<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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------------
Commission File 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.
[ ]
As of December 7, 1999, the aggregate market value of the Registrant's
voting stock held by nonaffiliates of the Registrant was $26,430,853 determined
in accordance with the highest price at which the stock was sold on such date as
reported by the Nasdaq National Market.
As of December 7, 1999, there were 4,647,183 shares of the Registrant's
common stock issued and outstanding.
The Exhibit Index Begins on Page 48
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
McClain Industries, Inc., a Michigan corporation ("McClain"), 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. On January 1, 1999, the Company restructured its subsidiaries.
Currently they are: McClain E-Z Pack, Inc. ("E-Z Pack"); McClain Galion, Inc.
("Galion", formerly Galion Dump Bodies, Inc.); McClain Southland Company
("Southland", formerly, McClain Group Sales of Florida, Inc.); Shelby Steel
Processing Co. ("Shelby Steel"); McClain Tube Company (d/b/a Quality Tubing)
("Tube"); McClain Group Leasing, Inc. ("Leasing"); and McClain International
FSC, Inc. ("FSC"). All of these companies are Michigan corporations, except
Southland, which is a Florida Corporation, and for FSC, which is a Virgin
Islands corporation. Southland is a Distributorship, Leasing is a Lease
Financing Company, and FSC is an International Sales Corporation.
The Company's executive offices are located at 6200 Elmridge Road,
Sterling Heights, Michigan 48310 and its telephone number is (810) 264-3611.
PRODUCTS
The Company manufactures and markets dump truck bodies and four solid
waste handling equipment product lines: (1) containers; (2) compactors and
baling equipment; (3) garbage and recycling truck bodies; and (4) transfer
trailers. The Company also markets truck chassis. Sales of dump truck bodies
accounted for approximately 14%, sales of solid waste handling equipment
accounted for approximately 67%, and truck chassis accounted for approximately
19% of the Company's consolidated net sales for the fiscal year ended September
30, 1999.
<PAGE> 3
Dump Truck Bodies and Hoists
Galion manufactures steel dump truck bodies varying in capacity from
two to twenty-five cubic yards at its Winesburg, Ohio facility. E-Z Pack, under
license from Galion, also manufactures dump truck bodies at its Macon, Georgia
and Oklahoma City, Oklahoma facilities. 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. E-Z Pack
manufactures several types of detachable roll-off containers and roll-off hoists
at the Company's facilities in Sterling Heights, Michigan, Macon, Georgia,
Demopolis, Alabama, and Oklahoma City, Oklahoma. 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,
and Oklahoma City, Oklahoma. 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". E-Z Pack 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.
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
2
<PAGE> 4
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
E-Z Pack 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. This program
gives the Company the opportunity to provide a more complete product to its
customers and gives it the ability to react quickly to unexpected customer
needs. Since the trucks are purchased rather than manufactured by the Company,
margins on sales of these package units lower than those generated from the
products manufactured by the Company are expected.
Leasing
Leasing provides the Company's customers with financing options through
finance type leases including TRAC (Terminal Rental Adjustment Clause) leases.
CUSTOMERS AND DISTRIBUTION
For the fiscal year ended September 30, 1999, the Company's
consolidated net sales were divided approximately 40% to distributors, 53% to
solid waste handling companies, and 7% to other entities.
During the fiscal years ended September 30, 1999, 1998 and 1997,
approximately 23.1%, 28.8% and 13.5%, respectively, of the Company's total sales
were made to Waste Management, Inc. 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,
3
<PAGE> 5
actual performance costs may exceed the projected costs upon which the submitted
bid or contract price was based.
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 also engages independent distributors and dealers in
various regions throughout the United States and certain foreign countries, for
marketing its products to customers. The Company's dealers are generally
responsible in their respective geographic markets for identifying customers and
soliciting customer orders. As of December 13, 1999, 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, 1999, Leasing held net lease receivables
of approximately $18.8 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.
4
<PAGE> 6
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 92.6%, 92.8%, and 91.8% of Shelby Steel's business
and 1.5%, 1.6%, and 1.9% of the Company's consolidated net sales for the fiscal
years ended September 30, 1999, 1998 and 1997, 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 95% of its steel tubing requirements.
5
<PAGE> 7
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 $18.5
million and $17 million at September 30, 1999 and 1998, 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, 1999, 1998 and 1997, the Company had inventory of
$63.3 million, $38.9 million and $31.0 million, respectively.
EMPLOYEES
The Company had approximately 881 employees as of December 13, 1999.
Seventy-Five of the Company's hourly employees are represented by the McClain
Hourly Employees' Union pursuant to a collective bargaining agreement which
expires September 16, 2002. 225 hourly employees of E-Z Pack are represented
by the International Association of Machinists and Aerospace Workers Union
pursuant to a
6
<PAGE> 8
collective bargaining agreement which expires June 12, 2000. 57 hourly
employees of E-Z Pack are represented by the International Association of
Machinists and Aerospace Workers Union pursuant to a collective bargaining
agreement which expires November 1, 2002. 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 E-Z Pack's 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 is bargaining with the Union and discussing
the appropriate remedy and possible settlement of all claims with the NLRB.
The Company believes that relations with the hourly employees at its Georgia
facility 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
Sterling Heights, Michigan Leased 18,000
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
OWNED SQUARE
LOCATION OR LEASED FOOTAGE
-------- --------- ------
<S> <C> <C>
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 the Company. This facility is used to manufacture roll-off
containers, roll-off hoists and compactors. The Company 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. The Company leases, under a verbal month-to-month
lease, an 18,000 square foot manufacturing facility also located in Sterling
Heights, Michigan from siblings 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 facility
manufactures front, side and rear loading garbage truck bodies and recycling
trucks as well as transfer trailers.
Galion 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.
E-Z Pack's Georgia facility is an approximately 114,500 square foot
manufacturing facility on 13.2 acres in Macon, Georgia. This facility
manufactures dump bodies and roll-off hoists to sell principally in the
Southeast.
E-Z Pack'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.
E-Z Pack 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.
The Company's Sterling Heights, Michigan facility and Galion, 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 50% of
8
<PAGE> 10
capacity. The Alabama facility is currently operating at 60% 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 6 and
7 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 and E-Z Pack brand products. A
subsidiary of the Company purchased the business now conducted by Galion and
E-Z Pack from the Peabody Galion Division of Peabody International Corporation
("Peabody"). Pursuant to an indemnification provided Peabody in connection
with the acquisition, the Company 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. In addition, the acquisition agreement called for
the seller to share in the payment of certain costs related to the defense of
these cases. On December 29, 1998 the Company reached a settlement agreement
with the seller, the terms of which called for the Company to release the
seller from its obligations related to product liability claims under the
Galion acquisition agreement in exchange for a cash payment of $1,050,000.
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
in this item and in Item 1. Business, Employees.
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.
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded and quoted on the Nasdaq National
Market ("Nasdaq/NMS") under the trading symbol "MCCL." The following table sets
forth, for the periods indicated, the high and low sales prices for the Common
Stock as reported by Nasdaq/NMS. These per share quotations represent
inter-dealer prices on the Nasdaq/NMS, and do not include retail mark-ups or
commissions.
<TABLE>
<CAPTION>
SALES PRICE
OF
COMMON STOCK
-------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 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
FISCAL YEAR ENDED SEPTEMBER 30, 1999
First Quarter 5.875 3.125
Second Quarter 6.00 5.250
Third Quarter 5.938 4.25
Fourth Quarter 7.125 4.375
</TABLE>
On December 7, 1999, the last reported sales price for the Common Stock
as reported by Nasdaq/NMS was $5.6875. As of such date there were approximately
209 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>
=======================================================================================================================
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Sales $142,079,475 $118,487,052 $95,255,641 $84,680,797 $82,263,202
Sales, Net of Customer
Discounts $140,604,885 $116,554,031 $95,255,641 $84,221,810 $81,569,427
Net Income (Loss) $4,181,938 $3,383,892 $(1,703,780) $2,384,957 $2,462,755
Net Earnings (Loss) Per
Common and Common
Equivalent Share,1, 2 $.90 $.72 $(.36) $.50 $.53
Working Capital $58,689,965 $41,919,687 $33,520,003 $32,371,639 $33,868,556
Total Assets $129,923,989 $100,246,967 $87,185,567 $79,425,255 $73,899,197
Long-Term Debt $62,648,684 $42,530,105 $38,513,490 $34,217,149 $31,170,287
Stockholders' Investment $30,890,965 $26,835,306 $23,837,091 $25,457,255 $22,841,274
Weighted Average Number of
Common Equivalent Shares
Outstanding 1, 2 4,673,027 4,711,741 4,729,281 4,752,050 4,657,476
Current Ratio 2.79:1 2.57:1 2.63:1 3.18:1 3.37:1
Long Term Debt to Equity
2.03:1 1.59:1 1.62:1 1.34:1 1.36:1
=======================================================================================================================
</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,
---------------- --------------- ---------------- ------------ --------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales 100.00% 100.0% 100.00% 100.00% 100.00%
Cost of Sales 82.40 82.18 83.68 79.65 78.35
------ ----- ------ ----- ------
Gross Profit 17.60 17.82 16.32 20.35 21.65
Selling, General &
Administrative Expenses 11.55 11.47 14.33 13.60 14.52
Restructuring and Impairment
Charge 0.00 0.00 1.84 0.00 0.00
------ ----- ------ ----- ------
Operating Profit 6.05 6.35 .15 6.75 7.13
Other Expense 1.54 2.22 2.24 2.48 2.59
------ ----- ------ ----- ------
Income (Loss) Before Income
Taxes 4.51 4.13 (2.09) 4.27 4.54
Income Taxes (Benefit) 1.53 1.23 (.30) 1.45 1.55
------ ----- ------ ----- ------
Net Income (Loss) 2.98% 2.90% (1.79)% 2.82% 2.99%
====== ===== ====== ===== ======
</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, 1999 to year ended September 30, 1998
Net sales increased 20.7% to $140.6 million for the fiscal year ended
September 30, 1999 (Fiscal 1999) from $116.5 million for the fiscal year ended
September 30, 1998 (Fiscal 1998). The increase was due primarily to strong sales
by the Company's E-Z Pack and Truck Chassis divisions. Sales for E-Z Pack
increased 49.6% or $11.8 million, while Truck Chassis sales increased 56.9%
or $9.6 million. Sales of the Company's other product lines increased slightly
or were flat for Fiscal 1999 compared to Fiscal 1998 The sales of the McClain
Truck division accounted for 18.8% of the Company's sales for Fiscal 1999
compared to 14.5% of the Company's sales for Fiscal 1998. Although truck chassis
sales increased significantly, the number of trucks the Company had available
for sale at September 30, 1999 increased significantly over the September 30,
1998 level. This increase was due primarily to the Company's decision to
aggressively pursue the Truck Chassis market for its tandem dump body product
line. The market for these Truck Chassis was extremely soft in 1999, which
combined with the Company's attempt to pursue this market caused approximately
60% of the increase in the Truck Chassis inventory. The Company paid
approximately $1.0 million dollars in interest on debt incurred to finance
this inventory increase.
The Company's overall gross profit as a percentage of sales decreased
to 17.60% for Fiscal 1999 from 17.82% for Fiscal 1998, while the gross profit
margin on
12
<PAGE> 14
products manufactured by the Company increased to 21.4% for Fiscal 1999
compared to 21.2% for Fiscal 1999. This increase results from reduced steel
prices and increased production, providing overhead reductions, at certain of
the Company's production facilities. The gross profit margin for the Truck
Chassis division decreased to 5.8% for Fiscal 1999 from 6.8% for Fiscal 1998,
due primarily to the softness in the truck chassis market in Fiscal 1999.
Selling, General & Administrative Expenses increased to 11.55 % of net
sales for Fiscal 1999 from 11.47% of net sales for the Fiscal 1998 as a result
of increased marketing activity by the Company and expansion of its sales force.
Inventory has increased to $63.3 million at September 30, 1999 from
$38.9 million at September 30, 1998. Approximately $27.2 million of the
inventory consists of trucks and related equipment the Company has dedicated to
its truck ready program. This increase is the result of the Company's decision
in the fourth quarter of fiscal 1998 to more aggressively pursue an expanding
market it believes exists for package units consisting of a truck chassis and a
piece of equipment manufactured by the Company (Roll-off Hoists, Refuse Truck
Bodies and Dump Bodies). See above discussion regarding dump truck chassis.
The Company's leasing subsidiary generated pretax income of $.48
Million for Fiscal 1999 compared to a pretax loss of $.02 Million for Fiscal
1998. The Company had $18.8 Million in net finance lease receivables at
September 30, 1999 compared to $10.8 Million at September 30, 1998.
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 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 E-Z Pack and Galion 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 21.2% 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 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 E-Z Pack and Galion facilities due
to the shortage of truck chassis previously discussed.
13
<PAGE> 15
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $58.7 million at September 30,
1999 compared to $41.9 million at September 30, 1998. The ratio of current
assets to current liabilities was 2.79 at September 30 1999 and 2.57:1 at
September 30, 1998. The Company's cash and cash equivalents totaled $1.9 million
at September 30, 1999. Cash flows used by operations were $13.6 million for the
year ended September 30, 1999 primarily due to the increased inventory dedicated
to the Company's truck program as discussed previously.
The Company's required level of working capital increased during fiscal
1999 from fiscal 1998 due to increases in the Company's Truck Chassis program
and continued success in expanding its leasing subsidiary. Long-term debt
continued to increase as a result of the increased 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
$33.3 million for working capital needs and a $1.5 million credit line to fund
machinery and equipment acquisitions. On July 9, 1999 the Company signed an
amendment to this agreement that temporarily increased the availability of the
line to $35.0 million. The new agreement calls for a monthly reduction to the
availability of $833,333, beginning August 1, 1999, and continuing through
July 1, 2000, when the total availability will be $25,000,000. At September 30,
1999 the Company had borrowed approximately $26.9 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 $15.0 million with borrowing limited to 80% of eligible lease
receivables. At September 30, 1999 approximately $12.1 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 among of capital
expenditures the Company may make each year. The Company is in compliance with
the various covenants as of September 30, 1999. The revolving credit agreements
bear interest at the LIBOR rate plus 175 basis points and expire in May 2001, 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
14
<PAGE> 16
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, 1999, approximately $7.3 million had been drawn on the facilities.
The Company has currently set its budget for capital expenditures in
fiscal 1999 at approximately $3.0 million as compared to $4.5 million in fiscal
1998. Despite the increase in inventory and leasing activity, 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 purchases the various computer hardware and software used
in the administration of its financial, manufacturing and engineering processes
from third party suppliers. A centralized computer and software is used for
approximately 90% of the financial and manufacturing applications of the Company
and certification has been received from both the hardware and software
suppliers that these products are Year 2000 compliant. The engineering software
is run on either a LAN (local area network) or individual personal computers
depending on the size of the manufacturing facility. All the necessary hardware
and software for the engineering is Year 2000 compliant. Additionally, the
Company has various stand alone personal computers and laptop computers that run
word processing, database and spreadsheet software. The Company is currently in
the process of upgrading all the software run on these stand alone computers
with versions that are Year 2000 compliant and estimates completion of this
project prior to December 31, 1999.
To date, the Company has expended approximately $80,000 to make its
engineering hardware and software and certain of its stand alone computers and
software Year 2000 compliant and estimates that it will expend approximately
$10,000 on its remaining computers and software. These amounts represent
approximately 75% and 10% of the Company's information technology budget for the
fiscal years ended September 30, 1999 and 2000, respectively, and will be paid
from the cash flow from operations.
The Company believes that the steps it has taken regarding the Year
2000 issue will allow operations to run normally on January 1, 2000 and
thereafter. The possibility exists however, that certain stand alone computers
or software may not be upgraded timely or unforeseen circumstances may arise
that interrupt certain areas of the Company's operations. In case of any such
occurrence the Company believes that it can correct the problem within a few
days and no serious interruption in its business or operations will occur.
The Company has made no formal assessment 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 yet generated and does not intend to generate any
disaster contingency plans related to the Year 2000 compliance issue.
15
<PAGE> 17
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) 58 Chairman of the Board, Chief
Executive Officer and President 3/68
Robert W. McClain(1) 63 Senior Vice President, Assistant
Secretary and Director 3/68
Raymond Elliott 65 Director 8/90
Walter J. Kirchberger 64 Director 11/95
Carl Jaworski 56 Secretary 10/72
Mark S. Mikelait 39 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.
Mr. McClain is also a director and the Chairman of the Board of E-Z Pack and
Galion.
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.
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
16
<PAGE> 18
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. Mr. Jaworski is the Secretary of E-Z Pack and Galion.
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, 1999, 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 $100,000 during the fiscal
year ended September 30, 1999.
17
<PAGE> 19
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- ------------------------------------------------------------------------------------
Name and Fiscal Salary Options/
Principal Position Year Amount($) SARs(#)
------------------ ---- --------- -------
<S> <C> <C> <C>
Kenneth D. McClain,
President/ CEO 1999 $275,000 25,000
1998 $263,031 ---
1997 226,885 ---
Robert W. McClain, Senior
Vice President
1999 $143,751 25,000
1998 125,004 ---
1997 183,335
Carl Jaworski
Secretary
1999 $108,750 5,000
1998 $104,631 5,000
1997 107,207
Mark S. Mikelait
Treasurer
1999 $126,250 5,000
1998 101,250 10,000
1997 --- ---
====================================================================================
</TABLE>
AGGREGATED OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUES TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------- ------------------------------------- -------------------------------------
Shares No. of Unexercised Value of Unexercised
Acquired Options/SARs at In-The-Money Options/SARs at
on Fiscal Year-End (1) Fiscal Year-End(2)
Exercise Value ------------------------------------- -------------------------------------
in 1998 Realized Not Not
Exercisable Exercisable(1) Exercisable Exercisable
- ---------------------- --------------- ----------------- ---------------- -------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. McClain -0- -0- 13,333 25,000 $ -0- $ -0-
Robert W. McClain -0- -0- 6,666 20,000 $ -0- $ -0-
- ---------------------- --------------- ----------------- ---------------- -------------------- ------------------ ------------------
</TABLE>
(1) Stock options granted November 16, 1995 and pursuant to the Company's 1989
and 1999 Incentive Stock Plan (the "Incentive Plan"). Options must be
exercised by November 15, 2000 and May 7, 2004. Exercise price is $7.31 and
$5.50 per share.
(2) Value based on the average of the September 30, 1999 closing bid high and
low price which was $4.375 per share.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive compensation
for serving on the Board or on the Board's committees. Directors who are not
employees of the Company are entitled to a quarterly retainer fee of $3,750, 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
18
<PAGE> 20
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, 1999, 6,114 shares of Common
Stock were issued under the Retainer Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 7,1999, 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 1,433,279(3) 30.84%
6200 Elmridge Road
Sterling Heights, MI 48310
Robert W. McClain 1,025,844(4) 22.08%
6200 Elmridge Road
Sterling Heights, MI 48310
June McClain 337,178 7.26%
6200 Elmridge Road
Sterling Heights, MI 48310
Lisa McClain Pfeil 310,474(5) 6.68%
6200 Elmridge Road
Sterling Heights, MI 48310
Raymond Elliott 22,322 0.48%
290 Town Center
P.O. Box 890
Troy, Michigan 48084
Walter Kirchberger 6,137 0.18%
2301 West Big Beaver Rd., Suite 800
Troy, Michigan 48084
Carl Jaworski 117,825 2.54%
6200 Elmridge Road
Sterling Heights, MI 48310
Mark S Mikelait 17,332 0.55%
500 Sherman Street
Galion, OH 44833
All current executive officers and 2,624,739(6) 56.48%
directors as a group (6 persons)
</TABLE>
19
<PAGE> 21
(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 4,647,183 shares of Common Stock issued and outstanding as of
December 7, 1999. 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 32,331 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
The Company leases one of its facilities from siblings 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.
The Company had sales of approximately $231,000 in Fiscal 1999 to
McClain Leasing Corporation, an entity controlled by certain officers and
directors of the Company.
The Hartland Insurance Group, an entity owned by Raymond Elliott, a
director of the Company, provided insurance to the Company during Fiscal 1999.
Sales from this entity to the Company aggregated approximately $1.0 million
during Fiscal 1999, for which this entity received fees and commissions in the
approximate amount of $117,500.
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.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 13, 1999 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 13, 1999 /s/ Kenneth D. McClain
-----------------------------------------------
Kenneth D. McClain, Director
Dated: December 13, 1999 /s/ Robert W. McClain
-----------------------------------------------
Robert W. McClain, Director
Dated: December 13, 1999 /s/ Raymond Elliott
-----------------------------------------------
Raymond Elliott, Director
Dated: December 13, 1999 /s/ Walter J. Kirchberger
-----------------------------------------------
Walter J. Kirchberger, Director
21
<PAGE> 23
SECURITIES AND EXCHANGE COMMISSION
- --------------------------------------------------------------------------------
Washington, D. C.
Form 10-K
For Corporations
ANNUAL REPORT
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 and 1997
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
-22-
<PAGE> 24
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
- --------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - September 30, 1999 and 1998
Consolidated Statements of Operations for the years ended September 30, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Investment for the years ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended September 30, 1999,
1998 and 1997
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.
-23-
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
McClain Industries, Inc. and Subsidiaries
Sterling Heights, Michigan
We have audited the accompanying consolidated balance sheets of McClain
Industries, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' investment, and
cash flows for each of the three years in the period ended September 30, 1999.
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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1999 in conformity with generally accepted accounting
principles.
REHMANN ROBSON, P.C.
Farmington Hills, Michigan
December 13, 1999
-24-
<PAGE> 26
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
-------------------------------
1 9 9 9 1 9 9 8
--------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,908,397 $ 1,924,006
Accounts receivable, net of allowance for doubtful accounts
of $570,000 in 1999 ($800,000 in 1998) 20,140,166 24,235,761
Inventories 63,281,785 38,873,477
Net investment in sales-type leases, current portion 5,900,000 3,100,000
Prepaid expenses 237,129 543,095
-------------- -------------
TOTAL CURRENT ASSETS 91,467,477 68,676,339
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT, NET 23,236,170 23,266,545
-------------- -------------
OTHER ASSETS
Net investment in sales-type leases, net of
current portion 12,871,973 6,013,959
Goodwill, net of amortization 1,044,734 1,440,745
Other 605,401 454,941
Equipment under construction 698,234 394,438
-------------- -------------
TOTAL OTHER ASSETS 15,220,342 8,304,083
-------------- -------------
TOTAL ASSETS $ 129,923,989 $ 100,246,967
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-25-
<PAGE> 27
- --------------------------------------------------------------------------------
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------------
1 9 9 9 1 9 9 8
-------------------- --------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 21,775,139 $ 18,405,224
Current portion of long-term debt 4,450,000 3,300,000
Accrued expenses 4,682,156 4,537,434
Federal and state income taxes 1,870,217 513,994
------------------- --------------------
TOTAL CURRENT LIABILITIES 32,777,512 26,756,652
Long-term debt, net of current portion 62,648,684 42,530,105
Product liability 1,406,828 1,909,904
Deferred income taxes 2,200,000 2,215,000
------------------- -------------------
TOTAL LIABILITIES 99,033,024 73,411,661
------------------- -------------------
COMMITMENTS AND CONTINGENCIES (NOTE 17)
STOCKHOLDERS' INVESTMENT
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding, 4,660,878 shares
(4,686,727 shares in 1998) 4,871,530 4,997,809
Retained earnings 26,019,435 21,837,497
------------------- -------------------
TOTAL STOCKHOLDERS' INVESTMENT 30,890,965 26,835,306
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 129,923,989 $ 100,246,967
=================== ===================
</TABLE>
-26-
<PAGE> 28
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net sales $ 140,604,885 $ 116,554,031 $ 95,255,641
Cost of sales 115,863,228 95,786,681 79,711,774
------------------- ------------------- -------------------
GROSS PROFIT 24,741,657 20,767,350 15,543,867
Selling, general and administrative
expenses 16,234,546 13,363,850 13,647,757
Restructuring and impairment charges - - 1,755,000
------------------- ------------------- -------------------
INCOME FROM OPERATIONS 8,507,111 7,403,500 141,110
------------------- ------------------- -------------------
OTHER INCOME (EXPENSE)
Interest expense (3,982,325) (3,381,132) (3,448,867)
Interest income 1,575,188 1,285,016 1,215,877
Other, net 236,964 (493,492) 101,100
------------------- ------------------- -------------------
OTHER EXPENSE - NET (2,170,173) (2,589,608) (2,131,890)
------------------- ------------------- -------------------
INCOME (LOSS) BEFORE INCOME TAXES 6,336,938 4,813,892 (1,990,780)
Income taxes (benefit) 2,155,000 1,430,000 (287,000)
------------------- ------------------- -------------------
NET INCOME (LOSS) $ 4,181,938 $ 3,383,892 $ (1,703,780)
=================== =================== ===================
Net income (loss) per share:
Basic $ 0.90 $ 0.72 $ (0.36)
=================== =================== ===================
Assuming dilution $ 0.90 $ 0.72 $ (0.36)
=================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-27-
<PAGE> 29
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTALS
---------------- ------------------ -------------------- -------------------
<S> <C> <C> <C> <C>
Balance at October 1,
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
Shares issued 4,505 25,123 -- 25,123
Shares repurchased (30,354) (151,402) -- (151,402)
Net income -- -- 4,181,938 4,181,938
------------ ------------ ------------ ------------
Balance at September 30,
1999 $ 4,660,878 $ 4,871,530 $ 26,019,435 $ 30,890,965
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-28-
<PAGE> 30
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
1 9 9 9 1 9 9 8 1 9 9 7
------------------ ----------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,181,938 $ 3,383,892 $ (1,703,780)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 3,280,109 3,395,115 4,893,701
Deferred income taxes (benefit) (15,000) 115,000 -
Provision for doubtful accounts 146,500 481,407 432,511
(Gain) loss on disposal of plant and equipment (8,330) (1,530) 4,032
Common stock issued to directors for services 25,123 31,127 28,494
Common stock issued in connection
with EPCO acquisition - - 62,889
Net changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable 3,949,095 (8,127,905) 1,481,176
Inventories (24,408,308) (7,861,711) (5,434,766)
Net investment in sales-type leases (9,658,012) (865,186) (2,632,423)
Prepaid expenses and other assets (233,581) 403,712 (1,086,661)
Accounts payable 3,369,915 4,272,578 3,585,004
Accrued expenses 1,500,945 1,400,960 1,455,314
------------------ ---------------- ------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (17,869,606) (3,372,541) 1,085,491
------------------ ---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (2,768,433) (965,246) (4,080,499)
Payments on liabilities assumed upon the
Galion acquisition (503,077) (241,967) (623,984)
Proceeds from sale of plant and equipment 8,330 1,528 -
------------------ ---------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (3,263,180) (1,205,685) (4,704,483)
------------------ ---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 19,768,579 7,269,129 10,078,495
Repayments of long-term debt (2,900,000) (2,752,514) (5,114,354)
Proceeds from funding of capital lease obligations 4,534,732 - -
Repayments of capital lease obligations (134,732) - -
Sale of common stock under stock option plan - 59,196 129,201
Repurchase of common stock (151,402) (476,000) (136,968)
------------------ ---------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,117,177 4,099,811 4,956,374
------------------ ---------------- ------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (15,609) (478,415) 1,337,382
Cash and cash equivalents, beginning of year 1,924,006 2,402,421 1,065,039
------------------ ---------------- ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,908,397 $ 1,924,006 $ 2,402,421
================== ================ ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-29-
<PAGE> 31
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 (McClain E-Z Pack,
Inc., McClain, Galion, Inc., Shelby Steel Processing Co., McClain Group
Leasing, Inc., McClain Tube Company, and McClain International FSC,
Inc., an international sales corporation). On January 1, 1999, Galion
Holding Company, McClain of Georgia, Inc., McClain of Ohio, Inc.,
McClain of Oklahoma, Inc., McClain of Alabama, Inc., McClain EPCO,
Inc., and McClain Group Sales, Inc. were merged into McClain E-Z Pack,
Inc. McClain E-Z Pack, Inc. and McClain Galion, Inc. were formerly
operating subsidiaries of Galion Holding Company. 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 $32,500,000,
$33,642,000 and $12,896,000 in 1999, 1998 and 1997, respectively. The
Company had receivables of approximately $3,066,000 and $8,000,000 from
this customer at September 30, 1999 and 1998, respectively. The loss of
this customer could adversely affect the Company's short-term operating
results.
-30-
<PAGE> 32
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, along with TRAC leases entered into subsequent to September 30,
1998, 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.
-31-
<PAGE> 33
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1999 and 1998 was $1,205,990 and $821,998, 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.
Earnings (Loss) Per Share
Earnings (loss) per share is computed using the weighted average number
of common shares outstanding during the year. The diluted amount
reflects the potential dilution of all common stock equivalents. At
September 30, 1999, 1998 and 1997 options to purchase 244,998, 199,476,
and 125,464 common 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>
1 9 9 9 1 9 9 8 1 9 9 7
------------- ------------- -------------
<S> <C> <C> <C>
Denominator:
Weighted average shares outstanding, basic 4,673,027 4,711,741 4,729,281
Incremental shares from assumed
conversion of options 109 - 41,577
------------- ------------- -------------
Weighted average shares outstanding, diluted 4,673,583 4,711,741 4,770,858
============= ============= =============
</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.
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.
-32-
<PAGE> 34
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Revenue Recognition
Sales are recorded by the Company when the products are delivered to
independent distributors or other customers.
2. 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>
1 9 9 9 1 9 9 8 1 9 9 7
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning of year $ 800,000 $ 500,000 $ 600,000
Add provision charged
against income 146,500 481,400 432,500
Less uncollectible accounts
written off, net of recoveries (376,500) (181,400) (532,500)
-------------- -------------- --------------
Balance, end of year $ 570,000 $ 800,000 $ 500,000
============== ============== ==============
</TABLE>
3. 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>
1 9 9 9 1 9 9 8
------------------ ------------------
<S> <C> <C>
Materials $ 19,416,535 $ 16,530,726
Work-in process 5,555,977 5,707,374
Finished goods 11,120,913 11,065,851
------------------ ------------------
36,093,425 33,303,951
Chassis 27,188,360 5,569,526
------------------ ------------------
$ 63,281,785 $ 38,873,477
================== ==================
</TABLE>
The chassis inventory above consists of the cost of the vehicle as
purchased from the manufacturer and, as applicable, includes the
Company's cost of manufacturing, assembling and mounting its truck
bodies and waste handling equipment products. The purchased cost of the
chassis on a stand-alone basis was $24,733,961 and $4,839,853 at
September 30, 1999 and 1998, respectively.
-33-
<PAGE> 35
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. LEASING OPERATIONS
Sale-Leaseback Sublease 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. TRAC leasing activity subsequent to September
30, 1998 is accounted for as sales-type leases.
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 having a five-
year term, which are accounted for as sales-type leases with the
related gross profit on sale of the products recognized as income
currently. The net investment in these sales-type leases is comprised
of the following amounts at September 30:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
--------------- ----------------
<S> <C> <C>
Gross minimum lease payments
collectible in monthly installments $ 23,060,916 $ 11,706,584
Less advance lease payments and
deposits received 428,563 289,157
--------------- ----------------
Subtotal 22,632,353 11,417,427
Less unearned finance income 3,860,380 2,303,468
--------------- ----------------
Total net investment in sales-type leases 18,771,973 9,113,959
Current portion 5,900,000 3,100,000
--------------- ----------------
Noncurrent portion $ 12,871,973 $ 6,013,959
=============== ================
</TABLE>
Gross minimum lease payments are collectible in the following
scheduled annual amounts for the years succeeding September 30,
1999:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
------------------- ----------------
<S> <C>
2000 $ 7,130,000
2001 5,690,000
2002 4,610,000
2003 3,345,000
2004 1,857,353
----------------
Gross minimum amount collectible $ 22,632,353
================
</TABLE>
-34-
<PAGE> 36
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The TRAC leasing programs in place with financial institutions allow
for maximum availability of $8,000,000 in lease commitments which
provide for financing of 100% of eligible lease receivables over the
term of the related lease. These notes are secured by a pledge of the
remittances in the related sublease. At September 30, 1999,
approximately $7,300,000 had been drawn on these lease programs,
$4,400,000 of which is accounted for as capital lease obligations and
$2,900,000 of which is accounted for as minimum lease payments under
operating leases.
Rental income from these subleasing activities was $1,221,000,
$1,382,000, and $1,420,000 in the years 1999, 1998 and 1997,
respectively, while the related rental expense for the leaseback of the
products was $1,035,000, $1,317,000, and $1,212,000 during the years
ended September 30, 1999, 1998 and 1997, 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>
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 $ 3,703,000 $ 4,515,000
================= ================
</TABLE>
Total residual values guaranteed by the Company under these leasing
arrangements approximates $1,390,000 as of September 30, 1999.
5. 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.
-35-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Property, plant and equipment consisted of the following amounts as of
September 30:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
--------------- ----------------
<S> <C> <C>
Land $ 2,282,977 $ 2,282,977
Buildings and improvements 14,926,790 13,517,487
Machinery and equipment 22,903,789 22,276,726
Furniture, fixtures and vehicles 4,169,061 4,023,385
--------------- ----------------
44,282,617 42,100,575
Less accumulated depreciation 21,046,447 18,834,030
--------------- ----------------
Property, plant and equipment, net $ 23,236,170 $ 23,266,545
=============== ================
</TABLE>
6. 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>
1 9 9 9 1 9 9 8
----------------- ----------------
<S> <C> <C>
Revolving line of credit providing for maximum availability
of up to $33,333,334 and $20,000,000 at September 30, 1999
and 1998, respectively. On July 9, 1999, the Company signed
a new agreement temporarily increasing the availability of
the line to $35,000,000. The agreement calls for a monthly
reduction to the availability of $833,000, beginning August
1, 1999, and continuing through July 1, 2000, when the total
availability will be $25,000,000. 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
175 basis points (7.09% at September 30, 1999). $ 26,858,901 $ 17,955,713
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 indebted-
ness other than subordinated indebtedness and limits plant and
equipment acquisitions to $3.0 million per fiscal year. This
agreement expires in May 2001, at which time the Company expects
to obtain a renewal upon the same or similar terms.
</TABLE>
-36-
<PAGE> 38
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
----------------- ----------------
<S> <C> <C>
Line of credit providing for maximum availability of
$15,000,000 in 1999 and $10,000,000 in 1998. Borrowings are
limited to 80% of eligible lease receivables and are subject
to interest at the LIBOR rate plus 175 basis points. The
agreement is collateralized by certain equipment leases held
by the Company's leasing subsidiary. This agreement expires
in May 2001, at which time the Company expects to obtain a
renewal upon the same or similar terms. 12,125,000 7,605,295
----------------- ----------------
Total lines of credit borrowings (Note 7) $ 38,983,901 $ 25,561,008
================ ================
</TABLE>
7. LONG-TERM DEBT
Long-term debt consisted of the following obligations as of September 30:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
----------------- ----------------
<S> <C> <C>
Promissory note to a bank, collateralized by certain assets
as disclosed in Note 6. The note is payable in monthly
installments of $220,000 plus interest at the LIBOR rate
plus 205 basis points (effective rate of 7.39% at
September 30, 1999), maturing in September 2006. This note
was refinanced in July 1999. $ 18,500,000 $ 14,200,000
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, 1999), maturing at various dates
through January 2000. 1,039,783 1,369,097
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 3.84% at September 30, 1999) as
determined by the bond holder. 4,175,000 4,700,000
----------------- ----------------
</TABLE>
-37-
<PAGE> 39
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
---------------- --------------
<S> <C> <C>
Subtotal, notes and bonds 23,714,783 20,269,097
Capital lease obligations (Note 4) 4,400,000 -
Lines of credit borrowings (Note 6) 38,983,901 25,561,008
---------------- --------------
67,098,684 45,830,105
Total long-term debt
Less current portion 4,450,000 3,300,000
---------------- --------------
Long-term debt, net of current portion $ 62,648,684 $ 42,530,105
================ ==============
</TABLE>
Scheduled aggregate principal maturities of long-term debt for years
succeeding September 30, 1999 are presented below:
<TABLE>
<CAPTION>
Year ending
September 30 Amount
----------------- ---------------
<S> <C>
2000 $ 4,450,000
2001 43,200,000
2002 4,300,000
2003 4,300,000
2004 3,700,000
Thereafter 7,148,684
---------------
$ 67,098,684
===============
</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. As
of September 30, 1999, the Company was not in compliance with one of the
financial covenants contained in the loan agreements with its principal
lending institution. In December, 1999, the Company's principal lender
waived its rights to accelerate repayment of the debt arising from such
covenant violation and agreed to amend that covenant which is considered
by management to be more compatible with the Company's current
operations. Accordingly, the obligations are classified on the
accompanying consolidated balance sheet at September 30, 1999 according
to their original repayment terms.
8. ACCRUED EXPENSES
Accrued expenses included on the accompanying consolidated balance
sheets consist of the following amounts at September 30:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
--------------- ----------------
<S> <C> <C>
Sales discounts $ 1,018,312 $ 1,162,959
Compensation 788,200 640,869
Vacation and holiday pay 434,303 481,174
Taxes 607,510 488,598
Insurance 777,283 891,592
Other 1,056,548 872,242
--------------- ----------------
Total $ 4,682,156 $ 4,537,434
=============== ================
</TABLE>
-38-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. 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>
1 9 9 9 1 9 9 8 1 9 9 7
--------------- --------------- ---------------
<S> <C> <C> <C>
Current federal provision (benefit) $ 2,170,000 $ 1,315,000 $ (287,000)
Deferred provision (credit) (15,000) 115,000 -
--------------- --------------- --------------
Total income taxes (benefit) $ 2,155,000 $ 1,430,000 $ (287,000)
=============== =============== ==============
</TABLE>
The effective income tax rate on consolidated pre-tax income differs
from the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8 1 9 9 7
---------------------- -------------------- -----------------------
Amount % Amount % Amount %
--------------- ------ --------------- ----- --------------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision (benefit) computed
at statutory rate $ 2,155,000 34 $ 1,637,000 34 $ (677,000) (34)
Nondeductible expenses 22,000 1 21,000 1 389,000 19
Cancellation of debt
related to EPCO restructuring - - (207,000) (4) - -
Other (22,000) (1) (21,000) (1) 1,000 -
------------- -- ------------ --- ------------- ---
$ 2,155,000 34 $ 1,430,000 30 $ (287,000) (15)
============= == ============ === ============= ===
</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>
1 9 9 9 1 9 9 8
---------------- -----------------
<S> <C> <C>
Taxable differences:
Property and equipment $ 2,905,000 $ 2,850,000
Inventory 1,100,000 1,140,000
--------------- ----------------
Gross deferred tax liabilities 4,005,000 3,990,000
--------------- ----------------
Deductible differences:
Product liability 478,000 646,000
Accounts receivable 193,000 170,000
Accrued expenses 889,000 798,000
Goodwill 245,000 161,000
--------------- ----------------
Gross deferred tax assets 1,805,000 1,775,000
--------------- ----------------
Net deferred income tax liability $ 2,200,000 $ 2,215,000
=============== ================
</TABLE>
The components which comprise gross deferred taxes are predominantly
noncurrent; as such, the entire related net liability is classified as
noncurrent.
-39-
<PAGE> 41
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. 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 $673,480 in 1999, $494,133 in 1998, and $407,739 in
1997.
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, 1999, 1998
and 1997.
11. RELATED PARTY TRANSACTIONS
Leases
The Company leases an operating facility from siblings 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, 1999, 1998 and 1997.
INSURANCE COSTS
Raymond Elliott, a director of the Company, is also the owner of
Hartland Insurance Group. That entity provided insurance at a cost of
approximately $1,005,000, $1,100,000, and $1,093,000 to the Company
during the years ended September 30, 1999, 1998 and 1997, respectively.
That entity received fees and commissions in connection with these
transactions of approximately $117,500, $116,000, and $117,000,
respectively.
Product Sales
The Company had product sales of approximately $231,000, $590,000, and
$560,000, during the years ended September 30, 1999, 1998 and 1997,
respectively, to a business controlled by the President of McClain
Industries, Inc.
12. STOCK BASED COMPENSATION PLANS
The Company maintains the 1999 and 1989 Retainer Stock Plans for
Non-employee Directors and the McClain 1999 and 1989 Incentive Stock
Plans.
-40-
<PAGE> 42
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Retainer Stock Plans
The Retainer Stock Plans as adopted call for reserving 233,333 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,
1999, 1998 and 1997 the Company issued 4,505, 7,593, and 5,466 shares,
respectively, of its common stock to such directors in exchange for
services rendered.
Incentive Stock Plan
The Incentive Stock Plans as adopted call for reserving 2,333,333
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 these plans 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>
1 9 9 9 1 9 9 8 1 9 9 7
--------------------- --------------------- ----------------------
Exercise Exercise Exercise
Shares Price * Shares Price * Shares Price *
----------- -------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 199,476 $ 6.30 191,391 $ 5.71 227,896 $ 5.01
Granted 130,000 5.42 74,000 5.08 15,000 5.75
Exercised - - (30,825) 3.25 (51,505) 2.51
Forfeited/expired (59,811) 7.06 (35,090) 3.25 - -
------- -------- ------- --------- ------- ---------
Outstanding, end of year 269,665 5.71 199,476 $ 6.30 191,391 $ 5.71
------- -------- ------- --------- ------- ---------
Exercisable, end of year 85,332 $ 6.50 145,131 $ 6.73 164,491 $ 5.55
======= ======== ======= ========= ======= =========
</TABLE>
OPTIONS AT SEPTEMBER 30, 1999
<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 $6.00 219,000 .5 years $ 5.33 34,667 $ 5.27
$7.00 to $8.00 50,665 3.9 years 7.33 50,665 7.33
------- --------- --------- ------ ---------
Total 269,665 1.1 years $ 5.71 85,332 $ 6.50
======= ========= ========= ====== =========
</TABLE>
*Weighted average
-41-
<PAGE> 43
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company continues 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 1999 and 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", using the Black-Schales option pricing model with the
following weighted average assumptions for grants in 1999, 1998 and
1997: expected volatility of 71%, 66% and 65%, risk free interest rate
of 5.5% and expected lives of 5 years. The proforma effect on results
of operations would have been a decrease in net income by $223,000 and
$121,000 for the years ended September 30, 1999 and 1998, respectively,
and an increase in the net loss of $27,000 for fiscal 1997.
13. COMMON STOCK REPURCHASES
The Board of Directors has authorized the Company to repurchase from
time to time on the open market up to 300,000 shares of the Company's
common stock. During the year ended September 30, 1999, the Company
repurchased 30,354 shares at prices ranging from $3.375 to $5.75.
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.
14. SUPPLEMENTAL CASH FLOWS INFORMATION
During the years ended September 30, 1999, 1998 and 1997, common stock
valued at $25,123, $31,127, and $28,494, 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.
Cash paid for interest amounted to $3,855,735 for 1999, $3,356,571 for
1998, and $3,223,867 for 1997. Cash paid for federal income taxes
amounted to $350,000 for 1999, $-0- for 1998, and $350,000 for 1997.
-42-
<PAGE> 44
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. 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.
16. SEGMENT INFORMATION
During fiscal 1999, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131 "Disclosures About Segments of an
Enterprise and Related Information". This statement requires financial
information to be reported on the basis that management uses for
evaluating segment performance and making operating decisions.
The Company operates in three principal operating segments 1)
Manufactured Equipment, 2) Truck Chassis Sales, and 3) Leasing
Operations. The accounting policies of the reportable segments are the
same as those described in Note 1. Management evaluates the performance
of its operating segments separately to individually monitor the
different factors affecting performance. The Company measures the
performance of its operating segments based on net revenue and
operating income. Income taxes are managed on a Company-wide basis.
Segment performance is also evaluated based on profit or loss before
income taxes.
-43-
<PAGE> 45
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Information regarding the Company's operating segments follows:
<TABLE>
<CAPTION>
Manufacturing Truck Leasing
Operations Group Operations Totals
----------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
1999
----
Net sales $105,024,800 $35,580,085 $ - $ 140,604,885
Lease revenues - - 3,597,594 3,597,594
Operating income 7,661,619 368,844 476,648 8,507,111
Interest expense, net 2,283,630 988,496 710,199 3,982,325
Income (loss) before
income taxes 6,247,914 (387,624) 476,648 6,336,938
Identifiable assets 80,563,757 26,162,434 23,197,798 129,923,989
Capital expenditures 2,768,433 - - 2,768,433
Depreciation and
amortization 3,280,109 - - 3,280,109
1998
----
Net sales $ 95,143,347 $21,410,684 $ - $ 116,554,031
Lease revenues - - 2,588,787 2,588,787
Operating income (loss) 6,677,317 743,721 (17,538) 7,403,500
Interest expense, net 2,809,504 - 571,628 3,381,132
Income (loss) before
income taxes 4,087,709 743,721 (17,538) 4,813,892
Identifiable assets 83,883,371 5,569,526 10,794,070 100,246,967
Capital expenditures 965,246 - - 965,246
Depreciation and
amortization 3,395,115 - - 3,395,115
1997
----
Net sales $ 92,429,721 $ 2,825,920 $ - $ 95,255,641
Lease revenues - - 2,604,060 2,604,060
Operating income (141,182) 78,752 203,540 141,110
Interest expense, net 2,877,614 - 571,253 3,448,867
Income (loss) before
income taxes (2,141,594) (52,654) 203,540 (1,990,708)
Identifiable assets 75,610,014 2,311,737 9,263,816 87,185,567
Capital expenditures 4,080,499 - - 4,080,499
Depreciation
amortization 4,893,701 - - 4,893,701
</TABLE>
Total net sales to foreign countries were not significant in 1999, 1998 and
1997. There were no capital assets located in foreign countries at September 30,
1999, 1998 or 1997. The net sales for the Truck Group include sales of products
manufactured by the Company of $9,129,104, $4,551,877 and $600,786 for the years
ended September 30, 1999, 1998 and 1997, respectively.
-44-
<PAGE> 46
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
McClain E-Z Pack, Inc., as successor to 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. In addition, the acquisition agreement called
for the seller to share in the payment of certain costs related to the
defense of these cases. On December 29, 1998, the Company reached a
settlement agreement with the seller, the terms of which called for the
Company to release the seller from its obligations related to product
liability claims under the Galion acquisition agreement in exchange for
a cash payment to the Company of $1,050,000.
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, 1999.
Nevertheless, it is not possible to predict the ultimate outcome of any
product liability claim, and any such claim not fully covered by
insurance, as well as adverse publicity from a product claim, could
have a material adverse effect on the Company.
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.
-45-
<PAGE> 47
MCCLAIM INDUSTRIES, INC. AND SUSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Labor Union Matters
Certain of the Company's hourly employees are represented by various
labor unions pursuant to collective bargaining agreements which expire
between June 2000 and November 2002.
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.
Sales Commitment
In connection with the purchase of a manufacturing facility in 1996,
the seller of the facility agreed to use reasonable commercial efforts
to purchase annually from the Company, manufactured products in an
amount that is not less than $25,000,000 in sales per year through
December 31, 2001. In the event the $25,000,000 is reached, the Company
has agreed to pay to the customer $1,200,000 during each year. In
addition, a 5% sales discount will be paid on sales in excess of
$25,000,000. If the customer 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. For the years ended September 30, 1999, 1998
and 1997 approximately $1,308,000, $1,327,000 and $400,000 has been
recorded as sales discounts in connection with post-acquisition sales
of $32,500,000, $33,642,000 and $12,896,000, respectively, made to the
customer pursuant to the agreement. On November 29, 1999, the Company
signed an amendment to this agreement that extended the contract
through December 31, 2003.
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.
-46-
<PAGE> 48
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Health Insurance
The Company is self-insured for certain health benefits up to $100,000
per occurrence per individual with an aggregate limitation of
$1,600,000 annually. The Company is self-insured for State of Michigan
workers' compensation up to $200,000 per occurrence with an aggregate
limitation of $500,000 annually.
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).
* * * * *
- 47-
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
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 International (4)
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 Company (6)
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 Properties (7)
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 Group (8)
Sales of Florida
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)
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
10.19 Promissory Note (Line of Credit) dated July 17, 1996, between Standard Federal Bank and (9)
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 (11)
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, Galion Holding Company, McClain E-Z Pack, Inc., Galion Dump
Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
10.34 Promissory Note (Line of Credit) dated April 16, 1998 between Standard Federal Bank and (11)
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, Galion Holding Company, McClain E-Z Pack, Inc., Galion
Dump Bodies, Inc., McClain Group Sales, Inc., and McClain Group Sales of Florida, Inc.
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- ----------- --------
<S> <C> <C>
10.35 Promissory Note (Term Loan) dated April 16, 1998 between Standard Federal Bank and (11)
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, 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 (11)
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, 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 (11)
April 16, 1998 between Standard Federal Bank and McClain Group Leasing, Inc.
10.38 McClain Industries, Inc. 1999 Incentive Stock Plan 52
10.39 McClain Industries, Inc. 1999 Retainer Stock Plan for Non-Employee Directors 67
10.40 Amended and Restated Loan Agreement dated July 9, 1999 between Standard Federal Bank 73
and McClain Industries, Inc., McClain E-Z Pack, Inc.,
McClain Galion, Inc., Shelby Steel Processing Company,
McClain Tube Company, McClain International FSC, and McClain
Southland Co.
10.41 Promissory Note (Line of Credit) dated July 9, 1999 between Standard Federal Bank and 109
McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel
Processing Company, McClain Tube Company, McClain International FSC, and McClain
Southland Co.
10.42 Promissory Note (Term Loan) dated July 9, 1999 between Standard Federal Bank and 114
McClain Industries, Inc., McClain E-Z Pack, Inc., McClain Galion, Inc., Shelby Steel
Processing Company, McClain Tube Company, McClain International FSC, and McClain
Southland Co.
10.43 Promissory Note (Line of Credit Converting to Term Loan) dated July 9, 1999 between 120
Standard Federal Bank and McClain Industries, Inc., McClain E-Z Pack, Inc., McClain
Galion, Inc., Shelby Steel Processing Company, McClain Tube Company, McClain
International FSC, and McClain Southland Co.
10.44 Third Amendment Agreement, Loan Agreement, Promissory Note (Line of Credit) dated July 126
9, 1999 between Standard Federal Bank and McClain Group Leasing, Inc.
22 List of Subsidiaries (9)
27 Financial Data Schedule 130
</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
</TABLE>
50
<PAGE> 52
<TABLE>
<S> <C>
(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
(11) Incorporated by reference to the Company's Form 10;K f/y/e 9/30/98
</TABLE>
51
<PAGE> 1
EXHIBIT 10.38
MCCLAIN INDUSTRIES, INC.
1999 INCENTIVE STOCK PLAN
ARTICLE I.
PURPOSE AND ADOPTION OF THE PLAN
1.01 PURPOSE. The purpose of the McClain Industries, Inc. 1999
Incentive Stock Plan (the "Plan") is to provide certain employees, directors,
consultants and advisors of McClain Industries, Inc. (the "Company") with an
additional incentive to promote the Company's financial success and to provide
an incentive which the Company may use to induce able persons to enter into or
remain in service of the Company or a Subsidiary.
1.02 ADOPTION AND TERM. The Plan was approved by the Board on, and is
effective as of, February 8, 1999, subject to approval of the Company's
stockholders on or before February 7, 2000, and will remain in effect until all
shares authorized under the terms of the Plan have been issued, unless earlier
terminated or abandoned by action of the Board; provided, however, that no
Incentive Stock Option may be granted after February 7, 2009. Awards may be
granted under the Plan before it is approved by the Company's stockholders but
no award granted under the Plan may be exercised unless and until the Plan is
approved by the Company's stockholders.
ARTICLE II.
DEFINITIONS
2.01 ADMINISTRATOR means the group of persons having authority to
administer the Plan pursuant to Section 3.01.
2.02 AWARD means any one or combination of Non-Qualified Stock
Options, Performance Based Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Share Rights or any other award made under the terms of the
Plan.
2.03 AWARD AGREEMENT means a written agreement between the Company
and Participant or a written acknowledgment from the Company specifically
setting forth the terms and conditions of an Award granted under the Plan.
2.04 AWARD PERIOD means, with respect to an Award, the period of time
set forth in the Award Agreement during which specified conditions set forth in
the Award Agreement must be satisfied.
2.05 BENEFICIARY means (a) an individual, trust or estate who or
which, by will or by operation of the laws of descent and distribution, succeeds
to the rights and obligations of the Participant under the Plan and Award
Agreement upon the Participant's death; or (b) an individual, who by designation
of the Participant, succeeds to the rights and obligations of the Participant
under the Plan and Award Agreement upon the Participant's death.
2.06 BOARD means the Board of Directors of the Company.
2.07 CHANGE OF CONTROL EVENT means (a) an event or series of events
by which any Person or other entity or group (as such term is used in Section
13(d) and 14(d) of the Exchange Act) of Persons or other entities acting in
concert as a partnership or other group (a "Group of Persons") (other than
Persons who are, or Groups of Persons entirely made up of, (i) management
personnel of the Company or (ii) any affiliates of any such management
personnel)
<PAGE> 2
shall, as a result of a tender or exchange offer or offers, an open market
purchase or purchases, a privately negotiated purchase or purchases or
otherwise, become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of 50% or more of the combined voting power of the then
outstanding voting stock of the Company; (b) the Company consolidates with, or
merges with or into, another Person (other than a Subsidiary in a transaction
which is not otherwise a Change of Control Event), or sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets to any Person, or any Person consolidates with, or merges with or into
the Company, in any such event pursuant to a transaction in which the
outstanding voting stock of the Company is converted into or exchanged for cash,
securities or other property; (c) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board (together
with any new directors whose election by such Board or whose nomination for
election by the stockholders of the Company, was approved by a vote of 66-2/3%
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board then in
office; or (d) any liquidation or dissolution of the Company (other than a
liquidation into a Subsidiary that is not otherwise a Change of Control Event).
2.08 CODE means the Internal Revenue Code of 1986, as amended.
References to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
2.09 COMMON STOCK means the Common Stock of the Company, no par
value.
2.10 COMPANY means McClain Industries, Inc., a Michigan corporation.
2.11 DATE OF GRANT means the date designated by the Administrator as
the date as of which it grants an Award, which shall not be earlier than the
date on which the Administrator approves the granting of such Award.
2.12 DIRECTOR means a member of the Board of Directors of the
Company.
2.13 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.14 EXERCISE PRICE means, with respect to a Stock Appreciation
Right, the amount established by the Administrator, in accordance with Section
7.03 hereunder, and set forth in the Award Agreement, which is to be subtracted
from the Fair Market Value on the date of exercise in order to determine the
amount of the Incremental Value to be paid to the Participant.
2.15 EXPIRATION DATE means the date specified in an Award Agreement
as the expiration date of such Award.
2.16 FAIR MARKET VALUE means, the last reported sale price per share
of Common Stock on such date or, in case no such sale takes place on such date,
the average of the closing bid and asked prices on such date, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq National Market, or if the Common Stock is
not so listed or admitted to trading or included for quotation, the average of
the highest bid and lowest asked prices for the Common Stock on such date as
reported on the NASDAQ OTC Bulletin Board Service or by the National Quotation
Bureau, Incorporated or any comparable service, or, if the Common Stock is not
quoted by any such organization, the fair market value of a share of Common
Stock as determined in good faith by the Administrator. If,
2
<PAGE> 3
as the case may be, the relevant date is not a Trading Day, the determination
shall be made as of the next preceding Trading Day.
2.17 INCENTIVE STOCK OPTION means a stock option described in Section
422 of the Code.
2.18 INCREMENTAL VALUE has the meaning given such term in Section
7.01 of the Plan.
2.19 NON-EMPLOYEE DIRECTOR PARTICIPANT means a Participant that is a
"non-employee director" of the Company within the meaning of Rule 16b-3.
2.20 NON-QUALIFIED STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.21 OFFICER means a president, vice president, treasurer, secretary,
controller, and any other person who performs functions corresponding to the
foregoing officers for the Company, any member of the Board or any person
performing similar functions with respect to the Company, and any other
participant who is deemed to be an officer or director of the Company for
purposes of Section 16 of the Exchange Act and the rules thereunder, as
currently in effect or as amended from time to time.
2.22 OPTIONS means all Non-Qualified Stock Options, Incentive Stock
Options and Performance Based Options granted at any time under the Plan.
2.23 PARTICIPANT shall have the meaning set forth in Article V.
2.24 PERFORMANCE BASED OPTION means a stock option which, upon
exercise or at any other time, would not result in or give rise to "applicable
employee remuneration" within the meaning of Section 162(m) of the Code.
2.25 PLAN means the McClain Industries, Inc. 1999 Incentive Stock
Plan, as described herein and as it may be amended from time to time.
2.26 PURCHASE PRICE, with respect to options, shall have the meaning
set forth in Section 6.02.
2.27 RESTRICTED SHARE RIGHT means a right to receive Common Stock
subject to restrictions imposed under the terms of an Award granted pursuant to
Article IX.
2.28 RULE 16B-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as currently in effect
and as it may be amended from time to time, and any successor rule.
2.29 STOCK APPRECIATION RIGHT means an Award granted in accordance
with Article VII.
2.30 SUBSIDIARY shall mean any corporation or other entity in which
the Company has a direct or indirect ownership interest of 50% or more of the
total combined voting power of all classes of outstanding voting equity
interests.
2.31 TERMINATION OF EMPLOYMENT means the voluntary or involuntary
termination of a Participant's employment with the Company for any reason,
including death, disability, retirement or as the result of the divestiture of
the Participant's employer or any other similar
3
<PAGE> 4
transaction in which the Participant's employer ceases to be the Company or a
Subsidiary of the Company. Whether an authorized leave of absence or absence on
military or government service, absence due to disability, or absence for any
other reason shall constitute Termination of Employment shall be determined in
each case by the Administrator in its sole discretion.
2.32 TRADING DAY means a day on which public trading of securities
occurs and is reported in the principal consolidated reporting system referred
to in Section 2.16 above, or if the Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq National Market, any business day.
ARTICLE III.
ADMINISTRATION
3.01 ADMINISTRATION. The Plan shall be administered by the Board or,
to the extent determined by the Board, a committee (the "Compensation
Committee") consisting of not less than two non-employee directors of the
Company (within the meaning of Rule 16b-3) to be appointed by, and to serve at
the pleasure of, the Board (in either case, the "Administrator"). It is the
intention of the Company that, with respect to Awards designated as Performance
Based Options, each of the members of the Compensation Committee shall also be
"outside directors" within the meaning of Section 162(m) of the Code. The
Administrator shall administer the Plan in accordance with this provision and
shall have the sole discretionary authority to interpret the Plan, to establish
and modify administrative rules for the Plan, to impose such conditions and
restrictions on Awards as it determines appropriate, to cancel Awards (including
those made pursuant to other plans of the Company) and to substitute new options
(including options granted under other plans of the Company) with the consent of
the recipient, and to take such steps in connection with the Plan and Awards
granted thereunder as it may deem necessary or advisable. The Administrator may,
with respect to Participants who are not Officers or Directors, delegate such of
its powers and authority under the Plan as it deems appropriate to designated
officers or employees of the Company.
3.02 INDEMNIFICATION. Members of the Administrator shall be entitled
to indemnification and reimbursement from the Company for any action or any
failure to act in connection with service as Administrator to the full extent
provided for or permitted by the Company's articles of incorporation or bylaws
or by any insurance policy or other agreement intended for the benefit of the
Company's officers, directors or employees or by any applicable law.
ARTICLE IV.
COMMON STOCK ISSUABLE PURSUANT TO THE PLAN
4.01 SHARES ISSUABLE. Shares to be issued under the Plan may be
authorized and unissued shares or issued shares which have been reacquired by
the Company. Except as provided in Section 4.03, the Awards granted to any
Participant and to all Participants in the aggregate under the Plan shall be
limited so that the sum of the following shall never exceed one million
(1,000,000) shares of Common Stock: (i) all shares which shall be issued upon
the exercise of outstanding Options or other Awards granted under the Plan, (ii)
all shares for which payment of Incremental Value shall be made by reason of the
exercise of Stock Appreciation Rights at any time granted under the Plan, and
(iii) the number of shares otherwise issuable under an Award which are applied
by the Company to payment of the withholding or tax liability discussed in
Section 11.04.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. In the event that any Award
at any time granted under the Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, or an award of
Stock Appreciation Rights is exercised for cash,
4
<PAGE> 5
then all shares formerly subject to such Award as to which such Award shall not
have been exercised shall be available for any Award subsequently granted in
accordance with the Plan. Shares of Common Stock subject to Options, or portions
thereof, which have been surrendered in connection with the exercise of tandem
Stock Appreciation Rights shall not be available for subsequent Awards under the
Plan, and shares of Common Stock issued in payment of such Stock Appreciation
Rights shall be charged against the number of shares of Common Stock available
for the grant of Awards. Shares which are reacquired by the Company or shares
issuable subject to Restricted Share Rights which are forfeited pursuant to
forfeiture provisions in the Award Agreement shall be available for subsequently
granted Awards only if the forfeiting Participant received no benefits of
ownership (such as dividends actually paid to the Participant) other than voting
rights of the forfeited shares. Any shares of Common Stock issued by the Company
pursuant to its assumption or substitution of outstanding grants from acquired
companies shall not reduce the number of shares available for Awards under this
Plan unless issued under this Plan.
4.03 ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject
to outstanding Awards, the Purchase Price or Exercise Price for such
shares, and the number and kind of shares available for Awards
subsequently granted under the Plan shall be appropriately adjusted to
reflect any stock dividend, stock split, combination or exchange of
shares, merger, reorganization, consolidation, split-up, spin-off or
other change in capitalization with a similar substantive effect upon
the Plan or the Awards granted under the Plan. The Administrator shall
have the power to determine the nature and amount of the adjustment to
be made in each case.
(b) SALE OR REORGANIZATION. After any reorganization,
merger or consolidation in which the Company is a surviving
corporation, each Participant shall, at no additional cost, be entitled
upon exercise of an Award to receive (subject to any required action by
stockholders), in lieu of the number of shares of Common Stock
receivable or exercisable pursuant to such Award, a number and class of
shares of stock or other securities to which such Participant would
have been entitled pursuant to the terms of the reorganization, merger
or consolidation if, at the time of such reorganization, merger or
consolidation, such Participant had been the holder of record of a
number of shares of Common Stock equal to the number of shares
receivable or exercisable pursuant to such Award. Comparable rights
shall accrue to each Participant in the event of successive
reorganizations, mergers or consolidations of the character described
above.
(c) OPTIONS TO PURCHASE STOCK OF ACQUIRED COMPANIES. After
any reorganization, merger or consolidation in which the Company or a
Subsidiary of the Company shall be a surviving corporation, the
Administrator may grant substituted Options under the provisions of the
Plan, pursuant to Section 424 of the Code, replacing old options
granted under a plan of another party to the reorganization, merger or
consolidation, where such party's stock may no longer be issued
following such merger or consolidation. The foregoing adjustments and
manner of application of the foregoing provisions shall be determined
by the Administrator in its sole discretion. Any adjustments may
provide for the elimination of any fractional shares which might
otherwise have become subject to any Awards.
ARTICLE V.
PARTICIPATION
5.01 ELIGIBLE PARTICIPANTS. Participants in the Plan shall be the
employees, directors, consultants and advisors of the Company or any Subsidiary,
as determined and selected from
5
<PAGE> 6
time to time by the Administrator, in its sole and absolute discretion. The
Administrator's designation of a Participant in any year shall not require the
Administrator to designate such person to receive Awards in any other year. The
Administrator shall consider such factors as it deems pertinent in selecting
Participants and in determining the type and amount of their respective Awards.
ARTICLE VI.
OPTION AWARDS
6.01 POWER TO GRANT OPTIONS. The Administrator may grant, to such
Participants as the Administrator may select, Options entitling the Participant
to purchase Common Stock from the Company at such price, in such quantity and on
such terms and subject to such conditions, not inconsistent with the terms of
this Plan, as may be established by the Administrator. The terms of any Option
granted under this Plan shall be set forth in an Award Agreement.
6.02 PURCHASE PRICE OF OPTIONS. Notwithstanding anything to the
contrary in Section 6.01 above, the Purchase Price of each share of Common Stock
which may be purchased upon exercise of any Option granted under the Plan shall
not be less than fifty percent (50%) of the Fair Market Value on the Date of
Grant; provided, however, that the Purchase Price for shares of Common Stock
purchased pursuant to Stock Options designated by the Administrator as Incentive
Stock Options shall be equal to or greater than the Fair Market Value on the
Date of Grant as required under Section 422 of the Code and provided further
that the Purchase Price for shares of Common Stock purchased pursuant to Stock
Options designated by the Administrator as Performance Based Options shall be
equal to or greater than the Fair Market Value on the Date of Grant.
6.03 DESIGNATION OF INCENTIVE STOCK OPTIONS. Except as otherwise
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option to a Participant that is an employee of the Company or a
Subsidiary, that the Option is an Incentive Stock Option under Section 422 of
the Code.
(a) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant
may be granted Incentive Stock Options under the Plan (or any other
plans of the Company) which would result in stock with an aggregate
Fair Market Value (measured on the Date of Grant) of more than $100,000
first becoming exercisable in any one calendar year, or which would
entitle such Participant to purchase a number of shares greater than
the maximum number permitted by Section 422 of the Code as in effect on
the Date of Grant.
(b) OTHER INCENTIVE STOCK OPTION TERMS. Whenever possible,
each provision in the Plan and in every Option granted under this Plan
which is designated by the Administrator as an Incentive Stock Option
shall be interpreted in such a manner as to entitle the Option to the
tax treatment afforded by Section 422 of the Code. If any provision of
this Plan or any Option designated by the Administrator as an Incentive
Stock Option shall be held not to comply with requirements necessary to
entitle such Option to such tax treatment, then (i) such provision
shall be deemed to have contained from the outset such language as
shall be necessary to entitle the Option to the tax treatment afforded
under Section 422 of the Code, and (ii) all other provisions of this
Plan and the Award Agreement shall remain in full force and effect. If
any agreement covering an Option designated by the Administrator to be
an Incentive Stock Option under this Plan shall not explicitly include
any terms required to entitle such Incentive Stock Option to the tax
treatment afforded by Section 422 of the Code, all such terms shall be
deemed implicit in the designation of such Option and the Option shall
be deemed to have been granted subject to all such terms.
6
<PAGE> 7
6.04 DESIGNATION OF PERFORMANCE BASED OPTIONS. Except as otherwise
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option to a Participant that is an employee of the Company or a
Subsidiary, that the Option is a Performance Based Option. A Performance Based
Option shall have a Purchase Price not less than the Fair Market Value on the
Date of Grant and shall contain such other terms and conditions as the
Administrator may deem necessary so that, upon exercise or at any other time,
the Performance Based Option does not result in or give rise to "applicable
employee remuneration" within the meaning of Section 162(m) of the Code.
6.05 RIGHTS AS A STOCKHOLDER. The Participant or any transferee of an
Option pursuant to Section 8.02 or Section 11.05 shall have no rights as a
stockholder with respect to any shares of Common Stock covered by an Option
until the Participant or transferee shall have become the holder of record of
any such shares, and no adjustment shall be made for dividends and cash or other
property or distributions or other rights with respect to any such shares of
Common Stock for which the record date is prior to the date on which the
Participant or a transferee of the Option shall have become the holder of record
of any such shares covered by the Option.
ARTICLE VII.
STOCK APPRECIATION RIGHTS
7.01 POWER TO GRANT STOCK APPRECIATION RIGHTS. The Administrator is
authorized to grant to any Participant, on such terms established by the
Administrator on or prior to the Date of Grant and subject to and not
inconsistent with the provisions of this Plan, the right to receive the payment
from the Company, payable as provided in Section 7.04, of an amount equal to the
Incremental Value of the Stock Appreciation Rights, which shall be an amount
equal to the remainder derived from subtracting (i) the Exercise Price for the
right established in the Award Agreement from (ii) the Fair Market Value of a
share of Common Stock on the date of exercise. The terms of any Stock
Appreciation Right granted under the Plan shall be set forth in an Award
Agreement.
7.02 TANDEM STOCK APPRECIATION RIGHTS. The Administrator may grant to
any Participant a Stock Appreciation Right consistent with the provisions of
this Plan covering any share of Common Stock which is, at the Date of Grant of
the Stock Appreciation Right, also covered by an Option granted to the same
Participant, either prior to or simultaneously with the grant to such
Participant of the Stock Appreciation Right, provided: (i) any Option covering
any share of Common Stock shall expire and not be exercisable upon the exercise
of any Stock Appreciation Right with respect to the same share; (ii) any Stock
Appreciation Right covering any share of Common Stock shall not be exercisable
upon the exercise of any related Option with respect to the same share; and
(iii) an Option and Stock Appreciation Right covering the same share of Common
Stock may not be exercised simultaneously.
7.03 EXERCISE PRICE. The Exercise Price established under any Stock
Appreciation Right granted under this Plan shall be determined by the
Administrator and, in the case of a tandem Stock Appreciation Right, shall not
be less than the Purchase Price of the related Option. Upon exercise of the
Stock Appreciation Rights, the number of shares subject to exercise under a
related Option shall automatically be reduced by the number of shares of Common
Stock represented by the Option or portion thereof which is surrendered as a
result of the exercise of such Stock Appreciation Rights.
7.04 PAYMENT OF INCREMENTAL VALUE. Any payment which may become due
from the Company by reason of Participant's exercise of a Stock Appreciation
Right may be paid to the Participant as determined by the Administrator (i) all
in cash, (ii) all in Common Stock, or
7
<PAGE> 8
(iii) in any combination of cash and Common Stock. In the event that all or a
portion of the payment is made in Common Stock, the number of shares of the
Common Stock delivered in satisfaction of such payment shall be determined by
dividing the amount of the payment by the Fair Market Value on the date of
exercise. The Administrator may determine whether payment upon exercise of a
Stock Appreciation Right will be made in cash or in stock, or a combination
thereof, upon or at any time prior to the exercise of such Stock Appreciation
Right. No fractional share of Common Stock shall be issued to make any payment;
if any fractional shares would be issuable, the mix of cash and Common Stock
payable to the Participant shall be adjusted as directed by the Administrator to
avoid the issuance of any fractional share.
ARTICLE VIII.
TERMS OF OPTIONS AND STOCK APPRECIATION RIGHTS
8.01 DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options and
Stock Appreciation Rights shall terminate after the first to occur of the
following events:
(a) Expiration Date of the Award as provided in the Award
Agreement; or
(b) Termination of the Award as provided in Section 8.02; or
(c) In the case of an Incentive Stock Option, ten years
from the Date of Grant; or
(d) Solely in the case of tandem Stock Appreciation Rights,
upon the Expiration Date of the related Option.
8.02 EXERCISE ON DEATH, TERMINATION OF EMPLOYMENT OR REMOVAL OF
DIRECTOR.
(a) Unless otherwise provided in the Award Agreement, in
the event of the death of a Participant while an employee of the
Company or a Subsidiary of the Company, the right to exercise all
unexpired Awards shall be accelerated and shall accrue as of the date
of death, and the Participant's Awards may be exercised by his
Beneficiary at any time within one year after the date of the
Participant's death. Unless otherwise provided in the Award Agreement,
in the event of the death of a Participant while a director of the
Company or a Subsidiary of the Company, the right to exercise all
unexpired Awards shall be accelerated and shall accrue as of the date
of death, and the Participant's Awards may be exercised by his
Beneficiary at any time within one year after the date of the
Participant's death.
(b) Unless otherwise provided in the Award Agreement, in
the event of a Participant's Termination of Employment at any time for
any reason (including disability or retirement) other than death or for
"cause" (as defined in paragraph (d) below), an Award may be exercised,
but only to the extent it was otherwise exercisable, on the date of
Termination of Employment, within ninety days after the date of
Termination of Employment. In the event of the death of the Participant
within the ninety-day period following Termination of Employment, his
Award may be exercised by his Beneficiary within the one year period
provided in subparagraph (a) above. Unless otherwise provided in the
Award Agreement, in the event that a Non-Employee Director Participant
no longer serves on the Board for any reason, an Award may be
exercised, but only to the extent it was otherwise exercisable, on the
date that such Non-Employee Director Participant ceases to be a
Director, within ninety days after the date such Non-Employee Director
Participant ceases to be a director. In the event of the death of the
Non-Employee Director Participant within the ninety-day period
following the date he ceases
8
<PAGE> 9
to be a Director, his Award may be exercised by his Beneficiary within
the one year period provided in subparagraph (a) above.
(c) With respect to an Award which is intended to
constitute an Incentive Stock Option, upon Termination of Employment,
such Award shall be exercisable as provided in Section 422 of the Code.
(d) In the event that a Participant's Termination of
Employment is for "cause", all Awards shall terminate immediately upon
Termination of Employment. A Participant's employment shall be deemed
to have been terminated for "cause" if such termination is determined,
in the sole discretion of the Administrator, to have resulted from an
act or omission by the Participant constituting active and deliberate
dishonesty, as established by a final judgment or actual receipt of an
improper benefit or profit in money, property or services, or from the
Participant's continuous failure to perform his or her duties under any
employment agreement in effect between the Participant and the Company
in any material manner (or, in the absence of such an agreement, the
consistent failure or refusal of the Participant to perform according
to reasonable expectations and standards set by the Board and/or
management consistent with Participant's title and position) after
receipt of notice of such failure from the Company specifying how the
Participant has so failed to perform.
8.03 ACCELERATION OF EXERCISE TIME. The Administrator, in its sole
discretion, shall have the right (but shall not in any case be obligated) to
permit purchase of shares under any Award prior to the time such Award would
otherwise become exercisable under the terms of the Award Agreement.
8.04 EXTENSION OF EXERCISE TIME. The Administrator, in its sole
discretion, shall have the right (but shall not in any case be obligated) to
permit any Award granted under this Plan to be exercised after its Expiration
Date or after the ninety day period following Termination of Employment or
service on the Board, subject, however, to the limitations described in Section
8.01 (c) and (d).
8.05 CONDITIONS FOR EXERCISE. An Award Agreement may contain such
waiting periods, exercise dates and restrictions on exercise (including, but not
limited to, periodic installments which may be cumulative) as may be determined
by the Administrator at the Date of Grant. No Stock Appreciation Right may be
exercised prior to six months from the Date of Grant.
8.06 CHANGE OF CONTROL EVENT. Unless otherwise provided in the Award
Agreement, and subject to such other terms and conditions as the Administrator
may establish in the Award Agreement, upon the occurrence of a Change of Control
Event, irrespective of whether or not an Award is then exercisable, the
Participant shall have the right to exercise in full any unexpired Award to the
extent not theretofore exercised or terminated; provided, however, that any
Stock Appreciation Right so exercised must have a Date of Grant at least six
months prior to the date of exercise.
8.07 EXERCISE PROCEDURES. Each Option and Stock Appreciation Right
granted under the Plan shall be exercised by written notice to the Company which
must be received by the officer of the Company designated in the Award Agreement
on or before the Expiration Date of the Award. The Purchase Price of shares
purchased upon exercise of an Option granted under the Plan shall be paid in
full in cash by the Participant pursuant to the Award Agreement; provided,
however, that the Administrator may (but need not) permit payment to be made by
delivery to the Company of either (a) shares of Common Stock (including shares
issuable to the Participant pursuant to the exercise of the Option), or (b) any
combination of cash and shares of
9
<PAGE> 10
Common Stock, or (c) such other consideration as the Administrator deems
appropriate and in compliance with applicable law (including payment in
accordance with a cashless exercise program under which, if so instructed by the
Participant, shares of Common Stock may be issued directly to the Participant's
broker or dealer upon receipt of the Purchase Price in cash from the broker or
dealer.) In the event that any Common Stock shall be transferred to the Company
to satisfy all or any part of the Purchase Price, the part of the Purchase Price
deemed to have been satisfied by such transfer of Common Stock shall be equal to
the product derived by multiplying the Fair Market Value as of the date of
exercise times the number of shares transferred. The Participant may not
transfer to the Company in satisfaction of the Purchase Price (y) a number of
shares which when multiplied times the Fair Market Value as of the date of
exercise would result in a product greater than the Purchase Price or (z) any
fractional share of Common Stock. Any part of the Purchase Price paid in cash
upon the exercise of any Option shall be added to the general funds of the
Company and used for any proper corporate purpose.
ARTICLE IX.
RESTRICTED STOCK AWARDS
9.01 RESTRICTED SHARE AWARDS. The Administrator may grant to any
Participant an Award of Restricted Share Rights entitling such person to receive
shares of Common Stock in such quantity, and on such terms, conditions and
restrictions (whether based on performance standards, periods of service or
otherwise) as the Administrator shall determine on or prior to the Date of
Grant. The terms of any Award of Restricted Share Rights granted under the Plan
shall be set forth in an Award Agreement.
9.02 DURATION OF RESTRICTED SHARE RIGHTS. In no event shall any
Restricted Share Rights granted entitle the holder to receive shares of Common
Stock free of all restrictions on transfer at any time prior to the expiration
of two years from the Date of Grant, and each Award Agreement shall provide that
the Participant shall remain employed by the Company or a Subsidiary for that
two year period (subject to the Company's or Subsidiary's right to terminate
such employment).
9.03 FORFEITURE OF RESTRICTED SHARE RIGHTS. Subject to Section 9.05,
all Restricted Share Rights shall be forfeited and all Restricted Share Awards
shall terminate unless the Participant continues in the service of the Company
or a Subsidiary until the expiration of the forfeiture and satisfies any other
conditions set forth in the Award Agreement. If the Award Agreement shall so
provide, in the case of death, disability or retirement (as defined in the Award
Agreement) of the Participant, all of the shares covered by the Restricted Share
Rights shall immediately vest and any restrictions shall lapse as of the date of
such death, disability or retirement.
9.04 DELIVERY OF SHARES UPON VESTING. Upon the lapse of the
restrictions established in the Award Agreement, the Participant shall be
entitled to receive, without payment of any cash or other consideration,
certificates for the number of shares covered by the Award.
9.05 WAIVER OR MODIFICATION OF FORFEITURE PROVISIONS. The
Administrator has full power and authority to modify or waive any or all terms,
conditions or restrictions (other than the minimum restriction period set forth
in Section 9.02) applicable to any Restricted Share Rights granted to a
Participant under the Plan; provided that no modification shall, without consent
of the Participant, adversely affect the Participant's rights thereunder and no
modification shall reduce the employment requirement to less than three years,
except in the case of death, disability or retirement.
10
<PAGE> 11
9.06 RIGHTS AS A STOCKHOLDER. No person shall have any rights as a
stockholder with respect to any shares subject to Restricted Share Rights until
such time as the person shall have been issued a certificate for such shares.
ARTICLE X.
OTHER STOCK BASED AWARDS
10.01 GRANT OF OTHER AWARDS. Other Awards of Common Stock or other
securities of the Company and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, Common Stock ("Other Awards") may be
granted either alone or in addition to or in conjunction with Options or Stock
Appreciation Rights under the Plan. Subject to the provisions of the Plan, the
Administrator shall have the sole and complete authority to determine the
persons to whom and the time or times at which Other Awards shall be made, the
number of shares of Common Stock or other securities, if any, to be granted
pursuant to such Other Awards, and all other conditions of such Other Awards.
Any Other Award shall be confirmed by an Award Agreement executed by the
Administrator and the Participant, which agreement shall contain such provisions
as the Administrator determines to be necessary or appropriate to carry out the
intent of this Plan with respect to the Other Award.
10.02 TERMS OF OTHER AWARDS. In addition to the terms and conditions
specified in the Award Agreement, Other Awards made pursuant to this Article X
shall be subject to the following:
(a) Any shares of Common Stock subject to such Other Awards
may not be sold, assigned, transferred or otherwise encumbered prior to
the date on which the shares are issued, or, if later, the date on
which any applicable restriction, performance or deferral period
lapses; and
(b) If specified by the Administrator and the Award
Agreement, the recipient of an Other Award shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
dividend equivalents with respect to the Common Stock or other
securities covered by the Other Award; and
(c) The Award Agreement with respect to any Other Award
shall contain provisions providing for the disposition of such Other
Award in the event of Termination of Employment prior to the exercise,
realization or payment of such Other Award, with such provisions to
take account of the specific nature and purpose of the Other Award.
ARTICLE XI.
TERMS APPLICABLE TO ALL AWARDS
11.01 AWARD AGREEMENT. The grant and the terms and conditions of the
Award shall be set forth in an Award Agreement between the Company and the
Participant. No person shall have any rights under any Award granted under the
Plan unless and until the Administrator and the Participant to whom the Award is
granted shall have executed and delivered an Award Agreement expressly granting
the Award to such person and setting forth the terms of the Award.
11.02 PLAN PROVISIONS CONTROL AWARD TERMS. The terms of the Plan shall
govern all Awards granted under the Plan, and in no event shall the
Administrator have the power to grant any Award under the Plan which is contrary
to any of the provisions of the Plan. In the event any provision of any Award
granted under the Plan shall conflict with any term in the Plan as constituted
on the Date of Grant of such Award, the term in the Plan as constituted on the
Date of Grant of such Award shall control. Except as provided in Section 4.03,
the terms of any
11
<PAGE> 12
Award granted under the Plan may not be changed after the granting of such Award
without the express approval of the Participant.
11.03 MODIFICATION OF AWARD AFTER GRANT. Each Award granted under the
Plan to a Participant other than an Officer may be modified after the date of
its grant by express written agreement between the Company and the Participant,
provided that such change (i) shall not be inconsistent with the terms of the
Plan and (ii) shall be approved by the Administrator.
11.04 TAXES. The Company shall be entitled, if the Administrator deems
it necessary or desirable, to withhold (or secure payment from the Participant
in lieu of withholding) the amount of any withholding or other tax required by
law to be withheld or paid by the Company with respect to any amount payable
and/or shares issuable under such Participant's Award, or with respect to any
income recognized upon a disqualifying disposition of shares received pursuant
to the exercise of an Incentive Stock Option, and the Company may defer payment
or issuance of the cash or stock upon exercise or vesting of an Award unless
indemnified to its satisfaction against any liability for such tax. The amount
of such withholding or tax payment shall be determined by the Administrator and,
unless otherwise provided by the Administrator, shall be payable by the
Participant at the time of issuance or payment in accordance with the following
rules:
(a) A Participant shall have the right to elect to meet his
or her withholding requirement by: (1) having the Company withhold from
such Award the appropriate number of shares of Common Stock, rounded
out to the next whole number, the Fair Market Value of which is equal
to such amount, or, in the case of the cash payment, the amount of
cash, as is determined by the Company to be sufficient to satisfy
applicable tax withholding requirements; or (2) direct payment to the
Company in cash of the amount of any taxes required to be withheld with
respect to such Award.
(b) In the event that an Award or property received upon
exercise of an Award has already been transferred to the Participant on
the date upon which withholding requirements apply, the Participant
shall pay directly to the Company the cash amount determined by the
Company to be sufficient to satisfy applicable federal, state or local
withholding requirements. The Participant shall provide to the Company
such information as the Company shall require to determine the amounts
to be withheld and the time such withholding requirements become
applicable.
(c) If permitted under applicable federal income tax laws,
a Participant may elect to be taxed in the year in which an Award is
exercised or received, even if it would not otherwise have become
taxable to the Participant. If the Participant makes such an election,
the Participant shall promptly notify the Company in writing and shall
provide the Company with a copy of the executed election form as filed
with the Internal Revenue Service no later than thirty days from the
date of exercise or receipt. Promptly following such notification, the
Participant shall pay directly to the Company the cash amount
determined by the Company to be sufficient to satisfy applicable
federal, state or local withholding tax requirements.
11.05 LIMITATIONS ON TRANSFER. A Participant's rights and interest
under the Plan may not be assigned or transferred other than by will or the laws
of descent and distribution. Notwithstanding the foregoing, or any other
provision of this Plan, a Participant who holds Non-Qualified Stock Options may
transfer such Options to: (a) his or her spouse, children, grandchildren,
parents, brothers and/or sisters (collectively, "Immediate Family"), (b) a trust
or trusts for the exclusive benefit of such Participant's Immediate Family, (c)
a partnership or limited liability company in which such Participant's Immediate
Family are the only equity holders, or (d) such other persons or entities as
determined by the Administrator, in its sole and
12
<PAGE> 13
absolute discretion. Options so transferred may thereafter be transferred only
to the Participant who originally received the Options or to an individual,
trust or entity to whom the Participant could have initially transferred the
Option pursuant to this Section 11.05. Options which are transferred pursuant to
this Section 11.05 shall be exercisable by the transferee according to the same
terms and conditions as applied to the Participant.
11.06 SURRENDER OF AWARDS. Any Award granted under the Plan may be
surrendered to the Company for cancellation on such terms as the Administrator
and Participant approve, including, but not limited to, terms which provide that
upon such surrender the Company will pay to the Participant cash or Common
Stock, or a combination of cash and Common Stock.
11.07 ADJUSTMENTS FOR POOLING-OF-INTERESTS ACCOUNTING. If the Company
enters into a transaction which is intended to be accounted for using the
pooling-of-interests method of accounting and it is determined by the Board that
any Award granted under the Plan could reasonably be expected to preclude such
accounting treatment, then the Board may modify (to the minimum extent required)
or revoke (if necessary) such Award(s) or any provision thereof to the extent
that the Board determines that such modification or revocation is necessary to
enable the transaction to qualify for pooling-of-interests accounting treatment.
ARTICLE XII.
GENERAL PROVISIONS
12.01 AMENDMENT AND TERMINATION OF PLAN.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time and to add any other stock
based Award or other incentive compensation programs to the Plan as it
deems necessary or appropriate and no approval by the stockholders of
the Company or by any other person, committee or entity of any kind
shall be required to make any amendment; provided, however, that the
Board shall not, without the requisite affirmative approval of the
stockholders of the Company, make any amendment (i) which requires
stockholder approval under any applicable law, including Rule 16b-3 or
the Code; or (ii) which, unless approved by the requisite affirmative
approval of stockholders of the Company, would cause, result in or give
rise to "applicable employee remuneration" within the meaning of
Section 162(m) of the Code with respect to any Performance Based
Option. No termination or amendment of the Plan may, without the
consent of the Participant to whom any Award shall theretofore have
been granted under the Plan, adversely affect the right of such
individual under such Award. For the purposes of this section, an
amendment to the Plan shall be deemed to have the affirmative approval
of the stockholders of the Company if such amendment shall have been
submitted for a vote by the stockholders at a duly called meeting of
such stockholders at which a quorum was present and the majority of
votes cast with respect to such amendment at such meeting shall have
been cast in favor of such amendment, or if the holders of outstanding
stock having not less than a majority of the outstanding shares consent
to such amendment in writing in the manner provided under the Company's
bylaws.
(b) TERMINATION. The Board shall have the right and the
power to terminate the Plan at any time. If the Plan is not earlier
terminated, the Plan shall terminate when all shares authorized under
the Plan have been issued. No Award shall be granted under the Plan
after the termination of the Plan, but the termination of the Plan
shall not have any other effect and any Award outstanding at the time
of the termination of the Plan may be exercised after termination of
the Plan at any time prior to the expiration date of such Award to the
same extent such award would have been exercisable if the Plan had not
been terminated.
13
<PAGE> 14
12.02 NO RIGHT TO EMPLOYMENT OR TO CONTINUE AS DIRECTOR. No employee
or other person shall have any claim or right to be granted an Award under this
Plan. Neither the Plan nor any action taken hereunder shall be construed as
giving any employee any right to be retained in the employ of the Company or a
Subsidiary of the Company. Neither the Plan nor any action taken hereunder shall
be construed as giving any Director any right to be retained as a Director, or
to limit in any way the right of the stockholders of the Company to remove such
person as a Director.
12.03 COMPLIANCE WITH RULE 16B-3. It is intended that the Plan be
applied and administered in compliance with Rule 16b-3. If any provision of the
Plan would be in violation of Rule 16b-3 if applied as written, such provision
shall not have effect as written and shall be given effect so as to comply with
Rule 16b-3, as determined by the Administrator. The Board is authorized to amend
the Plan and to make any such modifications to Award Agreements to comply with
Rule 16b-3, as it may be amended from time to time, and to make any other such
amendments or modifications as it deems necessary or appropriate to better
accomplish the purposes of the Plan in light of any amendments made to Rule
16b-3.
12.04 SECURITIES LAW RESTRICTIONS. The shares of Common Stock issuable
pursuant to the terms of any Awards granted under the Plan may not be issued by
the Company without registration or qualification of such shares under the
Securities Act of 1933, as amended, and under various state securities laws or
without an exemption from such registration requirements. Unless the shares to
be issued under the Plan have been registered and/or qualified as appropriate,
the Company shall be under no obligation to issue shares of Common Stock upon
exercise of an Award unless and until such time as there is an appropriate
exemption available from the registration or qualification requirements of
federal and state law as determined by the Administrator in its sole discretion.
The Administrator may require any person who is granted an award hereunder to
agree with the Company to represent and agree in writing that if such shares are
issuable under an exemption from registration requirements, the shares will be
"restricted" securities which may be resold only in compliance with applicable
securities laws, and that such person is acquiring the shares issued upon
exercise of the Award for investment, and not with the view toward distribution.
12.05 NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock or stock options otherwise
than under the Plan.
12.06 CAPTIONS. The captions (i.e., all section headings) used in the
Plan are for convenience only, do not constitute a part of the Plan, and shall
not be deemed to limit, characterize or affect in any way any provisions of the
Plan, and all provisions of the Plan shall be construed as if no captions have
been used in the Plan.
12.07 SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
12.08 NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, the Administrator, or any other person in the
interpretation of any of the terms of
14
<PAGE> 15
the Plan, any Award granted under the Plan or any rule or procedure established
by the Administrator.
12.09 CHOICE OF LAW. The Plan shall be governed by and construed in
accordance with the laws of the State of Michigan, without regard to its
conflict of law provisions.
<PAGE> 1
EXHIBIT 10.39
PROSPECTUS
MCCLAIN INDUSTRIES, INC.
1999 RETAINER STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
This Prospectus provides information to the non-employee directors of
McClain Industries, Inc. and its subsidiaries (hereinafter sometimes
collectively referred to as "McClain", the "Company", "we", or "us") concerning
the McClain Industries, Inc. 1999 Retainer Stock Plan for Non-Employee Directors
(the "Plan"). This Prospectus covers a maximum of 100,000 shares of common
stock, no par value, of the Company (the "Common Stock"), and such additional
shares as may be offered pursuant to the anti-dilution provisions of the Plan.
This offer is made at the price and on the terms and conditions contained in the
Plan and in the individual award agreements with participants to whom grants are
made.
This Prospectus may not be used for reoffers or resales of Common Stock
acquired under the Plan by "affiliates" (directors, officers and other
controlling persons) of the Company. Such affiliates may resell such shares
without registration under the Securities Act of 1933 (the "Securities Act")
pursuant to Rule 144 promulgated under the Securities Act. See "Securities Law
Restrictions." Participants should also give careful consideration to the
short-swing profit provisions of Section 16 of the Securities Exchange Act of
1934 (the "Exchange Act"). All directors who acquire shares under the Plan
should only sell such shares after consideration of the laws prohibiting trading
on the basis of inside information and their personal tax situation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized by us to give any information or to make
any representation not contained in or incorporated by reference in this
Prospectus in connection with the offering described in this Prospectus, and any
information or representation not contained or incorporated by reference in this
Prospectus must not be relied upon as having been authorized by us. Neither the
delivery of this Prospectus nor any sale made hereunder shall create an
implication that there has been no change in our affairs since the date of this
Prospectus.
The date of this Prospectus is July 27,1999.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Company.......................................................................................................1
Where You Can Find More Information...............................................................................1
The Plan..........................................................................................................2
General..................................................................................................2
Administration...........................................................................................3
Eligibility..............................................................................................3
Shares Issueable.........................................................................................3
Amendment of the Plan....................................................................................4
Securities Law Restrictions..............................................................................4
</TABLE>
<PAGE> 3
THE COMPANY
We are a Michigan company, incorporated in 1968, becoming a publicly
traded company in 1973. We also own and operate facilities in Alabama, Georgia,
Ohio, and Oklahoma. We are one of the nation's leading manufacturers of a
diversified line of dump truck bodies and solid waste handling equipment. We
also sell truck chassis at the retail level, and operate a steel tube mill to
help us meet some of our steel tubing needs. In addition to manufacturing, we
provide coiled steel cutting and warehousing services for our operations, and
for third party customers on a limited basis.
Our headquarters are located at 6200 Elmridge Road, Sterling Heights,
Michigan, and our telephone number is (810) 264-3611.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act
and file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). These
reports, proxy statements and other information may be inspected and copied at
the Public Reference Room maintained by the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the SEC:
7 World Trade Center, Thirteenth Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials
may also be obtained by mail, upon payment of the SEC's customary fees, by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference facilities. These materials may also be
accessed electronically by means of the SEC's web site on the Internet at
http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-8
(together with any amendments thereto, the "Registration Statement") under the
Securities Act, relating to the shares of Common Stock offered pursuant to this
Prospectus. This document does not contain all of the information set forth in
the Registration Statement and the exhibits filed by us, certain portions of
which have been omitted pursuant to the rules and regulations of the SEC. The
Registration Statement and its exhibits may be inspected without charge at the
offices of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the SEC at prescribed rates.
The following documents filed with the Commission are incorporated to this
Prospectus by reference:
1. McClain Industries, Inc.'s ("McClain") Annual Report on Form 10-K for the
year ended September 30, 1998, filed with the Commission on December 23,1998.
2. McClain's Quarterly Report on Form 10-Q for the quarter ended December
31, 1998, filed with the Commission on February 12, 1999, as amended by Form
10-Q/A filed with the Commission on March 19, 1999.
3. McClain's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, filed with the Commission on May 7, 1999.
1
<PAGE> 4
4. McClain's Current Report on Form 8-K, dated February 9, 1999, filed
with the Commission on February 10, 1999.
5. The description of the Common Stock contained in McClain's Registration
Statement on Form 8-A filed by McClain with the Commission on May 3, 1974 under
Section 12 of the Exchange Act.
In addition, all documents filed by us pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of the
Registration Statement and prior to the filing of a post-effective amendment
which indicates that all securities offered have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated to this
Prospectus by reference and to be a part of this Prospectus from the date of
filing of such documents.
Any statement contained in this Prospectus or in a document incorporated,
or deemed to be incorporated, by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any subsequently filed document which also
is, or is deemed to be, incorporated by reference modifies or supersedes such
statement. Except as so modified or superseded, such statement shall not be
deemed to constitute a part of this Prospectus.
We will provide without charge to each person to whom this Prospectus is
delivered, upon written or oral request, a copy of any of the information that
has been incorporated by reference in the Registration Statement of which this
Prospectus is a part (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically incorporated by
reference into the information that the Registration Statement incorporates) and
any Prospectus supplements which may be issued in the future. We will also
provide without charge copies of our Annual Report to stockholders, and all
other reports, proxy statements or other communications distributed to our
security holders generally. Requests for copies should be directed to Mr. Carl
Jaworski, Secretary, McClain Industries, Inc., Box 180913, Utica, Michigan,
48318, (810) 264-3611, or by facsimile (810) 264-7191.
THE PLAN
This Prospectus is designed to give information about the Plan to
non-employee directors of the Company. While this Prospectus describes the Plan
in general, an eligible director's rights are governed by the terms of the Plan
and not this Prospectus. For more information or answers to specific questions
about the Plan or its administration, individuals should call Mr. Carl Jaworski,
our Secretary, at (810) 264-3611.
GENERAL
The following is intended to summarize and highlight certain important
provisions of the Plan, and is qualified in its entirety by the more detailed
information contained in the Plan itself. Eligible directors are urged to obtain
and carefully review the Plan before investing. A copy of the Plan will be
provided on written request.
The Plan was initially adopted by our Board on February 8, 1999, and
approved by our
2
<PAGE> 5
stockholders at our annual meeting of stockholders on May 7, 1999. The Plan will
remain in effect until all shares authorized under the terms of the Plan have
been issued, unless our Board terminates or abandons the Plan; provided,
however, that no shares of Common Stock may be issued after December 31, 2009.
The Plan gives non-employee directors the right to receive shares of the
Company's Common Stock as full or partial payment of their retainer fee paid for
serving as a director of the Company, and fees paid to them for attending Board
and committee meetings (the "Fees"), thereby increasing non-employee directors'
proprietary interest in the Company. The total number of shares of Common Stock
issuable under the Plan may not exceed one hundred thousand (100,000) shares.
ADMINISTRATION
The Plan is administered by either the entire Board, or at the discretion
of the Board, by a committee consisting of at least two members of the Board.
The Administrator of the Plan has the power to devise and implement rules and
provide for the operation of the Plan, and to interpret and otherwise implement
the Plan in all respects.
ELIGIBILITY
Any director of the Company who is not an employee of the Company at any
time during any fiscal year in which shares of Common Stock are to be issued
under the Plan is automatically eligible to participate in the Plan.
Under the Plan, eligible directors may elect to receive payment of all or
any portion of the Fees if the election is made no later than thirty (30) days
prior to a payment date for Fees (the "Election Date"). Elections by eligible
directors:
(i) Must be made in writing;
(ii) Must be delivered to the Company's Secretary
prior to the Election Date;
(iii)Shall specify the percentage or dollar amount of
Fees to be paid in shares of Common Stock;
(iv) Will continue in force until rescinded or
modified.
Any elections or modifications of elections made after the Election Date will be
effective for the next occurring payment date.
SHARES ISSUEABLE
The Plan authorizes the issuance of up to 100,000 shares of the
Company's Common Stock, however, the number of shares authorized is subject to
adjustment to reflect any stock dividend, stock split, combination or exchange
of shares, merger, reorganization, consolidation, split-up, spin-off or other
change in capitalization with a similar substantive effect upon shares of Common
Stock.
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. Currently, the Board has authorized that each non-employee
director is to receive a quarterly retainer fee of $4,000, a $1,000 fee for each
regular or special meeting of the Board and a $1,000 fee for each
3
<PAGE> 6
committee meeting attended on a day other than a regular or special Board
meeting date. Under the Plan, Fees may not be increased more often than
annually. The number of shares of Common Stock to be issued to an eligible
director will be determined by dividing the dollar amount of the Fees such
director elected 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.
AMENDMENT OF THE PLAN
The Plan may be amended by the Board at any time without the approval of
the Company's stockholders or any other person, committee or entity of any kind,
except as required under any applicable law, rule or regulation. Also, the Board
has the power to suspend or terminate the Plan at any time, and during such
times no shares may be issued.
SECURITIES LAW RESTRICTIONS
Under regulations of the SEC in effect on the date of this Prospectus,
our "affiliates" (as that term is defined in Rule 405 of the Securities Act) may
resell shares of Common Stock acquired under the Plan only by complying with the
filing requirements of the Securities Act, the volume limitations of Rule 144 or
another applicable exemption from registration. The SEC staff has taken the
position that the directors and executive officers of a corporation should be
assumed to be "affiliates" of the corporation.
4
<PAGE> 1
EXHIBIT 10.40
AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN
STANDARD FEDERAL BANK
AND
MCCLAIN INDUSTRIES, INC., MCCLAIN E-Z PACK INC., MCCLAIN
GALION, INC., SHELBY STEEL PROCESSING COMPANY, MCCLAIN TUBE
COMPANY D/B/A QUALITY TUBE, MCCLAIN INTERNATIONAL FSC, AND
MCCLAIN SOUTHLAND CO.
THIS AMENDED AND RESTATED LOAN AGREEMENT is made and delivered
this 9 day of July, 1999, by and among McClain Industries, Inc., a
Michigan corporation; McClain E-Z Pack Inc., a Michigan corporation; McClain
Galion, Inc., a Michigan corporation; Shelby Steel Processing Company, a
Michigan corporation; McClain Tube Company d/b/a Quality Tube, a Michigan
corporation; McClain International FSC, a U.S. Virgin Islands corporation; and
McClain Southland Co., a Florida corporation (collectively, "Borrowers"), 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 Borrowers are the resulting corporations following the merger and
consolidation of the Borrowers and 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; Galion Holding Company, 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, McClain of Michigan, Inc., a Michigan corporation.
B. The Borrowers entered into a Loan Agreement, dated April 16, 1998, as
amended March 8, 1999 and May 14, 1999 and July 9,1999, with Standard Federal
(the "1998 Loan Agreement"), pursuant to which Standard Federal has made
available to the Borrowers the following credit facilities: a Line of Credit,
Loan No. 5200026569, in the principal amount of $25,000,000.00, as evidenced by
a Promissory Note (Line of Credit), dated April 16, 1998, as amended March 8,
1999 and May 14, 1999; a Swing Line of Credit, Loan No. 5200054388, in the
principal amount of $5,000,000.00, as evidenced by a Promissory Note (Swing Line
of Credit); a Term Loan, Loan No. 5200026577, in the original principal amount
of $15,000,000.00, as evidenced by a Promissory Note (Term Loan), dated April
16, 1998; and a Line of Credit Converting to Term Loan, Loan No. 5200026593, in
the original principal amount of $1,500,000.00, as evidenced by a Promissory
Note (Line of Credit Converting to Term Loan), dated April 16, 1998.
C. The credit facilities provided for in the Loan Agreement are secured by
a Security Agreement, dated September 15, 1994, and by a Security Agreement,
dated July 19, 1995 (the "McClain Security Agreements"), and by a Security
Agreement, dated September 15, 1994, and by a Security Agreement, dated June 22,
1995 (the "Galion Security Agreements"), and by a Commercial Mortgage, dated
September 26, 1988, covering property located in River Rouge, Michigan, as
amended April 16, 1998 (the "River Rouge Mortgage"), and by a Real Estate
Mortgage with Power of Sale, dated October 13, 1988, covering property located
in Cleveland County, Oklahoma, as amended April 16, 1998 (the "Oklahoma
Mortgage"), and by a Commercial Mortgage, Assignment of Lease and Rents,
Security Agreement and Financing Statement, dated
1
<PAGE> 2
February 6, 1995, covering property located in Sterling Heights, Michigan, as
amended April 16, 1998 (the "Sterling Heights Mortgage"), 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 April 16, 1998 (the "Comstock Township
Mortgage"), 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 April 16, 1998 (the "Winesburg Mortgage"), 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 April 16, 1998
(the "Galion Mortgage").
D. The Borrowers have requested that the credit facilities described above
be modified 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. Therefore, the
1998 Loan Agreement is hereby amended and restated in its entirety as follows:
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:
SECTION 1. DEFINITIONS
1.1 The following additional terms shall have the meanings stated below
when used in this Loan Agreement:
"Advance Date" shall mean September 1, 1999.
"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, the Swing 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.
"Collateral Reserve" shall mean, initially an amount equal to One
Million Four Hundred Thousand and 00/100 Dollars ($1,400,000.00). The Collateral
Reserve shall be reduced by an amount equal to the amount of all payments made
after the date of this Loan Agreement to purchase, redeem or apply to principal
on certain Industrial Development Revenue Bonds (the "Bonds") issued in the
original amount of $5,225,000.00 by The Industrial Development Board of the City
of Demopolis, Alabama (the "Issuer") pursuant to a Trust Indenture dated as of
April 1, 1997 between LaSalle National Bank, as Trustee, and the Issuer, with
respect to which Standard Federal has issued an irrevocable letter of credit in
favor of the Trustee to secure payment of the principal and purchase price of,
and interest on, the Bonds.
"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
2
<PAGE> 3
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.
"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
Borrower, net of any credit or allowance given to the account debtor, any contra
offset arising from a liability of the Borrower to the account debtor and any
accounts payable of the Borrower that may reduce the amount of accounts
receivable which could be realized upon by the Borrower or Standard Federal, as
such accounts receivable are disclosed in the statements timely furnished to
Standard Federal as required herein, that:
(a) arise out of the sale by the Borrower of finished goods
inventory and/or the rendition by the Borrower of services,
(b) are the valid, binding and legally enforceable obligations of
the account debtors obligated
3
<PAGE> 4
thereon and each such account debtor is not (i) a debtor under
any proceeding under the Bankruptcy Code or any other comparable
bankruptcy or insolvency law applicable under the law of any
other country or political subdivision thereof, or (ii) an
assignor for the benefit of creditors,
(c) are not evidenced by a promissory note or other instrument or
by chattel paper, unless the same has been endorsed and
delivered to Standard Federal,
(d) are subject to a perfected security interest in favor of
Standard Federal, and are free and clear of any other security
interests or liens other than liens which have been approved
in writing by Standard Federal,
(e) are not owed by account debtors which Standard Federal has
notified the Borrower do not have a satisfactory credit
standing (as determined in the reasonable judgment of Standard
Federal),
(f) are not evidenced by invoices or other writings which Standard
Federal has notified the Borrower are in form or substance not
satisfactory to Standard Federal (as determined in the
reasonable judgment of Standard Federal),
(g) are not doubtful as to collectibility or disputed as to existence
or amount, and
(h) are not Ineligible Accounts.
"Ineligible Accounts" means accounts receivable which:
(1) are unpaid more than 90 days after the invoice date,
(2) are inter-company or owing from any affiliated or related company
or other entity,
(3) are owing from an account debtor located outside the United States
of America, unless the account debtor is located in Puerto Rico or
any Canadian province other than Quebec and United States law
governs the contract,
(4) are owing from an account debtor who is obligated on accounts
receivable owed to the Borrower more than twenty-five percent
(25.0%) of the aggregate unpaid balance of which have been
past due for longer than the relevant period specified in
clause (1) above, unless Standard Federal has approved the
continued eligibility thereof,
(5) arise 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, unless a properly completed assignment of claims which
complies with the applicable statute is on file with Standard
Federal,
(6) are subject to extended sales terms which give the account debtor
a right to delay payment,
(7) constitute a retainage portion of an account receivable which will
not be payable until performance is completed and accepted by the
account debtor,
(8) constitute a progress billing where the obligation of the
account debtor is contingent upon further performance or
delivery by the Borrower,
(9) arise from projects where performance is guaranteed by a surety by
the issuance of a bond,
(10) arise from tooling invoices, unless supported by a signed purchase
order and, for completed tooling, signed proof of performance,
(11) arise from consignment or guaranteed sales,
(12) are generated in advance of the work being performed, services
being provided or goods being delivered, such as a bill and
hold,
(13) for which an invoice has not been generated,
(14) constitute interest, finance charges or service charges assessed
on unpaid accounts receivable,
4
<PAGE> 5
(15) are otherwise unacceptable to StandarD Federal.
"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 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 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 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.
5
<PAGE> 6
"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 Cap" shall mean, initially, Thirty Five Million and 00/100
Dollars ($35,000,000.00). The Line of Credit Cap shall reduce by $833,333.33 on
the first day of each month, beginning August 1, 1999 and continuing through
July 1, 2000, after which date the Line of Credit Cap shall be Twenty Five
Million and 00/100 Dollars ($25,000,000.00).
"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: (A) the lesser of: (a) the Line of
Credit Cap, or (b) an amount equal to the sum of: (i) an amount equal to 80% of
Eligible Accounts Receivable, less: (1) a Six Hundred Thousand and 00/100 Dollar
($600,000.00) static reserve, and (2) the Collateral Reserve, plus (ii) an
amount equal to the lesser of: (1) Fifteen Million and 00/100 Dollars
($15,000,000.00), or (2) an amount equal to 50% of Qualified Inventory,
exclusive of Truck Chassis Inventory, plus (iii) an amount equal to the lesser
of: (1) the Truck Chassis Inventory Cap, or (2) an amount equal to 50% of Truck
Chassis Inventory, minus (B) principal amounts outstanding under the Swing Line
of Credit.
"Line of Credit Maturity Date" shall mean May 1, 2001, 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 Swing 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 as Standard Federal shall require to
evidence, secure and document the Line of Credit, the Swing 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
6
<PAGE> 7
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 inventory of the Borrower, as such
inventory is disclosed in the statements timely furnished to Standard Federal as
required herein, that:
(a) is subject to a perfected security interest in favor Standard
Federal, and is free and clear of any other security interests
or liens other than liens which have been approved in writing
by Standard Federal,
(b) is not so identified to a contract to sell that it constitutes
an account,
(c) is of good and merchantable quality free from any defects
which might adversely affect the market value thereof,
(d) was not in any material respect produced in violation of the
Fair Labor Standards Act and subject to the so-called "hot
goods" provision contained in Title 29 U.S.C. ss. 2159(a)(1),
(e) is located at any of the locations of inventory identified in
the McClain Security Agreements or the Galion Security
Agreements (other than any such location which is not owned by
the
7
<PAGE> 8
Borrower and as to which Borrower has not obtained a
bailee letter in form and substance satisfactory to Standard
Federal),
(f) is not Ineligible Inventory.
"Ineligible Inventory" means inventory which:
(1) consists of work-in-process,
(2) has been acquired by the Borrower on consignment or has been
placed out on consignment by the Borrower, unless such
inventory is subject to a first priority perfected security
interest in favor of Standard Federal,
(3) is in transit so is not physically located at any of the
locations of inventory identified in the Security Agreement
hereinafter referenced,
(4) is located outside of the United States,
(5) is otherwise unacceptable to Standard Federal, including,
without limitation, packaging, boxes, labels, racks, returned
items (defects, overshipments, trials, warranty work),
perishable products, custom made items, seasonal items that
are out of season, obsolete items, inventory which has been
sent to premises not owned by the Borrower for machining,
plating, painting or processing, miscellaneous supplies, scrap
materials, semi-processed items, subassemblies.
"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.
"Swing Line of Credit" shall mean the revolving swing line of credit made
available by Standard Federal to the Borrowers on the terms and conditions
contained in this Loan Agreement.
"Swing Line of Credit Limit" shall mean the lesser of: (a) Five Million and
00/100 Dollars ($5,000,000.00), or (b) an amount equal to: (A) the sum of: (i)
an amount equal to 80% of Eligible Accounts Receivable, less: (1) a Six Hundred
Thousand and 00/100 Dollar ($600,000.00) static reserve, and (2) the Collateral
Reserve, plus (ii) an amount equal to the lesser of: (1) Fifteen Million and
00/100 Dollars
8
<PAGE> 9
($15,000,000.00), or (2) an amount equal to 50% of Qualified Inventory,
exclusive of Truck Chassis Inventory, plus (iii) an amount equal to the lesser
of: (1) the Truck Chassis Inventory Cap, or (2) an amount equal to 50% of Truck
Chassis Inventory, minus (B) principal amounts outstanding under the Line of
Credit; provided, however, that in no event shall the total of principal amounts
outstanding under the Line of Credit and principal amounts outstanding under the
Swing Line of Credit exceed the Line of Credit Cap.
"Swing Line of Credit Maturity Date" shall mean May 1, 2001, or any
extension or renewal thereof.
"Swing Line of Credit Note" shall mean the Promissory Note of even date
herewith and all renewals and amendments thereof, evidencing the Swing Line of
Credit.
"Swing Revolving Credit Period" shall mean the period from the date of the
Swing Line of Credit Note through the Swing Line of Credit Maturity Date.
"Term Date" shall mean July 1, 2000.
"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 Twenty Million and 00/100 Dollars
($20,000,000.00) 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.
"Truck Chassis Inventory" shall mean the Qualified Inventory of the
Borrower which is comprised of truck chassis, as reasonably determined by
Standard Federal.
"Truck Chassis Inventory Cap" shall mean, initially, Ten Million and 00/100
Dollars ($10,000,000.00). The Truck Chassis Inventory Cap shall reduce by
$833,333.33 on the first day of each month, beginning August 1, 1999 and
continuing through July 1, 2000, after which date the Truck Chassis Inventory
Cap shall be $-0-.
"Unused Line" shall mean the amount available for draw but not advanced
from time to time on either the Line of Credit or the Swing Line of Credit.
9
<PAGE> 10
"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.
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.
10
<PAGE> 11
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 Line 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 Line 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. SWING LINE OF CREDIT
3.1 Standard Federal hereby makes available the Swing Line of Credit to
the Borrowers, which shall not exceed at any one time outstanding the Swing Line
of Credit Limit.
3.2 The Swing Line of Credit herein extended shall be subject to the terms
and conditions of the Swing Line of Credit Note. Notwithstanding the principal
amount of the Swing Line of Credit Note as stated on the face thereof, the
amount of principal actually owing on the Swing 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 Swing
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.
3.3 Standard Federal shall, from time to time during the Swing Revolving
Credit Period, make advances to Borrowers under the Swing 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 Swing 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
11
<PAGE> 12
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 Swing 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 Swing 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 Swing
Line of Credit to exceed the Swing Line of Credit Limit. During the Swing
Revolving Credit Period, the Swing 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.
3.4 Borrowings under the Swing Line of Credit shall bear interest at the
Prime-Based Rate. Interest shall be calculated on the basis of a year of 360
days for the actual number of days amounts are outstanding.
3.5 As provided in the Swing Line of Credit Note, interest accrued on
Borrowings as of the end of each month during the Swing Revolving Credit Period
shall be payable monthly, in arrears, on the first day of the following month.
3.6 If at any time the amount outstanding under the Swing Line of Credit
shall exceed the Swing Line of 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 Swing Line of Credit Limit.
3.7 Standard Federal at any time in its sole and absolute discretion may,
on behalf of the Borrowers, make Borrowings under the Line of Credit to re-pay
principal amounts outstanding under the Swing Line of Credit, regardless of
whether any conditions precedent which may otherwise be applicable to Borrowings
under the Line of Credit have been satisfied. Borrowings under the Line of
Credit for such purpose shall be made in accordance with the provisions of
Section 2. Borrowers hereby duly authorize Standard Federal to act on their
behalf for the purpose of providing Borrowing Notices for such Borrowings and
otherwise doing all things necessary to effect such Borrowings. Unless otherwise
directed by the Borrowers in accordance with the procedures for LIBOR Borrowings
outlined in this Loan Agreement, Borrowings under the Line of Credit for the
purpose of paying principal amounts outstanding under the Swing Line of Credit
shall be Prime Rate Borrowings.
3.8 In all events, unless terminated earlier in accordance with the
provisions of this Loan Agreement, the Swing Line of Credit shall terminate on
the Swing Line of Credit Maturity Date. Standard Federal and the Borrowers may,
but shall not be obligated to, agree to extend the Swing Line of Credit Maturity
Date and any extension thereof, upon a review of the Swing Line of Credit. If,
at the time of any review of the Swing Line of Credit, the Borrowers and
Standard Federal do not mutually agree to extend the Swing Line of Credit
Maturity Date, the Swing Line of Credit Maturity Date shall not be extended and
the entire outstanding principal balance under the Swing Line of Credit Note,
together with all accrued interest and any other amounts which are payable under
the Swing Line of Credit, shall be due and payable in full on the Swing Line of
Credit Maturity Date.
3.9 Borrowers acknowledge and agree that in making, extending or renewing
the Swing Line of Credit, Standard Federal is relying on the representations,
covenants and agreements of the Borrowers contained in this Loan Agreement and
such Swing Line of Credit shall be subject to the terms and provisions hereof.
12
<PAGE> 13
SECTION 4. TERM LOAN
4.1 Standard Federal hereby extends to the Borrowers the Term Loan.
4.2 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.
4.3 The Term Note shall provide that Standard Federal shall, from time to
time prior to the Advance 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 Term Note. The initial advance shall be in the
amount of Eighteen Million Five Hundred Thousand and 00/100 Dollars
($18,500,000.00). Additional advances shall be made in amounts not in excess of
the lesser of: (a) Eighty percent (80.0%) of the increase in value of the
Borrowers' facilities located in Galion, Ohio and Winesburg, Ohio resulting from
construction which is currently in progress (the "Construction"), as such
increase in value is reasonably determined by Standard Federal, or (b) Ninety
percent (90.0%) of the costs of such Construction.
4.4 Accrued interest shall be payable monthly until the Advance Date.
From and after the Term Date, Standard Federal shall make no further advances of
principal and the principal balance outstanding as of the Advance Date shall be
repaid in consecutive monthly payments of principal, each in the amount
determined by dividing the outstanding principal balance as of the Advance Date
by Eighty Four (84), 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 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 5. EQUIPMENT PURCHASE LINE OF CREDIT
5.1 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.
5.2 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 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.
5.3 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.
13
<PAGE> 14
5.4 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.
5.5 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.
5.6 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.
5.7 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 6. MANNER OF EFFECTING BORROWINGS
6.1 To effect a Borrowing under the Line of Credit, the Swing Line of
Credit or the Equipment Line of Credit, Borrowers shall give Standard Federal a
Borrowing Notice.
6.2 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 or more Interest Rate Selection Notices, specifying the principal amount and
the Interest Period applicable to each LIBOR Borrowing.
6.3 To effect a LIBOR Borrowing, the Borrowers must furnish Standard
Federal an Interest Rate Selection Notice.
6.4 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.
14
<PAGE> 15
6.5 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.
6.6 LIBOR Borrowings shall be made only in minimum increments of Five
Hundred Thousand and 00/100 Dollars ($500,000.00).
6.7 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.
6.8 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 7 SPECIAL PRICING AND PROTECTION PROVISIONS
7.1 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.
7.2 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
15
<PAGE> 16
Rate Borrowings on the last day of the then-current Interest Period applicable
to each LIBOR Borrowing.
7.3 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.
7.4 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 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
16
<PAGE> 17
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.
7.5 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 8. CONDITIONS TO MAKING LOANS
8.1 The following are conditions precedent to the obligation of
Standard to make the Line of Credit, the Swing Line of Credit, the Term Loan and
the Equipment Line of Credit and hereunder:
8.1.1 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:
8.1.1.1 A duly executed copy of this Loan Agreement;
8.1.1.2 A duly executed copy of the Loan Documents;
8.1.1.3 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;
8.1.1.4 Certified copies of resolutions of the Boards of
Directors of the Borrowers approving the execution and delivery of the
Loan Documents required hereunder;
17
<PAGE> 18
8.1.1.5 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;
8.1.1.6 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;
8.1.1.7 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;
8.1.1.8 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;
8.1.1.9 Certificates of authority and good standing of the
Borrowers for each state in which the Borrowers are qualified to do
business;
8.1.1.10 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;
8.1.1.11 Such certificates, binders or other evidence of all
insurance required of the Borrowers under this Loan Agreement as
Standard Federal may reasonably require; and
8.1.1.12 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.
8.1.2 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.
8.1.3 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.
8.2 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, the
Swing Line of Credit or the Equipment Line of Credit, at and as of the date of
the funding thereof:
18
<PAGE> 19
8.2.1 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;
8.2.2 The Borrowers shall have paid all fees and expenses, including
any recording fees and charges, required hereunder;
8.2.3 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 9. 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:
9.1 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 Swing 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 Swing
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.
9.2 The execution, delivery and performance of this Loan Agreement, the
borrowings hereunder and the execution and delivery of the Line of Credit Note,
the Swing 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 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.
9.3 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.
19
<PAGE> 20
9.4 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.
9.5 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.
9.6 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).
9.7 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.
9.8 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.
9.9 McClain E-Z Pack Inc., a Michigan corporation; McClain Galion, Inc., a
Michigan corporation; Shelby Steel Processing Company, a Michigan corporation;
McClain Tube Company d/b/a Quality Tube, a Michigan corporation; McClain
International FSC, a U.S. Virgin Islands corporation; McClain Southland Co., a
Florida corporation; and McClain Group Leasing, Inc., a Michigan corporation,
are each wholly-owned subsidiaries of McClain Industries, Inc., a Michigan
corporation, and have no subsidiaries. McClain Industries, Inc., as of the date
of this Loan Agreement, owns no other subsidiaries.
9.10 None of the proceeds of the Line of Credit, the Swing 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
20
<PAGE> 21
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 Swing 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 Investment
Services, Inc., an affiliate of Standard Federal.
9.11 Except as disclosed in the environmental reports listed in attached
Schedule 9.11, 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 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.
9.12 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
21
<PAGE> 22
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).
9.13 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.
9.14 Each request for an advance under the Line of Credit or the Swing
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 Swing 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 10. AFFIRMATIVE COVENANTS OF BORROWERS
10.1 Prior to Standard Federal's disbursement of any advances under the
Line of Credit, the Swing 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 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, the Swing Line
of Credit or the Equipment Line of Credit or closing of the Term Loan.
10.2 From the date hereof until all amounts owing under the Line of
Credit, the Swing 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 Swing
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 Swing 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:
22
<PAGE> 23
10.2.1 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.
10.2.2 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.
10.2.3 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
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.
10.2.4 Furnish to Standard Federal, within a reasonable time
not to exceed 20 days after the end of each calendar month, a statement
of 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.
10.2.5 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
23
<PAGE> 24
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.
10.2.6 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.
10.2.7 Permit representatives of Standard Federal to conduct
semi-annual field audits of the Collateral at Borrower's expense during
which such representatives will be permitted to visit and inspect any
of the Borrower's properties and examine and make abstracts from and
copies of any of its books and records, and to discuss the business,
operations, properties, and financial and other condition of the
Borrower and any of its subsidiaries with officers and employees of
such parties, and with their independent certified public accountants.
10.2.8 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 Swing Line of Credit Note, the Term Note or the
Equipment Line of Credit Note.
10.2.9 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.
10.2.10 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 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.
10.2.11 Preserve and keep in full force and effect their own
and their material, operating
24
<PAGE> 25
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.
10.2.12 Maintain on a consolidated statement basis "Tangible
Net Worth" of not less than $26,000,000.00. "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.
10.2.13 On a consolidated statement basis maintain the ratio
of "Liabilities" to "Tangible Net Worth" of not more 3.25 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.
10.2.14 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. "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. "Interest Expense" shall
mean the Borrowers' interest expense, as determined in accordance with
generally accepted accounting principles.
10.2.15 On a consolidated statement basis, maintain a Debt
Service Coverage Ratio of not less than 1.25 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. "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.
25
<PAGE> 26
"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.
10.2.16 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.
10.2.17 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
ss.4062.
The parties hereto acknowledge that the financial covenants set forth in
subsections 10.2.12 through 10.2.16 above, are based on the financial statements
of McClain Industries, Inc. and all of its subsidiaries.
10.3 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.
10.4 The Borrowers shall allow Standard Federal and its
participants in the Line of Credit, the Swing 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 udit of the Collateral and the Borrowers' financial statements
and their books and records, semi-annually during the term of the Line of
Credit, the Swing 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.
26
<PAGE> 27
SECTION 11. NEGATIVE COVENANTS
11.1 From the date hereof until all amounts owing under the Line of
Credit, the Swing 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 Swing
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 Swing 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:
11.1.1 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.
11.1.2 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.
11.1.3 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.
11.1.4 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 12. SECURITY
12.1 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 Swing
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 Swing 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,
27
<PAGE> 28
Credit Note, the Swing 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 Swing 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:
12.1.1 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
12.1.2 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
12.1.3 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.
12.2 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.
SECTION 13. EVENTS OF DEFAULT
The occurrence of any of the events enumerated below shall constitute
an Event of Default for purposes of this Loan Agreement:
13.1 FAILURE TO PAY MONIES DUE. If any indebtedness of the Borrowers to
Standard Federal on the Line of Credit, the Swing 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 Swing 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.
13.2 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 Swing 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 Swing Line of Credit Note, the Term Note or the
28
<PAGE> 29
Equipment Line of Credit Note shall prove to be false, inaccurate or misleading
in any material respect.
13.3 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 Swing 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.
13.4 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.
13.5 BUSINESS SUSPENSION. If the Borrowers and/or any endorser or
guarantor of the Line of Credit Note, the Swing Line of Credit Note, the Term
Note or the Equipment Line of Credit Note shall voluntarily suspend transaction
of its business.
13.6 BANKRUPTCY, ETC. If the Borrowers and/or any endorser or guarantor
of the Line of Credit Note, the Swing 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 Swing 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 Swing 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 Swing 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 Swing 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 Swing 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.
13.7 JUDGMENTS AND WRITS. If there shall be entered against the
Borrowers and/or any endorser or guarantor of the Line of Credit Note, the Swing
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 Swing 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.
13.8 MERGER. If the Borrowers shall merge or consolidate with another
entity without the prior written consent of Standard Federal.
29
<PAGE> 30
13.9 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 Swing 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.
13.10 OTHER DEFAULTS. If the Borrowers and/or any endorser or guarantor
of the Line of Credit Note, the Swing 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 Swing
Line of Credit Note, the Term Note or the Equipment Line of Credit Note is a
party.
13.11 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 14. REMEDIES UPON EVENT OF DEFAULT
14.1 Upon the occurrence of any Event of Default described in Sections
13.2, 13.3 or 13.10 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 13.1 which
continues unremedied for 10 days, or upon the occurrence of any Event of Default
described in Sections 13.4, 13.5, 13.6, 13.7, 13.8, 13.9 or 13.11, 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 Swing 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 one or more of the rights and remedies provided herein or
in the Line of Credit Note, the Swing 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 Swing Line of Credit, the Term Loan and the
Equipment Line of Credit any amount owing by Standard Federal to the Borrowers.
SECTION 15. MISCELLANEOUS.
15.1 No default shall be waived by Standard Federal except in writing
and a waiver of any default
30
<PAGE> 31
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.
15.2 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.
15.3 This Loan Agreement shall be construed in accordance with the
law of the State of Michigan.
15.4 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.
15.5 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.
15.6 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.
15.7 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.
31
<PAGE> 32
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
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
----------------------------
38-1867649
-----------------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan
corporation
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
----------------------------
38-3060202
-----------------------------------------
Taxpayer Identification Number
MCCLAIN GALION, INC., a Michigan
corporation
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
----------------------------
38-3060260
-----------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a
Michigan corporation
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
----------------------------
38-2205216
-----------------------------------------
Taxpayer Identification Number
32
<PAGE> 33
MCCLAIN TUBE COMPANY d/b/a QUALITY
TUBE, a Michigan corporation
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
----------------------------
38-3191647
-----------------------------------------
Taxpayer Identification Number
MCCLAIN INTERNATIONAL FSC, a U.S.
Virgin Islands
corporation
/s/ Sara J. Brorby By: /s/ Kenneth D. McClain
- --------------------------------- --------------------------------------
Witness Kenneth D. McClain
Sara J. Brorby
Its: President
---------------------------
-----------------------------------------
Taxpayer Identification Number
MCCLAIN SOUTHLAND CO, INC., a Florida
corporation
/s/ Sara J. Brorby By: /s/ Mark S. Mikelait
- --------------------------------- --------------------------------------
Witness Mark S. Mikelait
Sara J. Brorby
Its: Treasurer
---------------------------
59-3241829
-----------------------------------------
Taxpayer Identification Number
33
<PAGE> 34
STANDARD FEDERAL:
STANDARD FEDERAL BANK, a federal savings
bank
/s/ Sara J. Brorby By:
- --------------------------------- --------------------------------------
Witness
Sara J. Brorby
Its: Vice President
---------------------------
34
<PAGE> 35
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 Amended and Restated 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:
--------------------------------------
35
<PAGE> 36
SCHEDULE 9.11
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.
36
<PAGE> 1
EXHIBIT 10.41
Note No.
----------------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Line of Credit)
{ } New
{X} Renewal
$35,000,000.00 Troy, Michigan
- ---------------------- -------------------------------
Due Date: May 1, 2001 Dated:
- ---------------------- -------------------------------
FOR VALUE RECEIVED, on the Due Date unless accelerated earlier as provided
herein, the undersigned, jointly and severally (collectively, "Borrower"),
promise to pay to the order of Standard Federal Bank, a federal savings bank
("Standard Federal"), at its office set forth below, or at such other place as
Standard Federal may designate in writing, the principal sum of Thirty Five
Million and 00/100 Dollars ($35,000,000.00) or such lesser amount as may from
time to time be outstanding by reason of having been advanced hereunder in
accordance with the provisions of an Amended and Restated Loan Agreement, dated,
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 August 1, 1999.
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
1
<PAGE> 2
interest owing hereunder at any time. All payments made hereunder shall be
applied first against costs and expenses required to be paid hereunder, then
against accrued interest to the extent thereof and the balance shall be applied
against the outstanding principal amount hereof.
Nothing herein contained, nor any transaction relating thereto, or hereto,
shall be construed or so operate as to require the Borrower to pay, or charge,
interest at a greater rate than the maximum allowed by the applicable law
relating to this Note. Should any interest, or other charges, charged, paid or
payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that 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
2
<PAGE> 3
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, 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:
- ------------------------ ------------------------------------------
Mark S. Mikelait
Its: Treasurer
------------------------------
38-1867649
---------------------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan corporation
By:
- ------------------------ -------------------------------------------
Mark S. Mikelait
Its: Treasurer
--------------------------------
38-3060202
----------------------------------------------
Taxpayer Identification Number
MCCLAIN GALION, INC., a Michigan corporation
By:
- ------------------------ -------------------------------------------
Mark S. Mikelait
Its: Treasurer
-------------------------------
38-3060260
----------------------------------------------
Taxpayer Identification Number
SHELBY STEEL PROCESSING COMPANY, a Michigan
corporation
By:
- ------------------------ -------------------------------------------
Mark S. Mikelait
Its: Treasurer
-------------------------------
38-2205216
----------------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
MCCLAIN TUBE COMPANY d/b/a QUALITY TUBE, a Michigan
corporation
By:
- ------------------------ ------------------------------------------------
Mark S. Mikelait
Its: Treasurer
------------------------------------
38-3191647
---------------------------------------------------
Taxpayer Identification Number
MCCLAIN INTERNATIONAL FSC, a U.S. Virgin Islands
corporation
By:
- ------------------------ ------------------------------------------------
Kenneth D. McClain
Its: President
------------------------------------
---------------------------------------------------
Taxpayer Identification Number
MCCLAIN SOUTHLAND CO, INC., a Florida corporation
By:
- ------------------------ ------------------------------------------------
Mark S. Mikelait
Its: Treasurer
------------------------------------
59-3241829
---------------------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
5
<PAGE> 1
EXHIBIT 10.42
Note No.:
-------------------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
(Term Loan)
$20,000,000.00 Troy, Michigan
- ---------------------------- ---------------------
Due Date: September 1, 2006 Dated: July 9, 1999
- ---------------------------- ---------------------
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 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 an Amended and Restated
Loan Agreement, dated July 9, 1999 , 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 which may be made
under this Note from time to time to and until September 1, 1999 (the "Advance
Date"). Standard Federal shall, from time to time prior to the Advance 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. Principal amounts repaid may not be
re-advanced.
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 Term LIBOR Rate.
Accrued interest shall be payable beginning on August 1, 1999, and
continuing on the same day of each consecutive month thereafter through and
including the Advance Date. From and after the Advance Date, Standard Federal
shall make no further advances hereunder and the outstanding principal balance
hereunder as of the Advance 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 Advance Date by Eighty
1
<PAGE> 2
Four (84), plus interest accrued to the due date of each such payment, beginning
on October 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.
All payments required to be paid hereunder shall first be applied to
costs and expenses required to be paid hereunder, then to accrued interest
hereunder and the balance shall be applied against the principal. This Note may
be prepaid, in full or in part, at any time, without the payment of any
prepayment fee or penalty. All partial prepayments shall be applied against the
last accruing installment or amount due under this Note; and no prepayments
shall affect the obligation of the undersigned to continue the regular
installments hereinbefore mentioned, until the entire unpaid principal and
accrued interest has been paid in full. Borrower understands that the
installment payments of principal provided for herein are not sufficient to
fully amortize the outstanding principal balance of this Note by the Due Date
and that the final payment due on the Due Date will be a balloon payment of all
then outstanding principal and accrued interest.
Nothing herein contained, nor any transaction relating thereto, or
hereto, shall be construed or so operate as to require the Borrower to pay, or
charge, interest at a greater rate than the maximum allowed by the applicable
law relating to this Note. Should any interest, or other charges, charged, paid
or payable by the Borrower in connection with this Note, or any other document
delivered in connection herewith, result in the charging, compensation, payment
or earning of interest in excess of the maximum allowed by applicable law, then
any and all such excess shall be and the same is hereby waived by Standard
Federal, and any and all such excess paid shall be automatically credited
against and in reduction of the principal due under this Note. If Standard
Federal shall reasonably determine that the Effective Interest Rate (together
with all other charges or payments related hereto that may be deemed interest)
stipulated under this Note is, or may be, usurious or otherwise limited by law,
the unpaid balance of this Note, with accrued interest at the highest rate
permitted to be charged by stipulation in writing between Standard Federal and
Borrower, at the option of Standard Federal, shall immediately become due and
payable.
The Borrower represents and warrants that it is duly organized, validly
existing and in good standing and is duly authorized to make and perform this
Note, which constitutes its valid and binding legal obligation enforceable in
accordance with its terms. All financial data furnished to Standard Federal in
connection with this Note fairly present the financial condition of the Borrower
and its subsidiaries, if any, as of the dates thereof 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
2
<PAGE> 3
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 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
3
<PAGE> 4
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.
BORROWERS:
MCCLAIN INDUSTRIES, INC., a Michigan corporation
By:
- ----------------------------- --------------------------------------------
Mark S. Mikelait
Its: Treasurer
----------------------------------
38-1867649
------------------------------------------------
Taxpayer Identification Number
MCCLAIN E-Z PACK INC., a Michigan corporation
By:
- ----------------------------- --------------------------------------------
Mark S. Mikelait
Its: Treasurer
--------------------------------
38-3060202
------------------------------------------------
Taxpayer Identification Number
MCCLAIN GALION, INC., a Michigan corporation
By:
- ----------------------------- --------------------------------------------
Mark S. Mikelait
Its: Treasurer
--------------------------------
38-3060260
-----------------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
SHELBY STEEL PROCESSING COMPANY, a Michigan
corporation
By:
- ----------------------------- --------------------------------------------
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
Its: Treasurer
--------------------------------
38-3191647
-----------------------------------------------
Taxpayer Identification Number
MCCLAIN INTERNATIONAL FSC, a U.S. Virgin
Islands corporation
By:
- ----------------------------- --------------------------------------------
Kenneth D. McClain
Its: President
--------------------------------
-----------------------------------------------
Taxpayer Identification Number
MCCLAIN SOUTHLAND CO, INC., a Florida
corporation
By:
- ----------------------------- --------------------------------------------
Mark S. Mikelait
Its: Treasurer
--------------------------------
59-3241829
-----------------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
5
<PAGE> 1
EXHIBIT 10.43
Note No.:
-----------------
STANDARD FEDERAL BANK
PROMISSORY NOTE
---------------
(Line of Credit Converting to Term Loan)
$1,500,000.00 Troy , Michigan
- ---------------------------- ----------------------------------
Due Date: July 1, 2005 Dated: July 9, 1999
------------------- ----------------------------
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 an Amended and Restated
Loan Agreement, dated July 9, 1999, 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 July 1, 2000
(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 August 1, 1999, 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 August 1,
2000, 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 E-Z PACK INC., a Michigan
corporation
By:
- --------------------------------- --------------------------------------
Mark S. Mikelait
Its: Treasurer
----------------------------
38-3060202
-----------------------------------------
Taxpayer Identification Number
MCCLAIN GALION, INC., a Michigan
corporation
By:
- --------------------------------- --------------------------------------
Mark S. Mikelait
Its: Treasurer
----------------------------
38-3060260
-----------------------------------------
Taxpayer Identification Number
4
<PAGE> 5
SHELBY STEEL PROCESSING COMPANY,
a Michigan corporation
By:
- --------------------------------- --------------------------------------
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
Its: Treasurer
----------------------------
38-3191647
-----------------------------------------
Taxpayer Identification Number
MCCLAIN INTERNATIONAL FSC, a U.S.
Virgin Islands corporation
By:
- --------------------------------- --------------------------------------
Kenneth D. McClain
Its: President
----------------------------
-----------------------------------------
Taxpayer Identification Number
MCCLAIN SOUTHLAND CO, INC., a Florida
corporation
By:
- --------------------------------- --------------------------------------
Mark S. Mikelait
Its: Treasurer
----------------------------
59-3241829
-----------------------------------------
Taxpayer Identification Number
Standard Federal Bank, a
federal savings bank
2600 West Big Beaver Road
Troy, Michigan 48084
5
<PAGE> 1
Loan No. 500-0024084 EXHIBIT 10.44
THIRD AMENDMENT AGREEMENT
Loan Agreement
Promissory Note (Line of Credit)
THIS AGREEMENT made this day of , 1999, 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 and April 16, 1998 (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 and April 16, 1998 in the principal amount
of $10,000,000.00 (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 increase in the credit limit
of the line of credit evidenced by the Note and an extension of the maturity
date thereof 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. The Loan Agreement is hereby amended as follows:
a. The definition of "Credit Limit" contained in Section
1.1 of the Loan Agreement is hereby amended to read as follows:
1
<PAGE> 2
"Credit Limit" shall mean the lesser of: (a) Fifteen
Million and 00/100 Dollars ($15,000,000.00), or (b) an amount
equal to 80% of Eligible Lease Receivables.
b. The definition of "McClain Group" contained in Section
1.1 of the Loan Agreement is hereby amended to read as
follows:
"McClain Group" shall mean McClain Industries, Inc., a
Michigan corporation; McClain E-Z Pack Inc., a Michigan
corporation; McClain Galion, Inc., a Michigan corporation;
Shelby Steel Processing Company, a Michigan corporation;
McClain Tube Company d/b/a Quality Tube, a Michigan
corporation; McClain International FSC, a U.S. Virgin Islands
corporation; and McClain Southland Co., a Florida corporation.
c. The termination date of the Line of Credit provided in
Section 1.9 of the Loan Agreement is hereby amended and extended from
March 1, 2000 to May 1, 2001.
5. 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 1, 2000 to May 1, 2001.
b. The principal amount stated in the Note is hereby
increased to the sum of Fifteen Million and 00/100 Dollars
($15,000,000.00). 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.
6. Except as amended herein, the Loan Agreement, 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.
7. Guarantor acknowledges and consents to the amendment to the
Loan Agreement and Note herein provided and agrees that the Guaranty
shall continue and remain in full force and effect with respect to the
Loan Agreement and Note as herein amended.
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:
- ---------------------------- ------------------------------------
Mark S. Mikelait
Its: Treasurer
- ---------------------------- --------------------------
2
<PAGE> 3
6200 Elmridge
---------------------------------------
Sterling Heights, Michigan 48310
---------------------------------------
38-2969462
---------------------------------------
Tax Identification Number
GUARANTOR:
MCCLAIN INDUSTRIES, INC., a Michigan
corporation
By:
- ---------------------------- ------------------------------------
Mark S. Mikelait
Its: Treasurer
- ---------------------------- --------------------------
STANDARD FEDERAL:
STANDARD FEDERAL BANK, a federal
savings bank
By:
- ---------------------------- ------------------------------------
Its:
- ---------------------------- --------------------------
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,908,397
<SECURITIES> 0
<RECEIVABLES> 20,140,166
<ALLOWANCES> 0
<INVENTORY> 63,281,785
<CURRENT-ASSETS> 91,467,477
<PP&E> 44,282,617
<DEPRECIATION> 21,046,447
<TOTAL-ASSETS> 129,923,989
<CURRENT-LIABILITIES> 32,777,512
<BONDS> 0
0
0
<COMMON> 4,871,530
<OTHER-SE> 26,019,435
<TOTAL-LIABILITY-AND-EQUITY> 129,923,989
<SALES> 140,604,885
<TOTAL-REVENUES> 140,604,885
<CGS> 115,863,228
<TOTAL-COSTS> 115,863,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,982,325
<INCOME-PRETAX> 6,336,938
<INCOME-TAX> 2,155,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,181,938
<EPS-BASIC> .90
<EPS-DILUTED> .90
</TABLE>
