to be sold in more than one county, publication
shall be made in all counties where the premises to be sold is
located, but if no newspaper is published in any such county, the
notice shall be published in a newspaper
-9-
<PAGE> 10
published in an adjoining county for three successive weeks. The sale
shall be held between the hours of 11:00 a.m. and 4:00 p.m. on the day
designated for the exercise of the power of sale hereunder. Standard
Federal may bid at any sale held under this Montage and may purchase
the Project, or any part thereof, if the highest bidder therefor. The
purchaser at any such sale shall be under no obligation to see to the
proper application of the purchase money. At any sale all or any part
of the Project, real, personal or mixed, may be offered for sale in
parcels or en masse for one total price, and the proceeds of any such
sale en masse shall be accounted for in one account without
distinction between the items included therein and without assigning
to them any proportion of such proceeds, the Borrower hereby waiving
the application of any doctrine of marshalling or like proceeding. In
case Standard Federal, in the exercise of the power of sale herein
given, elects to sell the Project in parts or parcels, sales thereof
may be held from time to time, and the power of sale granted herein
shall not be fully exercised until all of the Project not previously
sold shall have been sold or all the obligations secured by this
Mortgage shall have been paid in full and this Mortgage shall have
been terminated as provided herein.
(e) Personal Property and Fixtures. If an Event or
Default exists, Standard Federal shall have with respect to the
personal property at the Project all rights and remedies of a secured
party under the Alabama Uniform Commercial Code, including the right
to sell it at public or private sale or otherwise dispose of, lease or
use it, without regard to preservation of the personal property or its
value and without thenecessity of a court order. At Standard
Federal's request, theBorrower shall assemble the personal property
and make it available to Standard Federal at any place designated by
Standard Federal. To the extent permitted by law, the Borrower
expressly waives notice and any other formalities prescribed by law
with respect to any sale or other disposition of the personal property
or exercise of any other right or remedy upon default. The borrower
agrees that Standard Federal may sell or dispose of both the premises
and the personal property in accordance with the rights and remedies
granted under this Mortgage with respect to premises.
(f) Rents and Leases. If an Event of Default exists,
Standard Federal, at its option, shall have the right, power and
authority to terminate the license granted to the Borrower in this
Montage to collect the rents, profits, issues and revenues of the
Project, whether paid or accruing before or after the filing of any
petition by or against the Borrower under the federal Bankruptcy Code,
and, without taking possession, in Standard Federal's own name to
demand, collect, receive, sue for, attach and levy all of such rents,
profits,
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issues and revenues, to give proper receipts, releases and
acquittances therefor, and to apply the proceeds thereof as set forth
in sub-paragraph (h) hereof.
(g) Foreclosure Deeds. To the extent permitted by applicable
law, the Borrower hereby authorizes and empowers Standard Federal or
the auctioneer at any foreclosure sale had hereunder, for and in the
name of the Borrower, to execute and deliver to the purchaser or
purchasers of any of the Project sold at foreclosure good and
sufficient deeds of conveyance or bills of sale thereto.
(h) Order of Application of Proceeds. All payments received
by Standard Federal as proceeds of any of the Project, as well as any
and all amounts realized by Standard Federal in connection with the
enforcement of any right or remedy under this Montage, shall be
applied by Standard Federal as follows: a. to the payment of all
expenses incident to the exercise of any remedies under this Mortgage,
including attorneys' fees and disbursements as provided in the Note,
appraisal fees, environmental site assessment fees, title search fees
and foreclosure notice costs, b. to the payment in full of any of the
obligations that are then due and payable (including principal,
accrued interest and all other sums accrued hereby) in such order as
Standard Federal may elect in its sole discretion, c. to a cash
collateral reserve fund to be held by Standard Federal in an amount
equal to, and as security for, any of the obligations that are not
then due and payable, and d. the remainder, if any, shall be paid to
the Borrower or such other persons as may be entitled thereto by law,
after deducting therefrom the cost of ascertaining their identity.
(i) Multiple Sales. If an Event of Default exists, Standard
Federal shall have the option to proceed with foreclosure, either
through the courts or by power of sale as provided for in this
Mortgage, but without declaring the whole obligations secured hereby
due. Any such sale may be made subject to the unmatured part of such
obligations, and such sale, if so made, shall not affect the unmatured
part of the obligations, but as to such unmatured part of the
obligations this Mortgage shall remain in full force and effect as
though no sale had been made under this subparagraph. Several sales
may be made hereunder without exhausting the right of sale for any
remaining part of the obligations secured hereby, whether then matured
or unmatured, the purpose hereof being to provide for a foreclosure
and sale of the Project for any matured part of the obligations
without exhausting the power of foreclosure and the power to sell the
Project for any other part of the obligations, whether matured at the
time or subsequently maturing.
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<PAGE> 12
(j) Waiver of Certain Laws. The Borrower waives, to the
fullest extent permitted by law, the benefit of all laws now existing
or hereafter enacted providing for any appraisement before sale of any
portion of the Project (commonly known as appraisement laws), or any
extension of time for the enforcement of the collection of the
obligations or any creation or extension of a period of redemption
from any sale made in collecting the obligations (commonly known as
stay laws and redemption laws). The Borrower also waives any and all
rights the Borrower may have to a hearing before any governmental
authority prior to the exercise by Standard Federal of any of its
rights or remedies under the Note and applicable law.
(k) Prerequisites of Sales. In case of any sale of the
Project as authorized by this paragraph, all prerequisites to the sale
shall be presumed to have been performed, and in any conveyance given
hereunder all statements of facts, or other recitals therein made, as
to the nonpayment of any of the obligations or as to the advertisement
of sale, or the time, place and manner of sale, or as to any other
fact or thing, shall be taken in all courts of law or equity as
rebuttable presumptive evidence that the facts so stated or recited
are true.
(l) Foreclosure Reports. Procure mortgage foreclosure or
title reports. Borrower covenants to pay forthwith to Standard
Federal all sums paid for such purposes with interest at the default
rate provided for in the Note, and such sums and the interest thereon
shall constitute a further lien upon the Project.
(m) Appraisals, etc. Procure appraisals, environmental
audits and such other investigations or analyses of the Project as
Standard Federal may determine to be required by regulatory or
accounting rules, procedures or practices or to otherwise be prudent
or necessary. Borrower shall grant Standard Federal free and
unrestricted access to the Project for such purposes. Borrower
covenants to pay forthwith to Standard Federal all sums paid for such
purposes with interest at the default rate provided for in the Note,
and such sums and the interest thereon shall constitute a further lien
upon the Project.
(n) Possession. To enter into peaceful possession of the
Project and/or to receive the rent, income and profits therefrom, and
to apply the same in accordance with paragraph 17 hereof.
In the event of any sale of the Project by foreclosure, through suit
in equity, by publication or otherwise, the proceeds of any such sale shall be
applied in the following order of
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priority: (1) to all expenses incurred for the collection of Borrower's
indebtedness and the foreclosure of the Mortgage, including reasonable
attorneys' fees as are permitted by law; (2) to all sums expended or incurred
by Standard Federal directly or indirectly in carrying out the covenants and
agreements of Borrower under this Mortgage, together with interest thereon;
(3) to all interest accrued under the Note; (4) to the principal balance of
the Note and the principal balance of any other indebtedness due from Borrower
to Standard Federal; and (5) the surplus, if any, shall be paid to Borrower,
unless a court of competent jurisdiction decrees otherwise.
10. Costs of Legal Proceedings. The Borrower shall pay Standard
Federal a reasonable attorney's fee in addition to all other legal costs in
case Standard Federal shall become a party, either as plaintiff or defendant,
to any legal proceedings in relation to the Project or the lien created hereby,
which sums shall be secured hereby and shall be payable forthwith at the
default rate set forth in the Note.
11. Eminent Domain. In the event the entire Project is taken
under the power of eminent domain, the entire award or payment in lieu of
condemnation, to the full extent of the amount secured hereby, shall be paid to
Standard Federal. Standard Federal shall apply such award or payment, first,
toward reimbursement of all of Standard Federal's costs and expenses incurred
in connection with collecting such award or payment, and then, at Standard
Federal's option, to the outstanding principal balance under the Note (without
any penalty for prepayment), to fulfill any other covenant herein or to any
other obligation of Borrower to Standard Federal.
In the event of a partial taking of the Project under the power of
eminent domain, the entire award or payment in lieu of condemnation, to the
full extent of the amount secured hereby, shall be paid over to Standard
Federal. Provided there has occurred no Event of Default hereunder, nor any
event which with notice or the passage of time or both would become an Event of
Default hereunder, and Standard Federal shall reasonably determine that
sufficient funds are available from the award or payment and any funds to be
provided by Borrower to repair or restore the remaining portion of the Project
within a reasonable time and that such repair or restoration is economically
feasible, Standard Federal agrees, upon request by the Borrower, to apply the
award or payment to repair or restore the remaining portion of the Project,
after reimbursement of all costs and expenses of Standard Federal in collecting
the award or payment, subject to the following terms and conditions:
(a) Standard Federal shall retain the award or payment in
an escrow account bearing interest at pass book rates to be disbursed
to pay the costs of repair or restoration in
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<PAGE> 14
accordance with procedures reasonably established by Standard Federal.
(b) All plans and specifications for repair or
restoration shall be approved by Standard Federal prior to the
commencement of any repair or restoration, which approval shall not be
unreasonably withheld or delayed.
(c) All repair or restoration shall be done by or under
the direction of Borrower, shall be in accordance with the approved
plans and specifications, shall be in a workmanlike manner free from
all defects, shall be in compliance with all statutes, ordinances,
rules and regulations applicable thereto and shall be completed free
of all construction liens except those being contested in good faith
by appropriate proceedings and with respect to which Borrower shall
have provided Standard Federal satisfactory security.
(d) Standard Federal shall have the right, at Borrower's
expense, to inspect all repairs and restoration and, if Standard
Federal reasonably determines that any work or materials are not in
conformity with the approved plans and specifications or other
requirements of sub-paragraph (c) above, to stop the work and order
replacement or correction thereof by Borrower.
(e) Standard Federal shall not be obligated to make
disbursements more frequently than monthly and the remaining
undisbursed proceeds shall always be sufficient to meet the total
estimated remaining costs to complete the repair or restoration plus
10% of such costs.
(f) All proceeds of the award or payment in excess of the
amounts necessary to repair or restore the Project may be applied, at
Standard Federal's option, to the outstanding principal balance under
the Note (without penalty for prepayment), to fulfill any other
covenant herein or any other obligation of Borrower to Standard
Federal, or released to Borrower.
In the event all of the conditions to the use of the award or payment
to repair or restore the Project which are outlined above are not satisfied,
Standard Federal, at its option, may apply the award or payment or any part
thereof, first, toward reimbursement of all costs and expenses of Standard
Federal in collecting such award or payment, and then, to the outstanding
principal balance under the Note (without any penalty for prepayment), to
fulfill any other covenant herein or any other obligation of Borrower to
Standard Federal, or to the restoration or repair of the Project.
Application by Standard Federal of any condemnation award or payment
or portion thereof to the outstanding principal balance
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<PAGE> 15
under the Note shall not excuse Borrower from making the regularly scheduled
payments due thereunder, nor shall such application extend or reduce the amount
of such payments. Standard Federal is hereby empowered in the name of Borrower
to receive, and give acquittance for, any such award or payment, whether it is
joint or several; provided, however, that Standard Federal shall not be held
responsible for failure to collect any such award or payment, regardless of the
cause of such failure.
12. Books and Records. The Borrower covenants and agrees to
furnish to Standard Federal promptly certificates of occupancy and such other
books, records, documents, information and statements pertaining to the
Borrower, the Project and its operations and any guarantor(s) as Standard
Federal may request. All books, records and other information provided by
Borrower hereunder shall be in a form that is acceptable to Standard Federal
and all costs of providing the same shall be borne entirely by Borrower.
13. Secondary Financing. Borrower will not, without the prior
written consent of Standard Federal, mortgage or pledge the Project or any part
thereof as security for any other loan or obligation of Borrower. If any such
mortgage or pledge is entered into without the prior written consent of
Standard Federal, the entire indebtedness secured hereby, may, at the option of
Standard Federal, be declared immediately due and payable without notice.
Further, Borrower also shall pay any and all other obligations, liabilities or
debts which may become liens, security interests, or encumbrances upon or
charges against the Project for any repairs or improvements that are now or may
hereafter be made thereon, and shall not, without Standard Federal's prior
written consent, permit any lien, security interest, encumbrance or charge of
any kind to accrue and remain outstanding against the Project or any part
thereof, or any improvements thereon, irrespective of whether such lien,
security interest, encumbrance or charge is junior to the lien of this
Mortgage. Notwithstanding the foregoing, if any personal property by way of
additions, replacements or substitutions is hereafter purchased and installed,
affixed or placed by Borrower on the Project under a security agreement, the
lien or title of which is superior to the lien created by this Mortgage, all
the right, title and interest of Borrower in and to any and all such personal
property, together with the benefit of any deposits or payments made thereon by
Borrower, shall nevertheless be and are hereby assigned to Standard Federal and
are covered by the lien of this Mortgage.
14. Payment Upon Acceleration Subject to Any Prepayment Penalty.
Upon the occurrence of an Event of Default by Borrower hereunder and following
the acceleration of maturity as provided in paragraph 9 hereof, a tender of
payment of the amount necessary to satisfy the entire indebtedness secured
hereby, made at any time prior to the foreclosure sale by Borrower, or by
anyone in behalf of the Borrower, shall constitute an evasion of the payment
terms
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<PAGE> 16
of the Note and shall be deemed to be a voluntary prepayment thereunder, and
any such payment, to the extent permitted by law, will therefore include the
premium required under the prepayment privilege, if any, contained in the Note.
15. Security Agreement and Financing Statements. Borrower shall
execute, acknowledge and deliver any and all such further conveyances,
documents, mortgages and assurances as Standard Federal may reasonably require
for accomplishing the purposes hereof, including financing statements required
by Standard Federal to protect its interest under the provisions of the Uniform
Commercial Code, as amended, forthwith upon the written request of Standard
Federal. Upon any failure of Borrower to do so, Standard Federal may execute,
record, file, re- record and refile any and all such documents for and in the
name of Borrower, and Borrower hereby irrevocably appoints Standard Federal as
agent and attorney-in-fact of Borrower for the foregoing purposes. This
instrument is intended by the parties to be, and shall be construed as, a
security agreement, as that term is defined and used in Article Nine of the
Uniform Commercial Code, as amended, and shall grant to Standard Federal a
security interest in that portion of the Project with respect to which a
security interest can be granted under Article Nine of the Uniform Commercial
Code, as amended, which security interest shall include a security interest in
all personalty owned by Borrower, whether now owned or subsequently acquired,
which is or in the future may be physically located on or affixed to the
Project described in Exhibit "A" hereto, regardless of whether such personalty
consists of fixtures under applicable law, a security interest in the proceeds
and products of the proceeds of all insurance policies now or hereafter
covering all or any part of such collateral. For purposes of Article Nine of
the Uniform Commercial Code, (a) Borrower herein is the "debtor", (b) Standard
Federal herein is the "secured party", (c) information concerning the security
interest created hereby may be obtained from Standard Federal at its address
set forth on page 1 hereof, and (d) Borrower's mailing address is that set
forth on page 1 hereof.
This Mortgage shall also be effective as a financing statement filed
as a fixture filing for purposes of Article 9 of the Uniform Commercial Code.
The fixture filing covers all goods that are or are to become affixed to the
premises. The goods are described by item or type on pages 1 and 2 of this
Mortgage. This Mortgage is signed by the debtor (Borrower) also as a fixture
filing. The real estate to which the goods are or to be affixed is described
in Exhibit A. The Borrower is a record owner of the real estate.
16. Assignment of Contracts and Agreements. Borrower hereby
assigns to Standard Federal, as further security for the indebtedness secured
hereby, Borrower's interest in all agreements, contracts (including contracts
for the lease or sale of the Project or any portion thereof), licenses and
permits affecting the
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<PAGE> 17
Project. Such assignment shall not be construed as a consent by Standard
Federal to any agreement, contract, license, or permit so assigned, or to
impose upon Standard Federal any obligations with respect thereto. Borrower
shall not cancel or amend any of the agreements, contracts, licenses and
permits hereby assigned (nor permit any of the same to terminate if they are
necessary or desirable for the operation of the Project), except in the
ordinary course of business, without first obtaining, on each occasion, the
written approval of Standard Federal. This paragraph shall not be applicable
to any agreement, contract, license or permit that terminates if it is assigned
without the consent of any party thereto (other than Borrower) or issuer
thereof, unless such consent has been obtained or this assignment is ratified
by such party or issuer; nor shall this paragraph be construed as a present
assignment of any agreement, contract, license or permit that Borrower is
required by law to hold in order to operate the Project for the purposes
intended.
17. Absolute Assignment of Leases and Rents. In further
consideration of Standard Federal making the loans evidenced by the Note and as
additional security for the payment of the indebtedness evidenced by the Note,
including interest thereon, and the performance of all of Borrower's
obligations hereunder or secured hereby, and under any other document executed
simultaneously or in connection herewith, Borrower does hereby grant, bargain,
sell, assign, transfer and set over unto Standard Federal all the rents,
profits and income under all leases or occupancy agreements or arrangements,
however evidenced or denominated, upon or affecting the Project (including any
extensions, amendments or renewals thereof), whether such rents, profits and
income are due or are to become due, including all such leases in existence or
coming into existence during the period this Mortgage is in effect. This
assignment shall run with the land until this Mortgage is discharged in full
and be good and valid as against Borrower and those claiming by, under or
through Borrower, from the date of recording of this Mortgage. This assignment
shall continue to be operative during the foreclosure or any other proceedings
taken to enforce this Mortgage. In the event of a foreclosure sale which
results in a deficiency, this assignment shall stand as security during the
redemption period for the payment of such deficiency. This assignment is an
absolute assignment of the rents, profits and income, as described beforesaid,
but shall not be construed as obligating Standard Federal to perform any of the
covenants or undertakings required to be performed by Borrower in any leases.
Borrower covenants and agrees not to cancel, accept a surrender of,
modify or alter (orally or in writing), reduce the rental under or consent to
the assignment or subletting of the lessee's interest in, any lease affecting
the Project, except in the ordinary course of business and on commercially
reasonable terms, or to make any other assignment, pledge or other disposition
of such leases, or any of them, or of the rents, issues and profits
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<PAGE> 18
derived from the use of the mortgaged premises. Any of the above acts, if done
without the written consent of Standard Federal, shall be null and void.
Borrower warrants and represents that all leases or copies of leases
which have been delivered to Standard Federal are in full force and effect and
there are no defaults existing thereunder, and that Borrower has not: (a)
executed any prior assignments presently subsisting of any leases or rentals
pertaining to the Project, (b) performed any acts or executed any other
instruments which might prevent or limit Standard Federal's operating under any
of the terms and conditions of this Mortgage, (c) executed or granted any
modification whatever of any lease pertaining to the Project which has not been
disclosed to Standard Federal, or (d) subordinated any lease to the lien of
this Mortgage, except on terms acceptable to Standard Federal.
Until the occurrence of an Event of Default hereunder, Borrower may
receive, collect and enjoy the rents and income from the Project. Upon the
occurrence of an Event of Default under this Mortgage, Standard Federal shall
be entitled to, at its option, to enter upon the Project, or any part thereof,
by its officers, agents, or employees, and: (a) collect the rents and income
from the Project as long as an Event of Default exists and during the pendency
of any foreclosure proceedings and, if there is a deficiency, during any
redemption period, (b) rent or lease the Project or any portion thereof upon
such terms and for such time as it may deem best, (c) operate or maintain the
Project, (d) maintain proceedings to recover rents or possession of the Project
from any tenant or trespasser, and apply the net proceeds of such rent and
income, after payment of all proper charges and expenses, to the following
purposes: (1) payment of all of the costs and expenses incurred by Standard
Federal in exercising its rights under this paragraph; (2) payment of interest
and principal due under the Note; (3) payment of all other sums secured hereby;
(4) payment of expenses of preserving the Project, including taxes and
insurance premiums. Notwithstanding the foregoing, Standard Federal, in its
sole discretion, may change the priorities set forth above for the application
of the net proceeds of such rent and income. The Borrower hereby authorizes
Standard Federal in general to perform all acts necessary for the operation and
maintenance of the Project in the same manner and to the same extent that the
Borrower might reasonably so act. Standard Federal shall only be accountable
for money actually received by it pursuant to the assignment contained in this
paragraph. Such entry and taking possession of the Project, or any part
thereof, by Standard Federal, may be made by actual entry and possession, or by
written notice served personally upon or sent by certified mail to the last
address of the Borrower appearing on the records of Standard Federal, as
Standard Federal may elect, and no further authorization or notice shall be
required. BORROWER HEREBY WAIVES ANY RIGHT TO NOTICE, OTHER THAN THE NOTICE
PROVIDED ABOVE AND WAIVES ANY RIGHT TO ANY HEARING
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<PAGE> 19
JUDICIAL OR OTHERWISE PRIOR TO STANDARD FEDERAL EXERCISING ITS RIGHTS UNDER THE
ASSIGNMENT CONTAINED IN THIS PARAGRAPH.
Standard Federal and its duly authorized agents shall be entitled to
enter the Project for the purpose of delivering any and all such notices and
other communications to the tenants and occupiers thereof or to take such other
steps as shall be necessary or desirable in Standard Federal's discretion to
exercise its rights hereunder, and Standard Federal and its agents shall have
absolutely no liability to Borrower arising therefrom, except for gross
negligence or willful misconduct. Standard Federal shall not, however, be
obligated to give any tenant or occupier of the Project any notice by personal
delivery and Standard Federal may, in its sole discretion, deliver all such
notices and communications by ordinary first-class U.S. mail, postage prepaid,
or otherwise.
The Borrower irrevocably consents that any lessee or lessees under any
leases covering the Project, upon demand and notice from Standard Federal of
Borrower's default under the Note or this Mortgage, shall pay all rents, issues
and profits under such leases to Standard Federal without any obligation upon
any such lessee or lessees for the determination of the actual existence of any
default.
In the event that Borrower obstructs Standard Federal in its efforts
to collect the rents and income from the Project, or after requested by
Standard Federal, unreasonably refuses, fails or neglects to assist Standard
Federal in collecting such rent and income, Standard Federal shall be entitled
to the appointment of a receiver of the Project and of the income, rents and
profits therefrom, with such powers as the court making such appointment may
confer.
The Borrower covenants and agrees to perform and discharge each and
every obligation, covenant, and agreement required to be performed by the
landlord under all leases covering the Project, and should the Borrower fail so
to do, then Standard Federal, but without obligation to do so, and without
releasing the Borrower from any obligation hereof, may make or do the same in
such manner and to such extent as Standard Federal may deem necessary to
protect the security hereof. Nothing herein contained shall be construed to
bind Standard Federal to perform any of the terms and provisions contained in
the leases, or otherwise to impose any obligation upon Standard Federal. Any
default by the Borrower in the performance of any of the obligations contained
in this paragraph, which is not cured within 30 days after notice thereof from
Standard Federal to Borrower, or, if the default is of a kind which cannot be
cured within 30 days, if Borrower fails to undertake the cure of such default
within 30 days after notice thereof from Standard Federal to Borrower and
thereafter diligently pursue such cure and complete it within a reasonable
time, shall constitute and be deemed to be a default under the terms of this
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<PAGE> 20
Mortgage entitling Standard Federal to exercise the rights and remedies
provided by this Mortgage.
Standard Federal shall at no time have any obligation whatever to
attempt to collect rent from any tenant or occupier of the Project
notwithstanding that such tenants and occupiers may not be paying rent to
either Borrower or to Standard Federal. Further, Standard Federal shall at no
time have any obligation whatever to enforce any other obligations owed by
tenants or occupiers of the Project to Borrower. No action taken by Standard
Federal under this Mortgage shall put Standard Federal in the position of a
"mortgagee in possession."
Borrower shall at no time collect advance rent under any lease upon,
affecting or pertaining to the Project or any part thereof in excess of one
month (other than as a security deposit) and Standard Federal shall not be
bound in any respect by any rent prepayment made or received in violation of
the terms hereof.
Standard Federal shall have the right to assign the Borrower's right,
title and interest in all leases covering the Project to any subsequent holder
of this Mortgage or the Note, and to assign the same to any person acquiring
title to the Project through foreclosure or otherwise.
18. Environmental Representations and Indemnity. The Borrower
represents and warrants to Standard Federal:
(a) Neither the Borrower nor, to the best of Borrower's knowledge
after due inquiry, any prior owner of the Project or any other person has
caused or permitted any waste, oil, pesticides, or any substance or material of
any kind which is currently known or suspected to be toxic or hazardous,
including but not limited to any substance defined as a "Hazardous Waste" in
Title 40, Part 261 of the Code of Federal Regulations, (hereinafter referred to
as "Hazardous Material") to be discharged, dispersed, released, stored,
treated, generated, disposed of, or allowed to escape on, under or at the
Project, nor has the Project, or any part thereof ever been used by the
Borrower or, to the best of Borrower's knowledge after due inquiry, any prior
owner of the Project or any other person, as a dump, storage or disposal site
for any Hazardous Material.
(b) To the best of Borrower's knowledge, no asbestos or
asbestos-containing materials have been installed, used, incorporated into, or
disposed of on the Project.
(c) To the best of Borrower's knowledge, no polychlorinated
biphenyls ("PCBs") are located on or in the Project, in the form of electrical
transformers, fluorescent light fixtures with ballasts, cooling oils, or any
other device or form.
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<PAGE> 21
(d) To the best of Borrower's knowledge, no underground storage
tanks are located on the Project or were located on the Project and
subsequently removed or filled.
(e) The Borrower (1) has not received any notice of any release or
threatened release of any Hazardous Materials in, under or upon the Project or
of any violation of any environmental or ecological protection laws or
regulations with respect to the Project, and (2) does not know of any basis for
any such notice or violation with respect to the Project.
Borrower hereby indemnifies Standard Federal and agrees to hold
Standard Federal harmless from and against any and all losses, liabilities,
damages, injuries, costs, expenses and claims of any and every kind whatsoever
paid, incurred or suffered by, or asserted against, Standard Federal for, with
respect to, or as a direct or indirect result of (a) the presence on or under,
or the escape, seepage, leakage, spillage, discharge, emission or release from,
the Project of any Hazardous Material, including, without limitation, any
losses, liabilities, damages, injuries, costs, expenses or claims, asserted or
arising under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or any other
federal, state or local statute, law, ordinance, code, rule, regulation, order
or decree regulating, relating to or imposing liability or standards of conduct
concerning, any Hazardous Material, the costs of any required or necessary
clean-up or detoxification of the Project, the costs of the preparation of any
clean-up or closure plans and reasonable attorney's fees and costs, or (b) the
presence of any asbestos on the Project (including, without limitation, the
cost of removal) regardless of whether or not caused by, or within the control
of, Borrower.
19. Due on Sale. Standard Federal in making the loan secured by
this Mortgage is relying upon the integrity of Borrower and its undertaking to
maintain the Project. If Borrower should (a) sell, transfer, convey or assign
the Project, or any right, title or interest therein, whether legal or
equitable, whether voluntarily or involuntarily, by outright sale, deed,
installment sale contract, land contract, contract for deed, leasehold interest
(other than leases to tenants) with a term greater than three years, lease
option contract or any other method of conveyance of real property interests;
or (b) cause, permit or suffer any change in the current ownership or
management of the Borrower; or (c) cause, permit or suffer any change in the
current management and control of the Project or in the degree of control
Borrower exercises or is empowered to exercise over the decisions affecting the
ownership and operation of the Project as of the date hereof, then, and in any
such event, Standard Federal shall have the right at its sole option thereafter
to declare all sums secured hereby and then unpaid to be due and payable
forthwith although the period limited for the payment thereof shall not then
have expired,
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<PAGE> 22
anything contained to the contrary hereinbefore notwithstanding, and thereupon
to exercise all of its rights and remedies under this Mortgage. If the
ownership of the Project, or any part thereof, becomes vested in a person other
than the Borrower (with or without Standard Federal's consent), Standard
Federal may deal with such successor or successors in interest with reference
to this Mortgage, and the indebtedness hereby secured, in the same manner as
with the Borrower, without in any manner vitiating, releasing or discharging
the Borrower's liability hereunder or upon the indebtedness hereby secured. No
sale of the Project and no forbearance or extensions by Standard Federal of the
time for payment of the indebtedness hereby secured or the performance of the
covenants and agreements herein provided shall in any way operate to release,
discharge, modify, change or affect the lien of this Mortgage or the liability
of Borrower on the Note or for the performance hereof, either in whole or in
part, and the Borrower shall at all times continue primarily liable on the
indebtedness secured hereby until this Mortgage is fully discharged or Borrower
is formally released by an instrument in writing duly executed by Standard
Federal.
20. Binding Effect. Until this Mortgage is discharged in full,
all of the covenants and conditions hereof shall run with the land and shall be
binding upon the successors and assigns of Borrower, and shall inure to the
benefit of the successors and assigns of Standard Federal. Any reference
herein to "Borrower" or "Standard Federal" shall include their respective
successors and assigns.
21. Notices. All notices, demands and requests required or
permitted to be given to Borrower hereunder or by law shall be deemed delivered
when deposited in the United States mail, with full postage prepaid thereon,
addressed to Borrower at the last address of Borrower on the records of
Standard Federal.
22. No Waiver. No waiver by Standard Federal of any right or
remedy granted hereunder shall affect or extend to any other right or remedy of
Standard Federal hereunder, nor affect the subsequent exercise of the same
right or remedy by Standard Federal for any further or subsequent Event of
Default by Borrower hereunder, and all such rights and remedies of Standard
Federal hereunder are cumulative. Time is of the essence.
23. Severability. If any provision(s) hereof are in conflict with
any statute or rule of law or are otherwise unenforceable for any reason
whatever, then such provision(s) shall be deemed null and void to the extent of
such conflict or unenforceability, but shall be deemed separable from and shall
not invalidate any other provisions of this Mortgage.
24. Pronouns. If more than one person joins in the execution
hereof, or is of the feminine sex, or a corporation, the pronoun
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<PAGE> 23
and relative words herein used shall be read as if in plural, feminine or
neuter, respectively.
25. Defeasance. This Mortgage is made upon the condition that if (a)
all of the indebtedness of the Borrower secured hereunder, including all future
advances and other future indebtedness, obligations and liabilities included
therein are paid in full, and (b) the Borrower reimburses Standard Federal for
any amounts Standard Federal has paid in respect of liens, impositions, prior
mortgages, insurance premiums, repairing or maintaining the Project, performing
the Borrower's obligations under any lease related to the Project, performing
the Borrower's obligations under environmental matters, and any other
advancements hereunder, and interest thereon, and (c) the Borrower fulfills all
of the Borrower's other obligations under this Mortgage, and (d) Standard
Federal has no obligations to extend any further credit to or for the account
of the Borrower that is secured by this Mortgage, and (e) any other conditions
set forth in paragraph 26 hereof are fulfilled, this conveyance shall be null
and void upon the filing by Standard Federal of the written instrument of
termination described in Paragraph 26 hereof.
26. Termination. This Mortgage and Standard Federal's liens under
this Mortgage in the Project will not be terminated until a written mortgage
satisfaction instrument executed by one of Standard Federal's officers is filed
for record in the county in which the premises is located. Except as otherwise
expressly provided in this Mortgage, no satisfaction of this Montage shall in
any way affect or impair the representations, warranties, agreements or other
obligations of the Borrower or the powers, rights and remedies of Standard
Federal under this Mortgage with respect to any transaction or event occurring
prior to such satisfaction, all of which shall survive such satisfaction. Even
if any of the obligations owing to Standard Federal at any one time should be
paid in full this Mortgage will continue to secure any obligations that might
later be owed to Standard Federal until such mortgage satisfaction instrument
has been executed and recorded. In no event shall Standard Federal be
obligated to satisfy its liens under this Mortgage or return or release any of
the Project to the Borrower (a) until the payment in full or all obligations
then outstanding, (b) if Standard Federal is obligated to extend credit to the
Borrower, (c) if any contingent obligation of the Borrower to Standard Federal
remains outstanding or (d) until the expiration of any period for avoiding or
setting aside any payment to Standard Federal remains outstanding or (d) until
the expiration of any period for avoiding or setting aside any payment to
Standard Federal under bankruptcy or insolvency laws.
27. Assignments. Standard Federal shall have the right to assign
(in whole or in part), transfer or sell participation in its rights under this
Mortgage without limitation. Any assignee or
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<PAGE> 24
transferee shall be entitled to all the benefits afforded Standard Federal
under this Mortgage.
IN WITNESS WHEREOF, this Mortgage was executed and delivered by the
undersigned on the day and year first above written.
WITNESSES: BORROWER:
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
By:
- ------------------------- --------------------------------
Carl L. Jaworski
Its: Secretary/Treasurer
- ------------------------- --------------------------
STATE OF MICHIGAN )
) ss
COUNTY OF OAKLAND )
I, the undersigned authority, a Notary Public in and for said County
in said State, hereby certify that Carl L. Jaworski, whose name as
Secretary/Treasurer of McClain of Alabama, Inc., a Michigan corporation, is
signed to the foregoing instrument, and who is known to me, acknowledged before
me on this day that, being informed of the contents of said instruments,
he/she, as such officer and with full authority, executed the same voluntarily
for and as the act of said corporation.
Given under my hand and official seal this 29th day of August, 1996
-----------------------------------
Notary Public,
---------------------
County, Michigan
My commission expires:
--------------
THIS INSTRUMENT PREPARED BY AND WHEN RECORDED RETURN TO:
Daniel C. Watson, Esq.
Standard Federal Bank, a federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
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<PAGE> 25
"EXHIBIT A"
LEGAL DESCRIPTION
A partel of land lying and being in Section 11. Township 17 North, Range 1
East. Range 1 East, Marengo County, Alabama, containing 88.1 acres more or
less, and being more particularly described as follows:
Commence at the southwest corner of the Northeast Quarter of the Southwest
Quarter of said Section 11; thence run north Q1'50' west along the west
boundary of said Northeast Quarter of Southwest Quarter a distance of 82.6 feet
to a concrete monument set to mark the point of beginning; thence run north
40'29' east parallel to and 350 feet perpendicular from the centerline of the
existing runway No.4 of the Demopolis Airport a distance of 3,245.9 feet to a
concrete monument set 600 feet perpendicular from the centerline of existing
runway No.13 of the said Demopolis Airport; thence run north 51'55' west and
parallel to said runway No. 13 a distance of 1,568.8 feet to a concrete
monument set on the southeast boundary of a cemetery; thence run south 38'05'
west a distance of 20.0 feet to a concrete monument set at the southern most
corner of said cemetery; thence run north 51'55' west along the southwest
boundary of said cemetery a distance of 43.2 feet to a concrete monument set
near the left bank of the Tombigbee River; thence southwestwardly along the
southeast edge of said Tombinee River to the point of intersection of said
river and the west boundary of the Southeast Quarter of the Northwest Quarter
of Section 11, said course follows generally among amender line described as;
from last named concrete monument run south 47'04' est a distance of 515.2 feet;
thence run south 50'42' west a distance of 370.0 feet to a concrete monument
found on the said west boundary of the Southeast Quarter of the Northwest
Quarter near the left bank of said river; thence run south 01'50' east and
along the west boundary of said Southeast Quarter of Northwest Quarter and
Northeast Quarter of Southwest Quarter a distance of 2,590.2 feet to the point
of beginning.
LESS AND EXCEPT THE FOLLOWING DESCRIBED TRACT HERETOFORE CONVEYED TO ALABAMA
POWER COMPANY AND MORE PARTICULARLY DESCRIBED AS FOLLOWS:
<PAGE> 1
EXHIBIT 10.57
SECURITY AGREEMENT
THIS AGREEMENT made and delivered this 29th day of August, 1996, by
and between McClain of Alabama, Inc., a Michigan corporation, whose
address/principal office is 6200 Elmridge, Sterling Heights, Michigan 48310
(collectively, "Borrower") and Standard Federal Bank, a federal savings bank
("Standard Federal").
WITNESSETH:
WHEREAS, the Borrower may from time to time request loans, advances or
other financial accommodations from Standard Federal and Standard Federal may,
in its discretion, honor such requests in whole or part;
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, the Borrower and Standard Federal hereby agree as follows:
SECTION L. GRANT OF SECURITY INTEREST.
1.1 Borrower hereby grants to Standard Federal a continuing
security interest in the property and interests in property described in
Section 2.1 below (hereinafter referred to as the "Collateral") to secure the
payment of all loans and advances including any renewals or extensions thereof
from Standard Federal to Borrower and all obligations of any and every kind and
nature heretofore, now or hereafter owing from Borrower to Standard Federal,
however incurred or evidenced, whether primary, secondary, contingent or
otherwise, whether arising under this Agreement, under any other security
agreement(s), promissory note(s), guarantee(s), mortgage(s), lease(s),
instrument(s), document(s), contract(s), letter(s) of credit or similar
agreement(s) heretofore, now or hereafter executed by Borrower and delivered to
Standard Federal, or by oral agreement or by operation of law plus all
interest, costs, expenses and reasonable attorney fees which may be made or
incurred by Standard Federal in the disbursement, administration or collection
of such obligations and in the protection, maintenance and liquidation of the
Collateral (hereinafter collectively called "Liabilities").
1.2 All statements of account rendered by Standard Federal to
Borrower relating to Borrower's Liabilities, including all statements of
principal, interest, expenses and costs owing by Borrower to Standard Federal,
shall be presumed correct and accurate and shall constitute an account stated
between Borrower and Standard Federal unless within thirty (30) days after
mailing thereof to Borrower, Borrower shall deliver to Standard Federal by
registered or certified mail addressed to Standard Federal at its principal
place of business, written objection thereto specifying the error or errors, if
any, contained in any such statement.
<PAGE> 2
1.3 This Agreement shall be and become effective when, and
continue in effect as long as, any Liabilities of Borrower to Standard Federal
are outstanding and unpaid. Borrower will not sell, assign, transfer, pledge,
alienate or otherwise dispose of or encumber any Collateral to any third party
while this Agreement is in effect without the written consent of Standard
Federal.
SECTION 2. COLLATERAL.
2.l The Collateral covered by this Agreement is all the Borrower's
property described below, which it now owns or shall hereafter acquire or
create immediately upon the acquisition or creation thereof, and includes, but
is not limited to, any items listed on any schedule or list attached hereto:
Accounts, etc. All Accounts, Chattel Paper, Documents, Instruments,
General Intangibles, including any right to any refund of taxes paid
before or after the date of this Agreement to any governmental entity.
Equipment. All Equipment including without limitation all machinery,
furnishings, furniture and vehicles, together with all accessions,
parts, attachments, accessories, tools, dies or appurtenances thereto
or intended for use in connection therewith and all substitutions,
betterments and replacements thereof and additions thereto.
Inventory, etc. All Inventory and Goods (other than Equipment),
including without limitation raw materials, work in process, finished
goods, tangible property, stock in trade, wares and merchandise held
for sale or lease or furnished or to be furnished under contracts of
service or used or consumed in a business, including goods whose sale,
lease or other disposition has given rise to any Accounts and any
Goods which may have been returned to or repossessed or stopped in
transit by the Borrower.
Proceeds. Proceeds (whether Cash Proceeds or Noncash Proceeds) of the
Collateral, including without limitation proceeds of insurance payable
by reason of loss or damage to the Collateral and of eminent domain or
condemnation awards and all products of and accessions to the
Collateral and all Deposit Accounts or other sums at any time credited
by or due from Standard Federal to Borrower and all policies and
certificates of insurance, Accounts, Chattel Paper, Documents,
Instruments, General Intangibles, Goods, Deposit Accounts, Money,
Checks, Cash Proceeds and Noncash Proceeds (whether or not the same
are Collateral or Proceeds thereof hereunder) in which Borrower has an
interest which are now or are at any time hereafter in the possession
or under the control of Standard Federal or in transit by mail or
carrier to or from Standard Federal or in possession of or under the
control of
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<PAGE> 3
any third party acting on Standard Federal's behalf without regard to
whether Standard Federal received the same in pledge, for safekeeping,
as agent for collection or transmission or otherwise or whether
Standard Federal has conditionally released the same (excluding,
nevertheless, any of the foregoing assets of the Borrower which are
now or any time hereafter in possession or control of Standard Federal
under any written trust agreement wherein Standard Federal is trustee
and Borrower is trustor).
2.2 The Collateral is kept and maintained at the Borrower's address above
and at the following addresses:
__________________________________________________________
__________________________________________________________
__________________________________________________________
2.3 All records pertaining to Accounts are kept and maintained at
the Borrower's address above and at the following addresses:
__________________________________________________________
__________________________________________________________
__________________________________________________________
2.4 Borrower will give to Standard Federal prompt written notice
of any new address at which the Collateral is kept or maintained upon any
change in location of the Collateral or records pertaining to Accounts.
SECTION 3. PERFECTION OF SECURITY INTEREST.
3.1 Borrower shall execute and deliver to Standard Federal
concurrently with Borrower's execution of this Agreement and at any time or
times hereafter at the request of Standard Federal and pay the cost of filing
or recording same in all public offices deemed necessary by Standard Federal,
all financing statements, continuation financing statements, assignments,
certificates of title, applications for vehicle titles, affidavits, reports,
notices, schedules of Accounts, designations of Inventory, letters of authority
and all other documents that Standard Federal may reasonably request in form
satisfactory to Standard Federal to perfect and maintain Standard Federal's
security interests in the Collateral. In order to fully consummate all of the
transactions contemplated hereunder, Borrower shall make appropriate entries on
its books and records disclosing Standard Federal's security interests in the
Collateral.
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<PAGE> 4
SECTION 4. WARRANTIES.
4.1 Borrower warrants and agrees that while any of the Liabilities
remain unperformed and unpaid:
4.1(a) Borrower is the owner of the Collateral free and clear of all liens or
security interests, except Standard Federal's security interest, and all
Chattel Paper constituting Collateral evidences a perfected security interest
in the goods covered by it free from all other liens and security interests,
and no financing statements, other than that of Standard Federal, are on file
covering the Collateral or any of it, and if Inventory is represented or
covered by documents of title, Borrower is the owner of the documents free of
all liens and security interests other than Standard Federal's security
interest and warehousemen's charges, if any, not delinquent;
4.1(b) The address of Borrower's principal office is as set forth above; the
addresses of Borrower's other places of business where Collateral and account
records are now or may in the future be located, if any, are set forth in
Sections 2.2 and 2.3 above and Borrower's business locations shall not be
changed without the prior written consent of Standard Federal; Borrower further
warrants that the Collateral, wherever located, is covered by this Agreement;
4.1(c) The Collateral will not be used, nor will Borrower permit the
Collateral to be used, for any unlawful purpose, whatever;
4.1(d) Borrower will neither change its name, form of business entity nor
address of its principal office or the office where account records are
maintained without giving written notice to Standard Federal thereof at least
ten (10) days prior to the effective date of such change, and Borrower agrees
that all documents, instruments, and agreements demanded by Standard Federal in
response to such change shall be prepared, filed, and recorded at Borrower's
expense prior to the effective date of such change;
4.1(e) Each Account, Chattel Paper and General Intangible constituting
Collateral is genuine and enforceable against the account debtor according to
its terms, and it, and the transaction out of which it arose, comply with all
applicable laws and regulations, the amount represented by Borrower to Standard
Federal as owing by each account debtor is the amount actually owing and is not
subject to setoff, credit, allowance or adjustment except any discount for
prompt payment, nor has any account debtor returned the goods or disputed his
liability, there has been no default according to the terms of any such
Collateral, and no step has been taken to foreclose the security interest it
evidences or to otherwise enforce its payment;
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<PAGE> 5
4.1(f) Borrower shall at all times maintain the Collateral in first-class
condition and repair;
4.1(g) The execution and delivery of this Agreement and any instruments
evidencing Liabilities will not violate nor constitute a breach of Borrower's
Articles of Incorporation, By-Laws, Partnership Agreement, or any agreement or
restriction of any type whatsoever to which Borrower is a party or is subject;
4.1(h) All financial statements and information relating to Borrower
delivered or to be delivered by Borrower to Standard Federal are true and
correct and prepared in accordance with generally accepted accounting
principles, and there has been no material adverse change in the financial
condition of Borrower since the submission of any such financial information to
Standard Federal;
4.1(i) There are no actions or proceedings which are threatened or pending
against Borrower which might result in any material adverse change in
Borrower's financial condition or which might materially affect any of
Borrower's assets;
4.1(j) Borrower has duly filed all federal, state, and other governmental tax
returns which Borrower is required by law to file, and will continue to file
same during such time as any of the Liabilities hereunder remain owing to
Standard Federal, and all such taxes required to be paid have been paid, in
full; and
4.1(k) Borrower will indemnify and hold Standard Federal harmless against
claims of any persons or entities not a party to this Agreement concerning
disputes arising over the Collateral.
SECTION 5. INSURANCE, TAXES, ETC.
5.1 Borrower shall:
5.1(a) Pay promptly all taxes, levies, assessments, judgments, and
charges of any kind upon or relating to the Collateral, to Borrower's business,
and to Borrower's ownership or use of any of its assets, income, or gross
receipts;
5.1(b) At its own expense, keep and maintain all of the Collateral fully
insured against loss or damage by fire, theft, explosion and other risks in
such amounts, with such companies, under such policies and in such form as
shall be satisfactory to Standard Federal, which policies shall expressly
provide that loss thereunder shall be payable to Standard Federal as its
interest may appear. Standard Federal shall have a security interest in the
proceeds of such insurance. Prior to the occurrence of an Event of Default,
any proceeds of insurance may be used, at Borrower's option, to repair or
replace the property damaged or applied upon the Liabilities. After the
occurrence of an Event of Default, all
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<PAGE> 6
insurance proceeds shall be delivered to Standard Federal, who may apply any
such proceeds which may be received by it toward payment of Borrower's
Liabilities, whether or not due, in such order of application as Standard
Federal may determine; and
5.1(c) Maintain at its own expense public liability and property damage
insurance in such amounts, with such companies, under such policies and in such
form as shall be satisfactory to Standard Federal, and, upon Standard Federal's
request, shall furnish Standard Federal with such policies and evidence of
payment of premiums thereon.
5.2 If Borrower at any time hereafter should fail to obtain or
maintain any of the policies required above or pay any premium in whole or in
part relating thereto, or shall fail to pay any such tax, assessment, levy, or
charge or to discharge any such lien, claim, or encumbrance, then Standard
Federal, without waiving or releasing any obligation or default of Borrower
hereunder, may at any time hereafter (but shall be under no obligation to do
so) make such payment or obtain such discharge or obtain and maintain such
policies of insurance and pay such premiums, and take such action with respect
thereto as Standard Federal deems advisable. All sums so disbursed by Standard
Federal, including reasonable attorney fees, court costs, expenses, and other
charges relating thereto, shall be part of Borrower's Liabilities, secured
hereby, and payable upon demand together with interest at the highest rate
payable in connection with any of the Liabilities from the date when advanced
until paid.
SECTION 6. SALE, COLLECTIONS, ETC.
6.1 If Accounts are Collateral hereunder, Standard Federal authorizes
and permits Borrower to collect Accounts from debtors. This privilege may be
terminated by Standard Federal at any time after the occurrence of an Event of
Default hereunder, whereupon Standard Federal shall be vested with full title
to the Accounts, and Standard Federal thereupon shall be entitled to and have
all of the ownership, title, rights, securities and guarantees of Borrower in
respect thereto, and in respect to the property evidenced thereby, including
the right of stoppage in transit, and Standard Federal may notify any debtor or
debtors of the assignment of Accounts and collect the same. All Account
debtors of the Borrower shall be entitled to rely upon notice from Standard
Federal that an Event of Default has occurred hereunder and shall have no duty
of inquiry as to the accuracy thereof or any other obligation with respect
thereto. The Borrower hereby fully and forever releases all such Account
debtors from any and all claims or liabilities which the Borrower may claim to
arise as a result of an Account debtor relying upon and honoring a notice from
Standard Federal that an Event of Default has occurred and that all payments on
Accounts are thereafter to be collected by Standard Federal. Thereafter
Borrower will receive all payments on Account as agent
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<PAGE> 7
of and for Standard Federal and will transmit to Standard Federal, on the day
of receipt thereof, all original checks, drafts, acceptances, notes and other
evidence of payment received in payment of or on account of Accounts, including
all cash moneys similarly received by Borrower. Until such delivery, Borrower
shall keep all such remittances separate and apart from Borrower's own funds,
capable of identification as the property of Standard Federal, and shall hold
the same in trust for Standard Federal. All items or accounts which are
delivered by Borrower to Standard Federal on account of partial or full payment
or otherwise as proceeds of any of the Collateral shall be deposited to the
credit of a deposit account (herein called the "Collateral Deposit Account") of
Borrower with Standard Federal, as security for payment of the Liabilities.
Borrower shall have no right to withdraw any funds deposited in the Collateral
Deposit Account. Standard Federal may from time to time, at its discretion,
and shall upon request of Borrower made not more than once in a week, apply all
or any of the then balance, representing collected funds in the Collateral
Deposit Account, toward payment of the Liabilities, whether or not then due, in
such order of application as Standard Federal may determine, and Standard
Federal may, from time to time, in its discretion, release all or any of such
balance to Borrower. Borrower, if in default in the performance of any of the
provisions of this Agreement, upon demand, will open all mail only in the
presence of a representative of Standard Federal, who may take therefrom any
remittance on Accounts in which Standard Federal shall have a security
interest. Standard Federal or its representatives is authorized to endorse, in
the name of Borrower, any item howsoever received by Standard Federal,
representing any payment on or other proceeds of any of the Collateral, and may
endorse or sign the name of Borrower to Accounts, invoices, assignments,
financing statements, notices to debtors, bills of lading, storage receipts, or
other instruments or documents in respect to Accounts or the property covered
thereby requested by Standard Federal. Borrower will promptly give Standard
Federal copies of all Accounts, to be accompanied by such information and by
such documents or copies thereof as Standard Federal may require. Borrower
will maintain such records with respect to Accounts and the conduct and
operation of its business as Standard Federal may request, and will furnish
Standard Federal all information with respect to Accounts and the conduct and
operation of its business, including balance sheets, operating statements and
other financial information, as Standard Federal may request.
6.2 If Inventory is Collateral hereunder, until such time as Standard
Federal shall notify Borrower of the revocation of such power and authority,
which notice may not be given unless and until an Event of Default shall have
occurred hereunder, Borrower (a) may only in the ordinary course of its
business, at its own expense, sell, lease or furnish under contracts of service
any of the inventory normally held by Borrower for such purpose; (b) may use
and consume any raw materials, work in process or materials, the
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<PAGE> 8
use and consumption of which is necessary in order to carry on Borrower's
business; and (c) will at its own expense, endeavor to collect, as and when
due, all accounts due with respect to any of the Collateral, including the
taking of such action with respect to such collection as Standard Federal may
reasonably request or, in the absence of such request, as Borrower may deem
advisable. A sale in the ordinary course of business does not include a
transfer in partial or total satisfaction of a debt.
SECTION 7. INFORMATION.
7.1 Borrower shall permit Standard Federal or its agents upon
reasonable request to have access to, and to inspect, all the Collateral (and
Borrower's other assets, if any) and may from time to time verify Accounts,
inspect, check, make copies of, or extracts from the books, records, and files
of Borrower, and Borrower will make same available at any time for such
purposes. In addition, Borrower shall promptly supply Standard Federal with
financial and such other information concerning its affairs and assets as
Standard Federal may request from time to time.
SECTION 8. DEFAULT AND REMEDIES UPON DEFAULT.
8.1 The occurrence of any of the following shall constitute an Event
of Default hereunder: (a) If the Borrower shall fail to pay when due any of
the Liabilities; (b) If any warranty or representation made by or for the
Borrower or if any financial data or any other information now or hereafter
furnished to Standard Federal by or on behalf of the Borrower shall prove to be
false, inaccurate or misleading in any material respect; (c) If an event of
default shall occur under any promissory note secured hereby or if the Borrower
shall fail to perform any obligation or covenant hereunder, or shall fail to
comply with any of the provisions of any loan agreement or other agreement with
Standard Federal, (d) If the Borrower or any other party liable on any of the
Liabilities: (i) shall voluntarily suspend transaction of its business, (ii)
shall make a general assignment for the benefit of creditors, (iii) shall file
a voluntary petition in bankruptcy or for a reorganization to effect a plan or
other arrangement with creditors, or shall file an answer to a creditor's
petition or other petition for relief in bankruptcy or for a reorganization
which answer admits the material allegations thereof, or if any order for
relief shall be entered by any court of bankruptcy jurisdiction with respect to
it or shall have instituted against it bankruptcy, reorganization or
liquidation proceedings which remain undismissed for 60 days, (iv) shall have
entered against it any order by any court approving a plan of reorganization or
any other plan or arrangement with creditors, (v) shall apply for or permit the
appointment of a receiver, trustee or custodian for any substantial portion of
its assets, or (vi) shall become unable to meet its debts as they mature or
insolvent; (e) If a judgment shall be entered against the Borrower which is
not insured against
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<PAGE> 9
or satisfied or appealed from and bonded within the time or times limited by
applicable rules of procedure for appeal as of right or if a writ of attachment
or garnishment shall be issued and levied on any of the Deposit Account(s); (f)
If the Borrower shall dissolve or shall merge or consolidate with any other
entity.
8.2 Upon the occurrence of any Event of Default, any and all of the
Liabilities may (notwithstanding any provisions thereof and unless otherwise
provided in any loan agreement executed in conjunction herewith), at the option
of Standard Federal, and without demand or notice of any kind, be declared and
thereupon shall immediately become due and payable and Standard Federal may
exercise from time to time any rights and remedies including the right to
immediate possession of the Collateral available to it under applicable law.
Standard Federal may directly contact third parties and enforce against them
all rights which arise with respect to the Collateral and to which Borrower or
Standard Federal would be entitled. Standard Federal shall have the right to
hold any property then in, upon or in any way affiliated to said Collateral at
the time of repossession even though not covered by this Security Agreement
until return is demanded in writing by the Borrower. Borrower agrees, in case
of Default, to assemble at its expense all the Collateral at a convenient place
acceptable to Standard Federal and to pay all costs of Standard Federal of
collection of the Liabilities, and enforcement of rights hereunder, including
reasonable attorney fees and legal expenses, including participation in
Bankruptcy proceedings, and expense of locating the Collateral and expenses of
any repairs to any realty or other property to which any of the Collateral may
be affixed or be a part. If any notification of intended disposition of any of
the Collateral is required by law, such notification, if mailed, shall be
deemed reasonably and properly given if sent at least seven (7) days before
such disposition, postage pre-paid, addressed to the Borrower either at the
address shown above or at any other address of the Borrower appearing on the
records of Standard Federal. Borrower acknowledges that Standard Federal may
be unable to effect a public sale of all or any portion of the Collateral
because of certain legal and/or practical restrictions and provisions which may
be applicable to the Collateral and, therefore, may be compelled to resort to
one or more private sales to a restricted group of offerees and purchasers.
Borrower consents to any such private sale so made even though at places and
upon terms less favorable than if the Collateral were sold at public sale.
Borrower waives the right to jury trial in any proceeding instituted with
respect to the Collateral. Out of the net proceeds from sale or disposition of
the Collateral, Standard Federal shall retain all Indebtedness then owing to it
and the actual cost of collection (including reasonable attorney fees) and
shall tender any excess to Borrower or its successors or assigns. If the
Collateral shall be insufficient to pay the entire Indebtedness, Borrower shall
pay to Standard Federal the resulting deficiency upon demand. Borrower
expressly waives any and all claims of any
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<PAGE> 10
nature, kind or description which it has or may hereafter have against Standard
Federal or its representatives, by reason of taking, selling or collecting any
portion of the Collateral. Borrower consents to releases of the Collateral at
any time (including prior to default) and to sales of the Collateral in groups,
parcels or portions, or as an entirety, as Standard Federal shall deem
appropriate. Borrower expressly absolves Standard Federal from any loss or
decline in market value of any Collateral by reason of delay in the enforcement
or assertion or nonenforcement of any rights or remedies under this Agreement.
8.3 Borrower agrees that Standard Federal shall, in the event of any
default, have the right to peacefully retake any of the collateral. Borrower
waives any right it may have in such instance to a judicial hearing prior to
such retaking.
SECTION 9. GENERAL.
9.1 Time shall be deemed of the very essence of this Agreement.
Except as otherwise defined in this Agreement, all terms in this Agreement
shall have the meanings provided by the Uniform Commercial Code. Standard
Federal shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if it takes such action for
that purpose as Borrower requests in writing, but failure of Standard Federal
to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care, and failure of Standard Federal to preserve or
protect any rights with respect to such Collateral against any prior parties or
to do any act with respect to the preservation of such Collateral not so
requested by Borrower shall not be deemed a failure to exercise reasonable care
in the custody and preservation of such Collateral.
9.2 Any delay on the part of Standard Federal in exercising any power,
privilege or right hereunder, or under any other instrument executed by
Borrower to Standard Federal in connection herewith shall not operate as a
waiver thereof, and no single or partial exercise thereof, or the exercise of
any other power, privilege or right shall preclude other or further exercise
thereof, or the exercise of any other power, privilege or right. The waiver of
Standard Federal of any default by Borrower shall not constitute a waiver of
any subsequent defaults, but shall be restricted to the default so waived. All
rights, remedies and powers of Standard Federal hereunder are irrevocable and
cumulative, and not alternative or exclusive, and shall be in addition to all
rights, remedies, and powers given hereunder or in or by any other instruments,
or by the Uniform Commercial Code, or any laws now existing or hereafter
enacted.
9.3 This Agreement shall be construed in accordance with the laws of
the State of Alabama. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective
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<PAGE> 11
and valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement. The rights and privileges of Standard Federal hereunder shall
inure to the benefit of its successors and assigns, and this Agreement shall be
binding on all heirs, personal representatives, assigns and successors of
Borrower. Borrower hereby expressly authorizes and appoints Standard Federal
to act as its attorney-in-fact for the sole purpose of executing any and all
financing statements or other documents deemed necessary to perfect the
security interest herein contemplated.
9.4 The Borrower acknowledges that this is the entire Agreement
between the parties except to the extent that writings signed by the party to
be charged are specifically incorporated herein by reference either in this
Agreement or in such writings, and acknowledges receipt of a true and complete
copy of this Agreement.
IN WITNESS WHEREOF, the Borrower and Standard Federal have caused this
Security Agreement to be executed as of the day and year first written above.
STANDARD FEDERAL BANK, a federal BORROWER:
savings bank
2600 West Big Beaver Road MCCLAIN OF ALABAMA,INC., a
Troy, Michigan 48084 Michigan corporation
By: David J. Bartlett By: /s/ Carl L. Jaworski
------------------------------ -------------------------
David J. Bartlett Carl L. Jaworski
Its: Vice President Its: Secretary
-------------------------- ---------------------
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<PAGE> 12
STATE OF MICHIGAN )
) ss
COUNTY OF OAKLAND )
I, the undersigned authority, a Notary Public in and for said County in
said State, hereby certify that David J. Bartlett, whose name as Vice
President of Standard Federal Bank, a federal savings bank, is signed to the
foregoing instrument, and who is known to me, acknowledged before me on this
day that, being informed of the contents of said instruments, he/she, as such
officer and with full authority, executed the same voluntarily for and as the
act of said bank.
Given under my hand and official seal this 29th day of August, 1996
Dolores J. Swanson
---------------------------------------
Notary Public, Dolores J. Swanson
Notary Public,
Oakland County, MI
My commission expires:
Aug 30 1998
County, Michigan
My commission expires:
STATE OF MICHIGAN )
) ss
COUNTY OF OAKLAND )
I, the undersigned authority, a Notary Public in and for said County in
said State, hereby certify that Carl L. Jaworski, whose name as
Secretary/Treasurer of McClain of Alabama, Inc., a Michigan corporation, is
signed to the foregoing instrument, and who is known to me, acknowledged before
me on this day that, being informed of the contents of said instruments,
he/she, as such officer and with full authority, executed the same voluntarily
for and as the act of said corporation.
Given under my hand and official seal this 29th day of August, 1996
Dolores J. Swanson
---------------------------------------
Notary Public, Dolores J. Swanson
Notary Public,
Oakland County, MI
My commission expires:
Aug 30 1998
County, Michigan
My commission expires:
-12-
<PAGE> 1
EXHIBIT 10.58
EQUIPMENT LEASE
This Equipment Lease entered into as of July 15, 1995, by and between The Fifth
Third Leasing Company ("Lessor"), 38 Fountain Square Plaza, Cincinnati, Ohio
45263, an Ohio corporation, and Prime Leasing Corporation ("Lessee"), PO Box
180913, Utica, MI 48318, a Michigan Corporation.
TERMS AND CONDITIONS OF LEASE:
In consideration of the premises and of the rentals and the covenants
hereinafter mentioned to be kept and performed by Lessee, Lessor hereby leases
the equipment (including all replacement parts, repairs, additions and
accessories thereto) listed on Schedule A attached hereto on the date hereof or
as attached hereto at any time in the future or listed or described in any other
document which refers to and incorporates the terms of this Agreement
(collectively "Equipment"), upon the following terms and conditions:
Section 1. Acquisition and Lease of Equipment.
(a) Lessor will, subject to the terms of this Lease, purchase the
Equipment set forth in Schedule A and simultaneously lease such Equipment to
Lessee. The approximate purchase price for each unit of Equipment is as set
forth in Schedule A. Lessee shall provide a security deposit (the "Security
Deposit") in the amount, if any, specified in Schedule A to be paid to Lessor
prior to the commencement of the Lease. Lessee acknowledges either:
(i) that Lessee has approved any written Supply Contract (as defined
by the uniform version of the Uniform Commercial Code (UCC) Section 2A-103 (y)
as approved by the American Law Institute on the date of this Lease) covering
the Equipment purchased from the "Supplier" (as defined by UCC Section
2A-103(x)) thereof for lease to Lessee; or
(ii) that Lessor has informed or advised Lessee, in writing, either
previously or by this Lease of the following:
(1) the identity of the Supplier;
(2) that the Lessee may have rights under the Supply Contract;
and
(3) that the Lessee may contact the supplier for a description of
any such rights Lessee may have under the Supply Contract.
(b) Lessor hereby authorizes Lessee to accept delivery of the Equipment
from the manufacturer. Upon delivery and installation of each item of
Equipment, if such Equipment is in good working order, and complies with the
specifications of the purchase order, Lessee shall execute and deliver to Lessor
a Certificate of Acceptance in form acceptable to Lessor. Lessor shall be under
no obligation to purchase the Equipment until it has received the Acceptance
Certificate executed by Lessee.
(c) Lessor shall be under no obligation to purchase any item of Equipment
if there shall exist an Event of Default or any condition, event or act which
with notice or lapse of time or both would become an Event of Default, which has
not been remedied or waived.
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Section 2. Term and Rent.
(a) The term of this Lease shall begin on the Effective Date specified in
Schedule A and shall continue for the term specified in Schedule A unless
earlier terminated pursuant to the terms hereof. Notwithstanding the Effective
Date set forth above, the Effective Date will be extended until the date the
Equipment is delivered to Lessee's location specified above and accepted by
Lessee. The term of this Lease for all Equipment shall be automatically
extended for successive monthly periods until terminated by either party giving
to the other not less than ninety (90) days prior written notice of termination.
Any such termination shall be effective only on the last day of the term
specified in Schedule A or any successive period.
(b) As rent for the Equipment, Lessee agree to pay to Lessor the rent
specified in Schedule A. All payments provided for in this Lease shall be made
to the Lessor at the address of the Lessor set forth above, or at such other
place as the Lessor, or its assigns, shall specify in writing. The rent
specified in Schedule A shall be adjusted for any errors, increase or decrease
in the purchase price of the Equipment. The payment of the rent specified in
Schedule A also shall be secured by any presently existing or hereafter
acquired property pledged to Lessor or any affiliate of Fifth Third Bancorp for
any indebtedness of Lessee owed to Lessor and all affiliates of Fifth Third
Bancorp, whether direct or contingent, due or to become due; provided, however,
that this provision shall not apply to a "consumer credit transaction" as
defined in Title I, Consumer Credit Protection Act 15 U.S.C.A. Sections 1601
et. seq., as amended or any applicable state statute containing similar
provisions.
(c) This Lease is a net lease and Lessee acknowledges and agrees that
Lessee's obligation to make all payments hereunder, and the rights of Lessor in
and to all such payments, shall be absolute and unconditional and shall not be
subject to any abatement of rent or reduction thereof, including but not
limited to, abatements or reductions due to any present or future claims of
Lessee against Lessor, the manufacturer of the Equipment, or any party under
common ownership or affiliated with Lessor, by reason of any defect in the
Equipment, the condition, design, operation or fitness for use thereof, or by
reason of any failure of Lessor to perform any of its obligations hereunder,
or by reason of any other cause. It is the intention of the parties hereto
that the rent payable by Lessee hereunder shall continue to be payable in all
events and in the manner and at the times herein provided unless the obligation
to pay shall be terminated pursuant to the provisions of this Lease.
Section 3. Tax Indemnification.
(a) The terms of this Lease, including payment amounts, have been made in
reliance on the fact that Lessor, its successors and assigns, shall be entitled
to such deductions, credits and other benefits (the "Tax Benefits") as are
provided to an owner of property, to the extent permitted under applicable law
and provisions of the Internal Revenue Code of 1986 (the "Code"), including but
not limited to depreciation and amortization deductions allowable under
Sections 167, 168 and 169 of the Code and any amendments or additions thereto
relating to the leased property (the "Deductions").
(b) If the Lessor or its successor or assigns shall lose, during the term
of this Lease, its right to claim all or any part of such Tax Benefits or
Deductions or any part of such Tax Benefits or Deduction is disallowed, the
rental set forth in Schedule A shall be increased by an amount which, in the
reasonable opinion of Lessor, will cause Lessor's total net return (after all
taxes) to be equal to the net return which Lessor would have received had such
Tax Benefits or Deductions not been disallowed.
(c) In the event Lessor's claim of all or any part of such Tax Benefits or
Deductions with respect to the Equipment is disallowed or lost after the term
of the Lease, Lessee shall pay Lessor a lump sum which, in the reasonable
opinion of Lessor will cause Lessor's total net return (after all taxes) to be
equal to the net return Lessor would have received had such Tax Benefits or
Deductions not been disallowed.
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<PAGE> 3
(d) In the event that this Lease is, for any reason, canceled or prepaid
prior to the expiration of its term the Lessee agrees to pay to Lessor, in
addition to all other amounts payable under this Lease, a lump sum amount which,
in the reasonable opinion of Lessor, will cause Lessor's net return (when
combined with all other payments, hereunder but excluding any prepayment
penalties and after all taxes) to be equal to the net return Lessor would have
received had this Lease not been terminated prior to the expiration of its term.
(e) The rent shall not be so increased (or the lump sum payment shall not
be due) if and to the extent that the Lessor shall have lost the right to claim
such a Tax Benefit or Deduction as a direct result of any one of the following
events:
(i) a casualty occurrence with respect to the Equipment if Lessee
shall have paid the Lessor pursuant to the provisions of Section 13 hereof;
(ii) the failure of Lessor to claim the Tax Benefit or Deduction on
its income tax return for the appropriate year; or
(iii) the failure of Lessor to have sufficient tax liability to fully
use such Tax Benefits or Deductions.
(f) Lessee agrees that neither it nor any corporation controlled by it, in
control of it, or under common control with it, directly or indirectly, will at
any time take any action or file any returns or other documents inconsistent
with the foregoing and that each of such corporations will file such returns,
take such action and execute such documents as may be reasonable and necessary
to facilitate accomplishment of the intent thereof. Lessee agrees to copy and
make available for inspection and copying by Lessor such records as will enable
Lessor to determine whether it is entitled to the benefit of any amortization or
depreciation deduction or tax credit which may be available from time to time
with respect to this Equipment.
(g) If, under any circumstances or for any reason whatsoever, except for
acts of the Lessor,
(i) Lessor shall become liable for additional tax as a result of
Lessee having added an attachment or made an alteration to the Equipment which
would increase the productivity or capability of the Equipment so as to violate
the provisions of Rev. Proc. 75-21, 1975-1 C.B. 715, as modified by Rev. Proc.
79-48, 1979-2 C.B. 529 (and as either or both may hereafter be modified or
superseded);
(ii) the statutory full-year marginal Federal tax rate for
corporations with a December 31 tax year-end is different than the statutory
tax rate in effect on the date of this Lease; or
(iii) Lessor shall not have or shall lose the right to claim, or
there shall be disallowed or recaptured all or any portion of the Federal tax
depreciation deductions with respect to any item of Equipment based on
depreciation of the Lessor's full cost of such item of Equipment and computed on
the basis of a method of depreciation provided by the Code as Lessor in its
complete discretion may select; then Lessee agrees to pay Lessor upon demand an
amount which, after deduction of all taxes required to be paid by Lessor in
respect of the receipt thereof under the laws of any federal, state or local
government or taxing authority of the United States or of any taxing authority
or government subsidiary of any foreign country, shall be equal to the sum of
(1) an amount equal to the additional income taxes which would
be paid or payable by Lessor in consequence of the failure to obtain the benefit
of a depreciation deduction calculated under the assumption that Lessor's income
is taxed at the highest applicable rate (without regard to the actual taxes paid
by Lessor), and
(2) any interest and/or penalty which may be assessed in
connection with any of the foregoing.
(h) The provisions of this Section 3 shall survive the expiration or
earlier termination of this Lease.
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<PAGE> 4
Section 4. Acceptance, Use and Maintenance of Equipment.
(a) Lessor hereby authorizes Lessee to accept delivery of the Equipment
from the manufacturer. Upon delivery and installation of each item of
Equipment, if such Equipment is in good working order, Lessee shall execute and
deliver to Lessor a Certificate of Acceptance in a form acceptable to Lessor.
(b) Lessor shall have no obligation and assumes no liability for any
matter relating to the ordering, manufacture, shipment, installation, erection,
testing, adjusting or servicing of any item of Equipment, or for any failure or
delay in obtaining or delivering any item of Equipment. Lessee shall provide
and maintain a suitable installation environment for each item of Equipment with
all appropriate utilities, wiring and other facilities prescribed or recommended
by the appropriate manufacturer's installation and operating manuals.
(c) Lessee shall cause the Equipment to be operated by competent employees
and in accordance with the manufacturer's operating manuals and shall pay all
expenses of operating the Equipment. The Equipment shall be maintained at the
location(s) specified in Schedule A and shall not be removed from such
location(s) without the written consent of the Lessor. Lessor will have the
right, from time to time during reasonable business hours, to enter upon the
Lessee's premises or any other premises where the Equipment may be located, for
the purpose of confirming the existence, location, condition or proper
maintenance of the Equipment.
(d) Lessee, at its own cost and expense, shall keep all Equipment in good
repair, condition and working order and shall furnish all parts, mechanisms,
devices and servicing required therefor. All such parts, mechanisms, and
devices shall immediately become the property of Lessor and part of the
Equipment for all purposes.
(e) Lessee shall comply with and confirm to all laws, ordinances and
regulations, present or future, in any way relating to the possession, use or
maintenance of the Equipment throughout the term of this Lease.
(f) Lessee shall pay or satisfy and discharge any and all claims against,
through or under Lessee and its successors and assigns, which, if unpaid, might
constitute or become a lien or a charge upon any of the Equipment, and any
liens or charges which may be levied against or imposed upon the Equipment as a
result of the failure of Lessee to perform or observe any of its covenants or
agreements under this Lease and any other liens or charges which arise by
virtue of claims against, through or under any other party other than Lessor,
but Lessee shall not be required to pay or discharge any such claims so long as
it shall, in good faith and by appropriate legal proceedings contest the
validity thereof in any reasonable manner which will not, in the reasonable
opinion of Lessor, affect or endanger the interest of Lessor or other rights of
any assignee under this Lease hereof in and to the Equipment or diminish the
value thereof. Lessee's obligations under this Section shall survive the
termination of this Lease.
Section 5. No Agency. Lessee acknowledges and agrees that neither the
manufacturer, the supplier, nor any salesman, representative, or other agent of
the manufacturer or supplier, is an agent of Lessor. No salesman,
representative or agent of the manufacturer or supplier is authorized to waive
or alter any term or condition of this Lease and no representation as to the
Equipment or any other matter by the manufacturer or supplier shall in any way
affect Lessee's duty to pay rent and perform its obligations as set forth in
this Lease.
Section 6. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT: LESSOR IS NOT
THE MANUFACTURER OF THE EQUIPMENT NOR THE MANUFACTURER'S AGENT NOR A DEALER
THEREIN; THE EQUIPMENT IS OF A SIZE, DESIGN, CAPACITY, DESCRIPTION AND
MANUFACTURE SELECTED BY LESSEE; LESSEE IS SATISFIED THAT THE EQUIPMENT IS
SUITABLE AND FIT FOR ITS PURPOSES; AND LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED AS TO THE DESIGN, OPERATION OR
CONDITION, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN THE
EQUIPMENT LEASED HEREUNDER, AND LESSOR MAKES NO WARRANTY OF
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MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE OR ANY
OTHER REPRESENTATION OR WARRANTY WHATSOEVER, IT BEING AGREED THAT ALL SUCH RISKS
AS BETWEEN LESSOR AND LESSEE, ARE TO BE BORNE BY LESSEE AND THE BENEFITS OF ANY
AND ALL IMPLIED WARRANTIES OF LESSOR ARE HEREBY WAIVED BY LESSEE. LESSOR SHALL
NOT BE RESPONSIBLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. Lessor agrees
that Lessee shall be entitled to the benefit of any manufacturer's warranties
on the Equipment to the extent permitted by applicable law.
Section 7. Identification; Personal Property. No right, title or interest in
the Equipment shall pass to Lessee other than the right to maintain possession
and use of the Equipment for the full Lease Term. Lessor may require plates or
markings to be conspicuously affixed to or placed on the Equipment indicating
Lessor is the owner. However, if any item of Equipment leased hereunder is to be
operated by the public, such plates or markings need not be placed in a
conspicuous part of the Equipment. The Equipment is, and shall at all times be
and remain, personal property even though the Equipment or any part thereof may
hereafter become affixed or attached to real property.
Section 8. Quiet Enjoyment. So long as Lessee is in compliance with the terms
of this Lease:
(a) Lessee's right of quiet enjoyment of the Equipment shall not be
impaired by the Lessor or anyone claiming through the Lessor; and
(b) Lessor shall not create any liens or encumbrances upon the
Equipment other than liens arising out of claims contested in good faith by
Lessor which will not in the reasonable opinion of Lessor affect or endanger
the interest of Lessee under this Lease.
Section 9. Assignment.
(a) LESSEE AGREES NOT TO SELL, ASSIGN, SUBLET, PLEDGE, HYPOTHECATE, OR
OTHERWISE ENCUMBER, SUFFER A LIEN UPON OR AGAINST ANY INTEREST IN THIS
AGREEMENT OR THE EQUIPMENT LEASED HEREUNDER.
(b) Lessor may assign, pledge, or in any other way transfer this Lease
either in whole or in part, without notice to Lessee. Should this Lease or any
interest therein be assigned or should the rentals hereunder be assigned, no
breach or default of this Lease by Lessor to its assignee shall excuse
performance by Lessee of any provision hereof. Upon receipt of notice of
assignment of this Lease or the rentals due hereunder, if so directed by
Lessor, Lessee shall pay the rentals hereunder as they become due to any
assignee without any set-offs, counterclaims or defense thereto.
Section 10. Fees - Taxes. Lessee agrees to pay and to indemnify and hold
Lessor harmless from all license and registration fee and all assessments, taxes
and impositions of whatever nature including income, franchise, sales, use,
property, excise and other taxes now or hereinafter imposed by any governmental
body or agency upon the Equipment, or the use thereof, including all interest
and penalties, but excluding any income taxes payable by Lessor on the receipt
of income under this Lease.
Section 11. Limitation of Liability; Indemnification.
(a) Lessee agrees that Lessor shall not be responsible for any loss or
damage to Lessee, its customers or anyone else, caused by any failure or defect
of the Equipment, or otherwise.
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<PAGE> 6
(b) Lessee hereby assumes liability for, and hereby agrees to indemnify,
protect, save and keep harmless Lessor, its successors and assigns, from and
against any and all claims, liabilities, judgments, suits, obligations, losses,
damages, expenses, penalties, and disbursements (including reasonable attorneys'
fees and expenses) of any kind and nature arising from or pertaining to the use,
possession, operation, manufacture, purchase, financing, ownership, delivery,
rejection, nondelivery, transportation, storage maintenance, repair return or
other disposition of the Equipment including but not limited to liabilities
resulting from strict liability in tort or a breach of any law, regulation or
ordinance of any Federal, State or Local Government Agency.
Section 12. Return of Equipment. Upon the expiration of the term of this Lease,
unless the Equipment is sold to the Lessee, Lessee will at its own cost and
expense deliver possession of the Equipment to Lessor at a location designated
by the Lessor free and clear of all liens, charges, encumbrances, and rights of
others, in good working order and repair (except for ordinary wear and tear
resulting from proper use) and in the condition required hereby.
Section 13. Casualty Loss. Lessee hereby assumes and shall bear the risk of
loss, damage to or theft of the Equipment from any and every cause whatsoever,
whether or not insured. No loss or damage to the Equipment or any part thereof
shall impair any obligation of Lessee under this Lease which shall continue in
full force and effect. In the event that any item of Equipment shall become
damaged, worn out, destroyed, lost or stolen, or if any item of the Equipment is
requisitioned or taken by any governmental authority under the power of eminent
domain or otherwise, Lessee shall promptly notify Lessor thereof and at the
option of Lessor, Lessee shall:
(a) Place the same in good repair, condition and working order; or
(b) Replace the same with like property in good repair, condition and
working order which property shall be thereupon conveyed to Lessor free, clear
and unencumbered and thereupon be subject to this Lease; or
(c) On the Rental Payment date next following the date the Equipment
becomes damaged, worn out, destroyed, lost or stolen, pay Lessor in cash all of
the following:
(i) all amounts then owed by Lessee to Lessor under this Lease;
(ii) an amount equal to Two percent (2%) of the actual costs of said
Equipment; and
(iii) the unpaid balance of the total rent for the initial term of
this Lease attributable to such Equipment.
Upon Lessor's receipt of such payment, Lessee shall be entitled to whatever
interest Lessor may have in such Equipment, in its then condition and location
"AS IS" and "WHERE IS", without warranty express or implied.
Section 14. Insurance.
(a) Lessee at its expense will provide and maintain fire and extended
coverage insurance against loss, theft, damage or destruction of the Equipment
in an amount not less than 100% of the insurable value of the Equipment on a
replacement cost basis as determined by Lessor. Each policy will provide
expressly that such insurance, as to Lessor and its assigns, will not be
invalidated by any act, omission or neglect of Lessee and will provide expressly
for at least thirty (30) days prior written notice to Lessor of alteration or
cancellation. The proceeds of such insurance will be applied first to any unpaid
obligations of Lessee under this Lease arising prior to the receipt of the
proceeds and then toward the restoration or repair of the Equipment or if Lessor
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<PAGE> 7
determines that any item of Equipment is lost, stolen, destroyed, or damaged
beyond repair toward payment of the amounts required by Section 13 above. Any
excess proceeds remaining thereafter will be paid to Lessee, provided Lessee is
not then in default under this Lease.
(b) Lessee at its expense will carry public liability, property damage and,
if required by Lessor, collision insurance with respect to the Equipment and the
use thereof in amounts satisfactory to Lessor. Each such policy of insurance
will name Lessor as an additional insured thereon.
(c) All policies relating to the insurance referred to in Subsections 14(a)
and (b) above, will be in such form and with such companies as are satisfactory
to Lessor and will name Lessor as an additional insured and as an additional
loss payee. Lessee will furnish Lessor proof of such insurance. Lessee hereby
appoints Lessor as Lessee's attorney-in-fact to make claim for, adjust, settle,
receive payment of and execute and endorse all documents, checks or drafts for
loss or damage under any such insurance policy.
(d) If Lessee fails to procure, maintain and pay for such fire and
extended coverage insurance or any such public liability, property damage or
collision insurance required by Lessor, Lessor will have the right, but not the
duty, to obtain such insurance on behalf of and at the expense of Lessee. In
the event Lessor does obtain and pay for such insurance, Lessee will reimburse
Lessor for the costs thereof no later than the date of the next scheduled
rental payment under this Lease.
Section 15. Right of Lessor to Perform. If the Lessee shall fail to comply with
any of its covenants herein contained, the Lessor (or, in the case of an
assignment by the Lessor pursuant to Section 9(b) hereof, as assignee), may,
but shall not be obligated to, make advances to perform the same and to take all
such action as may be necessary to obtain such performance. Any payment so made
by any such party and all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses) incurred in connection therewith shall
be immediately due and payable by the Lessee to the party making the same, as
additional rent hereunder.
Section 16. Events of Default. Any of the following events shall constitute an
Event of Default:
(a) The nonpayment by Lessee for ten (10) days of any rent or other amount
provided for herein after the same is due and payable;
(b) The failure of Lessee to observe, keep or perform any other provisions
of this Lease required to be observed, kept or performed by Lessee, which
failure is not cured ten (10) days after notice thereof by Lessor;
(c) The failure of Lessee to make any payment when due, or to observe or
perform any covenant or agreement contained in, or the occurrence of a default
or Event of Default under any agreement evidencing, guarantying or securing any
other indebtedness or obligation of Lessee to Lessor, The Fifth Third Bank, or
any affiliate of Fifth Third Bancorp of any kind or nature;
(d) The making of any representation or warranty by Lessee herein or in
any agreement, document or certificate delivered to Lessor in connection
herewith, or any financial statement furnished by Lessee to Lessor which, at any
time, proves to be incorrect in any material respect;
(e) Lessee's making an assignment for the benefit of creditors or
committing any other affirmative act of insolvency or bankruptcy, filing a
petition in bankruptcy or for arrangement or reorganization or having such a
petition filed against it if such petition is not dismissed or withdrawn within
thirty (30) days;
(f) The attachment of a substantial part of the property of Lessee or
appointment of a receiver for Lessee or any substantial part of Lessee's
property;
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(g) Lessee ceases to do business as a going concern, or if there is a
change in the ownership of Lessee which changes the identity of any person or
persons having, directly or indirectly, more than 10% of either the legal or
beneficial ownership of Lessee;
(h) There shall occur, in Lessor's reasonable opinion, a deterioration in
the financial strength of the Lessee or any event occurs which might, in
Lessor's opinion, have an adverse effect on the Equipment or on Lessee's
financial condition, operations or prospects;
(i) Any guarantor of Lessee's obligations hereunder denies his or its
obligations to guarantee any obligations then existing or attempts to limit or
terminate his or its obligations to guaranty the Lessee's obligations hereunder.
Lessee also agrees, upon any responsible officer of Lessee becoming aware of
any condition which constituted or constitutes an Event of Default under this
Lease or which, after notice or lapse of time, or both, would constitute such an
Event of Default, to promptly furnish to Lessor written notice specifying such
condition and the nature and status thereof. For purposes of this Section, a
"responsible officer" shall mean, with respect to the subject matter of any
covenant, agreement or obligation of Lessee contained in this Lease, any
corporate officer of Lessee who, in the normal performance of his operational
responsibilities, would or should have knowledge of such matter and the
requirements of this Lease with respect thereto.
Section 17. Remedies. Upon the occurrence of any Event of Default, and so long
as the same shall be continuing, Lessor shall have the right to declare this
Lease in default without notice to Lessee. Such declaration shall apply to all
schedules then in effect hereunder. Upon the making of any such declaration,
Lessor shall have the right to exercise any one or more of the following
remedies:
(a) To take possession of any and all items of Equipment without further
demand or notice wherever they may be located without any court order or process
of law (but if Lessor applies for a court order or the issuance of legal
process, Lessee waives any prior notice of the making of this application or the
issuance of such order of legal process) and Lessee hereby waives any and all
damages occasioned by such taking of possession; any such taking of possession
shall not constitute termination of this Lease as to any or all of Equipment
unless Lessor expressly so notified Lessee in writing;
(b) To terminate this Lease as to any or all items of Equipment without
prejudice to Lessor's rights in respect to obligations then accrued and
remaining unsatisfied;
(c) To recover from Lessee (and Lessee agrees to pay in cash the
following):
(i) all amounts then owed by Lessee to Lessor under this Lease;
(ii) the unpaid balance of the total rent for the initial term of
this Lease attributable to said Equipment.
(iii) an amount equal to N/A (N/A%) of the actual cost of said
Equipment; and
(iv) an amount equal to 10% of the original cost of the Equipment as
liquidated damages and not as a penalty.
8
<PAGE> 9
(d) To sell any or all of the Equipment in public or private sale, in bulk
or in parcels, for cash or on credit without having the Equipment present at
the place of sale and to recover from Lessee all costs of taking possession,
storing, repairing, and selling the Equipment (and Lessor may use Lessee's
premises for any or all of the foregoing without liability for rent, costs, or
damages or otherwise) or to otherwise dispose, hold, use, operate, lease to
others or keep idle such Equipment all as Lessor in its sole discretion may
determine and to apply the proceeds of any such action:
(i) to all costs, charges and expenses incurred in taking, removing,
holding, operating, repairing, and selling, leasing or otherwise disposing of
the Equipment; then
(ii) to the amounts set forth in Section (c) (i), (ii), and (iii) and
(iv) above provided that Lessee shall pay any deficiency due Lessor; and
(iii) any surplus shall be retained by Lessor;
(e) To pursue any other remedy provided for by status or otherwise
available at law or in equity.
Notwithstanding any repossession, or other action which Lessor may take, the
Lessee shall be and remain liable for the full performance of all obligations on
the part of Lessee to be performed under this Lease to the extent not paid or
performed by Lessee. All such remedies are cumulative and may be exercised
concurrently or separately.
In addition to the foregoing, Lessee shall pay Lessor all costs and expenses,
including reasonable attorneys' fees and fees of collection agencies incurred
by Lessor in exercising any of its rights and remedies hereunder.
Section 18. Repayment of Other Amounts. In addition to any other right
granted to Lessor hereunder to terminate this Lease, Lessor shall have the
right to terminate this Lease and collect all amounts due hereunder (including
any lump sum or other tax payments provided in Section 3 hereof) if Lessee,
whether at the direction or request of the Lessor or any affiliate of Lessor,
The Fifth Third Bank, or The Fifth Third Bancorp, repays all or substantially
all other amounts and obligations owed by Lessee to the Lessor or any affiliate
of the Lessor, The Fifth Third Bank or The Fifth Third Bancorp.
Section 19. Further Assurances. Lessee will, upon request of Lessor, at
Lessee's sole cost and expense, do and perform any other act and will execute,
acknowledge, deliver, file, record and deposit (and will re-file, re-register,
re-record, and re-deposit whenever required) any and all further instruments
required by law or Lessor including, without limitation, financing statements
or other documents needed for the protection of Lessor's interest.
Section 20. Notices. Any notices and demands required to be given hereunder
shall be in writing and may be delivered personally or mailed by certified mail,
return receipt requested, to the respective addresses of the parties above set
forth, or to such other address as either party may hereinafter indicate by
written notice, as provided in this section.
Section 21. Financial Statements. Within sixty (60) days after the end of
each fiscal quarter and within ninety (90) days after the end of each fiscal
year of Lessee during the term of this Lease, Lessee shall deliver to Lessor
yearly Balance Sheets, Profit and Loss Statements and Source and Application of
Funds of Lessee certified by the independent public accountants of Lessee or if
unaudited, certified to be true and correct by the chief financial officer of
Lessee.
Section 22. Filings. Power of Attorney. Lessee will execute and deliver to
Lessor at Lessor's request all financing statements, continuation statements,
and other documents that Lessor may reasonably request, in form satisfactory to
Lessor, to perfect and maintain Lessor's interest in the Equipment and to fully
consummate all
9
<PAGE> 10
transactions contemplated under this Agreement. Lessee hereby irrevocably makes,
constitutes and appoints Lessor (or any of Lessor's officers, employees or
agents designated by Lessor) as Lessee's true and lawful attorney with power to
sign the name of Lessee on any such documents. This power, being coupled with
an interest, is irrevocable until all obligations of Lessee to Lessor have been
fully satisfied.
Section 23. Late Payments. Interest at the rate of 5% per month or the maximum
rate permitted by law, whichever is less, shall accrue on the amount of any
payment not made when due hereunder from the date thereof until payment is made,
and Lessee shall pay such interest to Lessor, on demand.
Section 24. Entire Agreement. THIS LEASE AND ASSOCIATED SCHEDULES CONSTITUTES
THE ENTIRE AGREEMENT BETWEEN LESSOR AND LESSEE AND EXCLUSIVELY AND COMPLETELY
STATES THE RIGHTS OF LESSOR AND LESSEE WITH RESPECT TO THE LEASING OF THE
EQUIPMENT AND SUPERSEDES ALL PRIOR AGREEMENTS, ORAL OR WRITTEN, WITH RESPECT
THERETO AND ANY COURSE OF DEALING OF THE PARTIES HERETO.
Section 25. Finance Lease. The Lessor and Lessee hereby agree that this Lease is
a "finance lease" as that term is defined in Section 1310.01(A)(7) of the Ohio
Revised Code and that Lessor shall be treated as a finance lessor entitled to
the benefits and releases from liability accorded to a finance lessor under the
Uniform Commercial Code.
Section 26. Miscellaneous.
(a) This Lease shall inure to the benefit of and be binding upon the
successors and assigns of the respective parties hereto provided, however, that
nothing contained in this section shall impair any of the provisions prohibiting
assignment without the consent of Lessor;
(b) Any provision of this Lease which is unenforceable in any jurisdiction
shall not render unenforceable such provision in any other jurisdiction and
shall not invalidate the remaining provision of this Lease.
(c) This Lease shall be governed by and construed under the laws of Ohio
without regard to its conflicts of laws provisions.
(d) All covenants of Lessee herein shall survive the expiration or
termination of this Lease to the extent required for their full observance and
performance.
(e) No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach of
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Lease must
be in writing specifically set forth.
(f) Lessee agrees that the state and federal courts in the county of
Lessor's principal place of business or any other court in which Lessor
initiates proceedings have exclusive jurisdiction over all matters arising out
of this Agreement and that service of process in any such proceeding shall be
effective if mailed to Lessee at its address described in the first paragraph of
this Lease. LESSOR AND LESSEE HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY
MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
10
<PAGE> 1
EXHIBIT 10.59
MASTER LEASE
(MOTOR VEHICLE)
This Master Lease Agreement ("Master Lease") is dated 5-17-96, between NBD Bank
("Lessor"), and McClain Group Leasing, Inc. ("Lessee").
Lessee wants from time to time to lease from Lessor personal property to be
described in one or more schedules ("Schedule") of leased equipment. Lessor is
willing to lease such personal property to Lessee at the rent, for the term and
upon the conditions stated. Any Schedules executed by Lessor and Lessee which
are identified as being a part of this Master Lease, shall be deemed to
incorporate by reference all the terms of this Master Lease except as provided
in the Schedule. In the event of a conflict between this Master Lease and any
Schedule, the provisions of such Schedule shall control.
1. EQUIPMENT LEASED AND TERM. This Master Lease shall cover such personal
property as is described in any Schedule (the "Equipment") executed by the
parties. Lessor leases to Lessee and Lessee hires and takes from Lessor, subject
to the conditions of this Master Lease, the Equipment described in any
Schedule. The term for any item of Equipment shall be for the period as set
forth in the Schedule ("Initial Lease Term").
2. RENT. The rent for each item of Equipment shall be payable as, and in the
amount, shown on the Schedule.
3. PURCHASE AND ACCEPTANCE. Lessee requests Lessor to acquire all scheduled
Equipment pursuant to an assignment of Lessee's purchase order(s) for the
Equipment. Delivery of each item of Equipment shall be deemed complete upon the
acceptance date ("Acceptance Date") stated in the Schedule. Lessor shall not be
liable for loss or damage or for the delay or failure of any supplier of the
Equipment ("Seller") to deliver any item of Equipment. THE LESSEE REPRESENTS
THAT LESSEE HAS SELECTED BOTH THE EQUIPMENT LISTED IN ANY SCHEDULE AND THE
SELLER BEFORE HAVING REQUESTED LESSOR TO ACQUIRE THE EQUIPMENT FOR LEASING TO
LESSEE.
4. NON-CANCELABLE LEASE. THIS MASTER LEASE IS NON-CANCELABLE. When Lessee
signs and delivers a Certificate of Acceptance for the Equipment, its
obligations to pay all rent and other amounts for the Initial Lease Term and to
perform as required under this Master Lease are unconditional, irrevocable and
independent except as provided in a certain credit agreement dated 5-17-96
between the Lessor, as Bank, and the Lessee, as Borrower. These obligations
are not subject to cancellation, termination, modification, repudiation, excuse
or substitution by Lessee. Lessee is not entitled to any abatement, reduction,
offset, defense or counterclaim with respect to these obligations for any
reason whatsoever, whether arising out of default or other claims against
Lessor, the Seller or the manufacturer of the Equipment, defects in or damage
to the Equipment, its loss or destruction.
5. DISCLAIMER OF WARRANTIES BY LESSOR; RIGHTS OF LESSEE. LESSOR MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING THE
CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY
PARTICULAR PURPOSE, AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS-IS".
UNDER NO CIRCUMSTANCES SHALL LESSOR BE RESPONSIBLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS MASTER LEASE AND/OR THE
EQUIPMENT. LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE
OF ANY THIRD PARTY, PROVIDED TO LESSOR BY THE SELLER IN CONNECTION WITH OR AS
PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT. LESSEE MAY
COMMUNICATE WITH THE SELLER AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF
THOSE RIGHTS, PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND
LIMITATIONS OF THEM OR OF REMEDIES.
6. CLAIMS AGAINST SELLER; SELLER NOT AN AGENT OF LESSOR. If the Equipment is
not properly installed, does not operate as represented or warranted by the
Seller or is unsatisfactory for any reason, Lessee shall make any claim for same
solely against the Seller and shall nevertheless pay Lessor all rent payable
under this Master Lease. Lessor agrees to assign to Lessee, solely for the
purpose of making and prosecuting any such claim, any rights it may have against
the Seller for breach of warranty or representation regarding the Equipment.
Notwithstanding any fees that must be paid to Seller or any agent of Seller,
Lessee understands and agrees that neither the Seller nor any agent or employee
of the Seller is an agent or employee of the Lessor and that neither the Seller
nor its agent or employee is authorized to waive or alter any term or condition
of this Master Lease.
7. TITLE; LOCATION OF THE EQUIPMENT; EQUIPMENT IS PERSONAL PROPERTY;
TERMINATION. Title to the Equipment is in the Lessor and under no
circumstances shall pass to Lessee. Lessor agrees that the Equipment is motor
vehicles, primarily operating in the United States. Lessee shall provide
Lessor, immediately upon request during the term of the Master Lease, a written
report of Equipment locations. LESSEE FURTHER COVENANTS AND AGREES THAT THE
EQUIPMENT IS, AND WILL AT ALL TIMES BE AND REMAIN, PERSONAL PROPERTY.
<PAGE> 2
Upon Termination of the Initial Lease Term of any Schedule, the Equipment shall
be disposed of in accordance with the terms of Rider A of this Master Lease.
8. NO ASSIGNMENT BY LESSEE; ASSIGNMENT BY LESSOR. THIS MASTER LEASE SHALL NOT
BE ASSIGNED BY LESSEE, NOR SHALL ANY OF THE EQUIPMENT BE SUBLEASED BY LESSEE
WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Lessor may sell or assign all or
part of its right, title and interest in this Master Lease, any item of
Equipment and/or any Schedule and in any monies to become due to the Lessor.
The assignee shall not be liable for or be required to perform any of Lessor's
obligations to Lessee. All assigned rental payments shall be paid directly to
assignee, upon written notice to Lessee of such assignment. Lessee's
performance of all its obligations shall not be subject to any defense,
counterclaim or setoff which the Lessee may have against Lessor. Lessee agrees
that it will not assert any such defenses, setoffs, counterclaims or
claims against the assignee.
9. CASUALTY AND LIABILITY INSURANCE; RISK OF LOSS; DAMAGE OR DESTRUCTION.
Lessee shall keep all Equipment insured against loss by fire, theft and all
other hazards (comprehensive coverage) in such amounts as Lessor reasonably
requires but not less than the casualty value ("Casualty Value") for such item
indicated in the Casualty Value Table attached to the applicable Schedule.
Lessee appoints Lessor Lessee's attorney in fact to endorse any loss payment or
returned premium check and to make any claim under such insurance. Lessee shall
also insure the Lessor and Lessee with respect to liability for personal
injuries in amounts of at least $1,000,000 per individual, $3,000,000 per
occurrence; and $1,000,000 per occurrence for damage to or loss of use of
property resulting from the ownership, use and operations of the Equipment and
against risks customarily insured against by the Lessee for equipment owned by
it. All policies shall be endorsed with Lessor as a loss payee and additional
insured and shall provide that the interest of Lessor shall not be invalidated
by any act of Lessee. Evidence of insurance must be delivered to Lessor within
30 days after any Acceptance Date. In the event of loss, destruction or theft
of, or damage to, any of the Equipment, Lessee will immediately notify Lessor.
If Lessee defaults in obtaining any insurance, Lessor may but is not required
to, place such insurance. Any premiums paid by Lessor shall be additional rent
payable on demand with interest at the highest legal rate from the date of
payment. At Lessor's sole option, such amounts together with interest may be
added to the lease balance to be paid by Lessee as additional monthly rent.
Lessee assumes and shall bear all risks of loss of, damage to or destruction of
each item of Equipment, whether partial or complete. Except as provided in
this Section 9, no such event shall relieve the Lessee of its obligation to pay
the full rental payable for such item.
If any item of Equipment is destroyed, damaged beyond economical repair, lost
or stolen, or taken by governmental action for a stated period extending beyond
the Initial Lease Term for such item (an "Event of Loss"), Lessee must promptly
notify Lessor and any assignee and pay to Lessor or the assignee, as the case
may be, on the next rent payment date following the Event of Loss the Casualty
Value of the item of Equipment. Upon such payment and provided no Event of
Default as defined in Section 12 has occurred, Lessee's obligation to pay rent
for such item of Equipment will cease and Lessee will be entitled to receive
any insurance proceeds or other recovery received by the Lessor or assignee in
connection with the Event of Loss.
10. REPAIRS; USE; ALTERATIONS; ATTACHMENTS. Lessee, at its own expense, shall
keep the Equipment maintained in good repair, condition, working order, and in
accordance with the manufacturer's recommended maintenance procedures and
specifications, shall use the Equipment lawfully; and shall not alter the
Equipment without the Lessor's prior written consent. Lessee shall take no
action which would void the manufacturer's warranty on the Equipment. All
items which become attached to or a part of the Equipment become the property
of Lessor.
11. LIENS AND TAXES. Lessee at its expense shall keep the Equipment free and
clear of all levies and liens. Lessee agrees to comply with all laws,
regulations and orders relating to this Lease and to pay when due, all license
fees, assessments and sales, use, property, excise, federal highway use, ad
valorem, ton mileage and other taxes now or later imposed by any governmental
body or agency upon any Equipment, or the use of the Equipment, exclusive,
however, of any taxes based on the net income of Lessor. Lessee shall pay all
such taxes directly to the respective taxing authorities except for the sales
tax on rental payments. Any fees, taxes or other charges paid by Lessor after
ten (10) days notice to and upon failure of Lessee to make such payments, shall
at Lessor's option, become immediately due if Lessee shall not have previously
notified Lessor in writing of its good faith contest of such taxes.
12. DEFAULT. Any of the following shall constitute an event of default ("Event
of Default") by Lessee: (a) Lessee fails to pay when due any scheduled rent or
other amount required by this Master Lease and such failure continues for a
period five (5) days; (b) Lessee breaches any covenant of this Master Lease or
fails to promptly perform any of its terms or conditions and such failure
continues for a period (30) days; (c) Lessee makes an assignment for the benefit
of creditors; (d) a petition is filed by or against Lessee in bankruptcy or for
the appointment of a receiver; (e) dissolution or suspension of Lessee's usual
business; (f) Lessee makes a bulk transfer or bulk sale of any assets; (g) any
material representation, warranty, or signature made by Lessee in this Master
Lease or related document is incorrect, fraudulent or breached; or (h) Lessee
defaults under the terms of any agreement or instrument relating to any lease or
debt for borrowed money such that the lessor accelerates the rent or the
creditor declares the debt due before its maturity. Lessee agrees to give
Lessor prompt notice upon the occurrence of an Event of Default.
<PAGE> 3
13. LESSOR'S REMEDIES UPON DEFAULT BY LESSEE. Upon the occurrence of an
Event of Default, Lessor, without further notice, and in addition to any remedy
provided by law, may (i) recover from Lessee the Casualty Value of the
Equipment together with any unpaid rent and (ii) regardless of whether such
amounts are paid, take possession of any items of Equipment and at Lessor's
option sell or lease at public auction or by private sale or otherwise dispose
of such items of Equipment.
If Lessee has paid the Casualty Value, all unpaid rent and all other amounts
owing under this Master Lease and any items of Equipment have been taken from
Lessee, the proceeds of any reletting or sale (less all costs and expenses
including reasonable attorneys' fee) shall be paid to the Lessee.
Regardless of any sale or lease of the Equipment or any payment of the Casualty
Value, Lessee will remain liable to Lessor for all damages as provided by law
and for all costs and expenses caused by Lessee's breach, including court costs
and reasonable attorneys' fees (whether attributable to Lessor's in-house
counsel or outside counsel). These costs and expenses shall include, without
limitation, any costs or expenses incurred by Lessor in any bankruptcy,
reorganization, insolvency or other similar proceeding.
14. LATE CHARGES. Without limiting Lessor's remedies above, if Lessee
fails to pay any amount of rental or other payment for a period of ten days
after its due date, Lessee agrees to pay Lessor a late charge of 5% of each
such payment or installment with a minimum late charge of $25.00. This late
charge shall be reassessed in each subsequent month that the rental or other
payment remains unpaid.
15. FINANCING STATEMENTS. The Lessor is authorized to file a financing
statement in accordance with the Uniform Commercial Code signed by Lessee or by
Lessor, as Lessee's attorney in fact.
16. JURISDICTION; VENUE; SEVERABILITY. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF MICHIGAN. LESSEE CONSENTS TO THE JURISDICTION OF THE
COURTS OF MICHIGAN AND TO VENUE IN THE COURTS OF THE COUNTY OF OAKLAND. No
provision which may be construed as unenforceable shall in any way invalidate
any other provision, all of which shall remain in full force and effect.
17. WARRANTIES BY LESSEE. Lessee warrants and represents that: (a) the
Equipment is being leased for business purposes; (b) all signatures are
genuine; and (c) the person signing the Master Lease is authorized to do so. If
Lessee is other than a natural person, it further represents that (a) it is
duly organized, existing and in good standing pursuant to the laws under which
it is organized; and (b) the execution and delivery of this Master Lease and
the performance of the obligations it imposes are within its powers and have
been duly authorized by all necessary action of its governing body and do not
contravene the terms of its articles of incorporation or organization, its
bylaws or any partnership, operating or other agreement governing its affairs:
18. INDEMNITY BY LESSEE. LESSEE AGREES TO INDEMNIFY AND HOLD LESSOR OR ANY
ASSIGNEE HARMLESS FROM ANY AND ALL CLAIMS, ACTIONS, PROCEEDINGS, EXPENSES,
DAMAGES AND LIABILITIES, INCLUDING ATTORNEYS' FEES, ARISING OUT OF OR IN ANY
MANNER PERTAINING TO THE EQUIPMENT OR THIS MASTER LEASE INCLUDING, WITHOUT
LIMITATION, THE OWNERSHIP, SELECTION, POSSESSION, PURCHASE, DELIVERY,
INSTALLATION, LEASING, OPERATION, USE, CONTROL, MAINTENANCE AND RETURN OF THE
EQUIPMENT AND THE RECOVERY OF CLAIMS UNDER INSURANCE POLICIES.
Lessee acknowledges that the Equipment is owned by Lessor ("Owner"). It is the
intent of Owner/Lessor and Lessee that this Lease constitute a true lease for
Federal income tax purposes so that, for the purpose of determining its
liability for Federal income taxes, Owner shall be entitled to the tax benefits
as are provided by the Internal Revenue Code of 1986, as amended, (the "Code")
to an owner of personal property.
In addition notwithstanding any other provision of this Master Lease, if as to
any Equipment, the modified accelerated cost recovery system or depreciation
deductions allowed under the Code shall be lost, disallowed, eliminated,
reduced, recaptured or otherwise unavailable to Lessor for any reason, then
Lessee shall pay to Lessor as additional rent within 30 days after such a loss
an amount equal to the sum of (i) the additional federal, state, local and
foreign income or any other taxes payable as a result of such loss,
disallowance, elimination, reduction, recapture or unavailability of
accelerated cost recovery or depreciation deductions plus (ii) the amount of
any interest, penalties or additions to tax payable by the Lessor as a result
of such additional tax.
The indemnities given and liabilities assumed by the Lessee pursuant to this
Section 18 shall continue in full force and effect notwithstanding the
expiration or other termination of this Master Lease.
19. NOTICES. Notice from one party to another relating to this Master
Lease shall be deemed effective if made in writing (including
telecommunications) and delivered to the recipient's address, telex number or
telecopier number set forth under its name below.
<PAGE> 4
20. LABELS AFFIXED TO EQUIPMENT. Lessor shall have the right, but not the
obligation, to attach or require Lessee to attach ownership identification
labels to the Equipment. Lessee agrees not to remove any such labels.
21. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses,
including reasonable attorneys' fees, incurred by Lessor in enforcing any terms
of, or in protecting Lessor's interests under, this Master Lease.
22. PERFORMANCE BY LESSOR. If the Lessee fails to promptly perform any of its
obligations under this Master Lease, Lessor may, at its option, perform such
act or make such payment which the Lessor deems necessary. All sums paid or
incurred by Lessor including reasonable attorneys fees shall be immediately due
and payable by Lessee, without demand, and shall bear interest at the lesser of
one and one-half percent (1-1/2%) per month or the highest rate permissible by
law.
23. ENTIRE AGREEMENT. This Master Lease and subsequent Schedules constitute
the entire agreement of the parties. Neither party relies on any other
statements, understandings, representations or assurances, the same, if any
having been merged into this agreement. This agreement cannot be modified
except by a writing signed by each party. This agreement inures to the benefit
of the heirs, executors, administrators, successors and assigns of the parties.
25. WAIVER. No delay on the part of Lessor in the exercise of any right or
remedy shall operate as a waiver. No single or partial exercise by Lessor of
any right or remedy shall preclude any other future exercise of it or the
exercise of any other right or remedy. No waiver by Lessor of any default shall
be effective unless in writing and signed by Lessor, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any future
occasion.
25. FINANCIAL REPORTS. Upon request by Lessor, Lessee will promptly furnish
to Lessor all financial reports deemed necessary by Lessor.
26. WAIVER OF JURY TRIAL. Lessor and Lessee, after consulting or having had
the opportunity to consult with counsel, knowingly, voluntarily and
intentionally waive any right either of them may have to a trial by jury in any
litigation based upon or arising out of this Master Lease, or any related
agreement, or any course of conduct, dealing or statements (whether oral or
written). These provisions shall not be deemed to have been modified in any
respect or relinquished by either Lessor or Lessee except by a written
instrument executed by both of them.
THIS MASTER LEASE AGREEMENT THE UNDERSIGNED (AND IF
SHALL NOT BE BINDING ON LESSOR MORE THAN ONE, JOINTLY
UNTIL IT HAS BEEN ACCEPTED AND AND SEVERALLY) AGREE TO
EXECUTED BY AN OFFICER OF LESSOR. TO ALL TERMS AND
CONDITIONS ABOVE WHICH
ARE PART OF THIS MASTER
LEASE AGREEMENT.
Accepted by Lessor: NBD Bank Lessee: McClain Group Leasing, Inc.
By: Andrew P. Sabath By:
----------------------- -----------------------
Title: 2nd VP Title:
--------------------- ---------------------
Date: 5-17-96 By:
---------------------- -----------------------
Title:
---------------------
Date:
---------------------
Address For Notices: Address For Notices:
39555 Orchard Hill Place Drive ___________________________
Suite #340 ___________________________
Novi, MI 48375 ___________________________
Fax No.: (810) 349-3893 Fax No.: __________________
<PAGE> 5
[NDB LETTERHEAD]
ANDREW P. SABATH
Second Vice President
July 25, 1995
Mr. Jim Zabinski
Treasurer
McClain Industries, Inc.
6200 Elmridge
Sterling Heights, MI 48310
Dear Mr. Zabinski:
NBD Bank is pleased to provide the following lease facility for Prime Leasing,
Inc. The terms and conditions of the facility are outlined below.
Lessee... Prime Leasing Corporation
Lessor... NBD Bank (NBD)
Guarantor/Source... McClain Industries, Inc.
Equipment... E-Z Pack Hercules, E-Z Pack Goliath, Magna-Hoist
Tilt Frame and Aluminum Closed Top Walking Floor
Transfer Hauler
Equipment Cost... Up to a maximum of $5,000,000
Delivery and Lease
Commencement Date... On or before June 30, 1996
TRACTORS:
Payments... Monthly in advance
Base Lease Term... Sixty (60) months
<PAGE> 6
[NBD LOGO]
-2-
Rental Rates... 1st Quarter (January 1 through March 31)
.01690 of actual equipment cost
2nd Quarter (April 1 through June 30)
.01679 of actual equipment cost
3rd Quarter (July 1 through September 30)
.01670 of actual equipment cost
4th Quarter (October 1 through December 31)
.01661 of actual equipment cost
Rental Adjustment: The rental rate quoted above will be adjusted by
.0000052 for each basis point increase or
decrease, or prorated portion thereof, in the
yield of the Treasury Note rate indicated below.
The rental rate will continue to be subject to
adjustment until the Lessor has been notified
that the Equipment has been delivered and
accepted by the Lessee. Upon such notification,
the Lessor will fix the rate and prepare the
necessary documentation for execution by the
Lessee.
The Treasury note rate will be the average yield
of 3 year U.S. Treasury Notes (as published in
federal Reserve Statistical Release H.15 [519]
from the complete one week period immediately
preceding the date of closing. At the time of
this proposal, the average yield for the prior
week is 5.73%.
Terminal Rental 20% Split/TRAC
Adjustment Clause... Lessee at risk for last 12%; Lessor at risk for
first 8%.
Depreciation... Five (5) year MACRS for the account of the
Lessor.
Interim Rents... It is assumed the acceptance date of the
equipment and commencement date of the Lease
will be the same therefore, no Interim Rents are
expected. If there are Interim Rents, the rate
will be the prime rate of NBD.
Net Lease... Prime Leasing Corporation will be responsible
for all expenses incurred in connection with the
Equipment and the Lease. NBD will make no
warranties of any kind with respect to the
Equipment. Prime Leasing Corporation shall have
all risks of loss.
Insurance... Prime Leasing Corporation will provide physical
damage insurance and liability insurance with
endorsements and in amounts acceptable to NBD
prior to the delivery of the equipment. NBD will
be named as additional insured under the
casualty coverage and under the Prime Leasing
Corporation comprehensive coverage.
<PAGE> 7
[NBD LOGO]
-3-
Taxes... Prime Leasing Corporation will pay all taxes
associated with the possession, control and
operation of the Equipment, including but not
limited to sales and use tax on lease payments,
if required and personal property tax (excludes
any taxes based on NBD's net income).
Titling Fees... It is assumed that Prime Leasing
Corporation/McClain Industries, Inc. will title
the vehicles, therefore no fees will be
required.
Material Adverse Change... There will not have occurred, prior to the
initial Funding Date, in the opinion of Lessor,
any material adverse change in the financial
position or in the circumstances involving the
nature of Lessee's or Guarantor's business.
Jim, we are pleased to provide this facility for your company. I hope the terms
and conditions are acceptable to you. As you requested, I am also sending you a
copy of our lease documents for your review. If you have any questions or
require further information, please feel free to call.
Sincerely,
NBD Bank
Andrew P. Sabath
Andrew P. Sabath
cc: N. Warriner
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
McClain of Ohio, Inc., a Michigan corporation
Galion Holding, Inc., a Michigan corporation
208
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