<PAGE> 1
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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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 November 23, 1998, the aggregate market value of the Registrant's
voting stock held by nonaffiliates of the Registrant was $18,694,280 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 November 23, 1998, there were 4,673,570 shares of the
Registrant's common stock issued and outstanding.
The Exhibit Index Begins on Page 50
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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. The Company also sells truck chassis at the retail level. 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-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 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
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equipment; (3) garbage and recycling truck bodies; and (4) transfer trailers.
The Company also markets truck chassis. Sales of dump truck bodies accounted for
approximately 15%, sales of solid waste handling equipment accounted for
approximately 71%, and truck chassis accounted for approximately 14% of the
Company's consolidated net sales for the fiscal year ended September 30, 1998.
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 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 the Winesburg, Ohio facility, 24
models of balers which compact plastic and paper products, primarily cardboard.
Balers are either vertical downstroke or closed door horizontal balers.
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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.
Truck Chassis
Truck chassis are purchased and combined with either a roll-off hoist,
garbage truck body or dump body for sale as a road ready package.
CUSTOMERS AND DISTRIBUTION
For the fiscal years ended September 30, 1998, the Company's
consolidated net sales were divided approximately 37% to distributors, 51% to
solid waste handling companies, and 12% to other entities.
During the fiscal years ended September 30, 1998 and 1997,
approximately 28.8% and 13.5%, respectively, of the Company's total sales were
made to Waste Management, Inc. No single customer accounted for more than 10% of
the Company's net sales for the fiscal year ended September 30, 1996. 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.
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Historically, foreign sales have not accounted for a significant
portion of the Company's revenues, The Company anticipates that future foreign
sales will remain steady or increase slightly.
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 November 20, 1998, there were approximately
280 authorized Company dealers located in numerous states and 20 authorized
Company dealers, licensees and commissioned district managers in 10 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.
The Company, through Leasing, also provides both sales-type financing
and operating leases. At September 30, 1998, Leasing held net lease receivables
of approximately $9.1 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, warehouses and importers.
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.
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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 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
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 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 92.8%, 91.8%, and 89% of Shelby Steel's business
and 1.6%, 1.9%, and 1.2% of the Company's consolidated net sales for the fiscal
years ended September 30, 1998, 1997 and 1996, 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.
5
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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 four to six 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.
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 $17
million and $16.7 million at September 30, 1998 and 1997, respectively.
Substantially all of the Company's backlog is delivered within four to six 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, 1998, 1997 and 1996, the Company had inventory of $38.9
million, $31.0 million and $25.6 million, respectively.
EMPLOYEES
The Company had approximately 810 employees as of November 15, 1998.
Seventy-Four 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 163 hourly employees of E-Z Pack are represented
by the International Association of Machinists and Aerospace Workers Union
pursuant to a
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collective bargaining agreement which expires June 12, 2000. The
62 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 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 940,200
square feet of real property located in Michigan, Ohio, Georgia, Oklahoma and
Alabama. The Company owns three facilities in Michigan, four 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:
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FOOTAGE
-------- --------- -------
<S> <C> <C>
Sterling Heights, Michigan Owned 37,000
</TABLE>
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<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FOOTAGE
-------- --------- -------
<S> <C> <C>
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
</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, hoists and balers.
The Company's Georgia facility is an approximately 114,500 square foot
manufacturing facility on 13.2 acres in Macon, Georgia. This facility was
reorganized during Fiscal 1997 to manufacture dump bodies and roll-off hoists to
sell principally in the Southeast.
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.
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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.
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 30% of capacity. The Alabama facility
is currently operating at 60% 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 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 9 and
10 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 number of 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 indemnification Galion Holding provided
Peabody in connection with the acquisition, it is currently defending several
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 settled all of the cases
which were pending at the date of the acquisition and the Company believes that
it can continue to successfully resolve pending and future product liability
claims, there can be no assurance that the Company will be able to do so. The
Company is not presently a party to any material legal proceedings except as
described above.
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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
---- ---
FISCAL YEAR ENDED SEPTEMBER 30, 1997
<S> <C> <C>
First Quarter 7.25 4.75
Second Quarter 6.75 4.625
Third Quarter 5.50 4.25
Fourth Quarter 5.0 4.25
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter 4.75 4.20
Second Quarter 6.19 3.375
Third Quarter 5.75 4.375
Fourth Quarter 5.00 3.00
</TABLE>
On December 11, 1998, the last reported sales price for the Common
Stock as reported by Nasdaq/NMS was $5.00. As of such date there were
approximately 226 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:
10
<PAGE> 12
<TABLE>
<CAPTION>
========================================================================================================================
1998 1997 1996 1995 1994
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Gross Sales $118,487,052 $96,524,208 $84,680,797 $82,263,202 $79,166,990
Sales, Net of Customer
Discounts $116,554,031 $95,255,641 $84,221,810 $81,569,427 $78,540,233
Net Income (Loss) $3,383,892 $(1,703,780) $2,384,957 $2,462,755 $3,250,996
Net Earnings (Loss) Common
and Common Equivalent
Share,(1, 2) $.72 $(.36)
$.50 $.53 $.71
Working Capital $41,919,687 $33,520,003 $32,371,639 $33,868,556 $21,997,601
Total Assets $100,246,967 $87,185,567 $79,425,255 $73,899,197 $58,189,747
Long-Term Debt $42,530,105 $38,513,490 $34,217,149 $31,170,287 $18,039,869
Stockholders' Investment $26,835,306 $23,837,091 $25,457,255 $22,841,274 $19,359,709
Weighted Average Number of
Common Equivalent Shares
Outstanding(1, 2) 4,711,741 4,729,281
4,752,050 4,657,476 4,608,137
Current Ratio 2.57:1 2.63:1 3.18:1 3.37:1 2.49:1
Long Term Debt to Equity 1.59:1 1.62:1 1.34:1 1.36:1 0.93:1
=======================================================================================================================
</TABLE>
(1) Weighted 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.
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.
11
<PAGE> 13
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,
----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.00% 100.00% 100.00% 100.00%
Cost of Sales 82.18 83.68 79.65 78.35 78.12
------ ------ ----- ----- -----
Gross Profit 17.82 16.32 20.35 21.65 21.88
Selling, General &
Administrative Expenses 11.47 14.33 13.60 14.52 13.48
Restructuring and Impairment
Charge 0.00 1.84 0.00 0.00 0.00
------ ------ ------ ----- -----
Operating Profit 6.35 .15 6.75 7.13 8.40
Other Expense 2.22 2.24 2.48 2.59 2.19
------ ------ ------ ----- -----
Income (Loss) Before Income
Taxes 4.13 (2.09) 4.27 4.54 6.21
Income Taxes (Benefit) 1.23 (.30) 1.45 1.55 2.09
------ ------ ----- ----- -----
Net Income (Loss) 2.90% (1.79)% 2.82% 2.99% 4.12%
====== ====== ====== ====== =====
</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, 1998 to year ended September 30, 1997
Net sales for the fiscal year ended September 30, 1998 increased 22.4%
to $116.6 million compared to $95.2 million for the fiscal year ended September
30, 1997. The increase was the result of strong sales of the Company's McClain
E-Z Pack and commodity products and the expansion of the Company's truck chassis
program. E-Z Pack and commodity sales increased by approximately $4.0 million
and $8.0 million, respectively, while sales of truck chassis increased
approximately $10.0 million over the prior year. Although the sales for Fiscal
1998 increased substantially, the Company's McClain E-Z Pack and Galion Dump
Bodies facilities sales were slower than expected due to logistical problems
resulting from a shortage of truck chassis throughout the year.
The Company's overall gross profit as a percentage of sales increased
to 17.82% for Fiscal 1998 from 16.32% for fiscal 1997 while the gross profit on
products manufactured by the Company increased to 20.3% for Fiscal 1998 from
17.26% for Fiscal 1997. The price increase implemented during December 1997,
increased production at the Company's Georgia facility, the transfer of the Epco
product line to the
12
<PAGE> 14
Winesburg facility and the closing of the Buffalo facility were the primary
factors in the increased gross profit on the products manufactured by the
Company.
The Company's inventory levels increased to $38.9 million at the end of
fiscal 1998 from $31.0 million at the end of fiscal 1997. This increase was
primarily due to the expansion of the Company's truck chassis program and
increased finished goods inventories at the McClain E-Z Pack and Galion Dump
Bodies facilities due to the shortage of truck chassis previously discussed.
Selling, general and administrative expenses decreased to 11.47% of net
sales during fiscal 1998 compared to 14.33% for fiscal 1997. This decrease was
due primarily to the increased sales and the Company's continuing efforts to
automate and centralize certain administrative functions.
Comparison of year ended September 30, 1997 to year ended September 30, 1996
Net sales for the fiscal year ended September 30, 1997 increased 13.2%
to $95.3 million compared to $84.2 million for the fiscal year ended September
30, 1996. This increase was primarily due to the acquisition of the Alabama
facility in late fiscal 1996 which resulted in an increase in container sales of
approximately $10.0 million. Sales of the Company's other products, with the
exception of balers which declined approximately $1.8 million, remained
essentially stable during Fiscal 1997.
Gross profit as a percentage of sales declined to 16.32% for fiscal
1997 from 20.35% for Fiscal 1996, and a net loss from operations of
approximately $1.7 million was generated. The decline in gross profit and the
net loss from operations were due in large part to a change in the products
produced at the Company's Georgia facility, the decision to close the Epco
facility as a result of slumping baler sales, certain errors in the Company's
pricing models which resulted in the Company setting inadequate prices for its
products, and a slowdown in the capital expenditures of many of the national and
regional hauling companies.
In Fiscal 1997, the Company transferred the production of its roll off
containers from Georgia to Alabama and the production of its roll-off hoists
from Michigan to Georgia. In addition, the Company completely redesigned its
roll-off hoists. The time spent by the Company in implementing these changes
combined to create a significant loss in production time at Georgia, causing a
pretax loss of approximately $1.7 million at that facility. These shifts in
production also created certain temporary losses in production time at both the
Alabama and Michigan facilities further reducing margins.
The recycled paper market remained soft throughout the year causing
baler sales to slump. As a result, the Company had a pretax operating loss of
approximately $0.6 million. Because of this slump in baler sales and
management's projection of continued depressed future baler sales, management
determined that it would be unable to profitably produce balers at the Epco
facility. The Company has decided to close the Epco facility and move the baler
production to one of its Ohio facilities which has excess capacity, thereby
eliminating the overhead expenses related to the Epco facility. As a result of
this decision, the Company recognized in Fiscal 1997 a pretax restructuring and
impairment charge of approximately $1.75 million, which consisted of goodwill of
$1.15 million, the write-down of leasehold improvements and other assets of $0.3
million, and costs associated with the closing of the leased facility of $0.3
million.
13
<PAGE> 15
In Fiscal 1993, Company-wide accounting and manufacturing software was
installed. Initially, the Company focused on utilizing the accounting modules of
the software. It was not until Fiscal 1995 that the Company began to incorporate
the manufacturing modules of the software. During the phase-in of these
manufacturing modules, certain cost factors related primarily to scrap and other
safety margins which the Company historically used in its pricing models were
overlooked causing the Company to set the prices of its goods too low. This
error went undetected until the end of Fiscal 1997, at which time management
performed a detailed evaluation of all pricing models and product costs, which
prompted an increase in the selling prices of most of the Company's products in
the range of 2% to 4%, effective December 1, 1997.
The solid waste hauling industry is currently going through a period of
consolidations and reorganizations. Certain regional companies have merged or
acquired smaller local haulers, and the two largest hauling companies in the
United States are currently undergoing reorganizations after years of rapid
growth. Because of these consolidations and reorganizations, many of the
national and larger regional hauling companies have reduced their capital
expenditures, creating significant downward pressure on the Company's selling
prices and lower margins.
The Company's inventory levels increased to $31.0 million at the end of
Fiscal 1997 from $25.6 million at the end of Fiscal 1996. This increase was
primarily due to the Company's inability to adequately adjust its purchasing
plan in response to the slowdown in capital purchases by certain national
hauling companies discussed above.
Selling, general and administrative expenses increased to 15.15% as a
percentage of net sales during Fiscal 1997 compared to 13.60% for Fiscal 1996.
This increase was attributed primarily to increased selling expenses, increased
bad debt write-offs, and a more conservative product liability accrual. To
strengthen its position in the market as a provider of a complete line of solid
waste hauling equipment, the Company decided to increase its advertising, expand
its trade show activity and hire additional sales people. The Company believes
that this approach will have positive long term effects on the Company's sales
as the consolidations in the solid waste hauling industry continue. The Company
suffered a significant bad debt write-off related to the failure of a national
trailer manufacturer and experienced certain collection problems with some of
the companies involved in the consolidations in the solid waste hauling
industry. The Company does not anticipate further collection problems related to
these consolidations.
Due to increased leasing activity and inventory levels, interest
expense increased to 3.83% of net sales during Fiscal 1997 compared to 3.62%
during Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $41.9 million and a
current ratio of 2.57:1 at September 30, 1998, compared to $33.5 million and
2.63:1 at September 30, 1997. Cash and short term investments totaled $1.9
million at September 30, 1998 while cash flows of $3.4 million were utilized for
operations during fiscal 1998. The Company also invested approximately $1.0
million in new machinery and equipment and financed approximately $1.0 million
of new leases during fiscal 1998.
The Company's required level of working capital increased during fiscal
1998 from fiscal 1997 due to increased sales creating additional accounts
receivable and
14
<PAGE> 16
increased inventory levels needed to support the expansion of the Company's
truck chassis program. Long-term debt continued to increase as a result of the
increase in accounts receivable and inventory levels, the continued expansion of
leasing activity and the Company's ongoing commitment to increasing production
efficiency by properly maintaining and upgrading its production facilities and
machinery and equipment.
The Company has a Revolving Credit Facility with Standard Federal Bank,
a federal savings bank ("Standard"), which provides maximum availability of $20
million for working capital needs and a $1.5 million credit line to fund
machinery and equipment acquisitions. At September 30, 1998, the Company had
borrowed approximately $18.0 million under the working capital line. Borrowings
under the working capital line are limited to 80% of eligible accounts
receivable and 50% of qualified inventory while the equipment line is limited to
80% of pledged equipment purchases.
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 $10.0 million with borrowing limited to 80% of eligible lease
receivables. At September 30, 1998 approximately $7.6 million had been drawn on
this facility.
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 Company is in compliance with
the various covenants as of September 30, 1998. The revolving credit agreements
bear interest at the Libor rate plus 200 basis points and expire in March 2000,
at which time the Company expects to obtain renewals on the same or similar
terms.
The Company has agreements with three 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, 1998, approximately $5.0 million had
been drawn on the facilities.
The Company has currently set its budget for capital expenditures in
fiscal 1999 at approximately $4.5 million as compared to $2.0 million in fiscal
1998. Despite this increase, management believes that the Company's cash flow,
together with the credit available to it under existing debt facilities, will
provide it with adequate cash for its working capital needs for the next 12
months.
YEAR 2000 COMPLIANCE
The Company uses computer hardware and financial and manufacturing
software that it purchased from third party suppliers. Such suppliers have
confirmed to the Company that such products are Year 2000 compliant.
Consequently, the Company does not expect to incur any significant costs to
become Year 2000 compliant. The Company has no information concerning the Year
2000 compliance status of its suppliers or customers. If any of the Company's
significant suppliers or customers does not successfully and timely become Year
2000 compliant, the Company's business or operations could be adversely
affected. The Company has not
15
<PAGE> 17
yet generated any disaster contingency plans related to the Year 2000 compliance
issue.
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) 57 Chairman of the Board, Chief
Executive Officer and President 3/68
Robert W. McClain(1) 62 Senior Vice President, Assistant
Secretary and Director 3/68
Raymond Elliott 64 Director 8/90
Walter J. Kirchberger 63 Director 11/95
Carl Jaworski 55 Secretary 10/72
Mark S. Mikelait 38 Treasurer 5/97
</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.
16
<PAGE> 18
RAYMOND ELLIOTT has been a director of the Company since August 1990.
He is President of Hartland Insurance Group, Inc. From January 1, 1997 to
October 2, 1998, he was a Vice President of First of America Insurance (now
National City) Group since October 1996. Prior to that he was 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 the Board of Directors in November
1995. 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 has served as Secretary since October 1972. Mr. Jaworski
was also a director and the Treasurer of the Company from October 1972 until
April 1992. Mr. Jaworski also serves as Secretary and a director of Shelby Steel
and Secretary of McClain-Georgia. Mr. Jaworski is the Secretary of E-Z Pack and
a Vice President and Secretary of Sales.
MARK S. MIKELAIT has served as Treasurer of the Company since May 1997
and joined the Company in September 1994. Prior to that time Mr. Mikelait, a
CPA, was employed as a senior manager by Rehmann Robson, the Company's
independent auditors, beginning in November 1985.
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, 1998, 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.
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 other executive officers whose total
annual salary and bonus from the Company exceeded $100,000 during the fiscal
year ended September 30, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------
Name and Fiscal Salary Options/
Principal Position Year Amount($) SARs(#)
------------------ ---- --------- -------
<S> <C> <C> <C>
Kenneth D. McClain, 1998 $263,031 ---
President/ CEO
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------
Name and Fiscal Salary Options/
Principal Position Year Amount($) SARs(#)
------------------ ---- --------- -------
<S> <C> <C> <C>
1997 226,885
1996 275,000 ---
Robert W. McClain, 1998 $125,004 ---
Senior Vice President
1997 183,335
1996 246,832 ---
Carl Jaworski 1998 $104,631 5,000
Secretary
1997 107,207
1996 --- ---
Mark S. Mikelait 1998 $101,250 10,000
Treasurer
1997 --- ---
1996 --- ---
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUES TABLE
Shares No. of Unexercised Options/SARs at Value of Unexercised
Acquired Fiscal Year-End In-The-Money Options/SARs at
on Exercise Fiscal Year-End(2)
in 1998 Value
Realized
Not Not
Exercisable Exercisable(1) Exercisable Exercisable
- ---------------------- --------------- -------------- ---------------- -------------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Kenneth D. McClain -0- -0- 35,864 $ -0- $ -0-
Robert W. McClain -0- -0- 27,268 $ -0- $ -0-
</TABLE>
(1) Stock options granted April 18, 1994 and November 16, 1995 pursuant
to the Company's 1989 Incentive Stock Plan (the "Incentive Plan").
Options must be exercised by April 17, 1999 and November 15, 2000.
Exercise price is $6.50 and $7.31 per share.
(2) Value based on the average of the September 30, 1998 closing bid high
and low price which was $3.50 per share.
18
<PAGE> 20
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 $3,750, 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, 1998, 7,593 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 November 14,1998, 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 1,477,057(3) 31.60%
6200 Elmridge Road
Sterling Heights, MI 48310
Robert W. McClain 1,118,946(4) 23.94%
6200 Elmridge Road
Sterling Heights, MI 48310
June McClain 337,178 7.21%
6200 Elmridge Road
Sterling Heights, MI 48310
</TABLE>
19
<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>
Lisa McClain Pfeil 310,474(5) 6.64%
6200 Elmridge Road
Sterling Heights, MI 48310
Raymond Elliott 18,245 0.39%
290 Town Center
P.O. Box 890
Troy, Michigan 48084
Walter Kirchberger 6,100 0.13%
2301 West Big Beaver Rd., Suite 800
Troy, Michigan 48084
Carl Jaworski 116.159 2.49%
6200 Elmridge Road
Sterling Heights, MI 48310
Mark S Mikelait 25.666 0.55%
500 Sherman Street
Galion, OH 44833
All current executive officers and 2,762,163(6) 59.11%
directors as a group (6 persons)
</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 4,673,570 shares of Common Stock issued and outstanding as of
November 22, 1998. 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 85,464 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 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 they 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.
20
<PAGE> 22
In November 1994, in connection with a contemplated public offering of
its Common Stock and at the insistence of staff members of the Securities and
Exchange Commission, for purposes of the public offering, 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. In order to
consummate the offering, Messrs. Kenneth and Robert McClain consented 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 originally maintained pursuant to Generally Accepted
Accounting Principles in effect at the time of the transaction, that the shares
should have been valued as of March 31, 1993, but acquiesced to the position of
the staff members of the Securities and Exchange Commission in an effort to move
forward with the aborted securities offering. The accounting profession
subsequently issued a pronouncement supporting the Company's original position.
Accordingly, the letter agreement was rescinded during the year ended September
30, 1998.
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 14 of Notes to
Consolidated Financial Statements.
The Company had sales of approximately $590,000 in Fiscal 1998 to
McClain Leasing Corporation, an entity controlled by certain officers and
directors of the Company.
First of America Insurance Group, Inc., an entity that, until October
2, 1998, employed Raymond Elliott, a director of the Company, provided insurance
to the Company during Fiscal 1998. Sales from this entity to the Company
aggregated approximately $1.1 million during Fiscal 1998, for which this entity
received fees and commissions in the approximate amount of $116,200.
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.
(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.
21
<PAGE> 23
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 11, 1998 McCLAIN INDUSTRIES, INC.
By:/s/ Kenneth D. McClain
-----------------------------------------
Kenneth D. McClain, President
(Principal Executive Officer)
And By:/s/ Mark S. Mikelait
-------------------------------------
Mark S. Mikelait, 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 11, 1998 /s/ Kenneth D. McClain
------------------------------------
Kenneth D. McClain, Director
Dated: December 11, 1998 /s/ Robert W. McClain
------------------------------------
Robert W. McClain, Director
Dated: December 11, 1998 /s/ Raymond Elliott
------------------------------------
Raymond Elliott, Director
Dated: December 11, 1998 /s/ Walter J. Kirchberger
------------------------------------
Walter J. Kirchberger, Director
22
<PAGE> 24
SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
Washington, D. C.
Form 10-K
For Corporations
ANNUAL REPORT
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 and 1996
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
-23-
<PAGE> 25
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - September 30, 1998 and 1997
Consolidated Statements of Operations for the years ended September 30, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Investment for the years ended
September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended September 30, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
SCHEDULES
The information required to be submitted in Schedule II - Valuation and
Qualifying Accounts 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.
-24-
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' investment, and
cash flows for each of the three years in the period ended September 30, 1998.
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, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles.
/s/ Rehmann Robson, P.C.
Farmington Hills, Michigan
December 7, 1998
-25-
<PAGE> 27
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
-------------------------------------------
1998 1997
--------------------- ------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,924,006 $ 2,402,421
Accounts receivable, net of allowance for doubtful accounts
of $800,000 in 1998 ($500,000 in 1997) 24,235,761 16,589,263
Inventories 38,873,477 31,011,766
Net investment in sales-type leases, current portion 3,100,000 2,900,000
Prepaid expenses 543,095 362,029
Refundable federal and state income taxes - 837,638
--------------------- ------------------
TOTAL CURRENT ASSETS 68,676,339 54,103,117
--------------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, NET 23,266,545 25,240,624
--------------------- ------------------
OTHER ASSETS
Net investment in sales-type leases, net of
current portion 6,013,959 5,348,773
Goodwill, net of amortization 1,440,745 1,704,132
Other 454,941 752,878
Equipment under construction 394,438 36,043
--------------------- ------------------
TOTAL OTHER ASSETS 8,304,083 7,841,826
--------------------- ------------------
TOTAL ASSETS $ 100,246,967 $ 87,185,567
===================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
<PAGE> 28
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT SEPTEMBER 30,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 18,405,224 $ 14,132,646
Current portion of long-term debt 3,300,000 2,800,000
Accrued expenses 4,040,434 2,790,468
Accrued restructuring costs -- 610,000
Deferred income 497,000 250,000
Federal and state income taxes 513,994 --
------------ ------------
TOTAL CURRENT LIABILITIES 26,756,652 20,583,114
Long-term debt, net of current portion 42,530,105 38,513,490
Product liability 1,909,904 2,151,872
Deferred income taxes 2,215,000 2,100,000
------------ ------------
TOTAL LIABILITIES 73,411,661 63,348,476
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 17)
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding, 4,686,727 shares
(4,737,622 shares in 1997) 4,997,809 5,383,486
Retained earnings 21,837,497 18,453,605
------------ ------------
TOTAL STOCKHOLDERS' INVESTMENT 26,835,306 23,837,091
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $100,246,967 $ 87,185,567
============ ============
</TABLE>
-27-
<PAGE> 29
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended September 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $116,554,031 $95,255,641 $84,221,810
Cost of sales 95,786,681 79,711,774 67,086,240
------------ ----------- -----------
GROSS PROFIT 20,767,350 15,543,867 17,135,570
Selling, general and administrative
expenses 13,363,850 13,647,757 11,450,466
Restructuring and impairment charges -- 1,755,000 --
------------ ----------- -----------
INCOME FROM OPERATIONS 7,403,500 141,110 5,685,104
------------ ----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (3,381,132) (3,448,867) (3,044,398)
Interest income 1,285,016 1,215,877 795,519
Other, net (493,492) 101,100 178,732
------------ ----------- -----------
OTHER EXPENSE - NET (2,589,608) (2,131,890) (2,070,147)
------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 4,813,892 (1,990,780) 3,614,957
Income taxes (benefit) 1,430,000 (287,000) 1,230,000
------------ ----------- -----------
NET INCOME (LOSS) $ 3,383,892 $(1,703,780) $ 2,384,957
============ ============ ===========
Net income (loss) per share:
Basic $ 0.72 $ (0.36) $ 0.50
============ ============ ===========
Assuming dilution $ 0.72 $ (0.36) $ 0.49
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
<PAGE> 30
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK AMOUNT
------------- RETAINED DUE FROM
SHARES AMOUNT EARNINGS OFFICERS TOTALS
------ ------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at October 1,
1995 4,587,744 $ 5,572,846 $ 17,772,428 $ (504,000) $ 22,841,274
Reversal of amount due
from officers (Note 14) - (504,000) - 504,000 -
Shares issued 137,799 378,024 - - 378,024
Shares repurchased (31,627) (147,000) - - (147,000)
Net income - - 2,384,957 - 2,384,957
---------- ----------- ------------ ----------- -------------
Balance at September 30,
1996 4,693,916 5,299,870 20,157,385 - 25,457,255
Shares issued 56,971 157,695 - - 157,695
Shares repurchased (24,467) (136,968) - - (136,968)
Common stock issued in
connection with EPCO
acquisition 11,202 62,889 - - 62,889
Net loss - - (1,703,780) - (1,703,780)
---------- ----------- ------------ ----------- -------------
Balance at September 30,
1997 4,737,622 5,383,486 18,453,605 - 23,837,091
Shares issued 45,284 90,323 - - 90,323
Shares repurchased (96,179) (476,000) - - (476,000)
Net income - - 3,383,892 - 3,383,892
---------- ----------- ------------ ----------- -------------
Balance at September 30,
1998 4,686,727 $ 4,997,809 $ 21,837,497 $ - $ 26,835,306
========== =========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-29-
<PAGE> 31
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997 1996
-------------- --------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,383,892 $ (1,703,780) $ 2,384,957
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 3,395,115 4,893,701 2,550,935
Deferred income taxes 115,000 - 660,000
Provision for doubtful accounts 481,407 432,511 49,400
(Gain) loss on disposal of plant and equipment (1,530) 4,032 3,981
Common stock issued to directors for services 31,127 28,494 18,613
Common stock issued in connection
with EPCO acquisition - 62,889 -
Net changes in operating assets and liabilities
which provided (used) cash, net of effects in
1996 of business acquisition:
Accounts receivable (8,127,905) 1,481,176 (3,987,569)
Inventories (7,861,711) (5,434,766) 6,072,095
Net investment in sales-type leases (865,186) (2,632,423) (2,055,386)
Prepaid expenses and other assets 403,712 (1,086,661) (300,974)
Accounts payable 4,272,578 3,585,004 1,357,333
Accrued expenses 1,400,960 1,455,314 (735,656)
-------------- --------------- ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (3,372,541) 1,085,491 6,017,729
-------------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (965,246) (4,080,499) (1,991,316)
Payments on liabilities assumed upon the
Galion acquisition (241,967) (623,984) (1,371,214)
Proceeds from sale of plant and equipment 1,528 - 22,331
-------------- --------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (1,205,685) (4,704,483) (3,340,199)
-------------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 7,269,129 10,078,495 2,139,126
Repayments of long-term debt (2,752,514) (5,114,354) (5,137,398)
Sale of common stock under stock option plan 59,196 129,201 359,411
Repurchase of common stock (476,000) (136,968) (147,000)
-------------- --------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,099,811 4,956,374 (2,785,861)
-------------- --------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (478,415) 1,337,382 (108,331)
Cash and cash equivalents, beginning of year 2,402,421 1,065,039 1,173,370
-------------- --------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,924,006 $ 2,402,421 $ 1,065,039
============== =============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-30-
<PAGE> 32
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. The Company also sells truck chassis at the retail
level. 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.
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). In August 1996, McClain of Alabama, Inc. was formed and
acquired a roll-off container manufacturing facility (Note 2). All
significant intercompany accounts and transactions have been
eliminated.
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 generally are limited due to the
relatively large number of customers comprising the Company's customer
base and its geographic dispersion, with the exception of the customer
discussed below. The Company maintains reserves for potential credit
losses and such losses have historically been insignificant and
generally within management's expectations.
Sales to a major customer aggregated approximately $33,642,000 and
$12,896,000 in 1998 and 1997, respectively. The Company had receivables
of approximately $8,000,000 and $3,000,000 from this customer at
September 30, 1998 and 1997, respectively. The loss of this customer
could adversely affect the Company's short-term operating results.
-31-
<PAGE> 33
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 periods. 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.
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
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
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, whereby sales and gross profit are
recognized at the inception of the lease. 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.
-32-
<PAGE> 34
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill
Goodwill representing the purchase price in excess of the fair values
of net assets acquired is amortized on a straight line basis. The
amortization period is estimated based upon management's judgements and
generally ranges from 5 to 40 years. Accumulated amortization as of
September 30, 1998 and 1997 was $809,980 and $546,593, 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 (see Note 3).
Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average number
of common shares outstanding during the year. The Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", effective September 30, 1998. This statement requires a
dual presentation and reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all common stock
equivalents. At September 30, 1998, 1997 and 1996 options to purchase
199,476, 125,464 and 110,464, shares respectively, were excluded from
the computation of earnings per share because the options' exercise
prices were greater than the average market price of the common
shares. A reconciliation of the denominators used in the basic and
diluted share calculation follows for the years ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Denominator:
Weighted average shares outstanding, basic 4,711,741 4,729,281 4,752,050
Incremental shares from assumed
conversion of options - 41,577 81,443
------------- ------------- -------------
Weighted average shares outstanding, diluted 4,711,741 4,770,858 4,833,493
============= ============= =============
</TABLE>
Fair Values of Financial Instruments
The carrying amount of cash equivalents, accounts receivable and
accounts payable 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.
-33-
<PAGE> 35
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components,
amending various prior SFAS. Management believes that the adoption of
SFAS No. 130 in fiscal 1999 will not have a significant impact on
results of operations or financial position.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", which establishes
standards for the way that public enterprises report information about
operating segments in annual financial statements and requires selected
information in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers, superseding SFAS No.
14. Management believes that the adoption of SFAS No. 131 in fiscal
1999 will not have a significant impact on the disclosure of financial
information.
Common Stock Issued to Directors for Services
Common stock is issued from time to time in lieu of cash for services
provided to the Company by Directors of the Company and is recorded as
compensation expense generally at the fair value on the date of
issuance.
Revenue Recognition
Sales are recorded by the Company when the products are delivered to
independent distributors or other customers.
Reclassification
Certain amounts as reported in the 1997 and 1996 financial statements
have been reclassified to conform with the 1998 presentation.
-34-
<PAGE> 36
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. BUSINESS ACQUISITION
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. (Waste), 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 being amortized over five
years.
In connection with this transaction, Waste 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 calendar years
following the closing. In this event, the Company has agreed to pay to
Waste up to $1,200,000 during each year. If Waste 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
accounts for such payments as sales discounts when and as earned by
Waste. For the years ended September 30, 1998 and 1997 approximately
$1,327,000 and $400,000 has been recorded as sales discounts in
connection with post-acquisition sales of $33,642,000 and $12,896,000,
respectively, made to Waste pursuant to the agreement.
McClain of Alabama, Inc. sales amounted to approximately $16,100,000
and $9,300,000 during the years ended September 30, 1998 and 1997,
respectively.
3. RESTRUCTURING AND IMPAIRMENT CHARGES
In September 1997, the Company decided to restructure its baler
equipment manufacturing operations based upon an evaluation of sales
levels to date, anticipated levels of business in 1998 and beyond, and
unsatisfactory operating results. The plan involved the shift of all
baler production from the Company's facility in Buffalo, New York to
its Winesburg, Ohio plant, the abandonment of the leased premises in
Buffalo, and the transfer of moveable property and equipment to other
locations. The related restructuring and impairment charge of
$1,755,000 in 1997 consists principally of a writeoff of goodwill of
$1,145,000, the writedown of leasehold improvements and other assets of
$310,000, and costs associated with the abandoned leased facilities of
$300,000. After an income tax benefit of $207,000, which excluded the
writeoff of goodwill not considered to be deductible, these actions
reduced reported operating results by $1,548,000 or $0.33 per share in
1997.
-35-
<PAGE> 37
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. SUPPLEMENTAL CASH FLOWS INFORMATION
During the years ended September 30, 1998, 1997 and 1996, common stock
valued at $31,127, $28,494 and $18,613, respectively, was issued to
non-employee directors in exchange for services rendered.
During the year ended September 30, 1997, common stock valued at
$62,889 was issued in accordance with the EPCO purchase agreement.
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 10).
Cash paid for interest amounted to $3,356,571 for 1998, $3,223,867 for
1997, and $3,044,398 for 1996. Cash paid for federal income taxes
amounted to $-0- for 1998, $350,000 for 1997, and $1,198,137 for 1996.
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
The following is a summary of changes in the allowance for doubtful
accounts during each of the three years in the period ended September
30:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
Balance, beginning of year $ 500,000 $ 600,000 $ 600,000
Add provision charged
against income 481,400 432,500 49,400
Less uncollectible accounts
written off, net of recoveries (181,400) (532,500) (49,400)
------------- -------------- --------------
BALANCE, END OF YEAR $ 800,000 $ 500,000 $ 600,000
============= ============== ==============
</TABLE>
6. 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. The major components of inventories were as follows at
September 30:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
Materials and chassis $ 22,100,252 $ 17,221,766
Work-in process 5,707,374 6,664,000
Finished goods 11,065,851 7,126,000
--------------- ---------------
$ 38,873,477 $ 31,011,766
=============== ===============
</TABLE>
-36-
<PAGE> 38
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. 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>
1998 1997
----------- -----------
<S> <C> <C>
Gross minimum lease payments
collectible in monthly installments $11,706,584 $10,825,166
Less advance lease payments and
deposits received 289,157 249,737
----------- -----------
Subtotal 11,417,427 10,575,429
Less unearned finance income 2,303,468 2,326,656
----------- -----------
Total net investment in sales-type leases 9,113,959 8,248,773
Current portion 3,100,000 2,900,000
----------- -----------
Noncurrent portion $ 6,013,959 $ 5,348,773
=========== ===========
</TABLE>
Gross minimum lease payments are collectible in the following scheduled
annual amounts for the years succeeding September 30, 1998:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
- ------------------- --------------
<S> <C>
1999 $ 3,883,358
2000 3,026,735
2001 2,341,437
2002 1,427,705
2003 738,192
-----------
Gross minimum amount collectible $11,417,427
===========
</TABLE>
-37-
<PAGE> 39
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. LEASING OPERATIONS (Continued)
Sale-Leaseback Transactions
---------------------------
The Company, through McClain Group Leasing, Inc., has TRAC (Terminal
Rental Adjustment Clause) leasing programs in place with three
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 income from
the subleasing activities was $1,382,000, $1,420,000 and $422,000 in
the years 1998, 1997 and 1996, respectively, while the related rental
expense for the leaseback of the products was $1,317,000, $1,212,000
and $316,000 during the years ended September 30, 1998, 1997 and 1996,
respectively. Proceeds of the subleasing activities have been, and are
expected to continue to be, in excess of the related rental expense.
Minimum scheduled rental payments and rental receipts under these
operating lease arrangements in future years are summarized as follows:
<TABLE>
<CAPTION>
Year ending Rental Rental
September 30 Payments Receipts
------------------- ------------ ------------
<S> <C> <C>
1999 $ 930,000 $1,130,000
2000 930,000 1,130,000
2001 930,000 1,130,000
2002 930,000 1,130,000
2003 913,000 1,125,000
---------- ----------
Gross minimum rental payments $4,633,000 $5,645,000
========== ==========
</TABLE>
Total residual values guaranteed by the Company under these leasing
arrangements approximates $725,000 as of September 30, 1998.
-38-
<PAGE> 40
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation for
financial reporting purposes is provided primarily using the
straight-line method over the estimated useful lives of the assets.
Accelerated depreciation methods are used for income tax purposes.
Estimated useful lives range from 20 to 40 years for buildings and
improvements, and 3 to 30 years for machinery, equipment, furniture and
fixtures, and vehicles. Expenditures for maintenance and repairs are
charged to expense as incurred, and significant betterments are
capitalized.
Property, plant and equipment consisted of the following amounts as of
September 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $ 2,282,977 $ 2,281,480
Buildings and improvements 13,517,487 13,673,209
Machinery and equipment 22,276,726 21,584,020
Furniture, fixtures and vehicles 4,023,385 3,931,764
----------- -----------
42,100,575 41,470,473
Less accumulated depreciation 18,834,030 16,229,849
----------- -----------
Property, plant and equipment, net $23,266,545 $25,240,624
=========== ===========
</TABLE>
-39-
<PAGE> 41
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. 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:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Revolving line of credit providing for maximum availability of up to $20,000,000
and $21,000,000 at September 30, 1998 and 1997, respectively. Borrowings are
limited to 80% of the eligible accounts receivable and 50% of qualified
inventory and are subject to interest at the LIBOR rate plus 200 basis points
(7.5% at September 30, 1998). (At September 30, 1997, the Company had several
separate line of credit agreements with its primary bank. These agreements were
consolidated into the current line of credit as part of a new loan agreement
dated April 16, 1998.) $ 17,955,713 $ 20,139,774
The agreement is collateralized by substantially all the assets of the Company
and contains various covenants requiring the Company to maintain certain
financial ratios. The agreement also prohibits the Company from incurring
additional indebtedness other than subordinated indebtedness and limits plant
and equipment acquisitions to $3.0 million per fiscal year. This agreement
expires in March 2000, at which time the Company expects to obtain a renewal
upon the same or similar terms.
Line of credit providing for maximum availability of up to $10,000,000 in 1998
and 1997. Borrowings are limited to 80% of eligible lease receivables and are
subject to interest at the LIBOR rate plus 200 basis points. The agreement is
collateralized by certain equipment leases held by the Company's leasing
subsidiary. This agreement expires in March 2000, at which time the Company
expects to obtain a renewal upon the same or similar terms. 7,605,295 6,249,290
----------------- ----------------
Total lines of credit borrowings (Note 10) $ 25,561,008 $ 26,389,064
================= ================
</TABLE>
-40-
<PAGE> 42
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT
Long-term debt consisted of the following obligations as of September
30:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Promissory note to a bank, collateralized by certain assets as disclosed in Note
9. The note is payable in monthly installments of $200,000 plus interest at the
LIBOR rate plus 230 basis points (effective rate of 7.8% at September 30, 1998),
maturing in July 2004. (At September 30, 1997, the Company was indebted on
several promissory notes to its primary bank. These promissory notes were
consolidated into the current promissory note pursuant to a new loan agreement
dated April 16, 1998.) $ 14,200,000 $ 7,348,253
Promissory notes to banks, collateralized by commercial mortgages on certain
real estate, payable in monthly installments of $28,300 plus interest ranging
from the bank prime rate to prime plus 1/4% (effective rates of 8.5% to 8.75% at
September 30, 1998), maturing at various dates through January 2000. 1,369,097 2,351,173
Industrial Revenue Bonds, collateralized by a bank letter of credit. The bonds
are payable in annual installments of $525,000 through April 2007. The bonds
bear interest, payable monthly, at either a fixed term, or a variable rate
(effective rate of 4.07% at September 30, 1998) as determined by the bond
holder. 4,700,000 5,225,000
Lines of credit borrowings (Note 9) 25,561,008 26,389,064
----------------- ----------------
Total long-term debt 45,830,105 41,313,490
Less current portion 3,300,000 2,800,000
----------------- ----------------
Long-term debt, net of current portion $ 42,530,105 $ 38,513,490
================= ================
</TABLE>
-41-
<PAGE> 43
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT (Continued)
Scheduled aggregate principal maturities of long-term debt for years
succeeding September 30, 1998 are presented below:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
- ------------------- ----------------
<S> <C>
1999 $ 3,300,000
2000 29,200,000
2001 3,100,000
2002 3,000,000
2003 3,000,000
Thereafter 4,230,105
----------------
$ 45,830,105
================
</TABLE>
The debt agreements contain certain restrictive covenants which require
the Company to, among other things, meet certain net worth and working
capital requirements along with maintaining various financial ratios.
11. ACCRUED EXPENSES
Accrued expenses included on the accompanying consolidated balance
sheets consist of the following amounts at September 30:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Sales discounts $ 1,162,959 $ 400,000
Compensation 640,869 577,772
Vacation and holiday pay 481,174 534,953
Taxes 488,598 -
Insurance 891,592 514,040
Other 375,242 763,703
--------------- ---------------
Total $ 4,040,434 $ 2,790,468
=============== ===============
</TABLE>
-42-
<PAGE> 44
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. INCOME TAXES
The provision (benefit) for income taxes for each of the three years in
the period ended September 30, consists of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Current federal provision (benefit) $ 1,315,000 $ (287,000) $ 570,000
Deferred provision 115,000 - 660,000
---------------- -------------- ---------------
Total income taxes (benefit) $ 1,430,000 $ (287,000) $ 1,230,000
================ ============== ===============
</TABLE>
The effective income tax rate on consolidated pre-tax income differs
from the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ----- --------------- ------ -------------- -----
Amount % Amount % Amount %
--------------- ----- --------------- ------ -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed
at statutory rate $ 1,637,000 34 $ (677,000) (34) $ 1,229,000 34
Nondeductible expenses 21,000 1 389,000 19 31,000 1
Cancellation of debt
related to EPCO restructuring (207,000) (4) - - - -
Other (21,000) (1) 1,000 - (30,000) (1)
------------ ----- ------------ ------ ------------ ---
$ 1,430,000 30 $ (287,000) (15) $ 1,230,000 34
============ ===== ============ ===== ============ ===
</TABLE>
The balance of the net deferred income tax liability consists of
temporary basis differences related to the following assets and
liabilities as of September 30:
<TABLE>
<CAPTION>
1998 1997
---------------- ------------------
<S> <C> <C>
Taxable differences:
Property and equipment $ 2,850,000 $ 2,651,000
Inventory 1,140,000 1,226,000
--------------- ----------------
Gross deferred tax liabilities 3,990,000 3,877,000
--------------- ----------------
Deductible differences:
Product liability 646,000 740,000
Accounts receivable 170,000 171,000
Accrued expenses 798,000 727,000
Goodwill 161,000 82,000
Alternative minimum tax credit - 50,000
Other - 7,000
--------------- ----------------
Gross deferred tax assets 1,775,000 1,777,000
--------------- ----------------
Net deferred income tax liability $ 2,215,000 $ 2,100,000
=============== ================
</TABLE>
The components which comprise gross deferred taxes are predominantly
noncurrent; as such, the entire related net liability is classified as
noncurrent.
-43-
<PAGE> 45
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. 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 $494,133 in 1998, $407,739 in 1997, and $334,924 in
1996.
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, 1998, 1997
and 1996.
14. 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, 1998, 1997 and 1996.
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 a contemplated public offering of its common stock and
at the insistence of staff members of the Securities and Exchange
Commission (SEC), for the purposes of the public 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 gave 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. In order to consummate the offering, at the
direction of the SEC staff, the Company's principal shareholders agreed
to reimburse that amount to the Company. A letter agreement was
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.
-44-
<PAGE> 46
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS (Continued)
The Company originally maintained, pursuant to generally accepted
accounting principles in effect at the time of the transaction, that
the shares should have been valued as of March 29, 1993, but acquiesced
to the position of the SEC staff in an effort to move forward with the
aborted securities offering. The accounting profession subsequently
issued a pronouncement supporting the Company's original position.
Accordingly, the letter agreement was rescinded during the year ended
September 30, 1998 and the change in valuation is reported on the
accompanying consolidated statement of stockholder's investment during
the earliest year presented.
Other
Raymond Elliott, a director of the Company, served as a Vice President
of First of American Insurance Group, Inc. prior to October 2, 1998.
This entity provided insurance at a cost of approximately $1,100,000,
$1,093,000 and $1,200,000 to the Company during the years ended
September 30, 1998, 1997 and 1996, respectively. This entity received
fees and commissions in connection with these transactions of
approximately $116,000, $117,000 and $120,000, respectively.
Product Sales
The Company had product sales of approximately $590,000, $560,000 and
$660,000, during the years ended September 30, 1998, 1997 and 1996,
respectively, to a business controlled by the President of McClain
Industries, Inc.
15. STOCK BASED COMPENSATION 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 133,333 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,
1998, 1997 and 1996 the Company issued 7,593, 5,466 and 3,555 shares,
respectively, of its common stock to such directors in exchange for
services rendered.
-45-
<PAGE> 47
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. STOCK BASED COMPENSATION PLANS (Continued)
Incentive Stock Plan
The Incentive Stock Plan as adopted calls for reserving 1,333,333
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. Shares which have been issued under this plan vest in
annual installments from the date of grant, over a three year period,
and expire within 5 years from the date of grant.
The following table presents a summary of stock option activity for
each of the years in the three year period ended September 30:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
Exercise Exercise Exercise
Shares Price * Shares Price * Shares Price *
----------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 191,391 $5.71 227,896 $5.01 373,251 $5.65
Granted 74,000 5.08 15,000 5.75 - -
Exercised (30,825) 3.25 (51,505) 2.51 (134,244) 2.68
Forfeited/expired (35,090) 3.25 - - (11,111) 2.68
----------- --------- --------- --------- ---------- ---------
Outstanding, end of year 199,476 $6.30 191,391 $5.71 227,896 $5.01
----------- --------- --------- --------- ---------- ---------
Exercisable, end of year 145,131 $6.73 164,491 $5.55 174,174 $4.33
=========== ========= ========= ========= ========== =========
</TABLE>
OPTIONS AT SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Remaining
Contractual Exercise Exercise
Range of Exercise Prices Shares Life * Price * Shares Price *
---------------------------------- ----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
$5.00 to $6.00 89,000 4.2 years $ 5.19 34,667 $ 5.27
$6.01 to $7.00 46,478 0.6 years 6.56 46,466 6.56
$7.01 to $8.00 50,665 1.6 years 7.33 50,665 7.33
$8.01 to $9.00 13,333 0.9 years 8.81 13,333 8.81
---------- ---------- ----------- ---------- ---------
Total 199,476 2.5 years $ 6.30 145,131 $ 6.73
========== ========== =========== ========== =========
</TABLE>
*Weighted average
-46-
<PAGE> 48
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. STOCK BASED COMPENSATION PLANS (Continued)
The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its
employee stock options issued pursuant to the 1989 Incentive Stock
Plan. Under APB 25, because the exercise price of employee stock
options equals the market price of the underlying common stock on the
date of grant, no compensation expense is recorded in the accompanying
consolidated statements of operations. Had stock option compensation
expense been determined pursuant to the methodology provided in
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", the proforma effect on results of operations
for the years ended September 30, 1998 and 1997 would have been
insignificant.
16. COMMON STOCK REPURCHASES
In February 1998, the Board of Directors authorized the Company to
repurchase from time to time on the open market up to 200,000 shares of
the Company's common stock. During the year ended September 30, 1998,
the Company repurchased 96,179 shares at prices ranging from $3.25 to
$5.25. During the year ended September 30, 1997, the Company
repurchased 24,467 shares at prices ranging from $5.32 to $5.75 per
share. During the year ended September 30, 1996, the Company
repurchased 31,627 shares at prices ranging from $4.24 to $4.75 per
share.
17. 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.
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.
-47-
<PAGE> 49
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
17. COMMITMENTS AND CONTINGENCIES (Continued)
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, 1998.
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 September 1999 and June 2000.
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.
-48-
<PAGE> 50
McCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18. FOURTH QUARTER ADJUSTMENTS
During the quarter ended September 30, 1997, the Company recorded
various adjustments of approximately $2,500,000 principally related to
the valuation of inventories and lease accounting. The aggregate effect
of such adjustments was to decrease net income for the fourth quarter
of 1997 by approximately $1,650,000 ($0.35 per share).
* * * * *
-49-
<PAGE> 51
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
<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 Agreement of Purchase and Sale dated July 20, 1992 by and between Peabody (4)
International Corporation, as Seller, and Galion Holding Company, as Buyer
10.4 Manufacture and License Agreement dated as of November 2, 1992, between Galion Dump (6)
Bodies, as Licensor, and the Company, as Licensee
10.5 Loan documents dated as of March 1, 1993, between the Company and Galion Dump Bodies (6)
and E-Z Pack
10.6 Guaranty Fee Agreement dated as of March 2, 1993, between Galion Holding and the (6)
Company
10.7 Purchase Agreement, dated as of March 30, 1993, between the Company and Group (7)
Properties III
10.8 Purchase Agreement, dated as of March 30, 1993, between the Company and Group (7)
Properties
10.9 Purchase Agreement, dated as of March 30, 1993, between the Company and Group (7)
Properties of Georgia
10.10 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (8)
Statement Dated February 6, 1995, between Standard Federal Bank and the Company
10.11 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (8)
Statement Dated February 6, 1995, between Standard Federal Bank and the Company
10.12 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8)
(Secures Future Advances) dated February 6, 1995, between Standard Federal Bank and
E-Z Pack
10.13 Second Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8)
(Secures Future Advances) dated February 6, 1995, between Standard Federal Bank and
Galion Dump Bodies
10.14 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8)
(Secures Future Advances) between Standard Federal Bank and Galion Dump Bodies dated
June 22, 1995.
10.15 Third Amended and Restated Promissory Note (Line of Credit) dated June 22, 1995, (8)
between Standard Federal Bank, Galion Holding, E-Z Pack, Galion Dump Bodies and
McClain Group Sales of Florida
10.16 Security Agreement dated June 22, 1995, between Standard Federal Bank and McClain (8)
Group Sales of Florida
</TABLE>
50
<PAGE> 52
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
10.17 Fifth Amendment to Open-End Commercial Mortgage and Assignment of Lease and Rentals (8)
(Secures Future Advances) dated June 22, 1995, between Standard Federal Bank and E-Z
Pack
10.18 Loan Agreement dated July 17, 1996, between Standard Federal Bank and Leasing (9)
10.19 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank (9)
and Leasing
10.20 Commercial Mortgage, Assignment of Leases and Rents, Security Agreement and Financing (9)
Statement dated August 29, 1996, between Standard Federal Bank and McClain-Alabama.
10.21 Security Agreement dated August 29, 1996, between Standard Federal Bank and (9)
McClain-Alabama
10.22 Master Lease Agreement dated July 15, 1995 between Fifth Third Leasing Company and (9)
Leasing
10.23 Master Lease Agreement dated May 17, 1996 between NBD Bank and Leasing (9)
10.24 Term Note dated January 17, 1997 between Trust Company Bank of Middle Georgia and the (10)
Company
10.25 Preliminary Placement Memorandum dated April 17, 1997 - The Industrial Development (10)
Board of the City of Demopolis Industrial Development Revenue Bonds Series 1997
(McClain of Alabama, Inc. Project)
10.26 Lease Agreement dated April 1, 1997 between the Industrial Development Board of the (10)
City of Demopolis and McClain of Alabama
10.27 Trust Indenture Agreement dated April 1, 1997 between the Industrial Development Board (10)
of the City of Demopolis and LaSalle National Bank
10.28 Bond Guaranty Agreement dated April 1, 1997 between LaSalle National Bank and (10)
McClain-Alabama
10.29 Mortgage, Assignment of Leases and Security Agreement dated April 1, 1997 from the (10)
Industrial Development Board of the City of Demopolis and McClain-Alabama to Standard
Federal Bank
10.30 Standard Federal Bank Irrevocable Letter of Credit dated April 23, 1997 (10)
10.31 Placement Agency Agreement dated April 23, 1997 - The Industrial Development Board of (10)
the City of Demopolis Industrial Development Revenue Bond Series 1997 (McClain of
Alabama, Inc. Project)
10.32 Remarketing Agreement dated April 23, 1997 among LaSalle National Bank, The Industrial (10)
Development Board of the City of Demopolis and McClain of Alabama, Inc.
10.33 Loan Agreement dated April 16, 1998 between Standard Federal Bank and McClain 53
Industries, Inc., McClain of Alabama, Inc., McClaim of Georgia, Inc., McClain of Ohio,
Inc., McClain of Oklahoma, Inc., McClain Epco, Inc., Shelby Steel Processing Company,
McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump
Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
10.34 Promissory Note (Line of Credit) dated April 16, 1998 between Standard Federal Bank 86
and McClain Industries, Inc., McClain of Alabama, Inc., McClaim of Georgia, Inc.,
McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain Epco, Inc., Shelby Steel
Processing Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack,
Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of
Florida, Inc.
10.35 Promissory Note (Term Loan) dated April 16, 1998 between Standard Federal Bank and 93
McClain Industries, Inc., McClain of Alabama, Inc., McClaim of Georgia, Inc., McClain
of Ohio, Inc., McClain of Oklahoma, Inc., McClain Epco, Inc., Shelby Steel Processing
Company, McClain Tube Company, Galion Holding Company, McClain E-Z Pack, Inc., Galion
Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
10.36 Promissory Note (Line of Credit Converting to Term Loan) dated April 16, 1998 between 100
Standard Federal Bank and McClain Industries, Inc., McClain of Alabama, Inc., McClaim
of Georgia, Inc., McClain of Ohio, Inc., McClain of Oklahoma, Inc., McClain Epco,
Inc., Shelby Steel Processing Company, McClain Tube Company, Galion Holding Company,
McClain E-Z Pack, Inc., Galion Dump Bodies, Inc., McClain Group Sales, Inc., and
McClain Group Sales of Florida, Inc.
10.37 Second Amendment Agreement, Loan Agreement, Promissory Note (Line of Credit) dated 107
April 16, 1998 between Standard Federal Bank and McClain Group Leasing, Inc.
22 List of Subsidiaries (9)
27 Financial Data Schedule 120
</TABLE>
<TABLE>
<S> <C>
(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
(9) Incorporated by reference to the Company's Form 10-K f/y/e 9/30/96
(10) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/97
</TABLE>
52
<PAGE> 1
EXHIBIT 10.33
LOAN AGREEMENT
BETWEEN
STANDARD FEDERAL BANK
AND
MCCLAIN INDUSTRIES, INC., MCCLAIN OF ALABAMA, INC., MCCLAIN OF
GEORGIA, INC., MCCLAIN OF OHIO, INC., MCCLAIN OF OKLAHOMA,
INC., MCCLAIN EPCO, INC., SHELBY STEEL PROCESSING COMPANY,
MCCLAIN TUBE COMPANY D/B/A QUALITY TUBE, GALION HOLDING
COMPANY, MCCLAIN E-Z PACK INC., GALION DUMP BODIES, INC.,
MCCLAIN GROUP SALES, INC., AND MCCLAIN GROUP SALES OF FLORIDA,
INC.
THIS AMENDED AND RESTATED LOAN AGREEMENT is made and delivered this
16th day of April, 1998, by and among McClain Industries, Inc., a Michigan
corporation; McClain of Alabama, Inc., a Michigan corporation; McClain of
Georgia, Inc., a Georgia corporation; McClain of Ohio, Inc., a Michigan
corporation; McClain of Oklahoma, Inc., a Michigan corporation; McClain Epco,
Inc., a New York corporation; Shelby Steel Processing Company, a Michigan
corporation; McClain Tube Company d/b/a Quality Tube, a Michigan corporation
(the foregoing are herein referred to as the "McClain Group"); Galion Holding
Company, a Michigan corporation; McClain E-Z Pack Inc., a Michigan corporation;
Galion Dump Bodies, Inc., a Michigan corporation; McClain Group Sales, Inc., a
Michigan corporation; and McClain Group Sales of Florida, Inc., a Florida
corporation (collectively, "Borrowers") (the Borrowers not included in the
McClain Group are herein referred to as the "Galion Group"), 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 McClain Group entered into an Amended and Restated Loan
Agreement, dated July 17, 1996, as modified August 29, 1996 and amended April
28, 1997, with Standard Federal, pursuant to which Standard Federal made
available to the McClain Group the following credit facilities:
<TABLE>
<CAPTION>
Loan Number Type of Facility Principal Amount Date of Promissory Note
----------- ---------------- ---------------- -----------------------
<S> <C> <C> <C>
Loan No. 0250006199 Line of Credit $11,000,000.00 April 28, 1997
Loan No. 0250024109 Term Loan $ 3,465,888.23 July 17, 1996
Loan No. 0250024076 Line of Credit/Term $ 1,000,000.00 July 17, 1996
Loan No. 0250025206 Line of Credit/Term $ 1,000,000.00 April 28, 1997
Loan No. 0250017724 Term Loan $ 2,000,000.00 February 6, 1995
Loan No. 0250006389 Term Loan $ 615,000.00 October 13, 1988, as
amended
Loan No. 0250006272 Term Loan $ 350,000.00 September 26, 1988, as
amended
</TABLE>
B. The loans described in Recital A above are secured by a Security
Agreement, dated
1
<PAGE> 2
September 15, 1994, and a Security Agreement, dated July 19, 1995 (the "McClain
Security Agreements"), and by a Commercial Mortgage, dated September 26, 1988,
covering property located in River Rouge, Michigan (the "River Rouge Mortgage"),
a Real Estate Mortgage with Power of Sale, dated October 13, 1988, covering
property located in Cleveland County, Oklahoma (the "Oklahoma Mortgage"), a
Commercial Mortgage, Assignment of Lease and Rents, Security Agreement and
Financing Statement, dated February 6, 1995, covering property located in
Sterling Heights, Michigan (the "Sterling Heights Mortgage"), and a Commercial
Mortgage, Assignment of Lease and Rents, Security Agreement and Financing
Statement, dated February 6, 1995, covering property located in Comstock
Township, Michigan (the "Comstock Township Mortgage") .
C. The Galion Group entered into a First Amended and Restated Loan
Agreement, dated October 2, 1995, as modified August 29, 1996, with Standard
Federal, pursuant to which Standard Federal made available to the Galion Group
the following credit facilities:
<TABLE>
<CAPTION>
Loan Number Type of Facility Original Principal Date of Promissory Note
----------- ---------------- ------------------ -----------------------
<S> <C> <C> <C>
Loan No. 0250012691 Line of Credit $10,000,000.00 April 28, 1997
Loan No. 0250194514 Demonstrator Line $ 1,500,000.00 April 28, 1997
Loan No. 0250016750 Term Loan $ 2,000,000.00 September 15, 1994, as
amended
</TABLE>
D. The Galion Group also entered into a Loan Agreement, dated February
6, 1995, as modified August 29, 1996, with Standard Federal, pursuant to which
Standard Federal made available to the Galion Group the following credit
facilities:
<TABLE>
<CAPTION>
Loan Number Type of Facility Original Principal Date of Promissory Note
----------- ---------------- ------------------ -----------------------
<S> <C> <C> <C>
Loan No. 0250017683 Line of Credit/Term $ 800,000.00 February 6, 1995, as
amended
Loan No. 0250017732 Line of Credit/Term $ 800,000.00 February 6, 1995, as
amended
</TABLE>
E. The loans described in Recitals C and D above are secured by a
Security Agreement, dated September 15, 1994, and a Security Agreement, dated
June 22, 1995 (the "Galion Security Agreements"), and by an Open-End Commercial
Mortgage and Assignment of Lease and Rents, dated June 29, 1993, as amended,
covering property located in Winesburg, Ohio (the "Winesburg Mortgage"), and an
Open-End Commercial Mortgage and Assignment of Lease and Rents, dated June 29,
1993, as amended, covering property located in Galion, Ohio (the "Galion
Mortgage").
F. The Borrowers have requested that the credit facilities described
above, together with additional credit facilities, be consolidated and
restructured into the new credit facilities described in this Loan Agreement,
and Standard Federal is willing to supply such financing subject to the terms
and conditions set forth in this Loan Agreement.
NOW, THEREFORE, in reliance upon the representations herein provided
and in consideration of the premises and the mutual promises herein contained,
the Borrowers and Standard Federal hereby agree as follows:
2
<PAGE> 3
SECTION 1. DEFINITIONS
1.1 The following additional terms shall have the meanings stated below
when used in this Loan Agreement:
"Base LIBOR Rate" shall mean, with respect to a LIBOR Borrowing for an
Interest Period, LIBOR as of 11:00 a.m. two (2) London Business Days prior to
the first day of such Interest Period for deposits with maturities approximately
equal to such Interest Period and in an amount approximately equal to the amount
of such LIBOR Borrowing.
"Borrowing" shall mean an advance of all or any portion of the Line of
Credit or the Equipment Line of Credit and any principal amount outstanding
under the Term Loan and the Equipment Line of Credit.
"Borrowing Notice" shall mean a notice by Borrowers to Standard Federal
that Borrowers wish to make a Borrowing.
"Business Day" shall mean a day on which the main office of Standard
Federal is open for business.
"Consolidated Funded Debt" shall mean, as of any date, the sum of the
following (without duplication): (i) all Indebtedness of the Borrowers as of
such date, other than Consolidated Current Liabilities, (ii) all Indebtedness
which would be classified as "funded indebtedness" or "long-term indebtedness"
on a consolidated balance sheet of the Borrowers prepared as of such date in
accordance with generally accepted accounting principles, (iii) all
Indebtedness, whether secured or unsecured, of Borrowers, having a final
maturity (or which is renewable or extendable at the option of the obligor for a
period ending) more than one year after the date of creation thereof,
notwithstanding the fact that payments in respect thereof (whether installment,
serial maturity or sinking fund payments, or otherwise) are required to be made
by the obligor less than one year after the date of the creation thereof and
notwithstanding the fact that any amount thereof is at the time included also in
current liabilities of such obligor, (iv) all Indebtedness of the Borrowers
outstanding under a revolving credit or similar agreement providing for
borrowings (and renewals and extensions thereof) over a period of more than one
year, notwithstanding the fact that any such Indebtedness is created within one
year of the expiration of such agreement, (v) the present value (discounted at
the implicit rate, if known, or 10% per annum otherwise) of all obligations is
respect of Capital Leases of the Borrowers and (vi) all obligations under
Guaranties of Borrowers. "Indebtedness" shall mean all indebtedness, obligations
and liabilities, including, without limitation, all "liabilities" which would be
reflected on a balance sheet prepared in accordance with generally accepted
accounting principles, all obligations in respect of any Guaranty and all
obligations in respect of any Capital Lease. "Consolidated Current Liabilities"
shall mean, as of any date, the current liabilities which would be reflected on
a consolidated balance sheet of the Borrowers prepared as of such date in
accordance with generally accepted accounting principles, but excluding current
maturities of Consolidated Funded Debt. "Capital Lease" shall mean, as of any
date, any lease of property, real or personal, which would be capitalized on a
balance sheet of the lessee prepared as of such date in accordance with
generally accepted accounting principles, together with any other lease by such
lessee which is in substance a financing lease, including without limitation,
any lease under which (i) such lessee has or will have an option to purchase the
property subject thereto at a nominal amount or an amount less than a reasonable
estimate of the fair market value of such property as of the date such lease is
entered into or (ii) the term of the lease approximates or exceeds the expected
useful life of the property leased thereunder. "Guaranty" shall mean any
contract, agreement or understanding pursuant to which any Indebtedness of
another person or entity is guaranteed or in effect guaranteed in any manner,
whether directly or indirectly.
3
<PAGE> 4
"Earnings Before Interest and Taxes Plus Depreciation and Amortization"
shall mean the Borrowers' net income, computed in accordance with generally
accepted accounting principles as in effect as of the date hereof consistently
applied, before provision for federal and state income taxes, plus interest,
depreciation and amortization expense, as reflected in the financial statements
to be furnished as required herein.
"Effective Date" shall mean the date designated by Borrowers in a
Borrowing Notice as the date the Borrowing covered by such Borrowing Notice
shall be funded and shall also mean, where applicable, the first day of the
Interest Period applicable to a LIBOR Borrowing. An Effective Date for a Prime
Rate Borrowing must be a Business Day. An Effective Date for a LIBOR Borrowing
must be a London Business Day.
"Eligible Accounts Receivable" shall mean accounts receivable of the
Borrowers 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, or any debtor which does not maintain its principal office in the
continental United States, 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 governmental agency.
"Equipment Credit Limit" shall mean the principal amount of One Million
Five Hundred Thousand and 00/100 Dollars ($1,500,000.00).
"Equipment Line of Credit" shall mean the revolving line of credit
converting to a term loan made available by Standard Federal to the Borrowers on
the terms and conditions contained in this Loan Agreement.
"Equipment Line of Credit Note" shall mean the Promissory Note (Line of
Credit Converting to Term Loan)(Equipment Line of Credit) of even date herewith
and all renewals and amendments thereof, evidencing the Equipment Line of
Credit.
"Funded Debt Ratio" shall mean the ratio of the Borrowers' Consolidated
Funded Debt to Earnings Before Interest and Taxes Plus Depreciation and
Amortization as of the end of each quarter of each fiscal year of the Borrowers,
rounded to two decimal places.
"Interest Period" shall mean, with respect to a Line LIBOR Borrowing, a
period of one (1) month, two (2) months or three (3) months, commencing on the
Effective Date with respect to such Line LIBOR Borrowing. With respect to a Term
LIBOR Borrowing, "Interest Period" shall mean a period of three (3) months,
commencing on the Effective Date with respect to such Term LIBOR Borrowing. If
any Interest Period would otherwise end on a day which is not a London Business
Day, such Interest Period shall be extended to end on the next succeeding London
Business Day.
"Interest Rate Selection Notice" shall mean a notice in the form
attached to this Loan Agreement as Exhibit A, by which the Borrowers shall
notify Standard Federal that a Borrowing hereunder shall be a LIBOR Borrowing,
specifying the Interest Period and Effective Date applicable to such LIBOR
Borrowing and the principal amount of the LIBOR Borrowing.
"LIBOR" shall mean, with respect to an Interest Period, the British
Bankers' Association ("BBA") interest settlement rate based on an average of
rates quoted by BBA designated banks as being, in BBA's
4
<PAGE> 5
view, the offered rate at which deposits in U.S. Dollars are being quoted to
prime banks in the London interbank market at 11:00 a.m. (London time) two (2)
London Business Days prior to the first day of such Interest Period, such
deposits being for a period of time equal or comparable to such Interest Period
and in an amount equal or comparable to the principal amount of the Borrowing to
which the Interest Period relates, as such rates are determined by the BBA and
displayed on the Reuter's Screen.
"LIBOR Borrowing" shall mean a Line LIBOR Borrowing or a Term LIBOR
Borrowing.
"LIBOR Borrowing Fail" shall mean a LIBOR Borrowing which is not made
on the date specified in a Borrowing Notice for any reason other than default by
Standard Federal in funding the Borrowing.
"LIBOR Rate" shall mean, with respect to an Interest Period, the
quotient of: (i) the Base LIBOR Rate applicable to that Interest Period, divided
by (ii) one (1) minus the Reserve Requirement (expressed as a decimal)
applicable to the Interest Period. The LIBOR Rate shall be rounded up to 4
decimal places where the fifth decimal place is 5 or more.
"Line LIBOR Borrowing" shall mean the principal amount of any portion
of any Borrowing bearing interest at the Line of Credit LIBOR Rate.
"Line of Credit" shall mean the revolving line of credit made available
by Standard Federal to the Borrowers on the terms and conditions contained in
this Loan Agreement.
"Line of Credit LIBOR Rate" shall mean, with respect to a Line LIBOR
Borrowing and an Interest Period, a rate per annum determined in accordance with
the following table:
<TABLE>
<CAPTION>
Funded Debt Ratio Line of Credit LIBOR Rate
----------------- -------------------------
<S> <C>
4.25 to 1.00 or greater Add 2.15 (215 basis points) to the LIBOR Rate
3.50 to 1.00 up to 4.24 to 1.00 Add 2.00 (200 basis points) to the LIBOR Rate
3.00 to 1.00 up to 3.49 to 1.00 Add 1.75 (175 basis points) to the LIBOR Rate
2.99 to 1.00 or less Add 1.50 (150 basis points) to the LIBOR Rate
</TABLE>
"Line of Credit Limit" shall mean the lesser of: (a) Twenty Million and
00/100 Dollars ($20,000,000.00), or (b) an amount equal to the sum of: (i) an
amount equal to 80% of Eligible Accounts Receivable, less a Six Hundred Thousand
and 00/100 Dollar ($600,000.00) static reserve, plus (ii) an amount equal to the
lesser of: (1) Twelve Million Five Hundred Thousand and 00/100 Dollars
($12,500,000.00), or (2) an amount equal to 50% of Qualified Inventory, less
(iii) a reserve of Four Million Eight Hundred Thousand and 00/100 Dollars
(4,800,000.00).
"Line of Credit Maturity Date" shall mean March 1, 2000, or any
extension or renewal thereof.
"Line of Credit Note" shall mean the Promissory Note of even date
herewith and all renewals and amendments thereof, evidencing the Line of Credit.
"Loan Documents" shall mean this Loan Agreement, the Line of Credit
Note, the Term Note, the Equipment Line of Credit Note, the McClain Security
Agreements, the Galion Security Agreements, the River Rouge Mortgage, the
Oklahoma Mortgage, the Sterling Heights Mortgage, the Comstock Township
Mortgage, the Winesburg Mortgage, the Galion Mortgage, and amendments thereto,
and such other loan documents
5
<PAGE> 6
as Standard Federal shall require to evidence, secure and document the Line of
Credit, the Term Loan and the Equipment Line of Credit.
"London Business Day" shall mean a Business Day on which dealings in
dollar deposits are carried out in the London Interbank market and on which
banks, generally, in New York, New York are open for business.
"Prepayment Premium" shall mean a premium payable in connection with a
Principal Prepayment or a LIBOR Borrowing Fail. In the case of a Principal
Prepayment, the Prepayment Premium shall be an amount equal to the positive
difference, if any, between (i) the aggregate amount of interest which would
otherwise be payable on the prepaid principal amount during the Prepayment
Interest Period, as herein defined, and (ii) the aggregate amount of interest
Standard Federal would earn if the prepaid principal amount were reinvested for
the Prepayment Interest Period at the Treasury Rate. In the case of a LIBOR
Borrowing Fail, the Prepayment Premium shall be an amount equal to the positive
difference, if any, between (i) the aggregate amount of interest which would
otherwise be payable on the principal amount of the LIBOR Borrowing during the
Prepayment Interest Period, and (ii) the aggregate amount of interest Standard
Federal would earn if the principal amount of the LIBOR Borrowing were
reinvested for the Prepayment Interest Period at the Treasury Rate. In the case
of a Principal Prepayment, the term "Prepayment Interest Period" shall mean the
period from the prepayment date to the last day of the current Interest Period
applicable to the prepaid Borrowing. In the case of a LIBOR Borrowing Fail, the
term "Prepayment Interest Period" shall mean the period from the Effective Date
specified in the Borrowing Notice applicable to the LIBOR Borrowing to the last
day of the Interest Period specified in such Borrowing Notice. The term
"Treasury Rate" means the yield on U.S. Treasury securities at constant maturity
as interpolated by the U.S. Treasury from the daily yield curve, based on the
closing market bid yields on actively-traded U.S. Treasury securities in the
over-the-counter market, as such yields are stated under the heading referred to
as "U.S. Government Securities, Treasury Constant Maturities" in Document
H.15(519), presently published by the Board of Governors of the Federal Reserve
System and titled "Federal Reserve Statistical Release." The Treasury Rate used
to calculate a Prepayment Premium shall be the constant maturity yield value
read from the yield curve at the fixed maturity which is the same as, or is the
next closest period which is longer than the Prepayment Interest Period. If the
publishing of the Treasury Rate is discontinued during the term of the Line of
Credit, then the Treasury Rate shall be based upon the index which is published
by the Board of Governors of the Federal Reserve System in replacement thereof
or, if no such replacement index is published, the index which, in Standard
Federal's sole determination most nearly corresponds to the Treasury Rate. The
Treasury Rate used to calculate a Prepayment Premium shall be computed utilizing
the Treasury Rate for the day which is two Business Days prior to the due date
of the Prepayment Premium.
"Prime-Based Rate" shall mean a rate per annum equal to the Wall Street
Journal Prime Rate, which rate shall increase or decrease automatically when and
to the extent that the Wall Street Journal Prime Rate shall be increased or
decreased.
"Prime Rate Borrowing" shall mean the principal amount of any portion
of any Borrowing bearing interest at the Prime-Based Rate.
"Principal Prepayment" shall mean a payment of principal with respect
to a LIBOR Borrowing on a day which is not the last day of an Interest Period
applicable to such LIBOR Borrowing.
"Qualified Inventory" shall mean the raw material and finished goods
inventory of Borrowers in which Standard Federal holds a perfected first
security interest exclusive of any returned or damaged items and
6
<PAGE> 7
work-in-process.
"Rate Conversion Date" shall mean the date on which a Prime Rate
Borrowing shall convert to a LIBOR Borrowing.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of the Board of
Governors relating to reserve requirements applicable to member banks of the
Federal Reserve System.
"Reserve Requirement" shall mean, with respect to an Interest Period,
the daily average during such Interest Period of the aggregate reserve
requirement (including all basic, supplemental, marginal and other reserves and
taking into account any transitional adjustments or other scheduled changes in
reserve requirements during such Interest Period) which may be imposed on
Standard Federal under Regulation D on Eurocurrency liabilities, in the case of
LIBOR Borrowings.
"Reuter's Screen" means the display designated as page "LIBO" on the
Reuter Monitor System or such other display on the Reuter Monitor System as
shall display LIBOR.
"Revolving Credit Period" means the period from the date of this Loan
Agreement through the Line of Credit Maturity Date.
"Term Date" shall mean May 15, 1999.
"Term LIBOR Borrowing" shall mean the principal amount of any portion
of any Borrowing bearing interest at the Term LIBOR Rate.
"Term LIBOR Rate" shall mean, with respect to a Term LIBOR Borrowing
and an Interest Period, a rate per annum determined in accordance with the
following table:
<TABLE>
<CAPTION>
Funded Debt Ratio Term LIBOR Rate
----------------- ---------------
<S> <C>
4.25 to 1.00 or greater Add 2.45 (245 basis points) to the LIBOR Rate
3.50 to 1.00 up to 4.24 to 1.00 Add 2.30 (230 basis points) to the LIBOR Rate
3.00 to 1.00 up to 3.49 to 1.00 Add 2.05 (205 basis points) to the LIBOR Rate
2.99 to 1.00 or less Add 1.80 (180 basis points) to the LIBOR Rate
</TABLE>
"Term Loan" shall mean the term loan extended by Standard Federal to
the Borrowers in the principal amount of Fifteen Million and 00/100 Dollars
($15,000,000.00) on the terms and conditions contained in this Loan Agreement.
"Term Note" means the Promissory Note (Term Loan) of even date herewith
and all renewals and amendments thereof, evidencing the Term Loan.
"Unused Line" shall mean the amount available for draw but not advanced
from time to time on the Line of Credit.
"Unused Line Fee" shall mean a fee in the amount of 0.25% per annum of
the Unused Line. The
7
<PAGE> 8
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%.
"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, then the Prime-Based 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.
SECTION 2. LINE OF CREDIT
2.1 Standard Federal hereby makes available the Line of Credit to the
Borrowers, which shall not exceed at any one time outstanding the Line of Credit
Limit.
2.2 The Line of Credit herein extended shall be subject to the terms
and conditions of the Line of Credit Note. Notwithstanding the principal amount
of the Line of Credit Note as stated on the face thereof, the amount of
principal actually owing on the Line of Credit Note at any given time shall be
the aggregate of all advances theretofore made to the Borrowers hereunder, less
all payments of principal theretofore made by the Borrowers to Standard Federal
hereunder. The books and records of Standard Federal shall be presumptive
evidence of the amount of principal and interest owing hereunder at any time in
the absence of manifest error. 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.
2.3 Standard Federal shall, from time to time during the Revolving
Credit Period, make advances to Borrowers under the Line of Credit upon request
therefor by Borrowers made in accordance with the requirements of this Loan
Agreement, provided that upon giving effect to such advance no Event of Default
(as defined in the Line of Credit Note or this Loan 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 Borrowers contained in this Loan
Agreement and all other documents executed in connection with the Line of Credit
are true and correct; 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. During the
Revolving Credit Period, the Line of Credit shall be a revolving credit so that
the Borrowers may borrow, re-pay and re-borrow principal amounts under the
provisions of this Section.
2.4 Line LIBOR Borrowings under the Line of Credit shall bear interest
at the Line of Credit LIBOR Rate and Prime Rate Borrowings under the Line of
Credit shall bear interest at the Prime-Based Rate. Borrowers shall have the
option to designate whether Borrowings shall consist of Line LIBOR Borrowings or
Prime Rate Borrowings, to be exercised as hereinafter described. Interest shall
be calculated on the basis of a year of 360 days for the actual number of days
amounts are outstanding.
8
<PAGE> 9
2.5 As provided in the Line of Credit Note, interest accrued on Prime
Rate Borrowings and Line LIBOR Borrowings as of the end of each month during the
Revolving Credit Period shall be payable monthly, in arrears, on the first day
of the following month.
2.6 If at any time the amount outstanding under the Line of Credit
shall exceed the Credit Limit, Borrowers 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.
2.7 Borrowers 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, the Unused Line Fee.
2.8 In all events, unless terminated earlier in accordance with the
provisions of this Loan Agreement, the Line of Credit shall terminate on the
Line of Credit Maturity Date. Standard Federal and the Borrowers may, but shall
not be obligated to, agree to extend the Line of Credit Maturity Date and any
extension thereof, upon a review of the Line of Credit. If, at the time of any
review of the Line of Credit, the Borrowers and Standard Federal do not mutually
agree to extend the Line of Credit Maturity Date, the Line of Credit Maturity
Date shall not be extended and the entire outstanding principal balance under
the Line of Credit Note, together with all accrued interest and any other
amounts which are payable under the Line of Credit, shall be due and payable in
full on the Line of Credit Maturity Date.
2.9 Borrowers acknowledge and agree that in making, extending or
renewing the Line of Credit, Standard Federal is relying on the representations,
covenants and agreements of the Borrowers contained in this Loan Agreement and
such Line of Credit shall be subject to the terms and provisions hereof.
SECTION 3. TERM LOAN
3.1 Standard Federal hereby extends to the Borrowers the Term Loan.
3.2 The Term Loan herein extended shall be subject to the terms and
conditions of 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.
3.3 Term LIBOR Borrowings under the Term Loan shall bear interest at
the Term LIBOR Rate and Prime Rate Borrowings under the Term Loan shall bear
interest at the Prime-Based Rate. Borrowers shall have the option to designate
whether Borrowings shall consist of Term LIBOR Borrowings or Prime Rate
Borrowings, to be exercised as hereinafter described. Interest shall be
calculated on the basis of a year of 360 days for the actual number of days
amounts are outstanding.
SECTION 4. EQUIPMENT PURCHASE LINE OF CREDIT
4.1 Standard Federal hereby extends to the Borrowers the Equipment Line
of Credit which shall not exceed at any one time outstanding the Equipment
Credit Limit.
4.2 The Equipment Line of Credit herein extended shall be subject to
the terms and conditions of the Equipment Line of Credit Note. The Equipment
Line of Credit shall be payable and shall bear interest
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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.
4.3 The Equipment Line of Credit Note shall provide that Standard
Federal shall, from time to time prior to the Term Date, make advances to
Borrowers upon request by Borrowers, made in accordance with the provisions of
and subject to the terms and conditions contained in the Equipment Line of
Credit Note.
4.4 Accrued interest shall be payable monthly until the Term Date. From
and after the Term Date, Standard Federal shall make no further advances of
principal and the Equipment Line of Credit shall convert to a term loan. The
outstanding principal balance outstanding as of the Term Date shall be repaid in
consecutive monthly payments of principal, each in the amount determined by
dividing the outstanding principal balance as of the Term Date by Sixty (60),
plus interest accrued to the due date of each such payment, and a final payment
on the maturity date in an amount equal to the then unpaid principal and accrued
interest.
4.5 If at any time the amount outstanding under the Equipment Line of
Credit shall exceed the Equipment Credit Limit, Borrowers 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.
4.6 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 Borrowers 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 of a true and authentic copy of the dealer invoice for the
equipment purchased or to be purchased with the advance.
4.7 Prior to the Term Date, principal amounts outstanding under the
Equipment Line of Credit shall consist of either Line LIBOR Borrowings or Prime
Rate Borrowings, at Borrowers' option to be exercised as herein provided. On and
after the Term Date, principal amounts outstanding under the Equipment Line of
Credit shall consist of either Term LIBOR Borrowings or Prime Rate Borrowings,
at Borrowers' option to be exercised as herein provided. Line LIBOR Borrowings
under the Equipment Line of Credit shall bear interest at the Line of Credit
LIBOR Rate. Term LIBOR Borrowings under the Equipment Line of Credit shall bear
interest at the Term LIBOR Rate. Prime Rate Borrowings under the Equipment Line
of Credit shall bear interest at the Prime-Based Rate. Borrowers shall have the
option to designate whether Borrowings shall consist of LIBOR Borrowings or
Prime Rate Borrowings, to be exercised as hereinafter described. Interest shall
be calculated on the basis of a year of 360 days for the actual number of days
amounts are outstanding.
SECTION 5. MANNER OF EFFECTING BORROWINGS
5.1 To effect a Borrowing under the Line of Credit or the Equipment
Line of Credit, Borrowers shall give Standard Federal a Borrowing Notice.
5.2 A Borrowing Notice may be made in writing, by telefacsimile or by
telephone by an authorized representative of the Borrowers and shall specify the
aggregate amount of the requested Borrowing and the Effective Date of the
Borrowing. Any Borrowing Notice by telephone may be recorded by Standard Federal
for accuracy. A Borrowing Notice for a LIBOR Borrowing must be accompanied by
one
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or more Interest Rate Selection Notices, specifying the principal amount and the
Interest Period applicable to each LIBOR Borrowing.
5.3 To effect a LIBOR Borrowing, the Borrowers must furnish Standard
Federal an Interest Rate Selection Notice.
5.4 Interest Rate Selection Notices must be given no later than 11:00
a.m. Detroit time on a day which is at least two (2) London Business Days prior
to the Effective Date of a LIBOR Borrowing. A Borrowing Notice for a Prime Rate
Borrowing must be given no later than 3:00 p.m. Detroit time on the Effective
Date of such Borrowing.
5.5 Prior to making a Request for Borrowing or giving an Interest Rate
Selection Notice, the Borrowers may (without specifying whether the anticipated
Borrowing will be a Prime Rate Borrowing or a LIBOR Borrowing) request that
Standard Federal provide the Borrowers with the most recent LIBOR available to
Standard Federal for each Interest Period requested by Borrowers. Standard
Federal shall endeavor to provide such quoted rates to the Borrowers on the date
of the request.
5.6 LIBOR Borrowings shall be made only in minimum increments of Five
Hundred Thousand and 00/100 Dollars ($500,000.00).
5.7 If the Borrowers wish to roll a LIBOR Borrowing into anther LIBOR
Borrowing at the end of the Interest Period applicable to such LIBOR Borrowing,
they shall give Standard Federal an Interest Rate Selection Notice no later than
11:00 a.m. Detroit time on the day which is two (2) London Business Days prior
to the termination of the applicable Interest Period. The Interest Rate
Selection Notice shall specify the Interest Period(s) to be applicable to
principal amounts which will continue as LIBOR Borrowings. Each Interest Rate
Selection Notice shall be irrevocable and effective upon the giving thereof to
Standard Federal. If the Borrowers shall fail to give Standard Federal an
Interest Rate Selection Notice by 11:00 a.m. Detroit time on the day which is
two (2) London Business Days prior to the termination of an Interest Period with
respect to any LIBOR Borrowing, specifying the interest option to be applicable
to such Borrowing as of the end of such Interest Period, the LIBOR Borrowing
shall convert to a Prime Rate Borrowing at the end of the Interest Period.
5.8 The Borrowers may convert Prime Rate Borrowings to LIBOR Borrowings
at any time by giving an Interest Rate Selection Notice to Standard Federal
specifying the Rate Conversion Date. The Interest Rate Selection Notice must be
given no later than 11:00 a.m. Detroit time on the day which is two (2) London
Business Days prior to the Rate Conversion Date. Each Interest Rate Selection
Notice shall specify the principal amount of the Prime Rate Borrowing to be
converted to a LIBOR Borrowing and the Interest Period to be applicable to such
LIBOR Borrowing. Each Interest Rate Selection Notice shall be irrevocable and
effective upon the giving thereof to Standard Federal.
SECTION 6 SPECIAL PRICING AND PROTECTION PROVISIONS
6.1 If the Borrowers make a Principal Prepayment or a LIBOR Borrowing
Fail occurs, Borrowers will pay to Standard Federal the Prepayment Premium. In
the case of a Principal Prepayment, the Prepayment Premium shall be due at the
time the Principal Prepayment is made. In the case of a LIBOR Borrowing Fail,
the Prepayment Premium shall be due on the Effective Date specified in the
applicable Borrowing Notice.
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6.2 If, with respect to an Interest Period for any LIBOR Borrowing,
Standard Federal determines, in its sole discretion, that, by reason of
circumstances affecting the interbank Eurodollar market generally, deposits in
United States dollars (in the applicable amounts) are not being offered to banks
in the interbank Eurodollar market for such Interest Period, or the Line of
Credit LIBOR Rate will not adequately and fairly reflect the cost to Standard
Federal of maintaining or funding the LIBOR Borrowing for such Interest Period,
Standard Federal shall promptly give notice thereof to Borrowers. Thereafter,
until Standard Federal gives notice to the Borrowers that such circumstances no
longer exist, (a) the obligation of Standard Federal to fund LIBOR Borrowings
shall be suspended and (b) the Borrowers shall either (i) repay in full the
then-outstanding principal amount of LIBOR Borrowings, together with accrued
interest thereon on the last day of the then-current Interest Period applicable
to such LIBOR Borrowings, or (ii) convert such LIBOR Borrowings to Prime Rate
Borrowings on the last day of the then-current Interest Period applicable to
each LIBOR Borrowing.
6.3 If, after the date of this Loan Agreement, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Standard Federal with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for Standard Federal to
make, maintain or fund LIBOR Borrowings, Standard Federal shall promptly give
notice thereof to the Borrowers. Thereafter, (a) the obligation of Standard
Federal to fund LIBOR Borrowings shall be suspended and (b) the Borrowers shall
either (i) repay in full the then-outstanding principal amount of LIBOR
Borrowings, together with accrued interest thereon, or (ii) convert such LIBOR
Borrowings to Prime Rate Borrowings, either: (1) on the last day of the
then-current Interest Period applicable to such LIBOR Borrowings, if Standard
Federal may lawfully continue to maintain and fund such LIBOR Borrowings until
such date, or (2) immediately, if Standard Federal may not lawfully continue to
fund and maintain such LIBOR Borrowings until such date, in which case Borrowers
will pay the Prepayment Premium.
6.4 If any governmental authority or regulatory agency, central bank or
other comparable authority, shall at any time impose, modify or deem applicable
any reserve (including, without limitation, the Reserve Requirement or any other
reserve imposed by the Board of Governors of the Federal Reserve System),
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, Standard Federal, or shall impose on
Standard Federal or the interbank Eurodollar market any other condition,
guideline or request affecting LIBOR Borrowings, the Note or Standard Federal's
obligation to make advances of LIBOR Borrowings, and the result of any of the
foregoing, in the reasonable judgment of Standard Federal shall be to increase
the cost to Standard Federal of making or maintaining LIBOR Borrowings, or to
reduce the amount of any sum received or receivable by Standard Federal under
this Loan Agreement, or under the Note, by an amount deemed by Standard Federal
to be material, then, within five (5) days after demand by Standard Federal,
Borrowers shall pay to Standard Federal as additional interest such additional
amount or amounts as will compensate Standard Federal for such increased cost or
reduction. Standard Federal will promptly notify the Borrowers of any event of
which it has knowledge, occurring after the date hereof, which will entitle
Standard Federal to compensation pursuant to this Section. A certificate of
Standard Federal claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. Standard Federal will, on request, provide
evidence supporting such certificate. If Standard Federal demands compensation
under this Section, then Borrowers may at any time, upon at least five (5) days
prior notice to Standard Federal, either (i) pay such compensation to Standard
Federal, (ii) repay in full the then outstanding LIBOR Borrowings of Standard
Federal, together with accrued interest thereon to the date of prepayment, or
(iii) convert such LIBOR Borrowings to Prime Rate Borrowings in accordance with
the
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provisions of this Loan Agreement; provided, however, that if the Borrowers
prepay or convert LIBOR Borrowings they shall be liable for any applicable
Prepayment Premium. Standard Federal's determination of amounts payable under
this Section shall be calculated as though Standard Federal funded the
applicable LIBOR Borrowings through the purchase of a eurodollar deposit of the
type, maturity and amount corresponding to the deposit used as a reference in
determining the Base LIBOR Rate with respect to such LIBOR Borrowing, whether or
not Standard Federal in fact purchased such deposit. If the additional amounts
payable under this Section shall be construed or so operate as to require the
Borrowers to pay, or be charged, interest at a rate which is 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
outstanding under the Note, as applicable. In such event, Standard Federal shall
have the option to immediately terminate Borrowers' right to request LIBOR
Borrowings, and the unpaid balance of any outstanding LIBOR Borrowings, with
accrued interest at the highest rate permitted to be charged by stipulation in
writing between Standard Federal and Borrowers, at the option of Standard
Federal, shall immediately become due and payable. The obligations of the
Borrowers under this Section shall survive payment of the Line of Credit and
termination of this Loan Agreement.
6.5 If Standard Federal shall determine that the adoption, amendment or
revision of any applicable law, rule or regulation affecting Standard Federal's
capital requirements or adequacy, or the interpretation or administration
thereof by any governmental authority or regulatory agency, central bank or
other comparable authority, or compliance by Standard Federal with any
applicable law, rule or regulation affecting Standard Federal's capital
requirements or adequacy, or any request, interpretation or directive (whether
or not having the force of law) of any governmental authority or regulatory
agency, central bank or other comparable authority which affects Standard
Federal's capital requirements, has or would have the effect of reducing the
rate of return on Standard Federal's capital to a level below the rate of return
Standard Federal would have realized in the absence of such adoption, amendment,
revision, interpretation, administration or compliance (taking into account
Standard Federal's policies with respect to capital adequacy) by an amount
considered by Standard Federal to be material, then, beginning five (5) days
after demand by Standard Federal, Borrowers shall pay to Standard Federal as
additional interest or as fees, as determined by Standard Federal in its sole
discretion, such additional amount or amounts as will compensate Standard
Federal for such reduction in its rate of return. Such adjustments in interest
or fees shall be imposed effective five (5) days after Standard Federal's demand
and shall apply to the then outstanding principal balance of the Line of Credit
and to subsequent advances under this Loan Agreement. In determining such amount
or amounts, Standard Federal may use any reasonable averaging and attribution
methods. Standard Federal will promptly notify the Borrowers of any event of
which it has knowledge, occurring after the date hereof, which will entitle
Standard Federal to compensation pursuant to this Section. A certificate of
Standard Federal claiming compensation under this Section and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error. Standard Federal will, on request, provide
evidence supporting such certificate.
SECTION 7. CONDITIONS TO MAKING LOANS
7.1 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:
7.1.1 The Borrowers 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:
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7.1.1.1 A duly executed copy of this Loan Agreement;
7.1.1.2 A duly executed copy of the Loan Documents;
7.1.1.3 Such credit applications, financial
statements, authorizations, and such information concerning
the Borrowers and its business, operations, and condition
(financial and otherwise) as Standard Federal may reasonably
request;
7.1.1.4 Certified copies of resolutions of the Boards
of Directors of the Borrowers approving the execution and
delivery of the Loan Documents required hereunder;
7.1.1.5 A certificate of the Secretary or an
Assistant Secretary of the Borrowers certifying the names and
true signatures of the officers of the Borrowers authorized to
sign the Loan Documents required hereunder;
7.1.1.6 Copies of each of the Articles of
Incorporation of the Borrowers, certified by the Secretary of
State of each Borrower's state of incorporation as of a recent
date;
7.1.1.7 Copies of each of the Articles of
Incorporation and Bylaws of the Borrowers, certified by the
Secretary or an Assistant Secretary of the Borrowers as of the
date of this Loan Agreement as being accurate and complete;
7.1.1.8 Certificates of good standing of the
Borrowers from the Secretary of State of each of the
Borrowers' state of incorporation as of a recent date;
7.1.1.9 Certificates of authority and good standing
of the Borrowers for each state in which the Borrowers are
qualified to do business;
7.1.1.10 A certificate of compliance of the chief
financial officer or treasurer of the Borrowers in form
satisfactory to Standard Federal dated as of the date of this
Loan Agreement;
7.1.1.11 Such certificates, binders or other evidence
of all insurance required of the Borrowers under this Loan
Agreement as Standard Federal may reasonably require; and
7.1.1.12 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.
7.1.2 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.
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7.1.3 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.
7.2 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:
7.2.1 The representations and warranties of the Borrowers
contained in the Loan Documents shall be accurate and complete in all
respects as if made on and as of such date;
7.2.2 The Borrowers shall have paid all fees and expenses,
including any recording fees and charges, required hereunder;
7.2.3 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 8. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to Standard Federal that as of the
date of acceptance of this Loan 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:
8.1 The Borrowers 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 Borrowers 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
Borrowers or any of its assets; the Borrowers have the legal power and authority
to execute and perform this Loan 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 Loan 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 Borrowers duly authorized officers will constitute its valid and
binding legal obligations enforceable in accordance with their terms.
8.2 The execution, delivery and performance of this Loan 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 Loan 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 Borrowers or any indenture, agreement or other instrument to which the
Borrowers are a party, or by which it or any
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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 Borrowers other than in favor of Standard
Federal and as contemplated hereby.
8.3 There is not pending or, to the best of the knowledge of the
Borrowers, threatened, any litigation, proceeding or governmental investigation
which could materially and adversely affect the business of the Borrowers or its
subsidiaries, if any, or its ability to perform its covenants hereunder.
8.4 Borrowers have 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 Borrowers' 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 Borrowers own 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.
8.5 All financial data which has been or shall hereafter be furnished
to Standard Federal for the purposes of, or in connection with, this Loan
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 Borrowers as of
the dates, and the results of its operations for the periods, for which the same
is furnished to Standard Federal.
8.6 There has been no material adverse change in the business,
properties or condition (financial or otherwise) of the Borrowers or their
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 Borrowers except as reflected in such financial
statements (or in the notes thereto).
8.7 The Borrowers are not in default in the repayment of any
indebtedness for money borrowed by any of them nor has there occurred any event
which, with or without notice or the passage of time or both, would constitute a
default by the Borrowers under any agreement or instrument pertaining to any
indebtedness for money borrowed by any of them.
8.8 Borrowers have filed all reports and tax returns required by
governmental authority to be filed by them prior to the date hereof and
Borrowers have received no notice that such reports or returns have been
rejected, declared insufficient, or otherwise challenged by such governmental
authority.
8.9 McClain of Alabama, Inc., a Michigan corporation; McClain of
Georgia, Inc., a Georgia corporation; McClain of Michigan, Inc., a Michigan
corporation; McClain of Ohio, Inc., a Michigan corporation; McClain of Oklahoma,
Inc., a Michigan corporation; McClain Epco, Inc., a New York corporation; Shelby
Steel Processing Company, a Michigan corporation; McClain International FSC,
Inc., a Virgin Islands corporation; and McClain Tube Company d/b/a Quality Tube,
a Michigan corporation, are each wholly-owned subsidiaries of McClain
Industries, Inc., a Michigan corporation, and have no subsidiaries. McClain
Group
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Leasing, Inc., a Michigan corporation, and Galion Holding Company, a Michigan
corporation, are also wholly-owned subsidiaries of McClain Industries, Inc.
McClain E-Z Pack Inc., a Michigan corporation, and Galion Dump Bodies, Inc., a
Michigan corporation, are each wholly-owned subsidiaries of Galion Holding
Company. McClain Industries, Inc., McClain E-Z Pack, Inc., and Galion Dump
Bodies, Inc. each hold one-third of the outstanding capital stock of McClain
Group Sales, Inc., a Michigan corporation, of which McClain Group Sales of
Florida, Inc., a Florida corporation, is a wholly-owned subsidiary. McClain
Industries, Inc. and Galion Holding Company, as of the date of this Loan
Agreement, own no other subsidiaries.
8.10 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.
Borrowers are not engaged in the business of extending credit for the purpose of
purchasing or carrying margin stocks. Neither Borrowers nor any person acting on
behalf of Borrowers have 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 Loan
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. Borrowers 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 Borrowers and its
subsidiaries, if any, does not exceed 25% of all of the value of all of
Borrowers' and its subsidiaries', if any, assets. Neither the Borrowers nor any
affiliate of any of the Borrowers shall use any portion of the proceeds of the
Loans, nor have any letter of credit issued by Standard Federal, either directly
or indirectly, for the purpose of purchasing any securities underwritten by ABN
AMRO Chicago Corporation, an affiliate of Standard Federal.
8.11 Except as disclosed in the environmental reports listed in
attached schedule 8.11, copies of which the Borrowers have previously furnished
to Standard Federal, neither the Borrowers nor, to the best of Borrowers'
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 of the Borrowers in
violation of any Hazardous Materials Laws (as hereinafter defined), nor has any
property owned, occupied or operated by any of the Borrowers, or any part
thereof, ever been used by the Borrowers or, to the best of Borrowers' 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. ss.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 of the Borrowers. No asbestos or
asbestos-containing materials have been installed, used, incorporated into, or
disposed of on any property owned, occupied or operated by any of the Borrowers.
No polychlorinated biphenyls ("PCBs") are located on or in any property owned,
occupied or operated by any of the Borrowers, 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
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operated by any of the Borrowers have been installed and are being operated in
full compliance with all applicable Hazardous Materials Laws. The Borrowers: (a)
have 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 of the Borrowers
or of any violation of any Hazardous Materials Law, and (b) do not know of any
basis for any such notice or violation.
8.12 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 Borrowers 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 Borrowers have
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 Borrowers
nor any duly appointed administrator of any employee pension and/or profit
sharing plan: (a) have incurred any liability to PBGC with respect to any such
plan other than for premiums not yet due or payable, (b) have instituted or
intends to institute proceedings to terminate any such plan under Section 4042
or 4041A of Erisa, or (c) have withdrawn from any Multi- Employer Pension Plan
(as that term is defined in Section 3(37) of ERISA).
8.13 There is no material fact that the Borrowers have not disclosed to
Standard Federal which could have a material adverse effect on the properties,
business, prospects or condition (financial or otherwise) of the Borrowers or
any of its subsidiaries. For purposes of this Section, 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 Borrowers or any subsidiary,
(c) could impair the ability of the Borrowers to fulfill their 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 furnished by the Borrowers, nor any certificate or
statement delivered herewith or heretofore by Borrowers 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.
8.14 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 Borrowers that no Event of Default
exists and that all representations and warranties contained in this Section 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 Loan Agreement are true and correct at and as of the time
the advance is to be made.
SECTION 9. AFFIRMATIVE COVENANTS OF BORROWERS
9.1 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
Borrowers shall; (a) furnish to Standard Federal, if Standard Federal so
requires, certified copies of their Articles of Incorporation, Bylaws and
Certificates of Good Standing, which Articles of Incorporation and Good Standing
Certificates are to be certified by the appropriate officials of the Borrowers'
states of incorporation; (b) furnish to Standard Federal if Standard Federal so
requires a statement of the Borrowers and the chief financial officers of the
Borrowers certifying
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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.
9.2 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 Loan 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 Borrowers covenant and agree they
will:
9.2.1 Furnish to Standard Federal as soon as available and, in
any event, within 120 days after the close of each fiscal year of the
Borrowers, or, in the event the Borrowers obtain an extension of the
filing date from the Securities Exchange Commission, by such extended
date, detailed financial statements of the Borrowers as of the close of
such fiscal year, containing a consolidated balance sheet of the
Borrowers and their subsidiaries, if any, and statements of income and
cash flows of the Borrowers and their 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 such 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 Borrowers) of independent certified public accountants
selected by Borrowers 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.
9.2.2 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 Borrowers obtain an extension of the
filing date from the Securities Exchange Commission, by such extended
date, detailed financial statements of the Borrowers as of the close of
such fiscal period containing a consolidated balance sheet of the
Borrowers and its subsidiaries, if any, and statements of income and
cash flows of the Borrowers 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 officers of the Borrowers 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.
9.2.3 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 Borrowers or a principal officer of Borrowers
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.
Borrowers will further specifically disclose any facts known to
Borrowers which facts would tend to render doubtful the collectibility
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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.
9.2.4 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 Borrowers or a principal officer of Borrowers,
showing the agings thereof and such other information and data as
Standard Federal may reasonably require.
9.2.5 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 Borrowers, in a form acceptable to Standard
Federal, certified as correct by Borrowers or a principal officer of
Borrowers 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.
9.2.6 Furnish to Standard Federal, within 60 days after the
close of each quarter of each fiscal year, a covenant compliance
report, in a form prepared by and acceptable to Standard Federal,
certified as correct by Borrower or a principal officer or general
partner of Borrower, containing a certification of the Borrowers'
compliance with the financial covenants contained herein as of the
close of such fiscal period.
9.2.7 Furnish to Standard Federal, promptly after sending,
filing or publishing the same, copies of all proxy statements,
financial statements and reports that the Borrowers send to its public
shareholders and copies of all regular, periodic and special reports
and all registration statements and amendments thereto that the
Borrowers file with the Securities and Exchange Commission or any other
governmental authority and any Exchange, and copies of all press
releases issued by Borrowers.
9.2.8 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 Borrowers' 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.
9.2.9 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 Borrowers at any reasonable time.
9.2.10 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 Borrowers 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 Borrowers 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 Borrowers and/or its
property, except to the extent being contested in good faith; and in
the event the Borrowers fail to maintain such
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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.
9.2.11 Preserve and keep in full force and effect their own
and their material, operating subsidiaries' (if any) corporate
existence in good standing and maintain voting control in their present
controlling shareholders; keep current all filings of assumed name
certificates for each name under which and each county in which the
Borrowers do business and promptly inform Standard Federal of any
assumed names under which they do business which were not used by the
Borrowers on the date of this Loan Agreement; continue to conduct and
operate their businesses 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 their property used or useful in the conduct of their
business and keep the same in good repair and condition; pay their
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 Borrowers or any of their assets, except to
the extent noncompliance is immaterial and would not have a material
adverse effect on Borrowers.
9.2.12 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:
<TABLE>
<CAPTION>
Minimum
"Tangible
Fiscal Year-End Net Worth"
--------------- ----------
<S> <C>
09/30/97 $22,000,000
09/30/98 $23,000,000
09/30/99 $25,000,000
</TABLE>
"Tangible Net Worth" shall mean total assets less trademarks,
franchises, copyrights, licenses, prepaids, goodwill, similar
intangible assets and all liabilities (excluding debt subordinated to
Standard Federal upon terms and conditions acceptable to Standard
Federal) of the Borrowers.
9.2.13 On a consolidated statement basis maintain the ratio of
"Liabilities" to "Tangible Net Worth" of not more 3.00 to 1.00, as of
the end of each quarter of each fiscal year. "Liabilities" shall mean
all liabilities of the Borrowers and their consolidated subsidiaries,
if any, as defined in accordance with generally accepted accounting
principles as in effect as of the date of this Loan Agreement,
consistently applied.
9.2.14 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 mean
the ratio of the Borrowers' Earnings Before Interest and Taxes Plus
Depreciation and Amortization to Interest Expense, for the four fiscal
quarters preceding the end of the fiscal quarter as of which the
Interest Coverage Ratio is measured; provided, however, any fiscal
quarter ending on or before September 30, 1997 shall not be considered
in such calculation. "Earnings Before
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Interest and Taxes Plus Depreciation and Amortization" shall mean the
Borrowers' net income, computed in accordance with generally accepted
accounting principles as in effect as of the date hereof consistently
applied, before provision for federal and state income taxes, plus
interest, depreciation and amortization expense, as reflected in the
financial statements to be furnished as required herein. "Interest
Expense" shall mean the Borrowers' interest expense, as determined in
accordance with generally accepted accounting principles.
9.2.15 On a consolidated statement basis, maintain a Debt
Service Coverage Ratio of not less than 1.50 to 1.00, as of the end of
each fiscal quarter. The term "Debt Service Coverage Ratio" shall mean
the ratio of the Borrowers' Earnings Before Interest and Taxes Plus
Depreciation and Amortization to Debt Service Expense, for the four
fiscal quarters preceding the end of the fiscal quarter as of which the
Debt Service Coverage Ratio is measured; provided, however, any fiscal
quarter ending on or before September 30, 1997 shall not be considered
in such calculation. "Earnings Before Interest and Taxes Plus
Depreciation and Amortization" shall mean the Borrowers' net income,
computed in accordance with generally accepted accounting principles as
in effect as of the date hereof consistently applied, before provision
for federal and state income taxes, plus interest, depreciation and
amortization expense, as reflected in the financial statements to be
furnished as required herein. "Debt Service Expense" shall mean the
Borrowers' interest expense, plus the current portion of any long-term
debt, plus the portion attributable to principal of all payments on
Capital Leases (computed at the implicit rate, if known, or 10% per
annum otherwise), computed in accordance with generally accepted
accounting principles as in effect as of the date hereof consistently
applied. "Capital Lease" shall mean, as of any date, any lease of
property, real or personal, which would be capitalized on a balance
sheet of the lessee prepared as of such date in accordance with
generally accepted accounting principles, together with any other lease
by such lessee which is in substance a financing lease, including
without limitation, any lease under which (i) such lessee has or will
have an option to purchase the property subject thereto at a nominal
amount or an amount less than a reasonable estimate of the fair market
value of such property as of the date such lease is entered into or
(ii) the term of the lease approximates or exceeds the expected useful
life of the property leased thereunder.
9.2.16 Maintain on a consolidated statement basis the ratio of
"Current Assets" to "Current Liabilities" of not less than 2.25 to
1.00, as of the end of each fiscal quarter. "Current Assets" shall
include all assets considered current in accordance with generally
accepted accounting principles as in effect as of the date of this Loan
Agreement, consistently applied, less all amounts due Borrowers from
any of their directors, officers, employees, shareholders, or any
company controlled by any of their 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 Loan Agreement, consistently applied.
9.2.17 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.
The parties hereto acknowledge that the financial covenants set forth in
subsections 9.2.12 thru 9.2.16 above, are based on the financial statements of
McClain Industries, Inc. and all of its subsidiaries.
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9.3 The Borrowers will not make any change in their accounting policies
or financial reporting practices and procedures, except changes in accounting
policies which are required or permitted by generally accepted accounting
principles and/or the United States Securities and Exchange Commission and
changes in financial reporting practices and procedures which are required or
permitted by generally accepted accounting principles.
9.4 The Borrowers shall allow Standard Federal and its participants 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 and its
participants to conduct, at Borrowers' expense, a full audit of the Collateral
and the Borrowers' financial statements and their books and records,
semi-annually during the term of the Line of Credit, the Term Loan and the
Equipment Line of Credit. Standard Federal shall schedule such audits during
normal business hours of the Borrowers and shall provide Borrowers not less than
two (2) business days notice of the commencement of each audit. The Borrowers
shall make adequate facilities available on their premises at Borrowers' expense
to enable Standard Federal to conduct the audits herein described and shall make
available all of their books, records and other documents and information as may
be reasonably requested to facilitate the audits.
SECTION 10. NEGATIVE COVENANTS
10.1 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 Loan 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 Borrowers covenant and agree
that they 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:
10.1.1 Create, incur, assume or permit to exist (a) any
mortgage, pledge, security interest, lien or charge of any kind upon
any of their 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 Borrowers'
indebtedness to Standard Federal which is approved in writing by
Standard Federal, except as otherwise required or permitted in writing
by Standard Federal.
10.1.2 Make loans, advances or extensions of credit to any
Entity (which in this Loan Agreement means any individual, partnership,
corporation or other legal entity), other than a parent or subsidiary
of the Borrowers, 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.
10.1.3 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.
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10.1.4 Permit the aggregate amount of all Capital Expenditures
made by the Borrowers during any fiscal year ending after the date
hereof to exceed $3,000,000.00. "Capital Expenditures" shall mean any
expenditure for an asset which will be used in a year or years
subsequent to the year in which the expenditure is made and which asset
is properly classifiable in relevant financial statements as property,
equipment or improvements, fixed assets, or a similar type of
capitalized assets in accordance with generally accepted accounting
principles.
SECTION 11. SECURITY
11.1 In order to secure: (1) the full and timely performance of the
Borrowers' 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 Borrowers 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 Loan 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 Loan Agreement, and (3) all other indebtedness and liabilities of the
Borrowers to Standard Federal arising under this Loan 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:
11.1.1 The Borrowers hereby grant 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 Borrowers
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 Borrowers of any kind whatsoever which shall at any
time be in the possession or under the control of Standard Federal; and
11.1.2 The Borrowers have granted to Standard Federal a
security interest of first priority in all personal property of the
Borrowers as provided in the McClain Security Agreements and the Galion
Security Agreements, the provisions of which are hereby incorporated
herein by reference; and
11.1.3 The Borrowers have granted to Standard Federal mortgage
interests, as provided in the River Rouge Mortgage, the Oklahoma
Mortgage, the Sterling Heights Mortgage, the Comstock Township
Mortgage, the Winesburg Mortgage, and the Galion Mortgage, the
provisions of which are hereby incorporated herein by reference
(herein, together with the property described above, referred to as the
"Collateral" or "item(s) of Collateral"). The Borrowers shall execute
and deliver to Standard Federal, in conjunction with the execution of
this Loan Agreement, such amendment to the foregoing Collateral
documents as Standard Federal and its counsel may determine are
necessary or appropriate to confirm that such collateral properly
secures the credit facilities provided for herein.
11.2 The Borrowers 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 relating to the Collateral.
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<PAGE> 25
SECTION 12. EVENTS OF DEFAULT
The occurrence of any of the events enumerated below shall constitute
an Event of Default for purposes of this Loan Agreement:
12.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrowers 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 Loan Agreement or any mortgage, security agreement,
guaranty, instrument or other agreement executed in conjunction herewith.
12.2 MISREPRESENTATION. If any warranty or representation made by or
for the Borrowers 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 Borrowers
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.
12.3 NONCOMPLIANCE WITH AFFIRMATIVE COVENANTS AND OTHER AGREEMENTS. If
the Borrowers shall fail to perform any of its obligations and covenants under
Section 9 of this Loan Agreement, or shall fail to comply with any of the other
provisions of this Loan Agreement, other than under Section 10 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.
12.4 NONCOMPLIANCE WITH NEGATIVE COVENANTS. If the Borrowers shall fail
to perform any of its obligations and covenants described in Section 10 of this
Loan Agreement.
12.5 BUSINESS SUSPENSION. If the Borrowers 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.
12.6 BANKRUPTCY, ETC. If the Borrowers 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 Borrowers 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 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 Borrowers 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 Borrowers 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 Borrowers 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 Borrowers 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 Borrowers'
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.
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12.7 JUDGMENTS AND WRITS. If there shall be entered against the
Borrowers 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 Borrowers 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.
12.8 MERGER. If the Borrowers shall merge or consolidate with another
entity without the prior written consent of Standard Federal.
12.9 CHANGE OF CONTROL OR MANAGEMENT. If the Borrowers 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 Borrowers to carry on its business as
theretofore conducted.
12.10 OTHER DEFAULTS. If the Borrowers 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, instrument,
lease or agreement to which the Borrowers 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.
12.11 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 Borrowers 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 Borrowers; 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 13. REMEDIES UPON EVENT OF DEFAULT
13.1 Upon the occurrence of any Event of Default described in Sections
12.2, 12.3 or 12.10 hereof which is not cured or waived in writing by Standard
Federal within 15 days after written notice to the Borrowers of such default; or
upon the occurrence of any Event of Default described in Section 12.1 which
continues unremedied for 10 days, or upon the occurrence of any Event of Default
described in Sections 12.4, 12.5, 12.6, 12.7, 12.8, 12.9 or 12.11, 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 Borrowers, and thereupon Standard Federal shall have and may exercise
any
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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 Borrowers.
SECTION 14. MISCELLANEOUS.
14.1 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 Loan
Agreement.
14.2 No forbearance on the part of Standard Federal in enforcing any of
its rights under this Loan Agreement, nor any renewal, extension or
rearrangement of any payment or covenant to be made or performed by the
Borrowers hereunder shall constitute a waiver of any of the terms of this Loan
Agreement or of any such right.
14.3 This Loan Agreement shall be construed in accordance with the law
of the State of Michigan.
14.4 All covenants, agreements, representations and warranties made in
connection with this Loan 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 Borrowers
pursuant hereto shall constitute representations and warranties by the
Borrowers.
14.5 The Borrowers agree that it will pay all costs and expenses
incurred by Standard Federal in enforcing Standard Federal's rights under this
Loan Agreement and the documents contemplated hereby, including without
limitation any and all reasonable fees and disbursements of legal counsel to
Standard Federal.
14.6 This Loan 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 Borrowers
shall not assign or transfer its rights or obligations hereunder without the
prior written consent of Standard Federal.
14.7 If any provision of this Loan 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 Loan Agreement, shall not affect the
remaining portions of this Loan Agreement, or any part thereof.
27
<PAGE> 28
IN WITNESS WHEREOF, the Borrowers and Standard Federal have caused this
Loan Agreement to be executed as of the day and year first written above.
BORROWERS:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
38-1867649
----------------------------------------------
Taxpayer Identification Number
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
58-1738825
----------------------------------------------
Taxpayer Identification Number
28
<PAGE> 29
MCCLAIN OF OHIO, INC., a Michigan corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
MCCLAIN OF OKLAHOMA, INC., a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
38-2205216
----------------------------------------------
Taxpayer Identification Number
29
<PAGE> 30
MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE,
a Michigan corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
GALION HOLDING COMPANY, a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
38-3060196
----------------------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
GALION DUMP BODIES, INC., a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
30
<PAGE> 31
MCCLAIN GROUP SALES, INC., a Michigan
corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
59-3241829
----------------------------------------------
Taxpayer Identification Number
MCCLAIN GROUP SALES OF FLORIDA, INC., a
Florida corporation
[SIG] By: Mark S. Mikelait
- ---------------------------- -------------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------------
----------------------------------------------
Taxpayer Identification Number
STANDARD FEDERAL:
STANDARD FEDERAL BANK, a federal savings
bank
[SIG] By: [SIG]
- ---------------------------- -------------------------------------------
Its: Vice President
---------------------------------
31
<PAGE> 32
EXHIBIT A
[FORM OF INTEREST RATE SELECTION NOTICE]
- --------------------------------------------------------------------------------
STANDARD FEDERAL BANK
Member ABN AMRO Group
2600 West Big Beaver Road
P.O. Box 3703
Troy, Michigan 48007-3703
248/643-9600
Loan No.:
-----------------
Borrowing No.:
-----------------
INTEREST RATE SELECTION NOTICE
TO: STANDARD FEDERAL BANK
In accordance with the provisions of the Loan Agreement, dated ________
(the "Loan Agreement"), executed in connection with the referenced loan, the
undersigned hereby notifies you that it has selected the Interest Period
commencing on the Effective Date stated below with respect to the Borrowing
outstanding under the referenced Borrowing No. in the principal amount indicated
below (capitalized terms used in this notice shall have the meanings given such
terms in the Loan Agreement):
Interest Period:
--------------------------
Effective Date:
--------------------------
Principal Amount:
--------------------------
LIBOR:
--------------------------
LIBOR Rate:
--------------------------
Last Day of Interest Period:
--------------------------
BORROWER:
McClain Industries, Inc., and
subsidiaries
By: EXHIBIT - DO NOT SIGN
----------------------------
Its:
---------------------------
32
<PAGE> 33
Schedule 8.11
1. Final Report Phase I Environmental Assessment Peabody-Galion
Corporation, Winesburg, Holmes County, Ohio, prepared by
Stearns & Wheler, Environmental Engineers and Scientists,
dated February, 1993, Project No. 2471.
2. Final Report Phase II Site Investigation, Galion Site,
Winesburg, Ohio, prepared by Stearns & Wheler, Environmental
Engineers and Scientists, dated September, 1993, Project No.
2471.
3. Phase II Site Investigation Peabody-Galion Site, Galion, Ohio,
prepared by Stearns & Wheler, Environmental Engineers and
Scientists, dated January, 1993, Project No.
2429.
33
<PAGE> 1
EXHIBIT 10.34
Note No.
---------------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit)
$20,000,000.00 Troy , Michigan
Due Date: March 1, 2000 Dated: April 16, 1998
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
Twenty Million and 00/100 Dollars ($20,000,000.00) 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 a Loan Agreement, dated April 16, 1998,
between the Borrower and Standard Federal (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. Capitalized terms not
otherwise defined herein shall have the meanings given such terms in the Loan
Agreement.
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 Borrower's option,
to be exercised in accordance with the procedures outlined in the Loan
Agreement, at the Prime-Based Rate or the Line of Credit LIBOR Rate.
Accrued interest shall be payable on the first day of each month
beginning on May 1, 1998.
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 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
Line of 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
1
<PAGE> 2
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 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 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%)
2
<PAGE> 3
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 a Security Agreement, dated September 15, 1994, and
by a Security Agreement, dated June 22, 1995, and by a Commercial Mortgage,
dated September 26, 1988, covering property located in River Rouge, Michigan, as
amended of even date herewith, and by a Real Estate Mortgage with Power of Sale,
dated October 13, 1988, covering property located in Cleveland County, Oklahoma,
as amended of even date herewith, and by a Commercial Mortgage, Assignment of
Lease and Rents, Security Agreement and Financing Statement, dated February 6,
1995, covering property located in Sterling Heights, Michigan, as amended of
even date herewith, and by a Commercial Mortgage, Assignment of Lease and Rents,
Security Agreement and Financing Statement, dated February 6, 1995, covering
property located in Comstock Township, Michigan, as amended of even date
herewith, and by an Open-End Commercial Mortgage and Assignment of Lease and
Rents, dated June 29, 1993, as amended, covering property located in Winesburg,
Ohio, as amended of even date herewith, and by an Open-End Commercial Mortgage
and Assignment of Lease and Rents, dated June 29, 1993, as amended, covering
property located in Galion, Ohio, as amended 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.
3
<PAGE> 4
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
38-1867649
------------------------------
Taxpayer Identification Number
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
58-1738825
------------------------------
Taxpayer Identification Number
MCCLAIN OF OHIO, INC., a Michigan corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
4
<PAGE> 5
MCCLAIN OF OKLAHOMA, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
38-2205216
------------------------------
Taxpayer Identification Number
MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE,
a Michigan corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
5
<PAGE> 6
GALION HOLDING COMPANY, a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
38-3060196
------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
GALION DUMP BODIES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
MCCLAIN GROUP SALES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
59-3241829
------------------------------
Taxpayer Identification Number
6
<PAGE> 7
MCCLAIN GROUP SALES OF FLORIDA, INC., a
Florida corporation
By: /s/ Mark S. Mikelait
- ---------------------- ---------------------------
Mark S. Mikelait
Its: Treasurer
-----------------
------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
7
<PAGE> 1
EXHIBIT 10.35
Note No.
-----------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Term Loan)
$15,000,000.00 Troy, Michigan
Due Date: July 1, 2004 Dated: April 16, 1998
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 Fifteen Million and 00/100 Dollars ($15,000,000.00), 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 Borrower's option,
to be exercised in accordance with the procedures outlined in a Loan Agreement,
dated April 16, 1998, between the Borrower and Standard Federal (the "Loan
Agreement"), at the Prime-Based Rate or the Term LIBOR Rate. Capitalized terms
not otherwise defined herein shall have the meanings given such terms in the
Loan Agreement.
Principal and interest shall be paid in consecutive monthly payments of
principal in the amount of $200,000.00 each, plus interest accrued to the due
date of each payment, commencing on May 1, 1998, 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
1
<PAGE> 2
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 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
2
<PAGE> 3
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 a Security Agreement, dated September 15, 1994, and
by a Security Agreement, dated June 22, 1995, and by a Commercial Mortgage,
dated September 26, 1988, covering property located in River Rouge, Michigan, as
amended of even date herewith, and by a Real Estate Mortgage with Power of Sale,
dated October 13, 1988, covering property located in Cleveland County, Oklahoma,
as amended of even date herewith, and by a Commercial Mortgage, Assignment of
Lease and Rents, Security Agreement and Financing Statement, dated February 6,
1995, covering property located in Sterling Heights, Michigan, as amended of
even date herewith, and by a Commercial Mortgage, Assignment of Lease and Rents,
Security Agreement and Financing Statement, dated February 6, 1995, covering
property located in Comstock Township, Michigan, as amended of even date
herewith, and by an Open-End Commercial Mortgage and Assignment of Lease and
Rents, dated June 29, 1993, as amended, covering property located in Winesburg,
Ohio, as amended of even date herewith, and by an Open-End Commercial Mortgage
and Assignment of Lease and Rents, dated June 29, 1993, as amended, covering
property located in Galion, Ohio, as amended 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.
BORROWER:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
38-1867649
------------------------------------------------
Taxpayer Identification Number
3
<PAGE> 4
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
58-1738825
------------------------------------------------
Taxpayer Identification Number
MCCLAIN OF OHIO, INC., a Michigan corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
MCCLAIN OF OKLAHOMA, INC., a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
MCCLAIN EPCO, INC., a New York corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
38-2205216
------------------------------------------------
Taxpayer Identification Number
MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE,
a Michigan corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
GALION HOLDING COMPANY, a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
38-3060196
------------------------------------------------
Taxpayer Identification Number
5
<PAGE> 6
MCCLAIN E-Z PACK INC., a Michigan corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
GALION DUMP BODIES, INC., a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
MCCLAIN GROUP SALES, INC., a Michigan
corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
59-3241829
------------------------------------------------
Taxpayer Identification Number
MCCLAIN GROUP SALES OF FLORIDA, INC., a
Florida corporation
By: Mark S. Mikelait
- --------------------------- ---------------------------------------------
Mark S. Mikelait
Its: Treasurer
-----------------------------------
------------------------------------------------
Taxpayer Identification Number
6
<PAGE> 7
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
7
<PAGE> 1
EXHIBIT 10.36
Note No.
-------------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit Converting to Term Loan)
$1,500,000.00 Troy, Michigan
Due Date: May 1, 2004 Dated: April 16, 1998
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 in
accordance with the provisions of a Loan Agreement, dated April 16, 1998,
between the Borrower and Standard Federal (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.
Capitalized terms not otherwise defined herein shall have the meanings given
such terms in the Loan Agreement.
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 May 1, 1999
(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, 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 face amount
hereof. 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.
From the date hereof until the Term Date, the principal outstanding
under this Note from time to time shall bear interest ("Line of Credit Interest
Rate"), on a basis of a year of 360 days for the actual number of days amounts
are outstanding hereunder, at Borrower's option, to be exercised in accordance
with the procedures outlined in the Loan Agreement, at the Prime-Based Rate or
the Line of Credit LIBOR Rate.
From and after the Term Date, the principal amount then advanced and
outstanding hereunder shall bear interest 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 either, at Borrower's option, to be exercised in accordance with the
1
<PAGE> 2
procedures outlined in the Loan Agreement, at the Prime-Based Rate or the Term
LIBOR Rate.
Accrued interest shall be payable beginning on May 1, 1998, and
continuing on the same day of each consecutive month thereafter 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 Sixty (60), plus
interest accrued to the due date of each such payment, beginning on June 1,
1999, 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 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 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.
2
<PAGE> 3
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
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 a Security Agreement, dated September 15, 1994, and
by a Security Agreement, dated June 22, 1995, and by a Commercial Mortgage,
dated September 26, 1988, covering property located in River Rouge, Michigan, as
amended of even date herewith, and by a Real Estate Mortgage with Power of Sale,
dated October 13, 1988, covering property located in Cleveland County, Oklahoma,
as amended of even date herewith, and by a Commercial Mortgage, Assignment of
Lease and Rents, Security Agreement and Financing Statement, dated February 6,
1995, covering property located in Sterling Heights, Michigan, as amended of
even date herewith, and by a Commercial Mortgage, Assignment of Lease and Rents,
Security Agreement and Financing Statement, dated February 6, 1995, covering
property located in Comstock Township, Michigan, as amended of even date
herewith, and by an Open-End Commercial Mortgage and Assignment of Lease and
Rents, dated June 29, 1993, as amended, covering property located in Winesburg,
Ohio, as amended of even date herewith,
3
<PAGE> 4
and by an Open-End Commercial Mortgage and Assignment of Lease and Rents, dated
June 29, 1993, as amended, covering property located in Galion, Ohio, as amended
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
By:
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
38-1867649
----------------------------------------
Taxpayer Identification Number
MCCLAIN OF ALABAMA, INC., a Michigan
corporation
By:
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
MCCLAIN OF GEORGIA, INC., a Georgia
corporation
By:
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
58-1738825
----------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
MCCLAIN OF OHIO, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
MCCLAIN OF OKLAHOMA, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
MCCLAIN EPCO, INC., a New York
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
38-2205216
----------------------------------------
Taxpayer Identification Number
5
<PAGE> 6
MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE,
a Michigan corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
GALION HOLDING COMPANY, a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
38-3060196
----------------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
GALION DUMP BODIES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
6
<PAGE> 7
MCCLAIN GROUP SALES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
59-3241829
----------------------------------------
Taxpayer Identification Number
MCCLAIN GROUP SALES OF FLORIDA, INC., a
Florida corporation
By: /s/ Mark S. Mikelait
- ------------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
---------------------------
----------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
7
<PAGE> 1
EXHIBIT 10.37
Loan No. 0250024084
SECOND AMENDMENT AGREEMENT
Loan Agreement
Promissory Note (Line of Credit)
THIS AGREEMENT made this 16 day of April, 1998 by and among Standard
Federal Bank, a federal savings bank ("Standard Federal"), McClain Group
Leasing, Inc., a Michigan corporation ("Borrower"), and McClain Industries,
Inc., a Michigan corporation ("Guarantor").
RECITALS:
A. Borrower and Standard Federal entered into a Loan Agreement, dated
July 17, 1996, as amended April 28, 1997 (the "Loan Agreement"), pursuant to
which Standard Federal opened a line of credit in favor of the Borrower, as
evidenced by a Promissory Note (Line of Credit), dated July 17, 1996, as amended
April 28, 1997 in the principal amount of $10,500,000.00 (the "Note"), secured
by an Assignment of Equipment Leases and Security Agreement dated July 17, 1996,
as amended April 28, 1997, and all Schedule A's thereto (the "Security
Agreement"), and guaranteed by the Guarantor pursuant to a Guaranty dated July
17, 1996 (the "Guaranty").
B. Borrower has requested an amendment and decrease in the credit limit
of the line of credit evidenced by the Note, an extension of the maturity date
thereof and a change in the interest rate applicable to the line of credit and
Standard Federal and the Guarantor are agreeable thereto, on the terms and
conditions herein provided.
NOW, THEREFORE, in consideration of Standard Federal's forbearance to
enforce payment of the Note except as herein provided, of the mutual covenants
herein contained and of other good and valuable consideration the receipt and
sufficiency whereof are hereby acknowledged, the parties hereto hereby warrant,
represent and agree as follows:
1. The Borrower is a Michigan corporation in good standing. All
corporate resolutions heretofore delivered to Standard Federal relative to
borrowing money and granting security interests remain in full force and effect.
Borrower has duly authorized and validly executed and delivered this Amendment
Agreement and such Agreement and the Loan Agreement and Note (as hereby amended)
are valid and enforceable according to their terms and do not conflict with or
violate Borrower's corporate charter or by-laws or any agreement or covenants to
which Borrower is a party.
2. The Security Agreement is valid and enforceable in accordance with
its terms. Standard Federal's security interests in the collateral described in
the Security Agreement are valid and perfected and Borrower is aware of no
claims or interests in such collateral prior or paramount to Standard Federal's.
3. The Guaranty is valid and enforceable in accordance with its terms
and the Guarantor presently has no valid and existing defense to liability
thereunder.
4. Section 1 of the Loan Agreement is hereby deleted in its entirety
and replaced by the following new Section 1:
1
<PAGE> 2
SECTION 1. EQUIPMENT LEASE LINE OF CREDIT
1.1 The following terms shall have the meanings stated below when used
in this Loan Agreement:
"Base LIBOR Rate" shall mean, with respect to a LIBOR
Borrowing for an Interest Period, LIBOR as of 11:00 a.m. two (2) London
Business Days prior to the first day of such Interest Period for
deposits with maturities approximately equal to such Interest Period
and in an amount approximately equal to the amount of such LIBOR
Borrowing.
"Borrowing" shall mean an advance of all or any portion of the
Line of Credit.
"Borrowing Notice" shall mean a notice by Borrower to Standard
Federal that Borrower wishes to make a Borrowing.
"Business Day" shall mean a day on which the main office of
Standard Federal is open for business.
"Consolidated Funded Debt" shall mean, as of any date, the sum
of the following (without duplication): (i) all Indebtedness of the
McClain Group as of such date, other than Consolidated Current
Liabilities, (ii) all Indebtedness which would be classified as "funded
indebtedness" or "long-term indebtedness" on a consolidated balance
sheet of the McClain Group prepared as of such date in accordance with
generally accepted accounting principles, (iii) all Indebtedness,
whether secured or unsecured, of the McClain Group, having a final
maturity (or which is renewable or extendable at the option of the
obligor for a period ending) more than one year after the date of
creation thereof, notwithstanding the fact that payments in respect
thereof (whether installment, serial maturity or sinking fund payments,
or otherwise) are required to be made by the obligor less than one year
after the date of the creation thereof and notwithstanding the fact
that any amount thereof is at the time included also in current
liabilities of such obligor, (iv) all Indebtedness of the McClain Group
outstanding under a revolving credit or similar agreement providing for
borrowings (and renewals and extensions thereof) over a period of more
than one year, notwithstanding the fact that any such Indebtedness is
created within one year of the expiration of such agreement, (v) the
present value (discounted at the implicit rate, if known, or 10% per
annum otherwise) of all obligations is respect of Capital Leases of the
McClain Group and (vi) all obligations under Guaranties of the McClain
Group. "Indebtedness" shall mean all indebtedness, obligations and
liabilities, including, without limitation, all "liabilities" which
would be reflected on a balance sheet prepared in accordance with
generally accepted accounting principles, all obligations in respect of
any Guaranty and all obligations in respect of any Capital Lease.
"Consolidated Current Liabilities" shall mean, as of any date, the
current liabilities which would be reflected on a consolidated balance
sheet of the McClain Group prepared as of such date in accordance with
generally accepted accounting principles, but excluding current
maturities of Consolidated Funded Debt. "Capital Lease" shall mean, as
of any date, any lease of property, real or personal, which would be
capitalized on a balance sheet of the lessee prepared as of such date
in accordance with generally accepted accounting principles, together
with any other lease by such lessee which is in substance a financing
lease, including without limitation, any lease under which (i) such
lessee has or will have an option to purchase the property subject
thereto at a
2
<PAGE> 3
nominal amount or an amount less than a reasonable estimate of the fair
market value of such property as of the date such lease is entered into
or (ii) the term of the lease approximates or exceeds the expected
useful life of the property leased thereunder. "Guaranty" shall mean
any contract, agreement or understanding pursuant to which any
Indebtedness of another person or entity is guaranteed or in effect
guaranteed in any manner, whether directly or indirectly.
"Credit Limit" shall mean the lesser of: (a) Ten Million and
00/100 Dollars ($10,000,000.00), or (b) an amount equal to 80% of
Eligible Lease Receivables.
"Earnings Before Interest and Taxes Plus Depreciation and
Amortization" shall mean the McClain Group's net income, computed in
accordance with generally accepted accounting principles as in effect
as of the date hereof consistently applied, before provision for
federal and state income taxes, plus interest, depreciation and
amortization expense, as reflected in the financial statements to be
furnished as required herein.
"Effective Date" shall mean the date designated by Borrower in
a Borrowing Notice as the date the Borrowing covered by such Borrowing
Notice shall be funded and shall also mean, where applicable, the first
day of the Interest Period applicable to a LIBOR Borrowing. An
Effective Date for a Prime Rate Borrowing must be a Business Day. An
Effective Date for a LIBOR Borrowing must be a London Business Day.
"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 $382,000.00 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.
"Funded Debt Ratio" shall mean the ratio of the McClain
Group's Consolidated Funded Debt to Earnings Before Interest and Taxes
Plus Depreciation and Amortization as of the end of each quarter of
each fiscal year of the McClain Group.
"Interest Period" shall mean, with respect to a LIBOR
Borrowing, a period of one (1) month, two (2) months or three (3)
months, commencing on the Effective Date with respect to such LIBOR
Borrowing. If any Interest Period would otherwise end on a day which is
not a London Business Day, such Interest Period shall be extended to
end on the next succeeding London Business Day.
"Interest Rate Selection Notice" shall mean a notice in the
form attached to this Loan Agreement as Exhibit A, by which the
Borrower shall notify Standard Federal that a Borrowing hereunder shall
be a LIBOR Borrowing, specifying the Interest Period and Effective Date
applicable to such LIBOR Borrowing and the principal amount of the
LIBOR Borrowing.
"LIBOR" shall mean, with respect to an Interest Period, the
British Bankers'
3
<PAGE> 4
Association ("BBA") interest settlement rate based on an average of
rates quoted by BBA designated banks as being, in BBA's view, the
offered rate at which deposits in U.S. Dollars are being quoted to
prime banks in the London interbank market at 11:00 a.m. (London time)
two (2) London Business Days prior to the first day of such Interest
Period, such deposits being for a period of time equal or comparable to
such Interest Period and in an amount equal or comparable to the
principal amount of the Borrowing to which the Interest Period relates,
as such rates are determined by the BBA and displayed on the Reuter's
Screen.
"LIBOR Borrowing" shall mean the principal amount of any
portion of any Borrowing bearing interest at the Line of Credit LIBOR
Rate.
"LIBOR Borrowing Fail" shall mean a LIBOR Borrowing which is
not made on the date specified in a Borrowing Notice for any reason
other than default by Standard Federal in funding the Borrowing.
"LIBOR Rate" shall mean, with respect to an Interest Period,
the quotient of: (i) the Base LIBOR Rate applicable to that Interest
Period, divided by (ii) one (1) minus the Reserve Requirement
(expressed as a decimal) applicable to the Interest Period. The LIBOR
Rate shall be rounded up to 4 decimal places where the fifth decimal
place is 5 or more.
"Line of Credit" shall mean the revolving line of credit made
available by Standard Federal to the Borrower on the terms and
conditions contained in this Loan Agreement.
"Line of Credit LIBOR Rate" shall mean, with respect to a
LIBOR Borrowing and an Interest Period, a rate per annum determined in
accordance with the following table:
<TABLE>
<CAPTION>
Funded Debt Ratio Line of Credit LIBOR Rate
----------------- -------------------------
<S> <C>
4.25 to 1.00 or greater Add 2.15 (215 basis points) to the LIBOR Rate
3.50 to 1.00 up to 4.24 to 1.00 Add 2.00 (200 basis points) to the LIBOR Rate
3.00 to 1.00 up to 3.49 to 1.00 Add 1.75 (175 basis points) to the LIBOR Rate
2.99 to 1.00 or less Add 1.50 (150 basis points) to the LIBOR Rate
</TABLE>
"Line of Credit Maturity Date" shall mean March 1, 2000, or
any extension or renewal thereof.
"Line of Credit Note" shall mean the Promissory Note, dated
July 17, 1996, as amended of even date herewith and all renewals and
amendments thereof, evidencing the Line of Credit.
"London Business Day" shall mean a Business Day on which
dealings in dollar deposits are carried out in the London Interbank
market and on which banks, generally, in New York, New York are open
for business.
"McClain Group" shall mean McClain Industries, Inc., a
Michigan corporation; McClain of Alabama, Inc., a Michigan corporation;
McClain of Georgia, Inc., a Georgia corporation; McClain of Ohio, Inc.,
a Michigan corporation; McClain of Oklahoma, Inc., a
4
<PAGE> 5
Michigan corporation; McClain Epco, Inc., a New York corporation;
Shelby Steel Processing Company, a Michigan corporation; McClain Tube
Company d/b/a Quality Tube, a Michigan corporation; Galion Holding
Company, a Michigan corporation; McClain E-Z Pack Inc., a Michigan
corporation; Galion Dump Bodies, Inc., a Michigan corporation; McClain
Group Sales, Inc., a Michigan corporation; and McClain Group Sales of
Florida, Inc., a Florida corporation.
"Prepayment Premium" shall mean a premium payable in
connection with a Principal Prepayment or a LIBOR Borrowing Fail. In
the case of a Principal Prepayment, the Prepayment Premium shall be an
amount equal to the positive difference, if any, between (i) the
aggregate amount of interest which would otherwise be payable on the
prepaid principal amount during the Prepayment Interest Period, as
herein defined, and (ii) the aggregate amount of interest Standard
Federal would earn if the prepaid principal amount were reinvested for
the Prepayment Interest Period at the Treasury Rate. In the case of a
LIBOR Borrowing Fail, the Prepayment Premium shall be an amount equal
to the positive difference, if any, between (i) the aggregate amount of
interest which would otherwise be payable on the principal amount of
the LIBOR Borrowing during the Prepayment Interest Period, and (ii) the
aggregate amount of interest Standard Federal would earn if the
principal amount of the LIBOR Borrowing were reinvested for the
Prepayment Interest Period at the Treasury Rate. In the case of a
Principal Prepayment, the term "Prepayment Interest Period" shall mean
the period from the prepayment date to the last day of the current
Interest Period applicable to the prepaid Borrowing. In the case of a
LIBOR Borrowing Fail, the term "Prepayment Interest Period" shall mean
the period from the Effective Date specified in the Borrowing Notice
applicable to the LIBOR Borrowing to the last day of the Interest
Period specified in such Borrowing Notice. The term "Treasury Rate"
means the yield on U.S. Treasury securities at constant maturity as
interpolated by the U.S. Treasury from the daily yield curve, based on
the closing market bid yields on actively-traded U.S. Treasury
securities in the over-the-counter market, as such yields are stated
under the heading referred to as "U.S. Government Securities, Treasury
Constant Maturities" in Document H.15(519), presently published by the
Board of Governors of the Federal Reserve System and titled "Federal
Reserve Statistical Release." The Treasury Rate used to calculate a
Prepayment Premium shall be the constant maturity yield value read from
the yield curve at the fixed maturity which is the same as, or is the
next closest period which is longer than the Prepayment Interest
Period. If the publishing of the Treasury Rate is discontinued during
the term of the Line of Credit, then the Treasury Rate shall be based
upon the index which is published by the Board of Governors of the
Federal Reserve System in replacement thereof or, if no such
replacement index is published, the index which, in Standard Federal's
sole determination most nearly corresponds to the Treasury Rate. The
Treasury Rate used to calculate a Prepayment Premium shall be computed
utilizing the Treasury Rate for the day which is two Business Days
prior to the due date of the Prepayment Premium.
"Prime-Based Rate" shall mean a rate per annum equal to the
Wall Street Journal Prime Rate, which rate shall increase or decrease
automatically when and to the extent that the Wall Street Journal Prime
Rate shall be increased or decreased.
"Prime Rate Borrowing" shall mean the principal amount of any
portion of any Borrowing bearing interest at the Prime-Based Rate.
5
<PAGE> 6
"Principal Prepayment" shall mean a payment of principal with
respect to a LIBOR Borrowing on a day which is not the last day of an
Interest Period applicable to such LIBOR Borrowing.
"Rate Conversion Date" shall mean the date on which a Prime
Rate Borrowing shall convert to a LIBOR Borrowing.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System from time to time in effect and
shall include any successor or other regulation or official
interpretation of the Board of Governors relating to reserve
requirements applicable to member banks of the Federal Reserve System.
"Reserve Requirement" shall mean, with respect to an Interest
Period, the daily average during such Interest Period of the aggregate
reserve requirement (including all basic, supplemental, marginal and
other reserves and taking into account any transitional adjustments or
other scheduled changes in reserve requirements during such Interest
Period) which may be imposed on Standard Federal under Regulation D on
Eurocurrency liabilities, in the case of LIBOR Borrowings.
"Reuter's Screen" means the display designated as page "LIBO"
on the Reuter Monitor System or such other display on the Reuter
Monitor System as shall display LIBOR.
"Revolving Credit Period" means the period from the date of
this Loan Agreement through the Line of Credit Maturity Date.
"Unused Line" shall mean the amount available for draw but not
advanced from time to time on the Line of Credit.
"Unused Line Fee" shall mean a fee in the amount of 0.25% per
annum of the 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%.
"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, then the Prime-Based 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.
1.2 Standard Federal hereby extends the Line of Credit to the
Borrower, which shall not exceed at any one time outstanding the Credit
Limit.
6
<PAGE> 7
1.3 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.
1.4 The Line of Credit herein extended shall be subject to the
terms and conditions of 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.
1.5 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.
1.6 LIBOR Borrowings under the Line of Credit shall bear
interest at the Line of Credit LIBOR Rate and Prime Rate Borrowings
under the Line of Credit shall bear interest at the Prime-Based Rate.
Borrower shall have the option to designate whether Borrowings shall
consist of LIBOR Borrowings or Prime Rate Borrowings, to be exercised
as hereinafter described. Interest shall be calculated on the basis of
a year of 360 days for the actual number of days amounts are
outstanding.
1.7 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.
1.8 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, the Unused Line Fee.
1.9 In all events, unless earlier terminated, the Line of
Credit shall terminate March 1, 2000. Upon termination, Borrower shall
forthwith pay to Standard Federal all sums owing for principal and
interest with respect to the Line of Credit.
1.10 To effect a Borrowing under the Line of Credit, Borrower
shall give Standard Federal a Borrowing Notice.
7
<PAGE> 8
1.11 A Borrowing Notice may be made in writing, by telefacsimile
or by telephone by an authorized representative of the Borrower and
shall specify the aggregate amount of the requested Borrowing and the
Effective Date of the Borrowing. Any Borrowing Notice by telephone may
be recorded by Standard Federal for accuracy. A Borrowing Notice for a
LIBOR Borrowing must be accompanied by one or more Interest Rate
Selection Notices, specifying the principal amount and the Interest
Period applicable to each LIBOR Borrowing.
1.12 To effect a LIBOR Borrowing, the Borrower must furnish
Standard Federal an Interest Rate Selection Notice.
1.13 Interest Rate Selection Notices must be given no later than
11:00 a.m. Detroit time on a day which is at least two (2) London
Business Days prior to the Effective Date of a LIBOR Borrowing. A
Borrowing Notice for a Prime Rate Borrowing must be given no later than
3:00 p.m. Detroit time on the Effective Date of such Borrowing.
1.14 Prior to making a Request for Borrowing or giving an
Interest Rate Selection Notice, the Borrower may (without specifying
whether the anticipated Borrowing will be a Prime Rate Borrowing or a
LIBOR Borrowing) request that Standard Federal provide the Borrower
with the most recent LIBOR available to Standard Federal for each
Interest Period requested by Borrower. Standard Federal shall endeavor
to provide such quoted rates to the Borrower on the date of the
request.
1.15 LIBOR Borrowings shall be made only in minimum increments
of Five Hundred Thousand and 00/100 Dollars ($500,000.00).
1.16 If the Borrower wishes to roll a LIBOR Borrowing into
anther LIBOR Borrowing at the end of the Interest Period applicable to
such LIBOR Borrowing, it shall give Standard Federal an Interest Rate
Selection Notice no later than 11:00 a.m. Detroit time on the day which
is two (2) London Business Days prior to the termination of the
applicable Interest Period. The Interest Rate Selection Notice shall
specify the Interest Period(s) to be applicable to principal amounts
which will continue as LIBOR Borrowings. Each Interest Rate Selection
Notice shall be irrevocable and effective upon the giving thereof to
Standard Federal. If the Borrower shall fail to give Standard Federal
an Interest Rate Selection Notice by 11:00 a.m. Detroit time on the day
which is two (2) London Business Days prior to the termination of an
Interest Period with respect to any LIBOR Borrowing, specifying the
interest option to be applicable to such Borrowing as of the end of
such Interest Period, the LIBOR Borrowing shall convert to a Prime Rate
Borrowing at the end of the Interest Period.
1.17 The Borrower may convert Prime Rate Borrowings to LIBOR
Borrowings at any time by giving an Interest Rate Selection Notice to
Standard Federal specifying the Rate Conversion Date. The Interest Rate
Selection Notice must be given no later than 11:00 a.m. Detroit time on
the day which is two (2) London Business Days prior to the Rate
Conversion Date. Each Interest Rate Selection Notice shall specify the
principal amount of the Prime Rate Borrowing to be converted to a LIBOR
Borrowing and the Interest Period to be applicable to such LIBOR
Borrowing. Each Interest Rate Selection Notice shall be irrevocable and
effective upon the giving thereof to Standard Federal.
8
<PAGE> 9
1.18 If the Borrower makes a Principal Prepayment or a LIBOR
Borrowing Fail occurs, Borrower will pay to Standard Federal the
Prepayment Premium. In the case of a Principal Prepayment, the
Prepayment Premium shall be due at the time the Principal Prepayment is
made. In the case of a LIBOR Borrowing Fail, the Prepayment Premium
shall be due on the Effective Date specified in the applicable
Borrowing Notice.
1.19 If, with respect to an Interest Period for any LIBOR
Borrowing, Standard Federal determines, in its sole discretion, that,
by reason of circumstances affecting the interbank Eurodollar market
generally, deposits in United States dollars (in the applicable
amounts) are not being offered to banks in the interbank Eurodollar
market for such Interest Period, or the Line of Credit LIBOR Rate will
not adequately and fairly reflect the cost to Standard Federal of
maintaining or funding the LIBOR Borrowing for such Interest Period,
Standard Federal shall promptly give notice thereof to Borrower.
Thereafter, until Standard Federal gives notice to the Borrower that
such circumstances no longer exist, (a) the obligation of Standard
Federal to fund LIBOR Borrowings shall be suspended and (b) the
Borrower shall either (i) repay in full the then-outstanding principal
amount of LIBOR Borrowings, together with accrued interest thereon on
the last day of the then-current Interest Period applicable to such
LIBOR Borrowings, or (ii) convert such LIBOR Borrowings to Prime Rate
Borrowings on the last day of the then-current Interest Period
applicable to each LIBOR Borrowing.
1.20 If, after the date of this Loan Agreement, the adoption of
any applicable law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Standard
Federal with any request or directive (whether or not having the force
of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for Standard Federal to make, maintain
or fund LIBOR Borrowings, Standard Federal shall promptly give notice
thereof to the Borrower. Thereafter, (a) the obligation of Standard
Federal to fund LIBOR Borrowings shall be suspended and (b) the
Borrower shall either (i) repay in full the then-outstanding principal
amount of LIBOR Borrowings, together with accrued interest thereon, or
(ii) convert such LIBOR Borrowings to Prime Rate Borrowings, either:
(1) on the last day of the then-current Interest Period applicable to
such LIBOR Borrowings, if Standard Federal may lawfully continue to
maintain and fund such LIBOR Borrowings until such date, or (2)
immediately, if Standard Federal may not lawfully continue to fund and
maintain such LIBOR Borrowings until such date, in which case Borrower
will pay the Prepayment Premium.
1.21 If any governmental authority or regulatory agency, central
bank or other comparable authority, shall at any time impose, modify or
deem applicable any reserve (including, without limitation, the Reserve
Requirement or any other reserve imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, Standard Federal, or shall impose on Standard Federal or
the interbank Eurodollar market any other condition, guideline or
request affecting LIBOR Borrowings, the Note or Standard Federal's
obligation to make advances of LIBOR Borrowings, and the result of any
of the foregoing, in the reasonable judgment of Standard Federal shall
be to increase the cost to Standard Federal of making or maintaining
LIBOR Borrowings, or to reduce the amount of any sum
9
<PAGE> 10
received or receivable by Standard Federal under this Loan Agreement,
or under the Note, by an amount deemed by Standard Federal to be
material, then, within five (5) days after demand by Standard Federal,
Borrower shall pay to Standard Federal as additional interest such
additional amount or amounts as will compensate Standard Federal for
such increased cost or reduction. Standard Federal will promptly notify
the Borrower of any event of which it has knowledge, occurring after
the date hereof, which will entitle Standard Federal to compensation
pursuant to this Section. A certificate of Standard Federal claiming
compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. Standard Federal will, on request, provide
evidence supporting such certificate. If Standard Federal demands
compensation under this Section, then Borrower may at any time, upon at
least five (5) days prior notice to Standard Federal, either (i) pay
such compensation to Standard Federal, (ii) repay in full the then
outstanding LIBOR Borrowings of Standard Federal, together with accrued
interest thereon to the date of prepayment, or (iii) convert such LIBOR
Borrowings to Prime Rate Borrowings in accordance with the provisions
of this Loan Agreement; provided, however, that if the Borrower prepays
or converts LIBOR Borrowings it shall be liable for any applicable
Prepayment Premium. Standard Federal's determination of amounts payable
under this Section shall be calculated as though Standard Federal
funded the applicable LIBOR Borrowings through the purchase of a
eurodollar deposit of the type, maturity and amount corresponding to
the deposit used as a reference in determining the Base LIBOR Rate with
respect to such LIBOR Borrowing, whether or not Standard Federal in
fact purchased such deposit. If the additional amounts payable under
this Section shall be construed or so operate as to require the
Borrower to pay, or be charged, interest at a rate which is 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 outstanding under the Note, as applicable.
In such event, Standard Federal shall have the option to immediately
terminate Borrower's right to request LIBOR Borrowings, and the unpaid
balance of any outstanding LIBOR Borrowings, 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 obligations of
the Borrower under this Section shall survive payment of the Line of
Credit and termination of this Loan Agreement.
1.22 If Standard Federal shall determine that the adoption,
amendment or revision of any applicable law, rule or regulation
affecting Standard Federal's capital requirements or adequacy, or the
interpretation or administration thereof by any governmental authority
or regulatory agency, central bank or other comparable authority, or
compliance by Standard Federal with any applicable law, rule or
regulation affecting Standard Federal's capital requirements or
adequacy, or any request, interpretation or directive (whether or not
having the force of law) of any governmental authority or regulatory
agency, central bank or other comparable authority which affects
Standard Federal's capital requirements, has or would have the effect
of reducing the rate of return on Standard Federal's capital to a level
below the rate of return Standard Federal would have realized in the
absence of such adoption, amendment, revision, interpretation,
administration or compliance (taking into account Standard Federal's
policies with respect to capital adequacy) by an amount considered by
Standard Federal to be material, then, beginning five (5) days after
demand by Standard Federal, Borrower shall pay to Standard
10
<PAGE> 11
Federal as additional interest or as fees, as determined by Standard
Federal in its sole discretion, such additional amount or amounts as
will compensate Standard Federal for such reduction in its rate of
return. Such adjustments in interest or fees shall be imposed effective
five (5) days after Standard Federal's demand and shall apply to the
then outstanding principal balance of the Line of Credit and to
subsequent advances under this Loan Agreement. In determining such
amount or amounts, Standard Federal may use any reasonable averaging
and attribution methods. Standard Federal will promptly notify the
Borrower of any event of which it has knowledge, occurring after the
date hereof, which will entitle Standard Federal to compensation
pursuant to this Section. A certificate of Standard Federal claiming
compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. Standard Federal will, on request, provide
evidence supporting such certificate.
5. The Loan Agreement is hereby amended so as to include a Form
of Interest Rate Selection Notice as an Exhibit A, in the form attached hereto
as Exhibit A.
6. The Note is hereby amended in the following respects only:
a. The Due Date provided for in the Note is hereby
amended and extended from March 31, 1999 to March 1, 2000.
b. The principal amount stated in the Note is hereby
decreased to the sum of Ten Million and 00/100 Dollars
($10,000,000.00). Borrower hereby promises to pay to the order of
Standard Federal the principal amount of the Note, as hereby amended,
together with interest thereon, in accordance with the terms and
provisions of the Note, as hereby amended.
c. The principal outstanding under the Note from time to
time shall bear interest, on a basis of a year of 360 days for the
actual number of days amounts are outstanding, at Borrower's option, to
be exercised in accordance with the procedures outlined in the Loan
Agreement, at the Prime-Based Rate or the Line of Credit LIBOR Rate.
7. Except as amended herein and in the amendment to the Security
Agreement executed herewith, the Note, Security Agreement and Guaranty shall
remain in full force and effect. This Amendment Agreement may be attached to the
Note as a rider, but such attachment shall not be necessary to the validity
thereof.
8. Guarantor acknowledges and consents to the amendment to the
Note herein provided and agrees that the Guaranty shall continue and remain in
full force and effect with respect to the Note as herein amended.
11
<PAGE> 12
IN WITNESS WHEREOF the parties hereto have executed this agreement the
day and date first above written.
Witness: BORROWER:
MCCLAIN GROUP LEASING, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- --------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
- --------------------- -------------------------
6200 Elmridge
----------------------------------------
Address
Sterling Heights, Michigan 48310
----------------------------------------
38-2969462
----------------------------------------
Tax Identification Number
GUARANTOR:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
By: /s/ Mark S. Mikelait
- --------------------- -------------------------------------
Mark S. Mikelait
Its: Treasurer
- --------------------- -------------------------
STANDARD FEDERAL:
STANDARD FEDERAL BANK, a federal savings
bank
By: /s/ [SIG]
- --------------------- -------------------------------------
Its: Vice President
- --------------------- -------------------------
12
<PAGE> 13
EXHIBIT A
[FORM OF INTEREST RATE SELECTION NOTICE]
- --------------------------------------------------------------------------------
STANDARD FEDERAL BANK
Member ABN AMRO Group
2600 West Big Beaver Road
P.O. Box 3703
Troy, Michigan 48007-3703
248/643-9600
Loan No.:
--------------
Borrowing No.:
--------------
INTEREST RATE SELECTION NOTICE
TO: STANDARD FEDERAL BANK
In accordance with the provisions of the Loan Agreement, dated July 17,
1996, as amended April 28, 1997 and ________________ , 1998 (the "Loan
Agreement"), executed in connection with the referenced loan, the undersigned
hereby notifies you that it has selected the Interest Period commencing on the
Effective Date stated below with respect to the Borrowing outstanding under the
referenced Borrowing No. in the principal amount indicated below (capitalized
terms used in this notice shall have the meanings given such terms in the Loan
Agreement):
Interest Period:
-------------------
Effective Date:
-------------------
Principal Amount:
-------------------
LIBOR:
-------------------
LIBOR Rate:
-------------------
Last Day of Interest Period:
-------------------
BORROWER:
McClain Group Leasing, Inc.
By: EXHIBIT - DO NOT SIGN
-----------------------
Its:
----------------------
13
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,924,006
<SECURITIES> 0
<RECEIVABLES> 24,235,761
<ALLOWANCES> 0
<INVENTORY> 38,873,477
<CURRENT-ASSETS> 68,676,339
<PP&E> 42,100,575
<DEPRECIATION> 18,834,030
<TOTAL-ASSETS> 100,246,967
<CURRENT-LIABILITIES> 26,756,652
<BONDS> 0
0
0
<COMMON> 4,997,809
<OTHER-SE> 21,837,497
<TOTAL-LIABILITY-AND-EQUITY> 26,835,306
<SALES> 35,872,693
<TOTAL-REVENUES> 35,872,693
<CGS> 29,809,550
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<INTEREST-EXPENSE> 978,226
<INCOME-PRETAX> 2,193,002
<INCOME-TAX> 539,000
<INCOME-CONTINUING> 1,654,002
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